Unintended consequences are a constant reality for any specific piece of legislation, or any specific rule making. So it will be with network neutrality.
“Managed services,” or “specialized services” (think carrier voice, linear video subscriptions or text messaging) now might emerge as a key development for service providers, should network neutrality rules become more popular, or survive legal challenge. The reason is that such services are exempted from the rules.
Oddly enough, the argument that network neutrality is needed so the “Internet doesn’t become cable TV” will have the perhaps-unintended consequence of increasing the value of such managed services for Internet service providers.
In other words, it is likely a rational Internet service provider, with the requisite scale, can make higher profit margins on a managed service than from commodity high speed access.
It therefore makes sense that rational actors will shift effort towards managed services.
Consider that, from 2010 to 2013, U.S. mobile data pricing (per unit sold) declined by only single digits year over year. In the first nine months of 2014, data pricing dropped by 77 percent, according to industry analyst Chetan Sharma.
Whatever profit margins might once have been, one can argue those margins are dropping, even if suppliers are selling more units.
Average (mean) mobile data consumption increasedto about 2 Gb a month in 2014. That single-year increase is unusual. Sharma notes it took 20 years for consumption to reach 1 Gb per month usage levels.
In addition to plunging prices (less revenue per unit sold) and higher usage (more network cost), marketing costs have grown as competition has become more intense.
Overall U.S. operating expense rose 20 percent, year over year. Income was flat while earnings grew three percent.
That is likely to convince larger ISPs to create new products where bandwidth is simply an enabler of a service, and not the actual product sold to an end user. Linear video services and carrier voice services or text messaging require bandwidth and network services, but the product purchased by the customer is not “bandwidth.”
Ironically, March 1 to 7, 2015 is “National Consumer Protection Week” in the United States, a time when the Federal Trade Commission and 89 partners including nonprofit groups, businesses, and federal, state and local government agencies across the country will spotlight their efforts to protect consumers.
The irony comes because new Federal Communication Commission rules on network neutrality, regulating Internet access as a common carrier service will have the effect of ending the FTC’s ability to apply consumer protection rules to Internet access services.
“We do not have authority over common carriers,” said FTC Commissioner Maureen Ohlhausen. “There are significant issues about our ability to protect consumers under Title II.”
In the past, “to the extent network neutrality is an issue, the FTC has been able to address them,” said Ohlhausen. “We are consumer protection enforcers; we can do that.”
The FTC recently took action against a mobile service provider advertising “unlimited access” that actually throttled users of the plan, after a certain threshold of usage was reached, for example.
Under Title II, the FTC is barred from acting, however.
That is likely only the first “unintended consequence” that will surface once the 332-page document is formally released. The FCC has argued the new rules will not lead to rate regulation.
FCC Commissioner Ajit Pai does not agree. “For the first time, the FCC will regulate the rates that Internet service providers may charge and will set a price of zero for certain commercial agreements.”
Of course, much hinges on whether the new rule survives legal challenge, and whether Congress acts to restore a Title I framework.
Unintended consequences are highly likely.