Network Neutrality and Its Potential Impact on Carrier Pricing Network Neutrality and Its Potential Impact on Carrier Pricing Rob Frieden, Pioneers Chair.

Network Neutrality and Its Potential Impact Network Neutrality and Its Potential Impact on Carrier Pricing on Carrier Pricing

Rob Frieden, Pioneers Chair and Professor of TelecommunicationsPenn State University

email: [email protected]; web site: http://www.personal.psu.edu/faculty/r/m/rmf5blog site: http://telefrieden.blogspot.com/

A Presentation at the A Presentation at the Strategic Telecoms Pricing and Strategic Telecoms Pricing and Services Bundling Forum 2007 Services Bundling Forum 2007

Herndon, Virginia Herndon, Virginia June 5, 2007June 5, 2007

Explaining the Concepts—Explaining the Concepts—Network NeutralityNetwork Neutrality

Advocates for network neutrality have responded to provocative media statements of Advocates for network neutrality have responded to provocative media statements of telephone company executives and have identified threats, scenarios and some instances telephone company executives and have identified threats, scenarios and some instances where an Internet Service Provider (“ISP”) has blocked, delayed, or otherwise thwarted the where an Internet Service Provider (“ISP”) has blocked, delayed, or otherwise thwarted the delivery of specific bitstreams. delivery of specific bitstreams.

Net neutrality advocates want to convert “aspirational” views of a democratic and Net neutrality advocates want to convert “aspirational” views of a democratic and nondiscriminatory Internet into enforceable rules that would mandate non-discrimination and nondiscriminatory Internet into enforceable rules that would mandate non-discrimination and restrict ISP flexibility in terms of pricing, service quality and offerings. restrict ISP flexibility in terms of pricing, service quality and offerings.

Net Neutrality would impose common carrier-type non-discrimination requirements and could Net Neutrality would impose common carrier-type non-discrimination requirements and could affect pricing flexibility and content access.affect pricing flexibility and content access.

Advocates for net neutrality believe this principle should apply to all packet routing Advocates for net neutrality believe this principle should apply to all packet routing arrangements where a direct, enforceable contract exists, e.g., customer to ISP and ISP arrangements where a direct, enforceable contract exists, e.g., customer to ISP and ISP transiting and peering agreements, and also arrangements that lack “privity of contract,” e.g., transiting and peering agreements, and also arrangements that lack “privity of contract,” e.g., ISPs that “advertise” routes upstream and downstream from the source of content through ISPs that “advertise” routes upstream and downstream from the source of content through other intermediary ISPs eventually to end users. other intermediary ISPs eventually to end users.

Net neutrality advocates believe that the Internet has contributed to national productivity, Net neutrality advocates believe that the Internet has contributed to national productivity, economic opportunity and innovation in light of “best efforts,” end-to-end connectivity.economic opportunity and innovation in light of “best efforts,” end-to-end connectivity.

How does this threat to Internet freedom affect you? Small businesses—The little guy will be left in the "slow lane" with inferior Internet service, unable to compete. Innovators with the next big idea—Startups and entrepreneurs will be muscled out of the marketplace by big corporations that pay Internet providers for the top spots on the Web. Bloggers—Costs will skyrocket to post and share video and audio clips—silencing citizen journalists and putting more power in the hands of a few corporate-owned media outlets. Google users—Another search engine could pay dominant Internet providers like AT&T to guarantee another search engine opens faster than Google on your computer. Ipod listeners—A company like Comcast could slow access to iTunes, steering you to a higher-priced music service it owns. Online shoppers—Companies could pay Internet providers to guarantee their online sales process faster than competitors with lower prices—distorting your choices as a consumer. Telecommuters—When Internet companies like AT&T favor their own services, you won't be able to choose more affordable providers for online video, teleconferencing, Internet phone calls, and software that connects your home computer to your office. Parents and retirees—Your choices as a consumer could be controlled by your Internet provider, steering you to their preferred services for online banking, health care information, sending photos, planning vacations, etc. Political groups—Political organizing could be slowed by a handful of dominant Internet providers who ask advocacy groups to pay "protection money" for their Web sites and online features to work correctly. Nonprofits—A charity's website could open at snail-like speeds, and online contributions could grind to a halt if nonprofits don't pay Internet providers for access to "the fast lane."

