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Open broadband access comes at a price Advocates of Net neutrality neglect economic facts
The emergence of advanced broadband networks has triggered a controversy in the United States on undiscriminating access to the Internet. The fervent advocates of open access tend to neglect that advanced networks come at a price. Finding a balance between the business interests of network operators and the interests of citizens and service providers for unlimited access requires a comprehensive view on regulatory and economic aspects. Some enraged bloggers have accused US network operators like AT&T and BellSouth of “cyber-extortion”. The reason is that network operators and cable companies in the US want to get an extra charge from content and service providers like Goggle, Yahoo, or Vonage for the use of their advanced broadband networks. Beginning of February, this was the issue of a US senate hearing. Internet founding father Vinton Cerf, now vice president at Google, argued that the control of broadband access by the carriers would undermine the basic principles of open Internet access. Walter B. McCormick Jr., president and CEO of the U.S. Telecom Association, defended the extra fess with the argument that the future of the Internet requires a multi-billion-dollar investment in next-generation networks. Consumer organisations like the Consumer Federation of America (CFA) advocate network-neutrality legislation in order to guarantee open, non-discriminatory access, accusing the network operators of discriminatory business models, which will finally lead to higher fees for consumers. Although the debate between the European Commission and the incumbent network operators in Europe has a slightly different focus, the central theme is the same: open access to advanced broadband networks versus business interests of network operators who want to defend their investments. There is no easy solution to this basic conflict. If regulators force the network operators to open up their advanced broadband networks at a fixed low price, their capability to invest in innovation will be stifled. On the other hand, open access to broadband Internet is essential for the business of a growing number of service providers. Tight regulation in order to achieve open access at low-cost is at first sight a great solution: it pleases ISPs and consumers alike. The drawback is that it de-motivates network operators to invest, if they know that they cannot fully reap the benefits from their investment. The problem is that only big players, or the public itself, have the money to make the necessary infrastructure investments into next-generation broadband networks. In Europe, most of the big network operators are the former incumbents, which puts them under the general political accusation of having an unfair competitive advantage due to the tax money they received in the good old times when they were fully state-owned. This view neglects the fact that most of the incumbents still have to carry liabilities from the “good old times”: pensions for civil servants and ongoing political influence by governments on management decisions tend to counterbalance the incumbents’ strong position towards their competitors. It would seem like the achievement of the impossible, if open broadband access for citizens and ISPs at low cost as well as high network quality and high profitability of competing network operators could be achieved at the same time. It is certainly worth trying to achieve it; the only problem is – how? Regulation should certainly include the basic principles of open access to next-generation broadband networks. However, open access should not be confused with free access. Regulating the price of an advanced service, which is based on billion-euro infrastructure investments, is against the principles of free competition in a market economy, which some pundits still regard as a good model for the creation of value and wealth. The most important alternative is currently not very popular, but should be considered nevertheless: public infrastructure investments into broadband could lead to a number of beneficial effects: open access and fair competition could be guaranteed as well as accelerated growth of a market which is unanimously regarded as vital for a prospering knowledge economy. Broadband Internet access would become a utility like water or electricity. South Korea, the world leader in broadband, has demonstrated that subsidising the infrastructure can be beneficial to everyone – customers, service providers, and network operators. In summary: regulating the networks in order to guarantee open, undiscriminating access to advanced broadband services is fine, as long as it leaves network operators an opportunity to reap profits from their investments. Regulators in the US and the EU should be aware that a pre-condition for getting the golden eggs is that the goose is alive and well. If public authorities regard inexpensive broadband Internet as a utility of such crucial importance to all citizens that they cannot leave price formation and the terms for access to the market, they should be ready to support the necessary infrastructure investments in order to speed up and control the process. Please send us your comments on this article. |
