Network Neutrality: Old Whine in New Bottlenecks

in the United States and Europe

Kenneth R. Carter, JD, MBA Senior Consultant

wik-Consult, GmbH

Third Transatlantic ForumMontpellier, France

November 14, 2007

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Network Neutrality: The Fear

http://i7.tinypic.com/5z6vt4n.jpg

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provider'svideo service

"Next Generation" = c.2006-2010

• eg, 30Mbps [fiber, VDSL,...]

- 5Mbps commodity Internet

- .5Mbps voice (using IP)

- 20Mbps video (using RF>IP)

• parallel access to distinct nets – eventually all using IP

• "fractionalized IP" (reserved) – not single "prioritized" stream

• multiple LANs multiplexed on a single trunk (VLAN technology)

• user can provision third-party services over Internet service

• here: five IP pipes with potentially different attributes

Network Neutrality: The Reality

Next Generation Residential Broadband Access: "Fractionalized IP"

residentialbroadbandconnection

InternetAccessservice

provider'svoice service

3rd-partyservice

Source: Richard Hovey

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Bandwidth (data transfer rate)

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Email FTP

Video Streaming

Audio Streaming

IRC

VoIP

Gaming

Video Telephony

Economic Concerns A bit is a bit, but a bps is not a bps

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What are the economic implications?

• Many of the concerns that have been raised in regard to network neutrality relate to behaviors that, in the absence of market power, would tend to enhance consumer welfare.

- Some would appear to represent legitimate price discrimination.

- Others enforce the economic property of excludability (the ability to prevent someone from using a service that he did not pay for) in support of price discrimination.

- In a competitive market, these practices would be entirely appropriate.

• Other violations of network neutrality, however, could imply some form of economic foreclosure (the attempt to project market power into a vertically related market segment that would otherwise be competitive), which should be viewed as being anticompetitive.

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Market Maker(Internet Service Provider)

Two-sided MarketWith a new wrinkle

Market Maker(Cable Provider) Content ProducerViewer

AdvertiserAdvertiser

$$

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$New Wrinkle

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Network Management and Network Neutrality?

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Partial Blocking

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Acceptable Questionable Unacceptable

Restri

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Implications for European policymakers

• Europe today enjoys a far more competitive broadband market than does the United States.

- On the average, more than half of all retail DSL lines in Europe are provided by competitive entrants.

- Most consumers have access to more than two providers.- For these purposes, service-based competition is sufficient.

• Trying to address network neutrality challenges through ex ante regulation is likely to prove extremely difficult.

• The first line of defense for European policymakers should instead be to avoid the problem altogether by maintaining the competitiveness of the underlying markets.

• Occasional or sporadic problems related to network neutrality might be addressed ex post through the exercise of competition law.

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What policy measures might be effective?

• Madison River consent decree

• FCC “Broadband Policy Statement” of September, 2005

• Attempted legislative fixes

• Subscriber right ratification of third party contracts

- Transaction costs: standardized plans

- Pricing of differentiated services

• “Network Neutrality Squads” and class action law suits

• Wireless: standardized interoperability with radio backplane

- Carterfone-type connectivity to network only

- Opening of full air interface impracticable

• Promote true competition best fix

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Network Neutrality: Implications for Europe Information

Monday, December 3 to Tuesday, December 4, 2007

Hotel Kanzler, Bonn, GermanyGiven the growing prominence of broadband, an intense debate concerning whether Internet service providers should be required to offer access on a non-discriminatory basis with respect to content, applications and network devices has taken place in the United States. This debate has colourfully been dubbed as Network Neutrality. With this conference, WIK will bring together leading experts from government, academia and industry from the United States , Japan and Europe to seek a deeper understanding of Network Neutrality.

For more information or to register:Phone: +49(0)2224-9225-42

Email: net_neutrality_conference@wik.orghttp://www.wik.org/content/netneutrality_main.htm

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Kenneth R. Carterwik-Consult GmbHPostfach 200053588 Bad HonnefDeutschlandTel +49 (0) 2224-9225-24Fax +49 (0) 2224-9225-2224eMail k.carter@wik-consult.comwww. wik-consult.com

Merci Bien