As expectations build for the repeal of net neutrality, business information provider IHS Markit INFO today released a report that examines the history of the topic and explores the relevant data on competition that defines the outlook for the internet should current protections be removed.
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Number of broadband providers per active US census block, >10 Mbps. Source: IHS Markit
If as expected the Federal Communications Commission (FCC) in its next meeting this Thursday, December 14 removes net neutrality protections, net neutrality proponents claim it would be a death knell for an open and innovative internet ecosystem. Counter arguments claim the repeal will spur infrastructure investment, suggesting current regulations have inhibited investment in infrastructure, by limiting returns on investment. Removing those protections may spur innovation and investment, they say, but implicitly would do so by raising the overall cost of services with a range of complex fee structures made possible. If deregulation is an effective strategy, then ultimately those higher returns will attract new competition which net neutrality critics maintain is the best protection and a positive outcome for consumers.
According to the IHS Markit report, entitled "Net neutrality in the United States – A once and future history," broadband in the United States is available in 9.1 million of the 11.2 million census blocks. However, 38 percent of census blocks with a broadband provider rely on just one provider with reasonable speeds of service, and 10 percent have speeds that don't reach advertised speeds of 10 megabits per second (Mbps). The transition period may prove difficult for consumers, as what are effectively local monopolies will be able to take advantage of their new freedoms to limit access to services or implement discrete fees for third-party services.
Video will be the key battleground. With an average revenue per user (ARPU) of $80 for cable TV services, consumers in the United States pay considerably more for video services than those in other developed countries. For example, cable TV in Western Europe generates an ARPU of just $19.49 per month. Revenue for pay TV services is therefore highly threatened by the lower-cost over-the-top (OTT) television providers, which are rapidly gaining new subscribers and enabling cord cutting from traditional service providers.
"Despite the current strong net neutrality provisions, the mobile industry has tested the boundaries of what can be accounted for as network management," said Seth Wallis-Jones, principal analyst, IHS Markit. "Operators of both wired and wireless networks have been investigated and on occasion sanctioned for testing the regulatory environment. Those cases offer insight into the outlook for a more deregulated market, illuminating potential strategic options for fixed network operators. Outcomes from those strategic moves illuminate scenarios ranging from ‘good' to ‘dystopian,' with many outcomes likely to be both local and transitory as competitive market dynamics develop. The status of net neutrality has also been in constant flux as the administration and objectives of the FCC change. Looking ahead that state of flux is likely to continue."
The following IHS Markit research analysts are available before and after the FCC announcement on December 14, 2017, to discuss the effects of net neutrality repeal: seth.wallis-jones@ihsmarkit.com and erik.brannon@ihsmarkit.com
About the Report
"Net neutrality in the United States" from IHS Markit covers the competitive environment defining the outlook for the internet: Net neutrality and Title II classification, key data and discussion (including subscriptions, revenue and ARPU), competitive coverage, stakeholder segmentation, a regulatory environment timeline and strategic options available to operators with net neutrality. It also plays out various scenarios, revealing how the proposed changes to net neutrality affect various industries — from positive scenarios, through to the bad, the ugly and the dystopian.
About IHS Markit (www.ihsmarkit.com)
IHS Markit INFO is a world leader in critical information, analytics and expertise for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 key business and government customers, including 85 percent of the Fortune Global 500 and the world's leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.
IHS Markit is a registered trademark of IHS Markit Ltd. All other company and product names may be trademarks of their respective owners © 2017 IHS Markit Ltd. All rights reserved.
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