Why Net Neutrality Is Central To The Streaming Economy

The existential question of the digital era is net neutrality. Since the utopian days of 1989 when World Wide Web pioneer Tim Berners-Lee first connected his colleagues via computers at CERN in Switzerland, the emerging interconnected world of academics and entrepreneurs has been engaged in an ongoing battle of the underlying principles of the infrastructure underpinning the internet.  The fundamental question is one of equality of access for all users versus the costs of providing that access.

Net neutrality is the principle that ISP (Internet Service Provider)s should enable access to all content and applications regardless of the source, and without favouring or blocking particular products or websites. Despite contrary public perceptions, the internet is not free and there are direct costs involved in building, maintaining and delivering data to the end user. Short of  government delivery  of the  internet, there needs to be a viable commercial model. Internet Service Providers are facing increasing strains upon their business models and agitating for the issue  to be legally re-examined. This week, the debate flared back into life with yesterday’s Net Neutrality Day organised by such tech stalwarts as Google, Facebook, Netflix and Twitter. The action is in direct response to the new Federal Communication Chairman Ajit Pai’s preference for taking the ISPs' position on treating  broadband access in the same way that Cable TV is provided-through bundles of content packages. In an April speech the Trump administration appointee stated:

“It’s basic economics. The more heavily you regulate something, the less of it you’re likely to get,” he said in a speech at the Newseum in Washington in April.

Net Neutrality Day  was therefore a day of organised protest by the tech majors and 80,000 participating  websites in a concerted effort to mobilise US consumers to lobby their elected representatives against what seems like an irresistible push by the Trump administration to end the era of net neutrality.

Net Neutrality Underpins The Streaming Economy

As we transition from an ownership model to an access model, where consumers prefer on-demand rental access to content and services rather than buying to own, streaming is becoming central to the digital economy. The streaming giants of Netflix and Spotify have built their businesses around servicing and fuelling demand for this type of consumption behaviour. The result is an explosion in  data consumption by consumers which the ISPs have to service rather than the streaming services. Effectively, the ISPs are currently subsidising the streaming services’ business models.

The challenge for regulators is how to ensure that the ISPs are allowed to maintain their profit margins while at the same time allowing unhindered access to both sites and potential customers for emerging streaming  competitors looking to challenge the major streaming providers.  Additionally  established streaming services have to re-evaluate both their  pricing models and their engagement strategies with the ISPs. The January purchase of a 33% stake in Jay-Z’s streaming service Tidal by  the fourth largest  US Telco  Sprint was followed by  last month’s rollout of a 6 month complimentary Tidal subscription for new Sprint customers.  Sprint’s takeover target T-Mobile USA, which is the US’s third largest Telco provider already, offers a Binge On service premium data package. This provides zero-rating  (ie the data used does not count against the user’s monthly data allowance) for Spotify, Netflix, Tidal, Apple Music and more and received an FCC validation  that was within the spirit of the existing regulatory system. This would subsequently not penalise non-users.

The Next Billion Will Be Brought On Board By Zero Rating

So far the debate on net neutrality is revolving around the US market place.  However, it is in countries such as India where the drive to bring on board the  next billion internet users comes against the practical inability of consumers to pay for metered data plans. Ironically considering its support for yesterday’s Net Neutrality Day, Facebook actually proposed a zero rating package called Free Basics with Indian Telco Reliance Telecom for its platform which was promptly blocked by the Telecom Regulatory Authority of India.

Yesterday’s  protest was the latest round of positioning in  what is becoming a defining  debate for the future of the digital economy.