Net Neutrality and Competition

net_neutrality1_600x400The debate surrounding Net Neutrality is just now heating up, and will likely continue for some time as the Corporations, the FCC, Congress and the courts play political chess with one another until either there is a clear victor or everyone just gets too tired and quits. One of the the biggest complaints about those that oppose the FCC regulations is that it will kill competition. This, however, seems nothing more than fear that the FCC will impose stricter regulations. The truth of the matter is that regulations may help increase competition. This isn’t a partisan issue, although it looks as if Congress is making it one. But voters conservatives and liberals alike support net neutrality. So it doesn’t make sense why Congress would make it a partisan issue, unless they personally had something to gain from it.

If it isn’t a partisan issue, then what exactly is at stake? At the heart of the matter, there are basically two competing ideas for competition: intermodal competition and intramodal competition. Intermodal competition is defined as competition between two different kinds of technology that accomplish the same or similar tasks. Intramodal modal competition is competition on the same (or very similar) technology. A good example of intermodal competition is the competition between trains and buses for long distance overland travel. These industries attempt to move people en masse from one location to the next using two different modes of travel. The mode of travel for trains is a vehicle on rails, while buses the mode vehicle on roads. An example of intramodal competition is the airline industry where there are a number of companies competing with one another using the same mode of transportation, namely airplanes and a network of airports.

When the Internet was commercialized, competition was largely intramodal competition because the ubiquitous way to to get people connected to the Internet was through a dial-up connection over telephone lines. A number of companies like AOL, MindSpring, Compuserve, the dialup brand for Bell South, and CenturyLink, sprang up almost overnight. As competition increased, speeds increased and prices dropped. Eventually there were companies like NetZero and Juno that were able to offer deeply discounted or even free service (paid for by ads) to consumers.

The intramodal competition though was outmoded with the introduction of broadband technologies and competition shifted from intramodal to intermodal between services providers on different technologies such as DSL, cable, fiber optics, and satellite. Intermodal competition though had different consequences. Many of these providers such as Cox, Comcast, and Time-Warner were already providers of other services like cable TV. These companies bundle services like Internet and television together, which might sound good, but this has lead these same companies to set up exclusive deals in local areas to where there was no other broad option, or perhaps only two options resulting in monopolies or duopolies respectively over more than one segment. Prices have crept up and customer service is dismal. Many of these companies are now some of the most hated companies in America according to surveys.

Some smaller ISP’s believe the FCC regulations will actually help competition. What many smaller ISP’s would like to see is a return to intramodal competition like that which was seen in the earlier days of the commercial Internet. Dane Jasper, the CEO and founder of a small ISP in California called Sonic sees net neutrality as critcal way of getting smaller ISP’s to compete with one another. He says, “We need 50 companies like Sonic to step up and build networks. Hopefully it will mean more competition and drive down prices.” Having smaller ISP’s isn’t going to throw the Internet back to the dial-up dark ages, rather it can be the next step to spur innovations and advancement to make the Internet better.

A related industry that exhibits both styles of competition is the mobile industry. In the US, the mobile inudstry is mostly intermodal – the companies are full-service vendors that sell the connectivity and the devices that use them. The devices are “locked” to the vendor too, meaning that they cannot be used on other vendor networks unless they are “unlocked”. But even then there is no guarantee of compatibilty due to issues of base band differences and technology differences, such as CDMA or GSM. For the rest of the world, the competition between vendors is intramodal. Most countries adopted GSM as the common technology. This allows consumers to buy “unlocked” phones and use the same phone on any number of carriers so long as they pop in a new SIM card. This model has not only driven the price of the phones down it has driven the price of access down too. Intermodal competition for America though has lead to some of the highest priced mobile service in the world.

If Congress is allowed to kill Net Neutrality, then is means that intermodal competition will be allowed to continued unfettered. Likewise, it can mean that larger ISP’s can monopolize the Internet, and charge a premium so that users can access the sites they want to access in addition to just a standard connection. At the end of the day, net neutrality helps foster competition intramodally, which ultimately best serves the consumer.

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