Net neutrality has been controversial for years in the US. It is rarely out of the news there. Until now it hasn’t been an issue in New Zealand. Yet, with the lines between telecommunications and media companies blurring, it may be time to take another look, writes Bill Bennett. What is net neutrality? Why is it a problem elsewhere and could it become one in New Zealand?

Free riders and the threat to net neutrality

Net neutrality has been controversial for years in the US. It is rarely out of the news there. Until now it hasn’t been an issue in New Zealand. Yet, with the lines between telecommunications and media companies blurring, it may be time to take another look, writes Bill Bennett. What is net neutrality? Why is it a problem elsewhere and could it become one in New Zealand?

Net neutrality is the idea that internet companies can’t play favourites with network data. It also means they can’t pick and choose what services or organisations can use their networks. 

Put in these terms, net neutrality is simple. The internet was designed that way: the network is blind to the packets it carries. Packets are small data parcels. Along with data, the packets also include addresses, as well as the network information needed to get the packet to its destination.  

Every link on the internet is a dumb pipe. The neutral internet treats all data packets as equal. Nothing has priority. The internet doesn’t block any data. It doesn’t slow any data. 

Neutrality versus profit 

For years, this was how everything worked, everywhere in the world. Everyone was happy.  

Then some US internet service providers decided that net neutrality got in the way of their profits. They wanted to pick and choose the traffic going through their pipes. Above all, they wanted to charge big online media companies extra to prioritise their traffic. 

Something else changed too. In the internet’s early days, no-one knew what traffic was going through its dumb pipes. Then the industry developed a technology called deep packet inspection.  This means service providers are no longer blind. They can look inside the data packets on their networks and see what traffic is passing through. They might know this packet contains part of an email message and that packet carries video.  

What they found made them less sympathetic to the idea of net neutrality.  

The case for dropping neutrality 

This isn’t as one-sided as it might appear. Nor is it about greed. Telecommunications companies are under constant pressure to invest more in providing bandwidth. Yet, intense competition drives margins down. Few service providers make fortunes from providing a basic internet service. Dumb pipes don’t make for high profits. 

Contrast this with the billions of dollars media companies earn distributing content via telecommunications networks. Or the money Google makes from selling advertising. Service providers had a good idea that others were making more from the internet than they were. Deep packet inspection confirmed their suspicions. Yet, they only needed to turn to the finance pages of newspapers to see what was happening.

Enter Netflix 

By 2015, Netflix, the video-streaming service, accounted for one-third of US internet traffic. Service providers needed to build fatter dumb pipes to cope with the demand. They needed to buy more bandwidth to keep episodes of Game of Thrones streaming into homes. Their costs went up. Yet, they sat outside watching Netflix rake in the profits. 

It’s not only Netflix and video streaming that are the problem.

are the problem.

Many big internet service providers are also telecommunications companies. Over-the-top services like Skype, which uses voice-over-IP to bypass phone tolls, hurt the telcos’ voice calling business. And applications like WhatsApp mean they no longer get to sell so many text messages.  

From the telecommunication companies' point of view, net neutrality helps their fiercest rivals and gives little back.  

The argument that Netflix, Skype and others should pay to use fatter pipes makes sense from the telcos’ point of view. They see Netflix and similar large-scale content operations as free riders. Yet, if network owners override net neutrality, critics say it will break the internet. 

Breaking the internet 

By break the internet, they mean it will choke innovation. They argue that the last 25 years of progress made since the internet opened for business would grind to a halt.  

Online innovation only happened because entrepreneurs were free to try out new ideas. Email, the web, e-commerce, video and social media would not have emerged without a neutral net. As you’d expect, most positions on the net neutrality debate come down to self-interest. Yet, ideology also plays a role. 

Net politics 

In the US, it has become political. Law-makers take sides and government agencies weigh into the debate. In 2015, the US’ Federal Communications Commission adopted the Open Internet Order. This enshrined the idea of net neutrality in US law.  

