Towards a better understanding of regulating the Net Neutrality by looking into other markets

supermarket-801x563The ongoing debate on the net neutrality regulation is quite passionate and thrilling. In the USA, where President Obama has turned the topic in one of the pillars for the last part of his mandate, FCC Chairman has already published a regulation proposal similar to that desired by Mr. Obama. An analogous debate, with less intensity, is also taking place in Brussels these days.


Nevertheless, other players, among them Telefónica, understand the idea of Neutrality in a broader sense. The digital experience of users is composed by many services and technical solutions concurrently provided by a wide array of players. No one can ignore the complexity of today’s digital ecosystem. To be fair with our users and to be right responding their demands, we’d rather refer to the term Digital Neutrality. It implies a much more holistic approach including both carrier neutrality and content /application neutrality, because the Internet is not just the access network.


Having said that, I will go through the debate proposed by the Net Neutrality supporters in depth. They affirm that this market intervention would prevent telecommunications operators from controlling the fate of the Information Society, and from picking winners and losers in a democratic society. Nevertheless, for telecommunications operators, the topic revolves around the need to avoid an ex ante regulation for an issue which could equally be solved by means on Antitrust law. It is also about preventing limitations to the freedom in the way in which the network is managed, regulatory obstacles which discourage investment in Next Generation Networks and in innovative products and services for their clients


The issue is complex, and the positions are opposed and even irrational in lots of instances. Even for the experts is difficult to provide insights on how Net Neutrality provisions and the Internet ecosystem will interact, more over when implications seem to be more profound on the innovative scenario and on services yet to be born.


A good approach to this sometimes philosophical debate is to find examples of similar but more established markets where assessing these interactions could be more fact based and less hypothetical. Yet comparisons are never perfect and arguments calling into question the suitability of the examples may be found, examples are good for illustrative purposes. Restrictions resulting from the implementing broad non-discrimination principles across different industries will differ, but they can provide a fact based and unbiased approach on how these principles –Net Neutrality when enforced on ISPs– could play in the Internet and impact our lives. This is the sort of exercise Telefonica has realized together with the prestigious consultancy Solchaga Recio & associates: what would the impact of applying broad non-discrimination Net Neutrality alike principles in other industries?


Starting today, and during the coming months, Solchaga Recio & associates will share their findings on how these provisions could change our lives if applied in other industries providing services that touch every consumer and are used daily by everyone to the society. First case study focuses on retailers, more precisely hypermarket chains. This is a great example given its similarities with ISPs: both provide what could be considered services that touch every consumer daily, food and broadband Internet; in what could also be considered two-sided markets, delivering the services and products produced by suppliers –farmers, manufacturers and petrol or content and services over the Internet- as demanded by their customers; both markets could be considered competitive markets in Europe, as customers can choose among various service providers. The findings of this exercise do not seem very attractive: food and fuel prices would increase, variety and quality of products would decrease and innovations such as white labeled products may have not made it into the markets.


Access this first case study to find out more what could mean applying Net Neutrality rules on a competitive for consumers’ welfare and market participants:


What seems an absurd idea for the hypermarket chains market is taken for granted to be the best solution for assuring Internet remains as Open as it was the goal when it was created. Regulating a competitive market to prevent potential misbehaviors seems disproportionate and may lead to unintended consequences, reducing consumers’ welfare and hampering innovation. This might be a read-across of the first example by Solchaga Recio & associates.