NBN and net neutrality: What it means for Australian consumers

The battle raging in the US over net neutrality and the possible outcome will affect Australian consumers. In Business Spectator the effect of the net neutrality battle on Australian consumers is analysed and the outcomes indicate the need for Australia to undertake its own review with the Australian Competition and Consumer Commission, the Australian Media and Communications Authority and the Productivity Commission being involved.

Read the full article below

The battle over “net neutrality” in the United States has flared up in the wake of President Barack Obama’s recent statement that internet service providers should be prevented from entering into deals that would favour content providers that pay for a priority service.

At some point Australia will have to update existing content distribution laws that were created at a time when the internet was nascent. In the next decade the National Broadband Network (NBN) will become the dominant medium for content distribution and without net neutrality laws the larger service providers will be able to sign up content providers to exclusive deals that will limit what consumers can get access to and effectively crush competition.

What is net neutrality?

In 2003 Columbia University media law Professor Tim Wu coined the term net neutrality while discussing the idea that internet service providers should be “common carriers” which is a common law term and when it is applied to the Internet that means a company that transports content from a content provider to customers and is responsible for the delivery of the goods.

Net neutrality is the idea that internet service providers should make content available from content providers to consumers without discrimination or charging different rates and utilising the same quality of service for different types of traffic, such as telephone, video, digital television, Web browsing and so on.

Net neutrality in the USA

Obama ran for office in 2008 with a platform that included his support for net neutrality but he is not in a position to set telecommunications regulations as this is done by the US Federal Communications Commission (FCC) which is an independent US government agency that has a similar role to the Australian Communications and Media Authority (ACMA) and the Australian Competition and Consumer Commission (ACCC) (telecommunication competition regulation).

Obama outlined four principles in his proposed net neutrality regulations that include: (1) no blocking of legal content; (2) no throttling, slowing down or speeding up content delivery; (3) no paid prioritisation causing slow delivery of traffic from companies that do not pay a fee; and (4) increased transparency of network traffic speeds and congestion between consumers, their Internet service providers and content providers.

The FCC Chairman Tom Wheeler stated that the FCC is looking at a range of options including the possibility of a solution that satisfied customer demand for content but also addressed the concerns of the major Internet service providers.

What this means is that one option before the FCC is to prohibit internet service providers from blocking content but permit them to charge content providers for higher performance delivery of their traffic to consumers.

However, this earlier report was clarified yesterday by members of the business community and public interest groups that were at the meeting who said that Wheeler was feeling the pressure surrounding the differing views on net neutrality and it would take strong support from the government to not adopt the telecommunication industries vision for content delivery with fees for traffic prioritisation.

The FCC is directed by five commissioners appointed by the US President and confirmed by the US Senate for five-year terms. Currently there are three Democrat appointed commissioners including the FCC Chairman so it might be assumed that net neutrality is a fait accompli but this would be a serious misjudgement after a US court struck down the FCC’s first attempt at net neutrality rules in January 2014.

Content delivery conundrum

Obama’s proposed net neutrality rules would apply to mobile cellular, wireless and wired access networks and this approach would radically change how the existing telecommunications industry operates.

In Australia free to air terrestrial broadcast television provides consumers with access to six television stations (with community television in some areas) and consumers understand the revenue model used by the television stations which is to purchase content and sell advertising slots during the broadcast. Television shows that are popular with consumers will generate increased advertising revenue which is the lifeblood of television companies.

If you sign up for a subscription cable service you receive premium content including movies that might not appear on free to air television for more than a year and recently Foxtel and Optus cable have also provided the free to air television stations.

Australians will be familiar with Foxtel’s recent purchase of the exclusive rights to premium content from the UK BBC that was previously available on the ABC and HBO’s Game of Thrones series which holds the record for being the most illegally downloaded show in Australia over the past three years.

Australians that have not wanted to pay to watch the shows on Foxtel either because of the cost or the delay between when the show is first shown overseas and when it is shown in Australia have resorted to illegal downloading or using virtual private network (VPN) connections to circumvent the geo-blocking system put in place to prevent Australians from connecting over the Internet to international content providers like Netflix.