What They've Got Planned

The threat to an open internet isn't just speculation -- we've seen what happens when the Internet's gatekeepers get too much control. These companies, even, have said as much about their plans to discriminate online.

Ed Whitacre of AT&T told BusinessWeek in late 2005:

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?

It's Already Happening

Such corporate control of the Web would reduce your choices and stifle the spread of innovative and independent ideas that we've come to expect online. It would throw the digital revolution into reverse. Internet gatekeepers are already discriminating against Web sites and services they don't like:

In 2004, North Carolina ISP Madison River blocked their DSL customers from using any rival Web-based phone service. In 2005, Canada's telephone giant Telus blocked customers from visiting a Web site sympathetic to the Telecommunications Workers Union during a

contentious labor dispute. Shaw, a major Canadian cable, internet, and telephone service company, intentionally downgrades the "quality and reliability" of competing Internet-phone

services that their customers might choose -- driving customers to their own phone services not through better services, but by rigging the marketplace. In April, Time Warner's AOL blocked all emails that mentioned www.dearaol.com -- an advocacy campaign opposing the company's pay-to-send e-mail scheme.

This is just the beginning. Cable and telco giants want to eliminate the Internet's open road in favor of a tollway that protects their status quo while stifling new ideas and innovation. If they get their way, they'll shut down the free flow of information and dictate how you use the Internet.

User 3

Carrier A

Collectsrevenues

Collectstraffic

Carrier B

Receives half AR

Terminatestraffic

User 1 User 2 User 1 User 2 User 3

Traditional Accounting Rate Traditional Accounting Rate SettlementsSettlements

Carriers match half-circuits and split all transport and switching costs.

Tier-1 ISP

Exchangestraffic

Small ISP

Collectsrevenues

Requestsand terminatestraffic

One-way (thick pipe)

User 1 User 2 User 3

For Internet paid peering or transit traffic, the small ISP pays for access toTier-1 ISP’s “advertised” routes. Payment might cover both halves of the international circuit(s) used for access to the Tier-1 ISP’s network. The small ISP may pay for the circuit directly, or in conjunction with one or more carriers.

Two-way (thin pipe)

Internet Paid AccessInternet Paid Access

WWW WWWWWW

Telephony

Cost Causation

The caller usually triggers a complete end-to-end network setup using facilities provided by the originating carrier and other carriers secured by the originating carrier.

Traffic measurement and tracking

Metering and tracking likely.

Parties

Agree on a multilateral basis to divide cost and share toll revenues based on ITU Recommended model.

Internet

Cost Causation

Traffic types and routing vary making it difficult to use traffic flows for determining who should pay; conduit and content merge.

Traffic measurement and tracking

Possible, but does not necessarily indicate which party initiated the link and who benefits. Upstream and downstream flows often asymmetrical.

Parties

Many carriers may be involved in switching and routing packets on a “best efforts” model; evolved from zero cost peering to a commercial hierarchy of peers and clients.

Telephony and Internet Models

The FCC’s Four The FCC’s Four Network Freedoms Network Freedoms

In a Policy Statement The FCC has articulated four non-binding In a Policy Statement The FCC has articulated four non-binding “ “principles”:principles”:

(1) consumers are entitled to access the lawful Internet content of their choice; (1) consumers are entitled to access the lawful Internet content of their choice;

(2) consumers are entitled to run applications and services of their choice, subject (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; to the needs of law enforcement;

(3) consumers are entitled to connect their choice of legal devices that do not harm (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and the network; and

(4) consumers are entitled to competition among network providers, application (4) consumers are entitled to competition among network providers, application and service providers, and content providers. and service providers, and content providers.

Note that the FCC says nothing about pricing. A recently initiated Inquiry and Note that the FCC says nothing about pricing. A recently initiated Inquiry and Rulemaking primarily addresses the adequacy of statistics gathering.Rulemaking primarily addresses the adequacy of statistics gathering.

