He also declared:
"I do see competition law as the answer to many of the issues."
I would agree that in the face of anticompetitive behavior content providers may assist to the competition law and build a case against blocking or shaping Internet competitive traffic. Nonetheless, that kind of “ex-post” regulation is applied once the anticompetitive conduct has been exercised (perhaps for a long time) and the harm is already done. Many casualties -like companies going out of business or a significant loss in consumers’ confidence- may occur.
This is where telecom “ex ante” regulation comes into picture: to prevent misconducts from regulated parties. It is precisely because of this issue that the institutional design for telecom regulation includes two regulators. On one hand, the so called “sectoral” regulator mandated with creating and maintaining a level playing field (ex ante) and on the other hand, a general competition authority with the aim of punishing observed anticompetitive behavior (ex post).
Now, let’s take a look of what kind of regulatory policies could be enacted to preserve the net neutrality principle.
Remedies
Improving Information Disclosure to Consumers
Assuming a scenario where there is sufficient competition in broadband access, network operators would have very little incentives to block or prioritize traffic without the user’s consent. Since what broadband operators are offering is a “big access pipe”, they will be more concern in offering greater bandwidth and less worried about content and applications, after all innovation at the edges of the network is happening at a very impressive pace and users are often surprised with all the things they can do on the net.
Nonetheless, despite some sort of competitive environment, lack of information may entail an important market failure. Many of the potentially negative issues -even associated with an Internet structure that may allow for some kind of traffic shaping- could be addressed by better information disclosure and consumer protection rules.
The net neutrality principle could be much better protected in markets where Internet users can make informed choices between competing broadband providers and are free to change provider in the face of unwanted blocking or traffic shaping. A principle in consumer protection policies is that users need to know exactly what they are buying. Signing up for a broadband connection should not be an exception.
An expedite way to intervene in this issue is for regulators to encourage or require a better disclosure from network operators or ISPs on the types of traffic shaping (if any) they may use, including information when there are services that are blocked or degraded to an extent that performance could suffer.
In the face of broadband packet shaping policies regulators should implement safeguards that include encouraging or requiring broadband providers to clearly state real-life broadband speeds and what percentage of the connection could be used for best-effort service.
Despite the usefulness of this kind of policies, little can be achieved to preserve net neutrality in the absence of sufficient competition or high switching costs.
Competition in Broadband Access
Following the OECD work in the analysis of Internet traffic prioritization, fostering competition in the broadband access market has been the main policy recommendation for its members. The OECD believes that the risk of anticompetitive behavior typically declines as the number of effective competitors in a market increases and of course, in line with this organization philosophy, it would not entail a direct intervention that could distort markets even further.
Therefore, the level of competition in the broadband market appears to be the most important factor a regulator takes into account to assess the need to implement safeguards against anti-competitive traffic prioritization. Nonetheless, defining the market to determine the level of competition is not as simple in broadband markets since data services may be available over multiple platforms.
In due course, regulators need to undertake a careful market analysis to determine whether consumers have effective choices for substitutable broadband Internet access.
But not only should regulators evaluate the available supply of broadband access providers. Consumers may find that changing operator implies a high switching cost. That switching cost may be the result of the high cost a competitive provider faces to -for example- pay the incumbent for an unbundled line.
Other challenging issues may arise from trying to foster competition in the broadband market. We should remember that the telecom sector was considered a natural monopoly with the existence of a public company that provided the access to the last mile. Even though there have been deep liberalization processes in most countries, it still remain incumbents with a strong dominant position.
There are only a handful of countries with sufficient level of competition in the broadband access market that could provide enough safeguards to discourage carriers to use their power to block or prioritize traffic on the net. Moreover, it could take many casualties until regulatory policies can be enacted to promote a level playing field in this market.
The challenge to preserve net neutrality is indeed a big one. Perhaps policy makers should try to translate the separation of the platforms from the services they convey into meaningful regulatory instruments that allow the consumer to make their own choices regarding communications content, services and applications.
A word for Latin America
Although there have been some discussions in Latin American countries towards net neutrality, the real debate and actions are taking place in developed countries. Latin American governments are still dealing with very strong incumbents even to promote competition in basic fixed and mobile telephony.
As we have just analyzed above the net neutrality principle is at a higher risk when concentrated broadband markets are observed. Even in developing countries such as in the US there is no sufficient competition in the broadband access market. As Cerf stated:
“For the foreseeable future most Americans will face little choice among broadband carriers. Enshrining a rule that permit carriers to discriminate in favor of certain kinds of sources of services would place those carriers in control of online activity. Allowing broadband carriers to reserve huge amounts of bandwidth for their own services will not give consumers the broadband Internet our country and economy need.”
