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14|12|06

Communications Research Networks (CRN) Workshop

Net Neutrality: Battle for a New World Order or Much Ado about Nothing?

Should Regulators be concerned with Net Neutrality?
Peter Ingram, Chief Technology Officer, Ofcom

See the slides associated with this speech

Good morning, and thank you for giving me the somewhat mixed blessing of being the first speaker at today’s workshop. With a great agenda and so many interesting participants, I think we are in for a very entertaining day.

SLIDE 1 – WHAT IS NET NEUTRALITY?

Being the first speaker of the day, it seems sensible for me to start with a definition of what we are talking about. It turns out this is rather difficult. Reading much of the debate so far, you could easily come to the conclusion that the concept of Net Neutrality isn’t rooted in science or network design so much as in ideology or politics. So the definition of Net Neutrality greatly depends on who you ask.

Essentially though, the term has become shorthand for a complex debate about whether and how access to, and control of, internet content should be regulated.

One way to understand the range of possibilities that are being considered under the banner “Net Neutrality” is to look at the most extreme versions of how the internet might look if the Pro- or Anti- Net Neutrality camps were to prevail…

SLIDE 2 – THE PRO- NET NEUTRALITY VISION

Starting with the Pro- Net Neutrality lobby, the most extreme version essentially says that all applications, content, content providers and users on the internet should be treated equally.

Looking first at the implications of this for consumers, operators and ISPs would not be able make the availability of any broadband access service dependant on taking any other services or products. This would likely stop many of the bundling deals we already see today.

Across the internet itself, traffic from all applications would be treated equally. This means network operators would not be allowed to discriminate against any application by prioritising one traffic stream over another, or by blocking or throttling particular traffic.

Finally (on the right hand side), the extreme view of Net Neutrality would prohibit operators from doing any deals with content providers which would offer them preferential service. All content providers would be treated equally including an operator’s own content provision interests.

To achieve all this, the Pro-Net Neutrality lobby in the US , argues that new legislation is required immediately to outlaw any potential “non-neutral” action by the network operators.

SLIDE 3 – THE ANTI- NET NEUTRALITY VISION

In contrast, those on the opposite side of the argument feel operators should be free to offer whatever sorts of service they wish, under whatever charging arrangements they choose.

So for you the consumer, your charge for internet access could vary based on any number of factors: as well a paying based on the speed of your access, or the amount of data you consume, you might pay more based on the type of content you view or even which company provided it. Certain applications might be barred completely, no matter how much you pay.

Many people use the term “2 tier internet” to describe what might emerge without Net Neutrality. Certain content would benefit from guaranteed quality of service. This might, for example, ensure that a video service was allocated the data rate it needed to work perfectly, wherever you were in the world, or whatever time of day you accessed it. This tier would be for privileged users, applications, and content providers, that could afford to pay for it.

Everything and everyone else would use the other tier which would consist of any left-over capacity – this would offer only its “best effort” to deliver content effectively. Would this be enough capacity for the applications relying on it to operate successfully? That would be down to the network operators to decide.

Looking to the content and application providers, this view of the world says that network operators should be free to make any commercial arrangements with them that they see fit. Companies wishing to pay for the prioritised delivery of their services would be able to. Operators would be free to degrade or block traffic from providers who didn’t pay.

The Anti- Net Neutrality side argue that flexible business models are needed to pay for the networks to be updated in line with users’ expectations. Increasingly, people use high bandwidth and time critical applications, like file sharing, video streaming and telephone calls, and the current infrastructure of the internet is increasingly unable to cope. They claim that if they were constrained by Net Neutrality legislation, investment in things like fibre access networks and higher capacity backbones will be impossible to justify.

SLIDE 4 – DEBATE SO FAR

So there you have deliberately extreme versions of what a world with, and without, Net Neutrality might look like. There are few organisations or individuals who paint their preferred outcome in such stark terms. However, in the US at least, the debate is still very polarised. On the one hand there are those who support new legislation to ensure Net Neutrality, and on the other, those who do not.

So who sides with who? Well, at some level it isn’t too hard to guess.

In the Pro-Net Neutrality lobby are mainly companies who rely on wide-spread access to the net for their core business. Most argue, that they themselves would not have been able to innovate and achieve the success they have as a result, had the net not been neutral when they started out. Without guaranteed ongoing Net Neutrality, future innovation on the net will suffer, they claim.

