Transcript Network Neutrality

Network Neutrality:
Technology, Economics, and
Public Policy Considerations
J. Scott Marcus
The opinions expressed are solely my own.
j. scott marcus
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Marco Civil Internet seminar, Sao Paolo, Brazil, 17 March2015
A crucial juncture for the discussion of
nework neutrality in Brazil
• There are crucial decisions still to be made in regard to the
Marco Civil:
• “The discrimination or degradation of traffic shall be regulated in
accordance with the private attributions granted to the President
by means of Item IV of art. 84 of the Federal Constitution, aimed
at the full application of this Law, upon consultation with the
Internet Steering Committee and the National
Telecommunications Agency, and can only result from:
- technical requirements essential to the adequate provision
of services and applications; and
- prioritization of emergency services. …”
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Marco Civil Internet seminar, Sao Paolo, Brazil, 17 March2015
Network Neutrality:
Technology, Economics, and Public Policy Considerations
•
Introduction
- How should we define network neutrality?
- Why does net neutrality raise concerns?
•
Background
-
•
Views on network neutrality
-
•
European Commission conducted a Public Consultation (2012-2013)
Citizen views
Organisational views
NRA views
Differences between the EU and the US
-
•
Technical background
Economic background
Market structure
Regulation
The recently enacted US FCC Report and Order
The ongoing European debate over the Telecoms Single Market (TSM)
Aspects to consider in connection with the Marco Civil
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How should we define network neutrality?
• Network neutrality has taken on various meanings:
- The ability of all Internet end-users ‘… to access and distribute
information or run applications and services of their choice.’
- Traffic ‘… should be treated equally, without discrimination, restriction
or interference, independent of the sender, receiver, type, content,
device, service or application.’
- Absence of unreasonable discrimination on the part of network
operators in transmitting Internet traffic.
• These definitions are not exactly equivalent, and their implications
for public policy are not exactly equivalent.
• The differences in these definitions, which are visible on both sides
of the Atlantic, reflect (1) whether they express what users of the
network must be enabled to do, versus what providers of the
network are prohibited from doing; and (2) whether they seek to
broadly limit differentiated treatment in general, versus imposing a
more limited restriction on harmful or anticompetitive discrimination.
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Net neutrality is at the heart of a web of concerns
• Direct linkages to
anticompetitive behaviour,
innovation and investment,
privacy and data
protection, consumer
awareness, empowerment,
and protection, and
freedom of expression.
• Indirect linkages to network
and information security,
broadband policy, Internet
governance, and more.
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Technical and economic
perspectives
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Technical Aspects: Quality of Experience (QoE)
• Quality of Service (QoS) parameters and mechanisms are important
to enable network operators to design, build and manage their
networks, but they are not directly visible to end-users.
• Crucial for end-users, however, is the quality that they personally
during their use of a service.
• These Quality of Experience (QoE) requirements are strongly
dependent on the application. Some are sensitive to delay.
- E-Mail has little sensitivity to packet loss and delay.
- Real-time two-way Voice over Internet Protocol (VoIP) tends to be highly
sensitive – delays greater than some 150 msec cause problems.
- Real-time two-way videoconferencing is similarly sensitive, and with
greater bandwidth consumption.
- One-way video may or may not be sensitive, depending on user
expectations for how quickly the stream starts (zapping time).
Delay-sensitive applications and mission critical services
(police, fire, health, and transport) can benefit from managed
Quality of Service (QoS).
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Technical Aspects: Quality of Experience (QoE)
M/G/1 Queuing Delay (155 Mbps Link)
350.00
300.00
Coefficient
of Variation
250.00
Wait Time (microseconds)
0.00
0.50
1.00
200.00
1.10
1.20
150.00
1.50
2.00
100.00
50.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Utilization (rho)
M/G/1 queueing analysis of the performance of a single link
(with clocking delay of 50 μsecs (284 byte packets) and a 155 Mbps link)
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Source: Based on Marcus, Designing Wide Area Networks and Internetworks (1999)
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Economic background of network neutrality
• At least three distinct strands of economic reasoning relates
to differentiated quality of service in the Internet.
