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No. 84 - Net Neutrality: Act II

DigiWorld Economic Journal - C&S - 01/12/2011 No. 84 - Net Neutrality: Act II

4th quarter 2011

What are the minimum regulatory tools needed to ensure an acceptable level of net neutrality while giving network operators flexibility to innovate and manage their networks? Act I of the debate resembled a war of religion, each side rejecting out of hand the other's philosophy. In Act II, market actors have understood that neutrality is not a binary topic and that the subject must be addressed in a collective and collaborative way for the sake of achieving economic and social efficiency. The debate has progressively shifted and focused on several key issues that are essential to the design of a well-functioning neutrality: (i) traffic management, (ii) IP interconnection arrangements, (iii) transparency, (iv) price differentiation and markets for enhanced quality, and (v) the setting up a suitable regulatory framework. Such are the main stakes of "Net Neutrality: Act II" and the focus of this special issue of COMMUNICATIONS & STRATEGIES.


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Dossier

Net Neutrality: Act II

Vincent BONNEAU, Nicolas CURIEN & Winston MAXWELL

Introduction
By the Editors

Papers

Final Act: The Few More Steps Needed to Restore and Protect
Net Neutrality in Europe

Jean-Jacques SAHEL

The Internet Market For Quality
Dennis WELLER

The Emerging 21st Century Access Power Peering
William B. NORTON
   
Lights and Shadows from Economic Analysis
on Net Neutrality and Internet Pricing Policies

Marc LEBOURGES & Claudia SAAVEDRA
   
Japan's Co-Regulatory Approach to Net Neutrality and its Flaw:
Insufficient Literacy on Best-Effort QoS

Toshiya JITSUZUMI

BEREC's Approach to Net Neutrality

Nadia TRAINAR

Broadband Openness Rules Are Fully Justified by Economic Research

Nicholas ECONOMIDES

Beyond Net Neutrality: End-User Sovereignty
Eli M. NOAM

Interviews
Jean-Bernard LÉVY, CEO Vivendi
Conducted by Yves GASSOT


Features

Firms and Markets

The ICT Landscape in BRICS Countries: India
Jean-Paul SIMON


Use Logics

Superfast Broadband Survey

Understanding residential users' switching patterns

Valérie CHAILLOU


Author biographies

Events
Regional ITS India Conference, New Delhi, February 22-24, 2012, telecom Policy, Regulation and Management as Drivers for Transforming Emerging Economies
Euro CPR 2012, Ghent, Belgium, March 25-27, 2012, Policies for the Future Internet

Dossier
Net Neutrality: Act II


Final Act: The Few More Steps Needed to Restore and Protect
Net Neutrality in Europe

Jean-Jacques SAHEL
Key words: Net Neutrality, open Internet, European legislation, Internet users' freedoms, public policy solutions.

Net Neutrality is not about limiting or delaying investment in Next Generation Networks (NGN) by somehow stifling network innovation, as some would have us believe. It is in fact about ensuring that what comes out of NGN rollout is what end-users want, and what will continue to fuel the economy, social progress, and the further enablement of (new and better) ways to enjoy freedoms of communication and expression.



The Internet Market For Quality
Dennis WELLER
Key words: Internet, peering, network neutrality, traffic exchange, CDN.

The market for the exchange of traffic among networks on the Internet has proved to be remarkably efficient and adaptable.While the issue of network neutrality has dominated policy debates in recent years, the evolution of this market has begun to provide answers to many of the questions raised in these debates.It is establishing the terms under which content will be exchanged among networks and delivered to end users, how traffic will be routed and resources will be deployed to ensure quality of service, and by whom. Underlying changes in consumer demand and industry structure are driving this evolution in the market for Internet traffic exchange, forcing each of the players in the system - including content providers, content delivery networks, and local access networks - to adapt. Even as the terms of peering and transit agreements have become so well understood and accepted that the vast majority of such agreements can be adopted on a handshake basis, without even a written document, parties have also produced new variations on this model to establish terms for the delivery of large volumes of video traffic.  While this process may be messy at times, as indicated by the disputes that have arisen over the last year, the performance of this market has so far been quite good. It may therefore be wise for regulatory authorities, having established broad parameters for policy toward net neutrality, to allow the development of the market to continue without intervention, while monitoring its progress.



