After reading several news articles regarding Chile’s net neutrality statute, I proceeded to track down the actual text of it for a careful review. My reaction was one of concern for our brothers down south.  Chile has embarked on a very dangerous journey with the approval of this statute, and the FCC and U.S. Congress should pay careful attention to the results of this dangerous experiment.

Chile is among the first three Latin American nations with the largest uptake rate for broadband services.  It has a total population of 16,601,707 (5,959,540 live in Santiago, the capital).  As of December 2008, its internet penetration was 50.4%, but only 1,427,200 had broadband connections (fixed and mobile).  Cisco, the broadband equipment manufacturer, “reported that Chile closed the year 2009 with a broadband penetration of 10.3 percent, a figure that positions the country in first place in Latin America.” The goal of the fixed and mobile broadband operators is to reach 17.1% by 2015.

With these abysmally low numbers it surprised me that Chile would proceed and enact a statute on such a new topic as net neutrality.  The statute mirrors the FCC’s Open Internet Principles, but it goes even farther in authorizing the imposition of fines and penalties for violations of those principles. Assuming the legislation survives the legal challenges that will follow, it will bring problems to the Chilean consumer, and to the goal of ubiquitous broadband penetration.

Even though the statute allows broadband service providers to manage their networks in a non-arbitrary way, their efforts to manage the network will be constantly hindered by challenges to their every step.  Content providers consistently want to increase the amount of bandwidth available to deliver their services ignoring the impact this will have on the broadband provider’s networks.  I can foresee that every time an ISP takes an action to manage its traffic on the network, it will be challenged by the content provider as arbitrary. As a result, at the end of the day, it will be the government that will direct how internet networks must be managed and built, stamping out innovation and the flexibility that comes with an unregulated regime.

The statute will also have an adverse impact on the country’s goal to expand broadband penetration.  It has been established that pricing flexibility is a key element to reaching ubiquitous broadband access.  The removal of such pricing flexibility via legislation will undoubtedly delay and hinder efforts to reach even the modest goal of a 17.1% broadband penetration by 2015. Plus it will allow Uruguay and Argentina to continue to expand and become the South American countries with the largest broadband internet penetration.

The United States should watch how this statute impacts broadband penetration, as well as Chile’s economy, before following Chile’s example.  This is a dangerous experiment that we should not replicate until the results are in.