Network Neutrality:Network Neutrality: Regulation and Policy

D I is Hensele UngeDr. Iris Henseler-Unger,Vice-President of Bundesnetzagentur

WIK C f N t k N t lit I li tiWIK-Conference: Network Neutrality – Implications for Europe, Bonn, 3-4 December, 2007, ,

Outline

A

B

Features of the Internet and network neutrality

B

C

Network neutrality in NGNs

Network neutrality violationsC

DELegal framework in the EU to address network

Network neutrality violations

DELegal framework in the EU to address network neutrality

2

Features of the Internet I

The internet has generated a continuous stream of innovations in applications and services

Simple architecture: Any computer can send packets to any other computer, while packets are not inspected by the network, i.e. packets are homogenous commodities

Dumb network“ with innovations at the edges shaped by„Dumb network with innovations at the edges shaped by end-users

Separation of network and services

3

Features of the Internet II

Users typically pay for connections to the Internet, price may depend on speed and quality

Network operators do not act as selective gatekeepers

S i id d t t ISP t tService providers do not pay operators or ISPs to get exclusive access to particular users

Internet based on freedom of connection with any application or service and to any party. This may be called

Network neutrality

4

Network Neutralityy

There exists no precise definition of the termThere exists no precise definition of the term

4 Internet Freedoms: The FCC (Michael Powell, 2004) has declared that citizens should be entitled tot at c t e s s ou d be e t t ed to

- Access internet content of their choice

Run online applications and services of their choice- Run online applications and services of their choice

- Connect the device of their choice

- Have fair competition among network, application, service and content providers

This can be taken to mean that the internet should be operatedThis can be taken to mean that the internet should be operated under non-discrimination and should protect interconnection and end-to-end connectivity

5

Time changes …g

Capacity becomes more scarce

- YouTube, GoogleYouTube, Google

- Web 2.0

Investment in networks becomes urgent

Technology becomes smarter

6

Networks become smarter

Technological innovations now allow quality of service at the network level (transport performance classes) and labelling of individual packets (packet shaping) Thislabelling of individual packets (packet shaping). This opens up the possibility to

- raise the priority of a certain data flow or

- limit the priority of another onelimit the priority of another one

The provision of applications that are time-sensitive (e.g. voice) or that require high bandwidth (e.g. video) may be eased by different transport classes

7

Next Generation NetworksNext Generation Networks

A packet-based network able to provide telecommunication services and able to make use oftelecommunication services and able to make use of multiple broadband, QoS-enabled transport technologies and in which service-related functions are independent from underlying transport-related technologies. It enables unfettered access for users to networks and to competing service providersusers to networks and to competing service providers and/or services of their choice. It supports generalized mobility which will allow consistent and ubiquitousmobility which will allow consistent and ubiquitous provision of services to users.” (ITU Y.2004 (04), 31)

8

Incentives of network operatorsp

NGN d fi iti t i t k t t lit hil hNGN definitions tries to keep net neutrality philosophy (separation of network and service), but

Network operators have incentive to differentiate networks horizontally to decommoditize infrastructure and thereby lessen competition through access tieringthereby lessen competition through access tiering

Vertically integrated operators controlling the connectivity l h i ti t f l th i titlayer may have an incentive to foreclose their competitors at the application layer e.g. through blocking of VoIP-services or QoS-discrimination (Port blocking and quality Q ( g q ydegradation)

9

e.g. Germanyg y

Mobile operators tried to promote own services

DTAG tried to start a discussion of net neutrality whenDTAG tried to start a discussion of net neutrality when announcing VDSL-investment

A l i d f f d f l “ i th I t tArcor claims „end of freedom of love“ in the Internet when announcing its VDSL-investment plans

Telcos offering more and more triple play offers –entering content business

10

Violations of network neutralityy

C ti i diff t t f t t b d diff iConsumer tiering: different types of access contracts based on differences in speed and volume sold at different prices according to willingness to pay

Port blocking and quality degradation (e.g. VoIP)g q y g ( g )

Access tiering: bandwidth priority at a price independent from internet access fees to application service and content providers that are willing to pay for quality of servicequality of service

- Quality of Service differentiation to add flavour to service

E l i d l i h li i id h i ll diff i- Exclusive deals with application providers to horizontally differentiate

- Act as gate-keeper to extract rents from application providers and end-usersusers

Harmful or welfare enhancing price differentiation???

11

Evaluation of network neutrality violationsviolations

C ti i b id d lf h i t fConsumer tiering can be considered a welfare-enhancing type of price differentiation

Port blocking and quality degradationPort blocking and quality degradation

- Must be considered an effective anticompetitive practice reducing static and dynamic efficiencystatic and dynamic efficiency

- Effectiveness of ex-post intervention depends on effectiveness of monitoring, detection and punishmentsg, p

- Guaranteeing sufficient competition at the network level

Facilitating b oadband access sec ing eas s itching and/o- Facilitating broadband access, securing easy switching and/or requiring interoperability may be sufficient

12

Evaluation of network neutrality violationsviolations

A ti i ld b bl tiAccess tiering could be more problematic

- Exclusive deals reduces variety and transparency for consumers

- QoS differentiations softens competition between networks

- Increased bargaining power of network vis à vis application developers

- Radical innovators are not likely to get exclusive deals for receiving priority thereby facing higher risk of critical mass problem

P ibl d t ti ffi i- Possibly reduces static efficiency

- Possibly reduces innovation at the edges

- Possibly improves incentives to invest and innovate in the networks

13

Effects of network neutrality on dynamic efficiencydynamic efficiency

What is more relevant: static efficiency dynamic efficiency?What is more relevant: static efficiency – dynamic efficiency?

