Blog

What is net neutrality? A definition and the impact

Home- Insights- Blog- What is net neutrality? A definition and the impact
Andrew Wooding - Menzies Accountant

Andrew Wooding – Senior Manager

It is the principle that Internet Service Providers (ISPs) should enable access to all content and applications regardless of the source, and without favouring or blocking particular products or websites. You can think of it as ISPs creating a fast lane (those big companies could pay them for access to this) and a slow lane (those that cannot afford the fast lane) on the internet.

In the information age we need to decide whether we think that the internet is a basic human right, much like access to clean water, energy and similar. If people are in agreement that it is, then like water and electricity should it not be sold to people without restrictions on what is can be used on?

It is explained in more detail by the BBC in their net neutrality feature, which also outlines the recent actions taken by certain big players on the internet: the likes of Facebook, Google and Amazon. For a more light-hearted explanation try John Oliver’s “Last Week Tonight” on why every internet group needs to come together.

Isn’t net neutrality just a US issue?

Menzies provides international accounting and business advisory services to US SME businesses

Whilst it is true that most of the ‘noise’ on this issue has come from the US, with proposed changes by the FCC to end the net neutrality rules put in place by the Obama administration being the most recent development. Over the summer the FCC invited US citizens to comment on the proposal to end the net neutrality rules; the ability to comment is now closed. As such we do not know what the FCC will ultimately do at this time, but as the current President is rumoured to not be a fan of net neutrality it would seem like its possibly a done deal. With so much happening in US politics at the moment this could be something that is easily slipped through without much issue made of it.

The above does sound like it is just something for the US, but it could have implications for UK Companies who are trading overseas. It might be that the changed rules mean your customers find it difficult to load your Company’s website if equal prominence is not given to your site. This is particularly important if your site requires a lot of data (e.g. streaming) and you do not have the money to “persuade” the ISPs to have your business’ website in the “fast lane”. Even for UK Companies who do not trade overseas it cannot be ignored that often changes in US regulations do end up filtering over into the UK; whatever the US decides may impact all of the Internet in the long run. In an effort to keep their profits the UK ISPs could lobby/pressure the government in the UK to change the rules here too. At present the UK cannot change its rules because they are linked to EU net neutrality rules. Clearly there is a link to Brexit here and we should closely watch out for what the government and UK ISPs do after March 2019.


Worst case scenario – a hypothetical case study

The scenario

ABC Tech Limited are a fast growing tech startup, who have limited funds available but lots of great innovative ideas. One of their offerings requires significant bandwidth to be delivered, and has the potential to go global. The directors have sunk a lot of their own money into the development of the new idea, and have also raised finance through an initial round of funding with some business angels. They are not inclined to go out again for a second round of funding until they have proved the idea ‘has legs’, since at this stage it would mean giving away a significant amount of control and future financial gains from the new idea. In this hypothetical future the Company would need to pay for access to the ‘fast lanes’ of the internet, as the US and UK, their biggest markets, have allowed the ISPs to create a multiple-tiered system internet: one for the big players, and not for the smaller owner managed business for example.

The problems

The directors and the Company are not able get their new idea off the ground, as a larger rival has paid to access the ‘fast lanes’ and stuck in the ‘slow lane’ means that their idea appears less attractive to the consumer. The directors consider whether to raise funds to give them access to the ‘fastest lane’ from each ISP in the UK and US (of which there are multiple), but they decide to develop the idea a bit more, wondering if they can make it work over slower bandwidths.

Ultimately they find that they have to have access to the ‘fast lanes’ to prove their concept to consumers, but by now a larger rival has developed something similar, which means that no one is willing to finance the next round of funding.

Outcome

The idea is now dead in the water. The smaller player is pushed out, even though their idea is superior, and they got it to market first, they did not have a level playing field in terms of marketing and being able to show technical capability over the internet. The directors lose all of the money that they invested in the idea, and gave up some value in the company for the initial round of funding. They move onto the next idea, but are less inclined to reach into their pockets when it comes along, in case they cannot demonstrate its capabilities again: thus stifling creativity from this tech startup.

Although one could argue that it would not be a level playing field anyway, surely access to the internet should not be able to be restricted depending on which sites end users are visiting?


Aren’t all business against the changes anyway?

It is true that a number of high profile companies joined a protest earlier this year, largely in the tech sector (the likes of Facebook, Google, and Amazon). This does not necessarily mean that all firms are against it, or that changes will not be made in the US. Some Companies (mainly the ISPs) and also some commentators suggest that the changes proposed in the US are not linked to Net Neutrality, and that the current regulations stifle investment in the broadband sector. Unfortunately the relaxing of the rules does show a change of direction for the US, and they certainly not proposing something else (legislation/regulations) to fill the void.

What can I do?

We should keep an eye out for developments in the US – they might be a sign of things to come in post-Brexit Britain. Any sniff of change from the UK government should lead us all to get in touch with our MPs!

In my eyes net neutrality is a “friend” and something that should be protected, but not everyone will share this view.

Find out more about Menzies technology sector advisory services.

Print Friendly, PDF & Email
Posted in Blog, Technology

Andrew Wooding - ACA

Senior Manager

For more information or to discuss the issues surround net neutrality or the wider impact on the UK technology sector, contact Andrew Wooding.