Business View: Can Net greedy-guts have their cake and eat it?

It is hard to imagine, but the internet is filling up. Less than a decade ago, pioneering companies stuck huge pipes in the ground to cope with demand for data traffic that never arrived. Well, with the popularity of video sharing sites such as YouTube, as well as the dawn of internet broadcasting, internet capacity is starting to look a wee bit stretched. There is no need for alarm just yet, but the likes of BT and Tiscali, as well as AOL in the US, are firmly of the opinion that the media companies that are responsible for all this bandwidth-hungry content should contribute to the costs of upgrading the network.

Failure to do so, they claim, will lead to tighter internet usage caps and higher prices for consumers. The BBC, for one, has shown little sympathy with the network owners' plight.

The debate over who should pay for the distribution of content on the internet is just one aspect of the principle of net neutrality. In the UK, the ISPs have a legal duty to operate their networks for the benefit of all their customers. But what happens when an ISP is forced to limit access to one particularly bandwidth-hungry application (iPlayer, for example) to ensure all customers receive the same quality of connection? Suddenly the Net is not neutral any more and the network operator gets to decide what is allowed and what isn't. Companies that offer content as well as a broadband connection can then discriminate against their rivals' applications.

Not that the ISPs are really that worried deep down. The price of internet access has been falling for years, driven lower by competition and regulatory pressure. But as spare capacity is reduced, so the value of bandwidth increases. Suddenly pipes in the ground are worth a whole lot of cash again.

Security scaremongering

And staying on internet-related matters, it seems that our distinguished peers in the House of Lords have discovered the web. The Lords Science and Technology Committee announced last week that the internet is now "a playground for criminals". What utter scaremongering tripe. The chairman of the committee is Lord Broers, who is so concerned about public security and wellbeing that he has never taken part in a vote on ID cards or anti-terrorism legislation, according to Public Whip, the political monitoring body.

Anyway, despite admitting that the Government has no accurate figures on "e-crime", Lord Broers feels it is his place to lecture about the dangers of organised criminal gangs stalking cyberspace.

"You can't rely on individuals to take responsibility for their own [internet] security", he proclaimed. Eh, sorry, just why not? That is like saying you can't rely on car owners to lock their vehicle at night or homeowners to set the burglar alarm when they leave the house in the morning. No one is ignorant of the dangers of online criminals. Yes, online identity theft and credit card fraud do exist and do cause problems. But anyone who takes sensible measures to install anti-virus software and a firewall (which incidentally arrives installed in most wireless routers) should not have a problem. The Government should be encouraging us to use the internet to communicate and to do business, not sticking a huge banner up over the web saying "Here be dragons".

Trial by water

Ofwat, the water regulator, is finally starting to show its teeth. It reiterated its concern last week about poor performance in key areas at Severn Trent Water, Southern Water and South East Water. As the recent floods have demonstrated, the need for water companies to invest in their infrastructure has never been greater. Water companies and the regulator decide on the level of investment and price increases over a five-year period. Ofwat then has the power to fine the companies if they fail to hit their targets. We are currently halfway through a five-year period and already the water industry is looking ahead to the next pricing settlement.

Climate change will be the big battleground for the pricing review in 2009. And combating the impact of global warming with its associated extremes of weather will require increased investment. Water companies will argue that to meet this challenge they should be allowed to raise water prices to the consumer by a corresponding amount. But for that to be politically and socially acceptable, the companies have to do more to hit their targets this year and next. They must prove that they can spend extra resources efficiently.

What Ofwat got wrong at the last review was to miscalculate the cost of borrowing. The regulator, when deciding what companies could charge their customers, overestimated how much it would cost to borrow the funds required to meet the industry's investment challenges. The result was higher than expected profits and disgruntled customers. Ofwat cannot afford to make the same mistake again.

However, unless the industry gets its own house in order, persuading the consumer to accept much higher bills will be like trying to push water uphill.