- Quality and price differentiation
- Economic foreclosure
- Two-sided (or multi-sided) markets
• These interpretations are not necessarily incompatible, but
they have different and possibly conflicting implications for
public policy.
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Quality and price differentiation
• Quality differentiation and price differentiation are well
understood practices (cf. Hotelling (1929)).
• In the absence of anticompetitive discrimination,
differentiation generally benefits both producers and
consumers.
• BENIGN: We typically do not consider it problematic if an
airline or rail service offers us a choice between first class
and second class seats.
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Two-sided markets
The Internet can be thought of as a
two-sided market, with network
operators serving as a platform
connecting providers of content (e.g.
web sites) with consumers (cf. Tirole
and Rochet (2004), and also Laffont,
Marcus, Rey and Tirole (2003)).
RELATIVELY BENIGN: Under this
view, some disputes are simply about
how costs and profits should be
divided between the network
operators and the two (or more) sides
of the market.
Google
User
Yahoo
Commercial
ISP
Broadband
ISP
Bing
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Economic foreclosure
When a producer with market power
in one market segment attempts to
project that market power into
upstream or downstream segments
that would otherwise be competitive,
that constitutes economic foreclosure.
PROBLEMATIC: Foreclosure harms
consumers, and imposes an overall
socio-economic deadweight loss on
society. Foreclosure could be a
concern in markets where effective
market power (SMP) is given free
rein.
Google
User
Yahoo
Commercial
ISP
Broadband
ISP
Bing
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European stakeholder
views
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The public consultation (2012-2013)
• The Commission conducted a public consultation on network
neutrality at the end of 2012, with an eye to a legislative
initiative in 2013.
• A one page summary of the consultation appears in the
Impact Assessment for TSM, but the Commission never
published a comprehensive analysis of the results.
• The 131 non-confidential textual stakeholder responses were
publicly available, and generally thoughtful and of high
quality, thus enabling me to complete the public consultation
in abbreviated form based on a sample of responses.
• We gratefully acknowledge the Commission’s assistance in
tabulating more than 400 multiple choice (citizen) responses
to the public consultation.
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The public consultation (2012-2013):
Organisational stakeholder views
• Most NRAs, ISPs, content providers, and consumer advocates
considered traffic management to be appropriate under suitable
preconditions.
• For restrictions on specific applications (VoIP, P2P), network
operators had (unsurprisingly) a dramatically different
perspective from that of applications and content providers.
• Consumer advocates and other civil society organisations
appear deeply troubled by limitations on Voice over IP (VoIP).
• Organisations generally agreed that for a network operator to
prioritise its own traffic ahead of traffic for applications that
compete with its own services is problematic.
• Many stakeholders felt that for the Member States to implement
divergent approaches would carry substantial risk.
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The public consultation (2012-2013)
• In the consultation, citizens were troubled by most forms of
traffic management, but more by some forms than by others.
• As much as 80% of citizens who responded opposed most
forms of traffic management.
• CAUTION: The citizens who responded were self-selected.
- Many studies suggest that the average consumer has
only a limited understanding of net neutrality issues.
- A new study of consumer attitudes by WIK, Deloitte, and
You.Gov based on a random sample will provide an
important cross-check on these consultation results.
- The results have just been presented within BEREC, but
are not yet public.
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European consumer views are complex
• 29% of EU fixed broadband
consumers think that they
have been blocked at least
once (Eurostat, 2013).
• Not all blockages, however,
appear to reflect classic net
neutrality issues.
Source: Eurobarometer 396 (2013)
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European regulatory views
• BEREC (2014), ‘BEREC Annual Reports − 2013’: … very few
NRAs have reported specific relevant net neutrality incidents. …
[T]he prevailing approach among … NRAs is that possible
deviations from net neutrality are dealt with on a case-by-case
basis. … [T]here is wide agreement among national regulators that
the existing regulatory tools enable NRAs to address competition
concerns related to net neutrality for the time being.’
• BEREC (2012), consultation response: ‘[R]egulation should not be
unnecessarily intrusive, since flexibility appears indispensable in
such a fast-changing environment.’
• BEREC (2012), ‘Summary of BEREC positions on net neutrality’:
‘BEREC is committed to the open Internet, and believes that the
existing regulatory tools, when fully implemented, should enable
NRAs to address net neutrality-related concerns.’
