Analyst: Net neutrality repeal is revenue risk

As expectations build for the repeal of net neutrality, business information provider IHS Markit has released a report that examines the history of the topic and explores the relevant data on competition that defines the outlook for the Internet should current protections be removed.

If as expected the Federal Communications Commission (FCC) in its next meeting on December 14th removes net neutrality protections, net neutrality proponents claim it would be a death knell for an open and innovative Internet ecosystem. Counter arguments claim the repeal will spur infrastructure investment, suggesting current regulations have inhibited investment in infrastructure, by limiting returns on investment. Removing those protections may spur innovation and investment, they say, but implicitly would do so by raising the overall cost of services with a range of complex fee structures made possible. If deregulation is an effective strategy, then ultimately those higher returns will attract new competition which net neutrality critics maintain is the best protection and a positive outcome for consumers.

According to the IHS Markit report, Net neutrality in the United States – A once and future history, broadband in the United States is available in 9.1 million of the 11.2 million census blocks. However, 38 per cent of census blocks with a broadband provider rely on just one provider with reasonable speeds of service, and 10 per cent have speeds that don’t reach advertised speeds of 10 megabits per second (Mbps). The transition period may prove difficult for consumers, as what are effectively local monopolies will be able to take advantage of their new freedoms to limit access to services or implement discrete fees for third-party services.

Video will be the key battleground. With an average revenue per user (ARPU) of $80 (€68.25) for cable TV services, consumers in the United States pay considerably more for video services than those in other developed countries. For example, cable TV in Western Europe generates an ARPU of just $19.49 per month. Revenue for pay-TV services is therefore highly threatened by the lower-cost over-the-top (OTT) television providers, which are rapidly gaining new subscribers and enabling cord cutting from traditional service providers.

“Despite the current strong net neutrality provisions, the mobile industry has tested the boundaries of what can be accounted for as network management,” said Seth Wallis-Jones, principal analyst, IHS Markit. “Operators of both wired and wireless networks have been investigated and on occasion sanctioned for testing the regulatory environment. Those cases offer insight into the outlook for a more deregulated market, illuminating potential strategic options for fixed network operators. Outcomes from those strategic moves illuminate scenarios ranging from ‘good’ to ‘dystopian’, with many outcomes likely to be both local and transitory as competitive market dynamics develop. The status of net neutrality has also been in constant flux as the administration and objectives of the FCC change. Looking ahead that state of flux is likely to continue.”

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