The opposing side argue that the success of many of these internet companies has come largely from free-riding on networks which the operators and their customers pay for. They see Net Neutrality as simply a way of ensure that the free ride can continue.

On this side of the argument are mainly network operators, along with some manufacturers and policy think tanks. The Pro-Net Neutrality camp label this group as the fat cats who will benefit from charging consumers again for access they have already paid for.

You’ll notice these are all US based organisations – we’ll get back to that important point shortly.

SLIDE 5 – DEBATE SO FAR

So how are the two sides getting on?

Well, they both have impressive web sites busily rubbishing each others claims. The Pro- lobby have got lots of new bills put forward in the US , but the Anti lobby has ensured most haven’t been voted into law. In support of Net Neutrality, the “Save the Internet” campaign claim over 1 million people have signed their electronic petition. They also claim that the other side’s “Hands Off the Internet” campaign has been established to suggest grassroots support for the alternative view, when in fact, there isn’t any.

I certainly can’t do justice to the range of arguments presented in this presentation, and no doubt we will hear much more of both as today unfolds. So, I would like to spend the rest of my time looking at how Ofcom, as a regulator, see the reality of the internet today and in the future, and how this fits with the cases for and against Net Neutrality.

SLIDE 6 – US vs EU – DIFFERENT MARKETS

This debate started, and has pretty much stayed, in the US.

In fact, the Pro-Net Neutrality lobby, in the form of Vint Cerf, Google’s Chief Internet Evangelist, even cites the UK as a model of openness and non-discrimination for the US emulate. In his testimony to a US Senate committee, he used the separation of BT’s wholesale and retail operations as an example of the non-discrimination absent in the US .

The perceived problem there is as a result of changes in the way the FCC regulate broadband. The incumbent telcos recently lost their requirement to un-bundle, something which we in the UK see as a key tool in addressing competition problems.

The lack of un-bundling in the US is likely to mean rapid concentration in the retail ISP market. If a consumer wants broadband, typically they will only have a choice between the providers who own the wires into their house, rather than multiple ISPs offering bitstream or LLU access. This lack of choice, it is argued, could lead to abuse of the operator’s resulting market power. And this, in turn, needs to be stopped by outlawing any “non-neutral” behavior using new legislation.

As the UK has such strong retail ISP competition, these problems, and therefore a strong case for new ex-ante legislation, are much harder to imagine here.

SLIDE 7 – US vs EU – SPECIFIC EXAMPLES

This slide presents two examples of what might be considered “non-neutral” behaviour – one from the US and one from the UK .

Looking to the right, we see T-Mobile’s “web ‘n walk” mobile internet service. Earlier this year, a clause was introduced which specifically prohibited customers of this service from using VoIP or Instant Messenger applications across it. Like the fixed ISP markets, mobile customers have many choices of provider. In a competitive market like this, customers had other options if they no longer found T-Mobile’s offer attractive. In fact, T-Mobile have now introduced a higher cost version of the product which does allow VoIP. Whether this was a reaction to market pressures we can’t know, but it certainly didn’t come as a result of regulatory intervention or Net Neutrality law.

Another possibility is demonstrated by the US example. Here, in 2005, a rural incumbent local exchange carrier – Madison River -with about 40 thousand broadband customers blocked access to VoIP services. Vonage, a large provider of VoIP, complained to the FCC. The FCC issued Madison River with a $15k fine and an order to stop the blocking of VoIP.

Here, there was a market failure and this was rectified with intervention. Importantly though, this was achieved using the existing laws available to the FCC – new legislation wasn’t required.

We believe that in the UK , most of the problems feared by the Net Neutrality lobby, if they occur, will be resolved in similar ways.

This implies that there is no requirement for new legislation to ensure that the net remains neutral – there are existing solutions. But there are other reasons to question some of the legislation that has been put forward in the US . For example, does the view of Net Neutrality it looks to protect really exist today? And might these new laws have unintended consequences?

SLIDE 8 – SOME REALITIES OF TODAY’S NET

To explore these questions, here are some examples of how the net, and access to the net, operates today.

At its most basic, the internet doesn’t know, or care, what sort of application each packet belongs to. It therefore treats all packets equally, doing its best to deliver each one as fast as possible. For some applications this makes for great performance, but for others, it simply isn’t good enough. Applications like e-mail will work well, even when the network is busy, but others, for example VoIP might not work well at all – hardly application neutral.