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Regulatory approaches
in the EU and the US
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Regulation: EU
• In the European framework, market power is a key concern.
- Regulation addresses last mile market power in the fixed network, both
for the PSTN and for Internet, thus fostering competition.
- Internet interconnection is generally unregulated to the extent that
market power does not seem to be a concern.
• Revisions to the regulatory framework were enacted in 2009.
- The ability of end users to access content, applications or services of
their choice is now an explicit goal of European policy.
- Providers of electronic communication services must inform end users
of their practices in regard to traffic management, and provide end
users with the right to change providers without penalty if they are
dissatisfied with a change in these practices.
- Empowerment of NRAs to impose, if necessary, minimum QoS
obligations on an SMP operator.
- Approach rests on informed consumer choice.
• Ongoing discussion: Telecoms Single Market legislation.
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Differences between the US and the EU
• The impending US regulatory approach responds to different
circumstances than those relevant to Europe.
• The overall US regulatory approach is partly a cause and
partly a response to a very different marketplace.
• Real consumer choice of an alternative broadband supplier
in the US is limited to the point where the threat of
consumers switching is no longer felt to constrain the
behaviour of network operators.
• The radical US deregulation of 2002-2005 left the US FCC
with minimal ability to regulate broadband services; as a
result, the US debate has been dominated by issues of legal
sustainability rather than by policy goals.
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Market structure: US
• Most US homes could receive fixed broadband from either a
cable television provider or a telecommunications provider.
• Competitive providers (using LLU, shared access, or
bitstream) have largely disappeared in the US, resulting in a
market structure that is duopolistic (with multiple nongeographically overlapping providers).
• Mobile broadband is widespread.
- Historically served as an economic complement to fixed.
- Might increasingly represent a substitute.
• Competition is between platforms, not within them.
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Market structure: US
• Most Americans can choose at most between one cable
company and one fixed telecommunications network.
• The effectiveness of mobile as a substitute is limited.
• Informed consumer choice cannot be effective absent choices!
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Source: speech by FCC Chairman Wheeler (2014), data based on NTIA State Broadband Initiative
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Regulation: US
• Telecommunication services are subject to numerous
regulatory obligations; information services are subject to
few explicit obligations. Information services were felt not to
be subject to market power, so long as basic services were
available on a non-discriminatory basis.
• This distinction historically enabled the FCC to avoid
regulating the Internet core.
• During the George W. Bush years, the FCC classified
broadband access when bundled with Internet service to be
an information service (ignoring last mile market power
concerns).
- Weakened or lifted procompetitive remedies, thus
reversing the growth of retail competition for DSL lines.
- Lifted non-discrimination obligations.
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Regulation: US
• Multiple attempts to address net neutrality concerns over the years,
most of which were overturned by the courts.
• The FCC responded with an Open Internet ruling in 2010.
- Rule 1: Transparency: A provider of broadband Internet access service must
publicly disclose accurate information regarding its network management
practices, performance, and commercial terms sufficient for consumers to make
informed choices …
- Rule 2: No Blocking: A provider of fixed broadband Internet access service
shall not block lawful content, applications, services, or non-harmful devices,
subject to reasonable network management.
- Rule 3: No Unreasonable Discrimination: A provider of fixed broadband
Internet access service shall not unreasonably discriminate in transmitting lawful
network traffic over a consumer’s broadband Internet access service.
• The 2010 ruling thus imposed few burdens on mobile networks.
• It was also overturned the courts (Verizon vs FCC).
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Regulation: US
• The FCC’s Report and Order of 12 March 2015 goes somewhat further
than the 2010 Order.
- No Blocking: A person engaged in the provision of broadband
Internet access service, insofar as such person is so engaged, shall
not block lawful content, applications, services, or non-harmful
devices, subject to reasonable network management.
- No throttling: A person engaged in the provision of broadband
Internet access service, insofar as such person is so engaged, shall
not impair or degrade lawful Internet traffic on the basis of Internet
content, application, or service, or use of a non-harmful device,
subject to reasonable network management.