The Emerging 21st Century Access Power Peering
William B. NORTON
Key words: Peering, Internet Transit, Net Neutrality, Paid Peering, CDN.

From the beginning of the Internet as a government-funded network of networks through the commercialization of the Internet, the Internet ecosystem had gone through tremendous changes. The economic models for charging for connectivity was invented, the interconnection regimes were created and evolved, and Internet Peering was employed as a local routing and business optimization. But how has it changed recently, and what are the trends moving forward into the 21st century?
This paper describes the dramatic evolution of the Internet Peering ecosystem from the economic downturn in 2001 to the massive paradigm shifts playing out right now in 2011. These shifts are "massive" in the sense that the power positions of the players has changed, and the underlying assumptions of peering equity have adjusted accordingly.


Lights and Shadows from Economic Analysis
on Net Neutrality and Internet Pricing Policies

Marc LEBOURGES & Claudia SAAVEDRA
Key words: Network neutrality, interconnection agreements, two-sided markets, peering pricing policies.

Network neutrality constitutes today an emerging branch of economic analysis. This article explores this literature to open the discussion to new economic issues observed from the industry's practical experience that have not been yet addressed by the existing literature.


Japan's Co-Regulatory Approach to Net Neutrality and its Flaw:
Insufficient Literacy on Best-Effort QoS

Toshiya JITSUZUMI
Key words: net neutrality, best-effort, QoS, co-regulation, Japan's approach.

With the boom in bit-intensive and live streaming content in the broadband Internet ecosystem, the phenomenon of increasing and persisting congestion on the Internet is no longer a mere engineering possibility, but a grave and imminent reality in developed nations. To deal with this problem, "network neutrality" has become the focus of discussion among operators, academics, telecom regulators, and various interest groups in recent years. From an economic viewpoint, this problem is nothing but a combination of a congestion problem with a limited network capacity and the potential for anti-competitive behaviors by dominant Internet service providers (ISPs). Thus, from a theoretical viewpoint, it is not difficult to develop a set of "optimal" solutions. However, since the development and execution of such policy must take into account the ever-developing broadband ecosystem and changing market conditions, each telecom authority must develop its own solution. In Japan, where competition rules have successfully maintained competitiveness in the retail ISP market, the Ministry of Internal Affairs and Communications (MIC) has introduced a co-regulatory approach that focuses on congestion control. However, it is flawed in that it lacks sufficient participation from the demand side. Using a web-based questionnaire, the author discusses the remaining missing piece in Japan's efforts to address net neutrality issues, that is, possible government action to disseminate relevant QoS information to individual subscribers.



BEREC's Approach to Net Neutrality

Nadia TRAINAR
Key words: Net neutrality, Europe, regulation, Internet

The net neutrality debate has continued to develop at European level, particularly regarding the significance and use of the provisions in the "telecom package". This paper concentrates on the important activity of BEREC in this area. Four pieces of related work were included in its 2011 Work Programme, following its response to the Commission's 2010 Open Internet consultation, and in addition to an upcoming investigation designed to provide market evidence by early 2012. BEREC experts have been looking at Quality of Service (relating to the new discretionary power under the Framework to set minimum requirements); the IP interconnection market situation; Competition and discrimination issues (assessing the impact of differentiated traffic management on competition, innovation and consumer welfare). Furthermore, the first public consultation was recently launched on draft Guidelines on Net neutrality and Transparency, which aim at ensuring that users benefit from effective transparency.