Net Bias Versus Reasonable Price and Service Net Bias Versus Reasonable Price and Service DiscriminationDiscrimination

Impermissible Net BiasImpermissible Net Bias

Deliberate Packet LossDeliberate Packet Loss

Creating Artificial CongestionCreating Artificial Congestion

Targeting Large Volume ContentTargeting Large Volume ContentGenerators for Punishment or ExtortionGenerators for Punishment or Extortion

Most Types of Port Blocking (but not to control Most Types of Port Blocking (but not to control spam and denial of service attacks)spam and denial of service attacks)

Unilaterally Imposing Upstream and Downstream Unilaterally Imposing Upstream and Downstream Rules That Violate Existing Service Level Rules That Violate Existing Service Level AgreementsAgreements

Affiliate Favoritism That Violates SLAs, Fair Affiliate Favoritism That Violates SLAs, Fair Trade and Antitrust Laws Trade and Antitrust Laws

Fees for Overriding Firewalls and FiltersFees for Overriding Firewalls and Filters

Permissible Network BiasPermissible Network Bias

Variable Bandwidth and ThroughputVariable Bandwidth and Throughput

Bandwidth PartitioningBandwidth Partitioning

Metered ServiceMetered Service

Better Than Best Efforts RoutingBetter Than Best Efforts Routing

Akamai-type Enhanced Traffic Routing and Akamai-type Enhanced Traffic Routing and ManagementManagement

Special or Exclusive Content DealsSpecial or Exclusive Content Deals

Conclusions and Recommendations Conclusions and Recommendations

The next generation Internet will not offer a plain vanilla, one size fits all “network The next generation Internet will not offer a plain vanilla, one size fits all “network of networks.” Flexibility in pricing, service provisioning and quality of service of networks.” Flexibility in pricing, service provisioning and quality of service options can make economic sense.options can make economic sense.

However deliberate blocking or degrading traffic does not. However deliberate blocking or degrading traffic does not.

ISPs should be able to partition bandwidth and offer downstream end users and ISPs should be able to partition bandwidth and offer downstream end users and upstream ISPs different levels of bandwidth and QOS upstream ISPs different levels of bandwidth and QOS at different price pointsat different price points..

Better than best efforts is not a contradiction, but existing interconnection and Better than best efforts is not a contradiction, but existing interconnection and SLAs may restrict this option as might competition laws and commitments made to SLAs may restrict this option as might competition laws and commitments made to secure merger approval (AT&T-BellSouth).secure merger approval (AT&T-BellSouth).

ISPs should fully disclose terms and conditions as well as report on network usage. ISPs should fully disclose terms and conditions as well as report on network usage. Requiring transparency does not foreclose net flexibility, but it can prevent Enron-Requiring transparency does not foreclose net flexibility, but it can prevent Enron-type gaming and induced congestion. type gaming and induced congestion.

Conclusions and Recommendations Conclusions and Recommendations (cont.)(cont.)

Net flexibility should not extend mid-stream to the switching and routing Net flexibility should not extend mid-stream to the switching and routing of traffic between a content source and end user unless and until a single of traffic between a content source and end user unless and until a single ISP can offer a superior and complete routing from server to client.ISP can offer a superior and complete routing from server to client.

SBC-AT&T Chairman Ed Whitacre has not demonstrated how content SBC-AT&T Chairman Ed Whitacre has not demonstrated how content providers such as Google have enjoyed a free ride. On the other hand ISPs providers such as Google have enjoyed a free ride. On the other hand ISPs should have the option of offering a more expensive, premium content should have the option of offering a more expensive, premium content delivery option if ISPs can deliver it.delivery option if ISPs can deliver it.

Net bias to mid-stream traffic should not occur simply because certain Net bias to mid-stream traffic should not occur simply because certain content providers generate a lot of traffic and have greater market content providers generate a lot of traffic and have greater market capitalization, or because an ISP can create congestion like Enron did.capitalization, or because an ISP can create congestion like Enron did.