Net neutrality: unneeded regulatory complexity

I was invited to provide a ‘firestarter’ contribution at a WEF / BCG event about telecoms today. The conversation was under Chatham House rules, so I won’t report on the details, but I can flesh out my contribution.

Call my cynical, but the debate supposedly about ‘net neutrality’ is really more about who gets rents in the burgeoning digital economy. It is therefore rife with spin.

In the traditional telecoms world, there has long been a refrain of ‘investors in infrastructure” versus “[mere] providers of services”. I always feel that the reference to “OTT (Over-the-top)” players by telcos is little more than an attempt to recast the prejudice in a modern light.

It made little sense before, and even less now. A Hollywood studio makes several $100m films each year, each of which risks a panning by critics (or, more importantly nowadays, on social networks). And if we think of the main software platforms as “R&D” based, then their risks become more discernible. Startups take this to the extreme, committing an even higher proportion of their budget to R&D and often with even greater uncertainty. 

In a final straw pole of participants, about half the room thought the demand side for telcos was uncertain in the <5 year horizon, but few (if any) had doubts about the longer term. Returns have always been linked to risks and we shouldn’t lose site of that when thinking about regulating the interaction between telcos and online players.

And that’s where I have issues with net neutrality, as I don’t think telco regulators are well placed to compare risk profiles. Indeed, I’m not sure anyone can and consequently believe in leaving it to the market.

So I also diverge from the protagonists of net neutrality, who are effectively calling for regulatory oversight.

It was interesting to note that in the recently published Startup Manifesto, 9 of Europe’s leading entrepreneurs did not include the issue in their prioritised set of policy prescriptions. It might have made the long list, but the key issues to unlock jobs and growth from Europe’s startups lie in other policy areas, such as education/training and privacy. The net neutrality ‘debate’ is consequently being conducted by large companies with sufficient means to defend their interests without a regulator’s support.

My focus would be on the (large) corporate protagonists of net neutrality. If they changed their mind and purchased special access to telco networks, that would create additional barriers for their startup competitors. Moreover, as the deals would probably be limited to the larger ISPs, accelerate ISP consolidation too. That’s not a reason to expand the powers of regulators, but it does require vigilance by the competition authorities.

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