The cost of 'free love' net neutrality

commentary Franklin Roosevelt said during the Great Depression that heedless self-interest reflected not only bad morals but bad economics too. Seventy years on, his advice still rings true.

Telstra Media group MD Justin Milne (Credit: Telstra)

In recent weeks, several online publishers have called for new rules to govern the way traffic is carried on the broadband networks. This raises an important argument, because the volume of data is increasing at a rapid rate and networks need to cater for the substantial rise in traffic.

The argument was framed around net neutrality, with content producers saying all content is created equal and hence none should be available to consumers at preferential prices. They asked for internet service providers to suspend download charges when consumers visit their sites.

Though the expression may sound appealing, "net neutrality" is an argument for the ISPs to provide free data across the networks.

To put it another way, it is akin to holiday resorts asking Qantas to transport vacationers to them free of charge. Clearly that's an unsustainable idea, but some publishers of online content persist in making the argument — because if it were accepted, it would be worth a great deal of money to them.

Think about the way we pay for water, gas or electricity. As consumers, we pay according to our use of the resource. That's why we have gas, water and electricity meters. The more water or electricity we use, the more we expect to pay. We accept this approach because we understand there is a cost to utility suppliers who invest in networks that supply the service to our homes.

Water and gas pipes need to be constructed and maintained. Electricity poles need to be erected and trenches dug. And as more households use the service, we understand that utility companies need to pay the cost of expanding their infrastructure to provide water or gas pressure, or to guarantee electricity supply.

However, content publishers would like us to think of the internet system in an entirely different way.

Though the expression may sound appealing, "net neutrality" is an argument for the ISPs to provide free data across the networks.

The volume of traffic carried over the cables and routers that comprise the physical Australian internet has increased by 200 times in the past 10 years.

The cost of the infrastructure to support this traffic has been borne almost entirely by internet service providers, and not by the publishers. In Telstra's case alone, the company has invested billions of dollars in the Next G mobile broadband network covering 99 per cent of Australian consumers, the HFC cable network in major cities and the extensive ADSL network.

Unfortunately there is no magic pudding, so this investment must be repaid by the beneficiaries of the internet — the users on the one hand, and the publishers who seek to make money from those users through advertising and subscriptions.

Think of it this way. Just because a factory might manufacture a pretty good bolognaise sauce does not mean it can demand that Woolworths allocate highly sought-after shelf space to the product at no cost to the manufacturer. The manufacturer needs to enter into a commercial arrangement with the owner of the shelves to allow them to recoup their investment in the real estate, buildings and shop shelves.

Some content providers such as ninemsn argue that Telstra should subsidise the cost of the ninemsn customers visiting their internet sites. We might also assume that Holden would prefer petrol to be free for their cars, and Hayman Island would like air travel to the resort free.

But Shell, Qantas and Woolworths do not give their services away for free. Just like BigPond and the rest of Australia's ISPs, they need to charge their customers a fee so that over time their investment is recouped.

Net neutrality has the superficial attraction of 1960's free love, until you realise that one party gets all the gratification while the other bears all the costs. It's a fine example of economic self-interest dressed up as moral virtue. Mr Roosevelt would hardly approve.

Justin Milne is group managing director of Telstra Media. This commentary is republished on ZDNet.com.au with Telstra's permission.