A paper commissioned by UK mobile operator VMO2 and published today claims that operators could unlock £174–871 million per year in additional mobile service revenue and around £384 million in one-off network efficiency gains, if rules regarding the preferential treatment of specific apps, traffic and services were relaxed.
The report, “Net Fatality” , has been produced by Stephen Howard of Communications Chambers for Virgin Media O2. Howard states that the report is “an independent report funded by Virgin Media O2”, adding that “they do not necessarily represent the views of the client.” However, Howard’s views would no doubt align with very many within his client, not to mention other operators.
He claims that while operators are building smart network capabilities such as network slicing, supported by increasing network softwarisation and AI-native capabilities, they have to act dumb because net neutrality regulation, while intended to protect consumers, prevents operators from exploiting these capabilities.
A knock-on effect is that telcos have been brow-beaten by the rules, such that they act in a “culture of compliance”, worrying first about whether a new service might breach regulations rather than whether customers would value it. Telcos can justify prioritisation of services, but with each exception requiring assessment and justification, product and service development moves at the speed of the legal department.
Similarly, even where a customer itself might want to trigger a differentiated service level, operators would be unable to fulfil that.
Howard argues a few examples where a relaxation of net neutrality laws could be beneficial. He talks about “moments that matter”, for example prioritising navigation apps in-journey over other traffic, parking payments, EV charging, or making sure that merchants can take payments fast at events. In an agentic world, he thinks about the potential to make sure that live conversations are prioritised over connectivity to cloud-based AI – or vice versa, depending on the importance of each process. He also leans on the potential upcoming traffic profile changes that AI might introduce – such as increased uplink traffic from smart glasses – to argue that operators should “have the necessary freedom to make use of the technical tools at their disposal to ensure networks function in the most efficient and reliable manner possible.”
He writes, “This again calls for reform of a set of net neutrality rules that were devised for a different era.”
New revenues from non-neutrality?
So how does Howard arrive at the increased revenue numbers he posits for a world in which net neutrality regulations have been loosened? He states that customers desiring enhanced quality of service or reliability parameters for a specific app could pay a premium, with networks delivering this capability via network slicing functionality.
He states that for mobile network operators alone, depending on the assumptions made, incremental revenues could plausibly lie in a range of between £174m and £871m per annum. Network efficiency gains could amount to a further (non-recurring) £384m. The combination of additional mobile capex and improved efficiency in the utilisation of existing infrastructure would together be worth around £142-557m a year – equivalent to 8-31% of current investment levels.
One key assumption, of course, is that there is indeed a market out there for the sorts of new, differentiated services that the paper identifies.
But Howard claims, “It is important to highlight that this type of pricing approach has been widely studied in the academic economic literature, and its broad benefits have been extensively validated.”( His two given examples are a 2023 paper from Philippe Aghion et al., “The impact of regulation on innovation”, American Economic Review and a 2014 paper from Adam Thierer, “Permissionless Innovation”, Mercatus Center/George Mason University.)
Where he gives an example of a promising 5G-based technology that offers differentiation – Singtel’s deployment of User Equipment Route Selection Policy (URSP) to route the data associated with an individual app via the specific slice – he admits that there are no revenue numbers available from Singtel related to this capability.
“Nevertheless,” Howard writes, “it [Singtel] has already highlighted 5G slicing alongside its Quantum Safe Network and APIs as a growth engine, with revenues from these segments increasing 21%.”
Calculation
To assess how big the market might be for these new services, he examines the existing preparedness of customers to pay for premium offerings – say for data packages. The assumption is that customers will value application-specific QoS as a proportion of today’s data-premium pricing, and also that enough customers will actually purchase these services.
To project the potential size of the new market, he assumes that only those premium customers taking at least a 100GB or more plan would be prepared to pay some sort of a premium for new differentiated services.
Using Ofcom figures, Howard notes that customers already pay about £3.18 per month more for larger plans and about £13.49 per month more for unlimited plans. The paper then models five possible cases where the new, differentiated, services are worth a certain percentage of today’s premium and applies those assumed monthly premiums across the estimated number of customers on premium tariffs. This produces annual additional revenues and a Capex uplift as below:
Assuming these revenues flow efficiently into EBITDA, the report estimates how much additional network investment they could support, applying Vodafone UK’s recent capex/EBITDA ratio of 59.5%. That produces estimated additional annual capex of £104m–£519m.
Cost savings
The second part of the economic argument concerns cost savings rather than new revenues, and centres on two use cases.
The first is video optimisation. Using Virgin Media O2 operational estimates, Howard assumes video is around 70% of mobile traffic, with roughly 25% of that transmitted at unnecessarily high resolution. So operators could recover around a 2.5% network-wide efficiency gain by optimising video resolution to actual consumption requirements. Scaling Virgin Media O2’s figures to the whole UK market gives an estimated £226 million one-off efficiency gain.
Another example is tethering. Again using Virgin Media O2 estimates, Howard argues around 7% of network capacity is consumed by customers effectively using unlimited mobile plans as fixed wireless broadband. He argues that operators could either earn more revenue from appropriate tariffs, or free up network capacity by acting against such usage.
Is he right?
The modelling works internally, but it also relies on several assumptions, not least that there is market demand to pay more money for the sorts of services that operators could unleash without net neutrality rules. The other big assumption is that it is indeed these regulations that are hampering innovation, rather than a host of other factors ranging from internal culture and operational capability to technology maturity and aggressive external competition.
And Howard takes little time to dispense with pro-neutrality arguments, for example that they protect smaller, more innovative companies against the purchasing and lobbying power of large players. Rather, he dismisses pro-neutrality concerns more generally, stating that in countries where net neutrality rules don’t exist or have been withdrawn there has been no negative outcomes, and that the “prophets of doom” have not been proved right in the USA following repeal of its NN rules. The risks of reform, he states, are negligible.
For those studying innovation, technology commercialisation and the ability of network operators to benefit from their own investments, this is a paper that not only sets some important questions, but attempts to guide the industry towards a potential future state.
