Network Neutrality: An Opportunity to Create a Sustainable Industry Model

SCOTT BEARDSLEY YAVUZ DEMIRCI LUIS ENRIQUEZ MEHMET GUVENDI STAGG NEWMAN SERGIO SANDOVAL MALIN STRANDELL-JANSSON OLEG TIMCHENKO WIM TORFS McKinsey & Company Network neutrality is the principle that inhibits telecommunications network operators from discriminating among different kinds of Internet content, applications, and services traveling across their networks. Advocates of network neutrality argue that the principle underpins the Internet’s explosive growth: if any and every kind of content, service, and application can be distributed over the Internet, then there is no limit to the innovations that Internet companies will invent for consumers to choose from. But network neutrality has, arguably, become the victim of its own success. Internet traffic has grown faster than network operators’ related revenues, and they are now struggling to invest in the new network infrastructure needed to support more Internet traffic. Not surprisingly, network operators are also trying to manage traffic volumes. Some are even deploying sophisticated network management technologies, such as deep packet inspection, which examine the nature and content of the traffic to identify possible sources of harm to network performance and also to protect the networks and consumers from increasingly sophisticated attacks and abuse. But as soon as network operators start scrutinizing the content of Internet traffic, edge players—providers of content, applications, and services as well as aggregators—worry that network neutrality may be infringed, limiting their will to innovate. Both consumers and regulators also worry about maintaining the confidentiality of consumer data. At the same time, major edge players are building their own Internet traffic “pipes” or using the dedicated content distribution networks (CDNs) of companies to preempt possible network capacity constraints and avoid the performance limitations related to the speed of transmission and delay if their traffic traverses the traditional backbone of the public Internet. By by-passing the backbone of the public Internet, the edge players ensure that the immense volume of traffic they generate reaches consumers’ Internet service providers (ISPs) at top speeds. In fact, the majority of the traffic destined for residential end users from edge players now flows over these specialized backbone networks. This situation can be seen as putting a different kind of strain on net neutrality: smaller edge players, unable to make similar investments, may not be able to match the larger players’ performance, though whether this represents discrimination or simply a competitive disadvantage is open to debate. Policymakers can argue that even though small edge players may not be disadvantaged, network neutrality regulations need not extend to the backbone providers, including the CDNs, because backbone transport in almost all countries operates in a competitive