May 2, 2007

The history of telecommunications is rife with legal wrangling, dating back to patent disputes over the invention of the telephone itself. More recently, following the Telecom Act of 1996, carriers and their legal teams have battled over access to incumbents’ networks and network elements, with skirmishes fought over the very definition of “telecommunications services” (as opposed to “information services”) and the pricing of those services. With a string of mergers in recent years, further battles have been waged about the (re)consolidation of assets in mega-players.

Now the telecommunications industry is at the outset of a new debate, the first of the “Web 2.0” era. The current debate was framed by two cases in 2005. The Supreme Court held in its Brand X decision that cable modem service is an “information service” and not a regulated telecommunications service, meaning cable operators could not be required to provide access to content and applications providers. Also that year, Vonage complained informally and extracted a settlement from a small telco that had blocked Vonage’s VoIP application from its network because it competed against its own services.

The budding debate over “Net Neutrality” recasts some old arguments about control of networks and access to those networks with some new players—and odd bedfellows—on both sides of the debate. The debate is now taking shape, and like the deliberations which produced the ’96 Act and UNE-P policy changes, the results will play out over the next few years. In this Communications Technology Advisor, we freeze the action and examine the lines that both sides have drawn in the sand.

The “Pro Neutrality” Argument

One side of the debate argues that access to the Internet should be open and unfettered, and that service providers should not be allowed to restrict certain kinds of content or to block specific content providers. SaveTheInternet.com, a coalition of non-profits and small businesses that advocates Net Neutrality, frames the argument as one in support of a “First Amendment for the Internet.”

Content providers like Google, Yahoo, and Amazon.com are significant Net Neutrality proponents. They contend that large carriers, who transport a majority of domestic Internet traffic at some stage, could discriminate against certain providers’ traffic, forcing them to pay more for carriage. A carrier, they say, could ultimately block their traffic altogether if the deems it competitive with its own applications or services. In 2005, a small telco in North Carolina blocked Vonage VoIP traffic from its network for just that reason; when Vonage raised the issue with the FCC, the telco relented. Some observers alleged a similar “obstruction” occurred in 2006 when

Many competitive service providers also favor the concept of Net Neutrality. CompTel, the umbrella association for competitive communications companies and their suppliers, has advocated initial neutrality measures. The association defines Net Neutrality as “nondiscrimination, interconnection on reasonable terms and conditions, service upon reasonable request, the right to attach devices to the network, and the right to innovate and provide service without having to obtain the permission of the network operator.”

These providers, which range from traditional facilities-based CLECs to new VoIP-service companies, suspect that large carriers could use their market dominance to impede competitors. It is in essence a resurrection of longstanding network access debates. CompTel, for instance, argues that the loudest opponents of Net Neutrality control the “choke points” to the Internet. With their copper plant, the incumbent telcos possess the “last-mile” phone line to residences and most businesses; with their coax and HFC networks, the big cablecos control the most extensive alternative to the telcos. So competitive service providers must often work with one of these access providers on either a wholesale or partnership basis, and content providers know that in the majority of cases they will deliver their content over these access pipes either directly or indirectly.

Several things are at stake for the “pro neutrality” camp. The content providers’ existing business models could be threatened if buying large amounts of cheap bandwidth is no longer sufficient to ensure the response times that consumers now expect. They fear that a carrier could essentially “blacklist” their content as “overtaxing” or “freeloading” on the carrier’s network, and degrade (“choke off”) delivery of that content to end-users. If a streaming audio or video site suddenly found its traffic “de-prioritized” in favor of other customers who pay for special traffic privileges, they may find it difficult to operate at all.

Also at stake is control. Content providers like Google, Microsoft, and eBay currently dominate consumer mindshare when it comes to the Internet. Each has also made forays into traditional telco turf: Google Talk, Microsoft Office Communications Server 2007 and MSN Messenger with IM and voice messaging, and Skype for eBay buyers and sellers. These telephony applications are divorced from the infrastructure which carries them, meaning the content providers are dependent on their network operators. Net neutrality legislation would provide a form of indirect control, as regulation would provide at least stability and certainty.

The “Status Quo” Argument

On the other side of the debate stand the large carriers, including some odd bedfellows: large telcos like AT&T, Verizon, and Sprint, as well as large cable MSOs like Comcast and Time Warner. Their position is referred to variously as advocating an “anti-neutrality” or “pro-competition” stance depending on the commenter’s position. This de facto alliance argues that wireline network operators have invested tens of billions of dollars developing next-generation networks, and that in order to recoup that investment and provide differentiated services to their customers, they should be free to charge for enhanced services and content carriage.

In order to manage traffic on their networks rationally, the operators argue they should be free to handle demanding traffic—streaming content, real-time data—differently from basic transport. This is especially important as legacy infrastructure—hardware, protocols, etc.—struggles to support surging bandwidth and applications that are increasingly sensitive to service performance (latency, jitter, etc.).

These players point to existing, widely accepted restrictions they already place on some services. For example, customers of unmeasured broadband data cannot in turn resell their access to third-parties and overload the network. Likewise, so-called “unlimited” calling plans often have usage ceilings (e.g., 5,000 minutes per month) stated in their Terms and Conditions.

Essentially, they advocate leaving the market as it is.

Users already “self-prioritize” traffic. Larger users buy faster pipes, and at a greater cost. Further, extremely large content providers can set up multiple, redundant data centers to distribute data. By locating these centers directly on fiber links closer to end-users, or by purchasing such service from a hosting company like Akamai Technologies, Inc. or Limelight Networks, content providers speed page loads and obtain some measure of service diversity.

The big broadband providers also contend that it would be counter-productive for them to block traffic to and from desirable sites. The value of any network is dependent on the number of sites on that network, and obstructing traffic from top media or commerce sites would only make Internet access less valuable to consumers.

What’s at stake for the “status quo” proponents are high-margin enhanced services. With the advent of real-time applications—telephony, video—there is a demonstrated buyer interest in traffic segregation according to class of service. Network operators are already rolling out some differentiated QoS features, and their roadmaps for the next 3-5 years are largely built around offering these enhanced service levels and security.

What’s Next?

The debate over Net Neutrality is just beginning. Lobbying efforts have already been intense, and with a new Congress yet to turn its attention to telecommunications, those efforts will only increase.

In a future Communications Technology Advisor, we’ll take a closer look at some academic arguments over Net Neutrality and how they could impact the debate.