Net neutrality: Needless yoke or new opportunity?

The Federal Communication Commission's net neutrality proceeding represents huge opportunities for network operators and equipment manufacturers to demonstrate that differentiated speed and service quality in vertically integrated networks will promote -- not diminish -- investment, innovation and consumer welfare.

The FCC is doing a public service by looking into Internet network management practices and user rights at this time. Even if some laissez-faire proponents may regard the proceeding a bit like Damocles' sword, all parties agree that the Internet is well beyond alpha-numeric e-mail. The FCC needs new rules to sensibly administer the evolving multimedia-rich, peer-to-peer, mobile, fast-changing Internet environment.

To date, network operators decide on their own whether to comply with voluntary net neutrality standards. The voluntary standards call for operators to allow subscribers to send and receive any lawful content, run any lawful applications and services, and to connect devices to their computers, laptops and mobile phones as long as those devices do not damage providers' networks. In FCC parlance, this is "subscriber choice" -- it is left to the subscribers to decide what they will do, providing it is legal.

Now the FCC is evaluating whether to put rules in place making it impossible for broadband network operators to decide on their own whether or not to honor subscriber choices; that is, to change these voluntary standards into mandatory ones.The FCC is also determining whether to require network operators to treat lawful content, applications and services similarly by prohibiting the preferential treatment of traffic from wholly owned or affiliated organizations (the non-discriminatory standard). What's more, the commission is considering whether to make operators disclose network management information so users can ascertain if they are getting the services they are paying for and to ensure operators are not manipulating their networks to favor services of wholly owned or affiliated organizations (the network management standard).

While many network operators view mandatory neutrality standards as onerous, there is opportunity in the timing. The rule-making is transpiring just as technology innovations and investment are driving explosive growth in peripheral application and content.

During the late 90s into the first decade of this century, investment flowed into broadband phone and cable networks. Market liberalization of local telephone markets, legislated in the 1996 Telecommunications Act, combined with cable's design and adoption of next-generation network architecture to migrate subscribers from one-way cable television to voice, data, video and Internet service bundles and to interactive programming and content. As telco and cable deployed more and more broadband capacity, users found increasing value in browsers, search engines and, significantly, applications to communicate and to consume and to create content, which they could make and share.

Concurrently, the demand for mobile connectivity played a key role driving wireless investment and consumers started to trade Bell monopoly, wireline sound quality for mobility and efficiency and for VoIP price savings.

Wireline and wireless network investment enabled video file sharing. Packet technologies improved to keep abreast of ever more robust Internet traffic. Networks operators invested in these innovations to compete for subscribers. Equipment manufacturers supplied the hardware to enable deployment of the functionalities.

The FCC net neutrality inquiry enables network operators and equipment manufacturers to point these crucial network operator and network equipment innovation and investment contributions out to the FCC, because as the market administrator, the commission has an obligation to stimulate investment and innovation in order to generate aggregate demand.

In its solicitation for comments, the FCC identifies significant emerging market opportunities for service and speed differentiation as next-generation Internet value-added network services while also indicating its desire to stimulate investment and innovation at application and content originator and user peripheries.

Evolution and continuity

It is noteworthy that, historically, periphery innovation occurred by design. As Jerome Saltzer points out: "to send a message on a [TCP/IP] network, a computer only had to put its data into an [IP] envelope … and address the packets correctly. The communicating computers -- not the network itself -- were also given the responsibility to ensure that the communication was accomplished. The philosophy was that every computer on the network could talk, as a peer, with any other computer."

By highlighting network and equipment innovations, service providers and equipment manufacturers can point out that public policies promoting differentiated speed and service qualities will do more to stimulate innovation and investment at content and originator peripheries, and, in an important sense, represent Internet historical evolution and continuity.

With regulatory certainty regarding differentiated speed and service qualities, application developers can invest in applications to address mobile, robust Internet markets with greater varieties of choices for consumers. Differentiated speed and service quality pricing, in turn, will promote consumption.

These arguments are timely and practicable, because concerns that vertically integrated network operators will abuse their market power by blocking or degrading traffic, or by invidious pricing to the detriment of periphery originators, seem at this point to trump operator assertions that they will not do so.

Nor does the FCC want to get in the business of mandating net neutrality policies, which Wi-Fi, WiMAX, powerline broadband and wireless networks can obsolesce as they emerge as facilities-based network competitors. Doing so would only expose the FCC to D.C. Federal District and Appeals Court challenge, review and, perhaps, rebuke, an unpalatable prospect for any regulator.

Indeed, at this point the District of Columbia Circuit Court of Appeals guidance could alter FCC market administration discretion on net neutrality entirely or in parts. As they evaluate Comcast Corporation v. FCC (08-1291), Chief Judge David B. Sentelle and Judges David S. Tatel and A. Raymond Randolph could rule that the FCC is exceeding its congressionally delegated authority regarding Internet regulation generally.

Or, the panel of judges could rule regarding discretionary authority over specific network administration practices raised in the litigation and leave aside broader issues of mandatory standards for consumer choice to send and receive lawful content, to run lawful applications and services and to connect devices to their computers, laptops and mobile phones. Any of these outcomes could potentially trigger FCC deliberations on information and telecom classifications to achieve network neutrality policy consistent with judicial scrutiny.

Flexible net neutrality policy, permitting different pricing for various levels of service quality and speed, would enable the commission to sustain end-to-end connectivity, an Internet standard, and to promote innovation and investment with regulatory certainty for the mobile, robust emerging Internet. It would also pave the way for more revenues all around for all market participants.

Donahue analyzes telecommunications policies and markets. You can reach him at hcd@dca.net.

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