CompuServ, America Online, GEnie, Delphi, Prodigy.
Offered proprietary content, e-mail, bulletin boards, etc.
But only to limited user community.
Enter the Internet
Internet encouraged interconnection, expansion of network effects.
Competitive ISPs emerged.
Consumers “voted” for open-access, non-proprietary, interconnected, and competitively provided Internet services.
Network Neutrality and the Internet
Network neutrality reflects the end-to-end network principles which have been associated with the operations of the Internet.
Network simply moves packets.
Deference to the network edge.
Encouraged by the pro-competitive policies which have, until recently, been enforced in telecommunications markets in the U.S.
Ability of end-users to attach equipment of their choice.
Provision of access on nondiscriminatory terms to bottleneck facilities.
Requirement that network providers interconnect.
Outcomes of network neutrality approach.
Competition for provision of Internet services, content, applications.
Rapid innovation at the network edge.
Positive contribution to economic growth.
Policy shift—Network Neutrality Challenged.
Broadband last-mile facilities (Cable/Telco) classified by FCC as “information services.”
Lifted common carrier obligations.
No obligation to provide multiple ISP access.
Network neutrality prevents innovation in the “network core.”
We won’t invest unless we can control.
“ How do you think they're going to get to customers?
Through a broadband pipe. Cable companies have them.
We have them. Now what they would like to do is use my
pipes free, but I ain't going to let them do that because we
have spent this capital and we have to have a return on it.
So there's going to have to be some mechanism for these
people who use these pipes to pay for the portion they're
using. Why should they be allowed to use my pipes?”
at&t CEO Edward Whitacre
AT&T Broadband Facilities Google Amazon.com YouTube Etc., etc. Internet
Cisco, maker of network control equipment, says:
“ One of the most significant risks that broadband service providers face is the threat from ‘nonfacility’ service offerings for music or video downloads, VoIP, or interactive gaming. With the increased bandwidth for high-speed Internet services, operators risk having their service regarded as a baseline commodity as their users subscribe to third-party services from off-net destinations. . .”
“ Cisco Service Control: A Guide to Sustained Broadband Profitability,” Cisco Systems White Paper, pp. 7-8. Available at: http://www.democraticmedia.org/PDFs/CiscoBroadbandProfit.pdf
“ Innovation” at the network core.
Identify customer choices.
Determine which ones harm revenues.
Crimp their bandwidth.
Implement “Pay-as-you-go” schemes “streaming, gaming, voice (Skype, SIP)” targeted for higher prices. (Cisco White Paper.)
Create “fast lanes” to provide preferential treatment for some content.
Impose Usage Restrictions:
Unlimited NationalAccess/BroadbandAccess services cannot be used (1) for uploading, downloading or streaming of movies, music or games, (2) with server devices or with host computer applications, including, but not limited to, Web camera posts or broadcasts, automatic data feeds, Voice over IP (VoIP), automated machine-to-machine connections, or peer-to-peer (P2P) file sharing, or (3) as a substitute or backup for private lines or dedicated data connections. (Verizon 3G Terms of Service.)
Network Control and Innovation—Core v. Edge
Core—“AT&T’s IPTV service will entail a switched, two-way, client server architecture designed to send each subscriber only the programming the subscriber chooses to view at a particular time. . . . AT&T’s IPTV service will utilize an architecture designed to give customers additional choices in video programming that are not available today.” (AT&T/BellSouth Merger Public Interest Showing.)
“ Fast Lane” for AT&T video delivery.
Edge—BitTorrent delivers with existing bandwidth and architecture.
News Item: “Warner Bros. will become the first major studio to distribute its films and TV shows over the Internet using peer-to-peer technology developed by BitTorrent Inc.” MSNBC, May 9, 2006.
Threat to Competition and Innovation
Thus, if an AT&T broadband customer prefers to purchase video programming from Warner Bros., and use the BitTorrent technology to receive this content, AT&T can easily
(1) identify the customer which has made this choice,
(2) assign lower priority to the delivery of this content, thus degrading the alternative (and more efficient BitTorrent) technology,
(3) designate the consumers who purchase their content from non-AT&T sources as “heavy users” who “take excessive bandwidth,” and
(4) charge these end users (whose only offence is to make a competitive choice) more than those customers who purchase AT&T-sourced content.
If not neutrality, then “network diversity.”
Multiple, differentiated, last-mile broadband networks can do it better.
Superior network security, spam control, application performance, can be guaranteed.
Losses in scale economies will be offset by higher value/higher priced services.
Network Diversity—Reality Check
95% of broadband is currently delivered over Telco DSL and Cable Modem.
Competition not present today.
Track record of last-mile competition weak.
Telcos and Cable operators are pushing fiber closer to users.
Will capital markets support multiple last-mile overbuilds?
Substantial sunk costs discourage entry.
WiMax, Broadband over Powerline, Broadband in Gas have deployment/operational limitations.
Network neutrality has demonstrated economic benefits.
Network diversity has already been rejected by consumers.
Last-mile broadband competition has limited potential.
Economic criticism of network neutrality rests on shaky foundation.