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Understanding the Real Net Neutrality Puzzle

Incumbent network operators that are hoping to boost revenues by charging premium fees for delivery of some broadband content are likely to realize modest gains if current rules that guarantee so-called net neutrality are eliminated, according to a new report from Light Reading Insider.

"At first glance, charges for the delivery of Internet content look as though they could provide an additional $10.7 billion in carrier revenues by 2010," notes Simon Sherrington, research analyst for Light Reading Insider. "Such fees could expand carrier business data revenues by around 16 to 17 percent in the U.S. alone and would go a long way toward improving profitability and financing new infrastructure deployment."

But a variety of factors � including potential customer churn, competitive pressures from operators that maintain net-neutrality policies, and the ongoing threat of re-regulation � would likely diminish those revenue gains, Sherrington says. "If operators could persuade companies representing 20 percent of the consumer content market to pay a premium for improved content delivery, they could open a market worth around $309 million in the U.S. by 2010. Accessing 20 percent of the business information and ecommerce markets could open up a further $1.8 billion by 2010."

Other key findings of the report include:

In practice, the widespread imposition of content delivery charges looks highly unlikely. The difficulties associated with collecting fees from the global content provider community, managing the churn risk among consumer and business customers, and fending off competitors makes it highly unlikely that any individual broadband operator could successfully and unilaterally impose fees for content delivery.

Although the introduction of selective charges to boost revenue appears more attractive financially than the wider imposition of charges, operators using selective charging mechanisms to prevent competitors from undercutting them or to prevent revenue losses are likely to face close scrutiny by regulators.

Broadband operators hoping to generate revenues from content delivery need to offer improved services that content providers will buy. Operators must identify and provide significant value adds that enable content providers to improve the experience offered to customers.

Network operators would essentially become direct competitors to providers of content delivery networks, such as Akamai, Mirror Image Internet, PantherExpress, Savvis, and VitalStream.

However, broadband network operators must recognize that their content sourcing partners -- like the movie studios and broadcast TV networks, plus their web portal partners -- are actively pursuing direct-to-consumer delivery models that essentially bypass all distribution partners, which will be enabled by P2P platforms like BitTorrent (that can't easily be blocked or handicapped).

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