“Most American consumers today have few choices for broadband service. Phone and cable operators together control 98 percent of the broadband market, and only about half of consumers actually have a choice between even two providers. Unfortunately, there appears to be little near term prospect for meaningful competition from alternative platforms. As a result, the incumbent broadband carriers are in position to dictate how consumers and producers can use the on-ramps to the Internet”.
Concentration in Latin American markets is much more acute. Liberalization processes started until very recently (well not that near) and there are many regulatory projects such as competitive tariff policies, local loop unbundling or number portability that have not yet been enforced, not to mention all of the issues surrounding the Internet.
Despite there appear to be more challenges in the Latin American region to preserve the net neutrality principle there are also many opportunities that arise from the fact that governments in Latin American have not defined a strong position towards Internet governance issues. Moreover, Internet in Latin American is viewed as an instrument that may help national governments to “leapfrog” to achieve some public policy goals that could not be fulfilled with the legacy PSTN.
While assessing risks and opportunities for the Latin America region to preserve the net neutrality principle we should consider the following:
• There is a risk to leave Latin-American governments to make inadequate public policy decisions without an appropriate understanding of what Internet governance should be (evangelize).
• Given the concentration in the different telecom markets in Latin-America, incumbent carriers have incentives to block or prioritize Internet traffic, jeopardizing net neutrality. Telecom regulators may appear as an ally for content providers in this particular issue (at least in Mexico).
• There is an area of opportunity to influence in Latin-American’s process to regulate (or not) the Internet.
• Internet is a “good guy” for governments in Latin-America since it is helping them to achieve some public policy goals.
• A revision of legal and regulatory frameworks (privacy, intellectual property, network regulation, content, etc.) in the region needs to be done, in order to assess whether new products or services available on the Internet are under a legal certainty environment.
If we do not pursue net neutrality the risk is that we may turn the Internet into a private network with centrally managed content which could only be uploaded or webcasted by major communication companies delivering the usual (very often bad quality) content we watch on open T.V., hence hampering innovation at the edges of the network.
Friday 13 August 2010
Monday 9 August 2010
An Essay on Net Neutrality (Part 2)
...
This control, however, is limited to the user’s premises. Once it leaves the user’s modem the data flowing over the network will continue to be "best effort" with no service level guarantees.
At this point it may seem that “traffic prioritization” is not bad in itself. However, when it is used in an anticompetitive fashion it becomes problematic. So it really comes down to who should prioritize traffic in the Internet. According to what we have said it would be desirable to empower only the user to decide which applications should be prioritized. The question becomes then how to preserve net neutrality while improving the users’ experience on the net.
But the net neutrality debate is not limited to application providers and broadband access carriers. There is a more philosophical and enriching debate surrounding innovation and the Internet architecture itself. Recently, different views coming from the engineers that devised the software protocols of the Internet have emerged. Although they both coincide that the development of the net should have at its core consumer choice and innovation, they differ on the point where innovation should focus “on the net” or “at the edges of the net”. Cerf’s view:
“The remarkable success of the Internet can be traced to a few simple network principles –end to end design, layered architecture, and open standards- which together give consumers choice and control over their online activities. This “neutral” network has supported an explosion of innovation at the “edges” of the network, and the growth of companies like Google, Yahoo, eBay, Amazon, and many others”.
Whereas Kahn:
“It is a slogan [net neutrality] […] what does net neutrality try to achieve? One model says that the network is just some transport vehicle of some sort and that all the important things take place in the boundaries […] organizations ought to be able to provide services and those services could include functionality that is provided within the net.”
I honestly believe that these views are not entirely incompatible; rather I would say that they are at some point complements. Kahn never argues against the end to end principle of the Internet but he is opposed of mandating that “nothing interesting can happen inside the net” meaning that experimentation at the edges shouldn't come at the expense of improvements elsewhere in the network. On the other hand, net neutrality advocates are not against improvements on the net itself but rather worried that changes in the original architecture of the Internet may hinder innovation on the edges or be used anticompetitively.
At the core of all this net neutrality debate is that -unlike other public interest issues that have arisen over the Internet- net neutrality advocates are claiming for some kind of government intervention to preserve the net neutrality principle. Say it again!! Government intervention in an Internet related issue?
Is there a need for regulatory intervention?