What is more relevant for dynamic efficiency?

- Innovation at the edge (applications and services) or

- Innovation at the core level (invest in „better“ networks, upgrade and/or new role out)and/or new role out)

Hypothesis: Application innovations at the edges more important for dynamic efficiency than centralized innovations within networks y y(„killer applications“ have rather come from the users than from the network)

Imposing network neutrality

14

Policy Toolsy

Hands-off approach

Minimal type of intervention – require interoperability andMinimal type of intervention require interoperability and minimal quality of service

A li ti d i id d t h t- Applications and service providers do not have to carry the burden of proof

Impose network neutrality through regulation

Whi h kind of pp o h i ef l depend i ll on theWhich kind of approach is useful depends crucially on the degree of competitiveness at the network level

15

Regulatory Tools in the German Telecommunications ActTelecommunications Act

SMP framework is meant to address market power problems playing aSMP framework is meant to address market power problems playing a role for net neutrality

Art 18: Interconnection and interoperability set as general principles t 8 te co ect o a d te ope ab ty set as ge e a p c p es(not just for SMP operators)

Art 21: Possibility to impose ex-ante obligations on SMP parties after having determined an SMP operator on the relevant markethaving determined an SMP-operator on the relevant market

- Wholesale Broadband Access (Market 5 new)

- Unbundled Local Loop (Market 4 new)

- Termination and Origination (Markets 2,3 new)

More specific legislation for network neutrality necessary?

16

Network Neutrality in the EU-Review I

Proposed Amendments of the Universal Service Directive

Art 20(5) Transparency mechanism concerning possibleArt 20(5) Transparency mechanism concerning possible restrictions on end-user‘s choice of content and applications

Art 22 grants NRAs the power to prevent degradation of quality by setting minimum quality levels for transmissionquality by setting minimum quality levels for transmission services for end-users

17

Network Neutrality in the EU-Review II

Proposal Article 20 (5) of USD

Member States shall ensure that where contracts are concluded between subscribers and undertakings providing electronic

i ti i d/ t k b ib l lcommunications services and/or networks, subscribers are clearly informed in advance of the conclusion of a contract and regularly thereafter of any limitations imposed by the provider on their ability to access or distribute lawful content or run any lawful application and services of their choice.

18

Net Neutrality in the EU-Review III

Article 22 USD is amended by among other changes adding the f ll i h (3)following paragraph (3)

In order to prevent degradation of service and slowing of traffic t k th C i i h i lt d th A th itover network the Commission may, having consulted the Authority

adopt technical measures concerning minimum quality of service requirements to be set by national regulatory authority on undertakings providing public communications networks

19

Balancing the Tools

N k li i l i i ll l f b f kNetwork neutrality violations partially result from abuse of market power

R l F k i h EU dd k blRegulatory Framework in the EU addresses market power problems

The most important goal of regulators should be

- to support competition at the network level (intermodal competition, facility based competition in new fibre technologies,

titi i l t d d l t h l l d tcompetition using regulated and voluntary wholesale products offered by the SMP operator on DSL networks)

hil k i i ti t i t i t k i f t t- while keeping incentives to invest in network infrastructure

20

… better than any specific net neutrality regulationneutrality regulation

Competition at network level increases dynamic efficiency

Competition at network level offers consumer choicesCompetition at network level offers consumer choices

Competition at network level enforces network neutrality

21

e.g. Germany …g y

Vivid intramodal competition of telecommunication networks

Starting intermodal competition to cable operators

E i f d li it d t i t tExperience: consumer preferred unlimited access to internet to mobile operators platforms

22

Local loop rentalsp

6 200 0006,200,000

4,700,000

3,240,000

1,960,000

1,350,000940,000

620 000620,000320,000

130,00030,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007e

23

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007e

DSL access lines incl. resale

18.7

million DSL lines

14.3

10.38

3.164.4

6.77

1.873.16

2001 20032002 20052004 2006 2007e

24

DSL lines market share of DTAG and competitorsand competitors

94% 91%83%

100%

DTAG Competitors

83%

61%52%60%

80%

39%48%

49% 52%

51%40%

60%

6% 9%17%

20%

0%2002 2003 2004 2005 2006 2007e

25

DSL lines added, by country (EU 25), (July 06 - July 07)(July 06 - July 07)

4,34

7,50

0

9,69

3

450

2,71

9

2,55

8,4

8,67

7

2

1,68

1,30

9,81

669

7786

597,

6

473,

47

462,

98

269,

000

213,

274

206,

898

197,

360

169,

328

162,

591

155,

693

144,

542

144,

542

72,3

93

70,8

36

67,4

02

47,2

17

35,4

92

30,7

62

17,1

70

4,07

7M

T EE LU CY LV SI SK LT FI PT

AT CZ

BE IE DK

HU SE EL NL

PL

ES IT UK FR DE

26*as of July 07; source: EC, BNetzA