- No paid prioritisation: A person engaged in the provision of
broadband Internet access service, insofar as such person is so
engaged, shall not engage in paid prioritization. “Paid prioritization”
refers to the management of a broadband provider’s network to
directly or indirectly favor some traffic over other traffic …
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Regulation: US
• Many (most?) economists would be uncomfortable with the
prohibition on paid prioritisation.
• In the absence of market power, free negotiation of
prioritisation among willing market players could be expected
to enhance the welfare of both consumers and producers.
- What market power are we dealing with here, and on
what market?
- Where does free negotiation among willling participants
end, and coercion based on market power begin?
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Europe: The Telecoms Single Market Regulation
• A messy discussion of the Telecoms Single Market (TSM) in
Europe was kicked off by a weakly conceptualised European
Commission proposal in September 2013.
• A stripped down version was passed by the European
Parliament in April 2014, just before elections.
• Network neutrality was a small but important part of the
original legislative proposal, but together with mobile
roaming is the only portion that has survived the subsequent
legislative process.
• Commission net neutrality concerns focused on inconsistent
legislation in the Member States (Netherlands, Slovenia), not
necessarily on any need for different or stricter legislation.
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Europe: The Telecoms Single Market Regulation
• The Latvian Presidency statement to the Council (heads of
state) of 25 February 2015 contains sensible elements:
- “[E]nd-users should be free to agree with providers of internet
access services on tariffs with specific data volumes and
speeds or on other technical or commercial characteristics of
the internet access service. Such agreements, as well as other
commercial practices conducted by providers of internet
access service, should not … circumvent provisions of this
Regulation on safeguarding internet access. … Commercial
practices should not, given their scale, lead to situations where
end-users’ choice is significantly reduced in practice.”
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Europe: The Telecoms Single Market Regulation
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- “There is demand on the part of content, applications and
services providers, as well as on the part of end-users, for the
provision of electronic communication services based on
specific quality of service levels. Agreements in this respect
could also play an important role in the provision of services
with a public interest as well as in the development of new
services such as machine-to-machine communications. At the
same time, such agreements should allow providers of
electronic communications to the public to better balance traffic
and prevent network congestion. Providers of content,
applications and services and end-users should therefore
remain free to conclude agreements with providers of
electronic communications to the public, which require specific
levels of quality of service. Such services should not be offered
as a replacement for internet access services, and their
provision should not impair in a material manner the availability
and quality of internet access services for other end-users. …”
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Apects to Consider
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Aspect to consider
• Does the legislative or regulatory instrument used strike the
right balance in preventing harmful divergence, while
providing appropriate flexibility?
• Does it strike the right balance in preventing harmful
differentiation, while permitting non-harmful differentiation?
Does it enable prioritisation of services that legitimately need
it, potentially including real time voice and videoconferencing
over the public Internet, mission critical services (including
public protection and disaster relief (PPDR), and transport),
and health?
• Does it do enough to prevent continued impediments to
voice over IP (and videoconferencing over IP)?
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Aspects to consider
• Is the legislative or regulatory instrument used sufficiently
future proof and technologically neutral?
• Does it appropriately balance costs against benefits?
• Does it appropriately balance costs and benefits among the
different stakeholders?
• Are all terms defined with adequate clarity?
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References
Marcus (2014), “Network Neutrality Revisited: Challenges and
responses in the EU and in the U.S.”, study for EU Parliament.
Marcus (2014), “The economic impact of Internet traffic growth on
network operators”.
Marcus, Ilsa Godlovitch, et al. (2013), “How to Build a Ubiquitous EU
Digital Society”, study for EU Parliament.
Marcus et al. (2011), “Network Neutrality”, study for EU Parliament.
Marcus (2010), “New Directions for U.S. Telecommunications
Regulation? The Comcast decision and the ‘Third Way’”.
Rochet, Jean-Charles/ Tirole, Jean (2004): “Two Sided Markets : An
Overview”, March 2004, available at:
http://faculty.haas.berkeley.edu/hermalin/rochet_tirole.pdf
Jean-Jacques Laffont, Marcus, Patrick Rey, and Jean Tirole (2003),
IDE-I, Toulouse, “Internet interconnection and the off-net-cost
pricing principle”, RAND Journal of Economics, Vol. 34, No. 2,
Summer 2003.
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