Last year, presidential candidates Ted Cruz and Marco Rubio tried to overturn this law. Their campaign may have succeeded. 

"Ajit Pai, President Donald Trump's choice to lead the Federal Communications Commission, is taking a page from his boss' book and moving quickly to roll back regulations. In the process, he's raising questions about the future of equal access to the internet." New York Public Radio, 10/02/2017 

Europe has its own net neutrality debate, although it is not as fierce as that in the US. Some countries, the Netherlands and Slovenia, for example, have passed laws protecting neutrality. 

Net neutrality has never been a big issue in New Zealand. In part, this is because the industry’s structure makes it hard for service providers to discriminate.  

All land-based internet traffic passes through a wholesale layer. In effect, this means Chorus, Northpower, Ultrafast Fibre and Enable Networks guarantee net neutrality. By law, their fibre networks have to be open access. This amounts to the same thing as net neutrality.  

New Zealand land-based ISPs don’t have end-to-end control over traffic, so it's hard for them to be anything other than neutral. 

Not in New Zealand 

Until now, this has been enough to keep net neutrality off the agenda. Only land-based networks had enough capacity. Only they could deliver the high-bandwidth traffic capability that might attract a higher price. 

However, technology, as always, moves on. Today, 4G mobile networks carry streaming video content. There’s evidence that streaming video is at least half the traffic on 

mobile data networks. Both Spark and Vodafone also promote fixed-wireless broadband as a land-line replacement.  

Added to this, the carriers, Vodafone and Spark, sell their own streaming video services. Discrimination might benefit them. Vodafone sells its own TV service that includes material from Sky TV. Spark has its own Lightbox 
service and a deal with Netfix. There could be 
a temptation or incentive to prioritise these.

Fixed-wireless broadband 

For now, mobile networks only carry a fraction of New Zealand’s total data traffic — well under 10 percent. This may change if fixed-wireless broadband grows. This is possible if 5G mobile lives up to its promise.  

Even so, mobile data volumes will remain small compared with fixed-line broadband services for the foreseeable future. 

It doesn’t serve Vodafone or Spark’s interests to discriminate in fixed-line broadband. If either tried to do so, rivals would step in. They’d make a lot of it in their marketing.  

Tough competition is enough to counter the threat to fixed-line internet. 

However, mobile networks face less competitive pressure. There are only three mobile carriers.
A fourth carrier is unlikely any time soon.   

End-to-end control 

The three carriers, Vodafone, Spark and 2degrees, have end-to-end control over mobile data traffic. There is at least the potential to discriminate here. 

Given, mobile carriers have the ability to discriminate, Spark and Vodafone have a possible incentive to do so. That's not to say they will. But they could. 

This is what has changed. It could bring the net neutrality debate to New Zealand. The recent change in the US climate might also embolden companies here to follow suit.  

Regulatory action 

Regulation still seems unlikely, however. The Commerce Commission has never been backward when it comes to regulating telecommunications companies. More recently, it has taken an interest in the increasing concentration of the media. It turned down the Vodafone-Sky merger proposal on grounds that are related to the net neutrality argument. It also turned down the Fairfax-NZME merger. If there’s even a whiff of reduced telecommunications market competition, you can expect action. 

The Commerce Commission is slow at times. Its processes are often ponderous. But, after bruising battles on other fronts, the last thing the telcos want is another fight. It would be long, expensive and distracting.  

Red-tape alone could be enough to keep net neutrality off the agenda. If not, there is the near certainty of market intervention. This and the potential penalties will concentrate minds.  

Likewise, the Telecommunications Act gets revisited every five years or so. Some people in Parliament might like to squash net neutrality. But it wouldn’t be popular. If anything, politicians will feel pressure to maintain the status quo.  

None of this is set in stone though. Technology changes fast. Five years ago, no-one in New Zealand had heard of Netflix. But, for now, the industry structure makes any changes unlikely.