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By Shreedhar Sasikumar

In late ‘90s and ‘00s most ‘dot-coms’ lacked a revenue model (past an IPO). But they were making a lot of money for cable/phone companies. People around the world were signing up for internet connections to consume all that ‘free’ online content. And as long as they made the lion’s share of internet industry profits, internet service providers (ISPs) were happy to support idealistic notions like net-neutrality; the idea that all data on the internet is treated equally. For a while, ISPs actually went along with the radical notion that consumers not ISPs should determine what consumers should see.

Today cable/phone companies have a serious case of Silicon Valley envy. ISPs continue to make increasing amounts from internet subscriptions. For example Comcast made $3B in Q1 ‘15, +15% YoY selling internet connections. But Google made almost $18B. And Facebook’s $3B is growing at 46% YoY. And it is not just ads. Netflix makes over $1B a quarter. Skype’s revenues are in the billions and investors dream of a time when WhatsApp’s billion subscribers start paying that $1 a year. And if these ‘dot-coms’ are going to make billions over the internet, in true Godfather fashion, the ISP’s want ‘their taste’.

The latest attempt is a proposal by European mobile operators to block most advertising on their networks. The plan is to install ad-blocking software at the network level, so web pages are displayed without ‘ads’ (social network feeds are unaffected) . According to the Financial Times, a mobile operator executive was open about this being a move aimed at internet ad publishers most notably Google. Blocking ads ‘just for an hour or day’ he reasoned, would bring Google to the the negotiating table to share some of its annual $60B revenue pie with the service providers.

In the ISP view of the world, the internet service is a two-sided market. When consumers pay their internet bill, they buy access to the ISP’s servers but not access to content. ISPs would then like to turn around and also charge internet publishers for access to the ISP’s servers so that publishers can reach the consumers with their content.

Common-sense will tell you that the ISP view is a pile of BS. Consumers pay for access to content not servers. ISPs charging publishers for access to consumers is barefaced double-dipping. And this double dipping is especially galling when the same ISPs are delivering internet service at about 10% of the speed consumers are already paying for.

Yet it was this two-sided market logic that allowed Comcast to extract tolls from Netflix. Comcast first restricted Netflix’s access to Comcast customers by ‘throttling’ download speeds. Speeds were restored when Netflix agreed to pay for direct connections to Comcast servers, i.e. access to Comcast customers. Similarly the European ISPs would like the Googles and FBs of the world to pay a toll to be allowed to show ads to the ISP’s users.

Ab-blocking is in itself an interesting ethical question. Much of the content on the internet is free because it can be monetized through ads. An ad-blocking consumer is ‘free-riding’ by consuming the content but actively preventing compensation to creator. On the other hand, the rampant proliferation of pop-ups, toolbars and ad-injectors mean that consumers are forced to use an ad blocker to prevent abusive ads.

However ISPs are not even bothering to dress up their proposal as an effort at consumer protection. They have been vocal in their frustration with internet publishers and make little pretense that publishers can avoid ad-blocks for a fee. It is an open ‘stick-up’ on the internet superhighway. And no net-neutrality laws currently prohibit such actions in most of Europe.

India had its own introduction to the net-neutrality debate after a telecom lobbyist inspired paper by TRAI. However in India, the discussion centered not around blocking of content, but around ‘zero-rating’ schemes that allowed internet publishers to pay ISPs for data charges incurred by the publisher’s users. While both zero-rating and ad-blocking are both net-neutrality violations, they serve to illustrate that all violations are not equal.

In a zero-rating scheme, no content is blocked and like they do today, consumers continue to have the ability to consume any content that they choose and can afford. In schemes like ad-blocking or speed throttling ISPs effectively censor non toll paying publishers, separating them from consumers. Zero-rating incentivizes ISPs to expand services to areas where people cannot afford internet service because now publishers are paying the internet bill. Blocking simply allows ISPs to charge publishers to show ads/content to consumers while offering no consumer benefit. Under zero-rating, while ISPs are getting paid, there is also a consumer benefit of data charges subsidized by publishers. But in the face of protests across Twitter zero-rating now seems a non-starter in India. In contrast in USA, despite new net neutrality rules by the FCC, ISPs can continue to charge publishers for direct connections to prevent throttling

Truth is that perfect net-neutrality, the complete separation of publishers and service providers is a fantasy. Google is trying to become both an ISP (Fiber) and mobile operator (Project Fi). Verizon, the US’s biggest mobile operator just bought AOL as an entry into the online ad business. Facebook’s internet.org is a big driver of getting Africa connected. Separating two industries as closely linked as internet service and internet publishing is unrealistic.

When consumers stand up for net-neutrality, we are usually standing against censorship by ISPs and for consumer choice. But unconditional support for net-neutrality leads us to ignore the nuances and ignoring nuances means that we overreach and open the possibility of regulatory ‘backdoors’. An example are the recent new regulations by the FCC that mandate a ‘neutral net’ but ignore the question of ISPs charging for direct connections. Turning to protection through legislation is tricky as no one wants to selectively block content as much as governments.

We might be better of with reasonable compromises like zero-rating that offer some consumer benefit in return for ISPs increasing their margins. Outright censorship and blocking of content should continue to be bright lines that neither publishers nor service providers should be able to cross. And regulators will be crucial in guarding that line. But in a still fluid industry like the internet, a light touch is called for as new business models emerge all the time. In an evolving industry, the market is probably a better regulator than the government.