The internet community has been working on standards such as IntServ, DiffServ and MPLS to address these problems for many years. They deliberately introduce “discrimination” to the internet to ensure it remains useful for certain types of new application.

The shaping of peer-to-peer traffic is another example of discrimination on today’s internet that is essential for its smooth operation. Without it, the huge capacity consumed by the minority of people that use it heavily would degrade the service enjoyed by everyone else.

It is hard to guess what applications might appear next and what measures might be needed to cope with them. For example, if Net Neutrality law had been set 5 years ago, it might not have allowed for the shaping of P2P traffic. Without this, the net would be in a sorry state right now.

SLIDE 9 – SOME REALITIES OF TODAY’S NET

Looking at consumers (on the left hand side), there is an ever increasing range of choices when buying broadband. In the extreme, many customers are no longer directly paying for their broadband access at all, because they receive it as part of a product bundle. In short, there is a huge amount of choice and differentiation in customer access products today.

Finally, we have the providers and their access to the network. Deals with operators which result in prioritised or preferential delivery of content, is perhaps the greatest concern for many Net Neutrality proponents. However, we already see many examples of this in other parts of the internet value chain.

By way of example, we see Google, via its AdWords service, offering a prime place among its search results for content providers who pay them. Google don’t offer internet access services, but they are the leading provider of another important part of the internet value chain - content discovery. And via AdWords, they prioritise the delivery of one provider’s content over another’s, based on commercial relationships.

In this sense, a network operator prioritising one provider’s content over another’s, is very similar. However, it occurs at a different point in the value chain. The question becomes, is this part of the value chain special ? Does it need protection which other parts do not? The answer might be yes, if this area had no competition, but as we have seen, we have plenty of competition at this point in the value chain in the UK .

In summary then, the internet is already quite different from the vision of Net Neutrality that some of the US legislation looks to enshrine. This certainly isn’t the end of the story though – the net will continue to evolve and develop. More of the Net Neutrality concerns will become realities. And, while they may be different from those in the US , relevant market problems may well occur here in the UK too. And when they do, that is when the regulator may need to become involved.

SLIDE 10 – OFCOM’S DUTIES & POWERS

We’ve looked at arguments relating to competition, to innovation and to investment. We have duties relating to all of these.

But there’s also an important principle underlying the way we regulate. We have said we have a bias against intervention in making policy decisions.

That may be important in this case because what we would be intervening in, were we to follow the path suggested in the US , is dictating a new market structure – a very dangerous place for a regulator to be.

We will continue to monitor developments in this area, and to keep our position under review.

If we do need to act, we can do so under the European Framework. The process is to define markets, establish whether any providers have SMP , and if so to put in place any appropriate remedies. So, if the market wasn’t delivering, the Framework would allow Ofcom to, for example:

• require dominant operators to not discriminate
• require transparency and good migration processes

This last point is critical. Our reliance on ISP competition to solve many potential problems will only work if consumers have sufficient information and the ability to switch providers. This is an area which Ofcom considers increasingly important.

Under the Communications Act, suppliers have to comply with various General Conditions in order to take part in the market. If there was evidence that the market wasn’t doing so adequately, these could address, for example, the information that providers supply consumers about their products.

…and finally, of course, companies in the Communications sector have to comply with general Competition Law, and Ofcom is the relevant competition authority in the Communications sector.

SLIDE 11 – CAN WE GENERATE A MORE CONSTRUCTIVE DEBATE TODAY?

The debate on Net Neutrality in the US has been characterised by one commentator as “fear versus hope”. The reality is likely to lie somewhere between the extreme views of the opposing camps I have presented here.

To go back to the title of my talk, yes we do believe regulators should be concerned with Net Neutrality. A healthy and inclusive internet is important for the UK ’s citizens and consumers, and is therefore important for Ofcom. But it does not follow that we should introduce lots of ill thought out ex-anti regulation as a result. The market in the UK is well placed to deal with many of the “fears” about Net Neutrality, should they be realised. And if the “hope” that a healthy net will result is misplaced in particular instances, we have existing ex-post regulation and law which can and will be used as appropriate.

This is a fascinating topic with many hidden subtleties and complications which are rarely exposed. So the question for the workshop today is, can we produce a debate on this important topic that is based on the reality and evidence of the UK market? If we can, the result will be more constructive than much of what we have seen elsewhere. Thank You.

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