I recall reading or hearing "the private sector should lead". The reference was made by the Clinton Administration in 1998 for e-commerce but describing the progress made by Internet applications. Certainly, they were acknowledging that the Internet had flourished without any centralized promotion or regulation. This is not to say that the Internet was randomly created (rather it is the result of vision and initiative from many brilliant people). The point is that under a market economy, government intervention is only justified before a market failure and of course by 1998 no one had identified a market failure in the Internet.
But even before a market failure, how could national governments intervene given the global and open architecture features of the Internet? It is precisely this issue the main point of the discussion surrounding the Internet Governance debate worldwide. We do not attempt to discuss deeply Internet Governance in this paper, but we should highlight that defining government intervention in Internet related issues has not been an easy task.
For all of us who were trying to build a case for educated government intervention in the Internet, net neutrality provides fresh flesh for our analysis. Telecom regulators around the globe were systematically approached to take at least a public position on Internet Governance issues. In some of the issues, telecom regulators were endowed with sufficient powers (as mandated in their statutory documents) to address them, in others, there was a need to coordinate with one or more governmental agencies, and in others (perhaps the most) there was not (and still there is not) a public policy or clear mandate that could at least provide guidelines as to how governments should intervene.
There are two reasons that make net neutrality appealing for telecom regulation. The first one is that broadband access markets competition status involving licensed facilities-based carriers and ISPs fall within the remit of regulators; the second one is that perhaps for the first time regulators are expressively asked to intervene. But let’s not jump into any misleading conclusions and put this request of intervention in to perspective.
Advocates of net neutrality do welcome deregulation of telecommunications they only claim that legal and regulatory frameworks must preserve restricted elements of openness and non-discrimination:
“Google supports tailored, minimally-intrusive safeguards to promote net neutrality”.
When assessing what sort of government intervention should be applied to preserve net neutrality we can find a range of possibilities, from directly intervening by enacting laws or regulatory instruments that prohibit traffic shaping from anyone but the final user, to indirectly intervening and guarantying a level playing field that may assure an optimal functioning of markets, hence eliminating incentives to block or prioritize Internet traffic.
It looks like that directly forbidding blocking or shaping is not what a liberal government would follow for three main reasons. The first one is that this kind of intervention is not economically-correct. It is not the kind of policy that regulators usually pursue, since it does not seem as a market oriented mechanism to deal with a market failure. The second one is that, even if governments wanted to intervene directly by banning blocking or traffic shaping, enforcement mechanisms will not be efficient enough to assess whether a broadband provider is effectively complying with the mandate or acting anticompetitively.
The third one is that direct intervention could risk being incomplete or incorrect. As Cerf puts it for the US case:
“Both drafts include provisions requiring broadband providers to allow consumers to access content, applications, and services, and to connect devices. Both versions also contain a number of important exceptions to those duties, related to elements like value-added services and enhanced quality of service. Unfortunately, as written the exceptions in each of these bills are so broad that they undermine the underlying neutrality requirement.”
Furthermore, from the observed experience (mainly in developed countries) it does not seem to be a consensus in implementing policies to preserve net neutrality. Some governments, such as the UK, prefer to remain “neutral”. In November, 2006 OFCOM Chairman Lord Currie of Marylebone declared to leave content providers to negotiate premium deals with access providers if they want, while giving them the option of using competition law if they feel they are being turned over.
“…the crucial point is whether providers are attempting to force content providers to pay. A content provider going to a service provider and asking for a guaranteed level of service is OK. Access providers strong arming content providers into paying, is not OK.”
This control, however, is limited to the user’s premises. Once it leaves the user’s modem the data flowing over the network will continue to be "best effort" with no service level guarantees.
At this point it may seem that “traffic prioritization” is not bad in itself. However, when it is used in an anticompetitive fashion it becomes problematic. So it really comes down to who should prioritize traffic in the Internet. According to what we have said it would be desirable to empower only the user to decide which applications should be prioritized. The question becomes then how to preserve net neutrality while improving the users’ experience on the net.
But the net neutrality debate is not limited to application providers and broadband access carriers. There is a more philosophical and enriching debate surrounding innovation and the Internet architecture itself. Recently, different views coming from the engineers that devised the software protocols of the Internet have emerged. Although they both coincide that the development of the net should have at its core consumer choice and innovation, they differ on the point where innovation should focus “on the net” or “at the edges of the net”. Cerf’s view:
“The remarkable success of the Internet can be traced to a few simple network principles –end to end design, layered architecture, and open standards- which together give consumers choice and control over their online activities. This “neutral” network has supported an explosion of innovation at the “edges” of the network, and the growth of companies like Google, Yahoo, eBay, Amazon, and many others”.
