The NBN Co's 'Netflix tax'

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Net neutrality is of foundational importance for internet users (image by Aslam Karachiwala via Flickr)

While the network neutrality debate mainly applies in the U.S., it recently flared up in Australia when NBN Co discussed separate pricing regimes for video-based infrastructure.

Net neutrality is breached when telecommunication companies provide a preferential pricing regime for companies offering video-based service. This basically creates a two-tiered system: a premium service for those providers that are prepared to pay a premium price for the transmission of their service and in general, a lower grade service for anybody else — creating a "them and us" situation on the internet.

Such special treatment flies in the face of the open and free internet as it was envisaged and as it has been used so far — whereby all users and all providers receive equal service.

Net neutrality flares up in situations where there is a monopolistic or at least a dominating telecommunications force at work. The U.S. has one of the most concentrated telecoms markets in the developed economies with basically three providers dominating the market. It was here a few years ago that the telcos started to implement preferential infrastructure services.

In markets with more competition, such as Australia, with some 150 retail service providers (RSPs), competition makes it very difficult to develop such preferential services. However, with NBN Co being a national wholesale monopoly, it is in the position to use its monopolistic service to create such a two-tiered system.

National regulators generally want to preserve net neutrality and many have regulations in place to make that happen.

The U.S. had also a regulated regime — however, this was abandoned in 2017.

Interestingly, this has so far not resulted in an increase in price discrimination for special services. This is partly since telecoms networks have been upgraded to such an extent that capacity is becoming less of an issue and the need to create differential services is decreasing.

As the NBN in Australia is not of the same quality and NBN Co is a monopoly, there is a temptation for the company to exploit its monopoly and create a two-tiered system as a new revenue generation option.

They have now launched the idea for such a two-tiered pricing scheme for video-based services. This would create a market situation where internet companies pay a premium price for premium-based infrastructure services. This would of course favour the larger internet companies who can afford the premium price and disadvantage the smaller companies who are unable to afford such a service.

Content providers are obviously in favour of net neutrality as they won’t like the telcos using their powers to force them to pay more money for the delivery of their services over the telco network to the end users.

Telcos on the other side have been complaining that these content providers are basically getting a free ride over their networks and in the process making lots of money.

The counter-argument here is that the end-users are paying through their broadband subscription for the quality and speed of the services they are prepared to pay for. Charging both the end-users and the content providers would mean double dipping for the telcos.

Net neutrality will remain an issue for countries that have telco monopolies in place and which also lack the quality infrastructure – to provide enough bandwidth capacity needed – for a modern society, and economy.

As Australia clearly fits into this situation, we can expect increasingly more attempts from NBN Co to exploit its market power and find clever new revenue streams.

Paul Budde is managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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