Net neutrality

America has introduced new rules which are likely to change the Internet forever. Many bloggers argue that, as a result, the Internet will become less open and free. The Obama administration has publicly supported this view of an open and free Internet, but privately leaned on the Federal Communications Commission - America's telecom regulator - to push through new 'net neutrality' rules which do the opposite.

Why?

Regulation, by its very nature, distorts markets in the name of a ‘higher purpose’. Back in the early 1990s, when the Internet was first commercialised, America’s telecom regulator  introduced a policy of 'network neutrality', which meant that telecom networks were not allowed to discriminate against any type of Internet traffic for any reason. The policy was designed to encourage innovation on the Internet. It worked. America is now home to seven of the world’s top ten Internet companies. But it came at a price. Investment in America’s broadband networks suffered, because net neutrality policies effectively capped the price of Internet bandwidth forcing operators to charge sub-commercial rates, thereby reducing their financial incentive to invest in tomorrow’s high speed broadband infrastructure.

Today, the ‘higher purpose’ that drives US regulatory policy has changed. America has finally woken up to the fact that the country that invented the Internet has slipped to 14th place in the world league table of broadband speeds – average broadband speeds in Japan and Korea are ten times faster than in America. The government’s new policy objective is to encourage investment in high speed broadband infrastructure. To achieve that objective, the Obama administration had two options: it could provide federal subsidies or it could allow market forces to do the job. The first option was not feasible because the government is running an unsustainable federal budget deficit, so the second option – which involved relaxing net neutrality rules – was the only viable solution.

On Tuesday 21 December 2010, the FCC voted to pass new laws on net neutrality. These new laws represent the start of the biggest U-turn in global Internet regulation that we will see in our lifetimes. The big change announced by the FCC was that US broadband network operators like Verizon and Comcast will now be allowed (for the first time ever) to charge Internet companies like Apple or Google for preferential access to their pipes. This paves the way for additional revenue streams that were not legally permitted before yesterday. The context of this move is that America, like Europe, has an Internet bandwidth bottleneck, causing it to slip down the world league table of broadband speeds. So the political motive for this regulatory U-turn is to incentivize the broadband providers to build next generation high speed broadband networks before America’s competitive advantage in the information age is damaged. In mobile networks, where the bandwidth shortage is more acute, certain types of Apps may even be legally blocked in order to ‘manage traffic’ better.

Net neutrality rules are important because they determine who controls the Internet – the telecom operators or the Internet companies. The new rules announced this week by the FCC tip the balance of power in favour of the telecom operators. Internet companies like Apple, Google and Netflix may now have to pay millions of dollars in additional charges to ensure their Internet content is delivered reliably and quickly to their customers.

Other countries will soon follow America’s lead, especially in Europe, where they are close to making their final decision on net neutrality.

The Internet is no longer free and open. Simply a victim of its own success.