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Daily Net Neutrality Screed

Net NeutralityLegislationA friend sent this link to an April 10 Reason article on net neutrality. It’s a very strong argument. It actually raised another point I haven’t previously made.

If that duopoly [cable and telcos] were a given, though—a permanent fact about how we connect to the Internet—the case for mandating net neutrality would be much stronger. But while some academics believe that even in a competitive market, ISPs would have ample incentive to attempt to extract rents through net discrimination, most net neutrality proponents stress the relatively captive markets local cable and DSL providers enjoy. Yet there are a wide range of looming alternatives to the Big Two (or, more accurately, many local moderately-sized twos): free space optics cellular broadband, broadband over power lines, WiMAX, and satellite broadband, to name a few. And ironically, encouraging the emergence of those alternative broadband venues may depend on not mandating net neutrality.

That is exactly the unintended consequences the legislation would be likely to cause.

This article in the Wall Street Journal earlier this week points out that the average person consumes 2 GB of bandwidth per month and projections indicate that amount will likely jump to 1,120 GB as broadband delivered HD television becomes the norm. That, however, will require the rollout of massive amounts of fiber. Verizon, as I mentioned in that article, is currently sinking between $3k and $5k per customer acquired for FiOS – a service they’re selling for less than $100 per month.

They’re willing to accept the fact that they’re currently generating more costs than income because they’ll eventually get to the point where that fiber generates more income than cost.

The Journal article, again, states that 1,120 GB would, if offered at cost and without underwriting, cost the customer north of $500 per month. That’s not going to move many units.

Cable and telcos, in an a la carte world, will not be able to recoup the cost of capital sunk into the network by charging the customer $500 because very few could afford it. They also, by law, will not be able to recoup those costs through the content providers. Why, then, would they make the investment?

More importantly, why would satellite broadband providers invest billions to put sophisticated satellites in orbit to deliver a signal that will never pay for itself? Why would BPL providers invest in the technology to carry the net to your home over the electric grid if they’ll never make money?

Julian Sanchez has it right. The unintended consequence of Congressional action, similar to what happened with the passage of the 1992 Cable Act, would be the stagnation of revenue if not downright losses, and no investment in infrastructure.

The cable industry was working on rolling out higher capacity lines when the 92 Act was passed. The devastating effect it had on investment delayed the availability of broadband over cable by years. Now Congress is thinking of doing it again.

Investing is based on the hope that you’ll make money. The fact is, nobody is going to invest in a tremendously expensive endeavor unless there is a good chance they will not only make it back, but make enough additional gains to justify the risk.

Net Neutrality is one of those things that sounds great on its face, but has little to do with the way the real world works.

(Disclaimer: While I work for the National Cable and Telecommunications Association, this post should in no way be construed as an official position of the Association. Thoughts in this space are mine and mine alone and do not reflect the views of my employer.)

Written by Michael Turk