Whereas Kahn:
“It is a slogan [net neutrality] […] what does net neutrality try to achieve? One model says that the network is just some transport vehicle of some sort and that all the important things take place in the boundaries […] organizations ought to be able to provide services and those services could include functionality that is provided within the net.”
I honestly believe that these views are not entirely incompatible; rather I would say that they are at some point complements. Kahn never argues against the end to end principle of the Internet but he is opposed of mandating that “nothing interesting can happen inside the net” meaning that experimentation at the edges shouldn't come at the expense of improvements elsewhere in the network. On the other hand, net neutrality advocates are not against improvements on the net itself but rather worried that changes in the original architecture of the Internet may hinder innovation on the edges or be used anticompetitively.
At the core of all this net neutrality debate is that -unlike other public interest issues that have arisen over the Internet- net neutrality advocates are claiming for some kind of government intervention to preserve the net neutrality principle. Say it again!! Government intervention in an Internet related issue?
Is there a need for regulatory intervention?
I recall reading or hearing "the private sector should lead". The reference was made by the Clinton Administration in 1998 for e-commerce but describing the progress made by Internet applications. Certainly, they were acknowledging that the Internet had flourished without any centralized promotion or regulation. This is not to say that the Internet was randomly created (rather it is the result of vision and initiative from many brilliant people). The point is that under a market economy, government intervention is only justified before a market failure and of course by 1998 no one had identified a market failure in the Internet.
But even before a market failure, how could national governments intervene given the global and open architecture features of the Internet? It is precisely this issue the main point of the discussion surrounding the Internet Governance debate worldwide. We do not attempt to discuss deeply Internet Governance in this paper, but we should highlight that defining government intervention in Internet related issues has not been an easy task.
For all of us who were trying to build a case for educated government intervention in the Internet, net neutrality provides fresh flesh for our analysis. Telecom regulators around the globe were systematically approached to take at least a public position on Internet Governance issues. In some of the issues, telecom regulators were endowed with sufficient powers (as mandated in their statutory documents) to address them, in others, there was a need to coordinate with one or more governmental agencies, and in others (perhaps the most) there was not (and still there is not) a public policy or clear mandate that could at least provide guidelines as to how governments should intervene.
There are two reasons that make net neutrality appealing for telecom regulation. The first one is that broadband access markets competition status involving licensed facilities-based carriers and ISPs fall within the remit of regulators; the second one is that perhaps for the first time regulators are expressively asked to intervene. But let’s not jump into any misleading conclusions and put this request of intervention in to perspective.
Advocates of net neutrality do welcome deregulation of telecommunications they only claim that legal and regulatory frameworks must preserve restricted elements of openness and non-discrimination:
“Google supports tailored, minimally-intrusive safeguards to promote net neutrality”.
When assessing what sort of government intervention should be applied to preserve net neutrality we can find a range of possibilities, from directly intervening by enacting laws or regulatory instruments that prohibit traffic shaping from anyone but the final user, to indirectly intervening and guarantying a level playing field that may assure an optimal functioning of markets, hence eliminating incentives to block or prioritize Internet traffic.
It looks like that directly forbidding blocking or shaping is not what a liberal government would follow for three main reasons. The first one is that this kind of intervention is not economically-correct. It is not the kind of policy that regulators usually pursue, since it does not seem as a market oriented mechanism to deal with a market failure. The second one is that, even if governments wanted to intervene directly by banning blocking or traffic shaping, enforcement mechanisms will not be efficient enough to assess whether a broadband provider is effectively complying with the mandate or acting anticompetitively.
The third one is that direct intervention could risk being incomplete or incorrect. As Cerf puts it for the US case:
“Both drafts include provisions requiring broadband providers to allow consumers to access content, applications, and services, and to connect devices. Both versions also contain a number of important exceptions to those duties, related to elements like value-added services and enhanced quality of service. Unfortunately, as written the exceptions in each of these bills are so broad that they undermine the underlying neutrality requirement.”
Furthermore, from the observed experience (mainly in developed countries) it does not seem to be a consensus in implementing policies to preserve net neutrality. Some governments, such as the UK, prefer to remain “neutral”. In November, 2006 OFCOM Chairman Lord Currie of Marylebone declared to leave content providers to negotiate premium deals with access providers if they want, while giving them the option of using competition law if they feel they are being turned over.
“…the crucial point is whether providers are attempting to force content providers to pay. A content provider going to a service provider and asking for a guaranteed level of service is OK. Access providers strong arming content providers into paying, is not OK.”
Subscribe to:
Posts (Atom)