Another example is Telstra’s exclusive deal to show the Australian Football League (AFL) games over its mobile cellular network as a pay per view service. Australian’s understand and accept the practice of mobile cellular operators using premium content as an enticement to grow customer numbers.

But what would happen if the AFL decided to become a content provider and broadcast games over the Internet using a pay per view and direct advertising model that would see the end of its existing deals with free to air television, cable and mobile cellular companies?

A majority of televisions being sold today are Internet enabled and Internet delivery promises higher quality than what is currently available over free terrestrial broadcast television where television companies broadcast using a lower quality format so that the spectrum saved can be used for shopping channels that bring in a small but steady income stream.

Would internet service providers look at this situation as a boon and charge the AFL for example for traffic prioritisation to ensure that consumers can download AFL games live in high definition 1080p or ultra-high definition 4K with high reliability and no dropouts?

And what does the AFL do when Foxtel moves onto the NBN and begins to offer triple-play (telephone, video, television and data) as well as its existing subscription premium content? Will the AFL move to prevent consumers that do not subscribe to Foxtel from using the Internet to get access to games?

The paradigm for content monetisation is changing and the internet is increasingly being seen as an alternative to more expensive transmission mediums such as terrestrial broadcast television.

In September 2014 the Communications Minister Malcolm Turnbull announced that community television channels, including Melbourne’s Channel 31 and Sydney’s TVS would be switched from free terrestrial broadcast television to Internet delivery as a cost cutting measure that would permit the government to sell the spectrum currently allocated to community television.

The announcement by Turnbull was similar to the cost cutting decision taken by the UK BBC earlier this year to close BBC Three as a broadcast television channel and to make it available over the Internet.

The NBN is a public utility

The government’s flirtation with the idea that the NBN should be disaggregated and sold off at the earliest opportunity doesn’t stand up to serious scrutiny and was little more than a placating response to the thought bubble put forward in the Vertigan panel’s final report.

Australia should consider itself lucky that it is not facing the same problems as the US and European telecommunication industries because net neutrality will become a major battleground that could take them a decade to resolve.

The NBN is a natural wholesale monopoly that provides Australia with a vital public utility that should flourish if net neutrality is adopted but there will be a cost to sections of the telecommunications industry that should be addressed before it becomes difficult to do so.

NBN Co should be required to implement traffic management and quality of service but without increasing the cost for different types of traffic. NBN Co’s new optical access network that in one form or another will get much closer to customers than the older copper access network should be used to ensure that customers are provided with content from any legal source utilising traffic class management and quality of service suitable for the content format, such as ultra-high definition television.

And the same rules should apply to internet service providers because if NBN Co adopts net neutrality rules then there would be no technical reason preventing internet service providers from also adopting the same net neutrality rules.

What net neutrality means for Foxtel

The question remains though what net neutrality would mean for Foxtel as it transitions from being a subscription based premium content provider to an internet service provider that also offers subscription premium based content. Foxtel would not be the only Australian company that might be affected by net neutrality rules because over the past five years many of the local Internet service providers such as Telstra, Optus, TPG and iiNet have begun offering bundles that include access to premium content from FetchTV, Quickflix or another source.

It’s time that Australia carried out a broad based review into net neutrality and how it should be applied to the local telecommunications and content provider industries. But can Turnbull be trusted to carry out an open and transparent review of net neutrality when his NBN related reviews and audits produced a quagmire of unsubstantiated and flawed recommendations?

If the government and content providers want to fight illegal downloads then adopting net neutrality locally would be a good start because any approach that limits access to content, increases cost or reduces quality will drive Australians to even higher levels of illegal downloads.

The ACMA, ACCC and Productivity Commission should be immediately tasked by the government to commence a joint review of how net neutrality rules might be adopted locally and what effect net neutrality rules would have on consumers and the local telecommunications and content provider industries.

Mark Gregory is a Senior Lecturer in the School of Electrical and Computer Engineering at RMIT University.