Broadband Openness Rules Are Fully Justified by Economic Research

Nicholas ECONOMIDES
Key words: Network neutrality, Internet, two-sided market, discrimination, prioritization, market power, broadband, access pricing, AT&T, Verizon, Google

This paper is an outgrowth of the filings in the FCC's broadband openness proceeding that focused on the issue of networks neutrality. Newly available data confirm that competition in the broadband access marketplace is limited. Wireless broadband access services are unlikely to act as effective economic substitutes for wireline broadband access services and instead are likely to act as a complement. Nor will competition in the Internet backbone marketplace constrain "last mile" broadband access providers. The last mile's concentrated market structure, combined with high switching costs, provides these providers with the ability to engage in practices that will reduce social welfare in the absence of open broadband rules. Allowing broadband providers to charge third party content providers will not necessarily result in lower prices being charged to residential Internet subscribers. The effect of open broadband rules on broadband provider revenues is likely to be small and can be either positive or negative. Price discrimination by broadband providers against third party applications and content providers will reduce societal welfare for numerous reasons. This reduction in societal welfare is especially acute when price discrimination is taken to the extreme of exclusive dealing imposed on content providers. Antitrust and consumer protection laws are insufficient to protect societal welfare in the absence of open broadband rules.


Beyond Net Neutrality: End-User Sovereignty
Eli M. NOAM
Key words: net neutrality, separation, common carriage, termination, access, last-mile

This article discusses the underlying dynamics behind the present debate over net-neutrality, analyzes the pro's and con's, concludes that the debate is based on false premises, and proposes a better solution - End-user Sovereignty - that is both open and only lightly regulated.

The Editors

Vincent BONNEAU (Head of Internet Services Practice) has been a senior IDATE manager since 2004, in charge of issues relating to the IT and Internet services industries' impact on the telecommunications market's offers, consumption and business strategies. His assignments focus on technological and marketing innovations in these two industries. Before coming to IDATE, Vincent worked as the "Internet Software and Technologies" attaché to the French Trade Commission (DREE) in San Francisco, in addition to having gained strategic operational and marketing experience working for Noos, Wanadoo and France Télécom in Paris.
Mr. Bonneau is a graduate of the Ecole Polytechnique (1997) and the Ecole Nationale Supérieure des Télécommunications (2002), and holds a Masters Degree in New Technologies Management from the HEC business school (2002).
v.bonneau@idate.org

Nicolas CURIEN Graduated from Ecole polytechnique. He is professor of economics at Conservatoire National des Arts et Métiers in Paris. He is currently commissionnar at ARCEP (the French Regulatory Commission for Electronic Communications and Postal services). Nicolas has written several books and published a number of articles in the field of telecommunications economics.

Winston MAXWELL is a member of the New York and Paris bars, and a partner in the international law firm Hogan Lovells, based in their Paris office. Winston holds a JD from Cornell Law School, and has over 25 years experience of advising on corporate, regulatory and litigation matters for TMT sector clients, specifically in the telecommunications, Internet, film and media sectors. Winston's testimony has been cited in nine French parliamentary reports on subjects ranging from spectrum liberalization, to digital television, privacy and net neutrality. Winston has published extensively on media and telecommunications issues, and recently authored a book on net neutrality with Nicolas Curien, economist and member of the French telecommunications regulatory authority ARCEP. Winston co-chairs the New Media, IT and Privacy Committee of the American Chamber of Commerce in France. In addition to advising private-sector companies on telecoms, Internet, media and privacy issues and disputes, Winston regulatory advises authorities on cutting-edge issues.


The interviewee

Jean-Bernard LÉVY
was appointed Chairman of the Management Board of Vivendi on April 28, 2005. He previously served as Chief Operating Officer. From 1998 to 2002, Mr. Lévy was Managing Partner, Corporate Finance, at Oddo Pinatton. He was also Chairman and Chief Executive Officer of Matra Communication from 1995 to 1998. From 1993 to 1994, he was Chief of Staff to Gérard Longuet, the French Minister for Industry, and Foreign Trade. From 1988 to 1993, he was General Manager, Communication Satellites, of Matra Marconi Space. From 1986 to 1988, Mr. Lévy acted as Technical Adviser to Gérard Lonquet, the French Minister for Postal and Telecommunications services and from 1978 to 1986, he was an engineer with France Telecom. Mr. Lévy is a graduate of École Polytechnique and Telecom ParisTech. He is a Board Director of Vinci, Société Générale and Institut Pasteur.


The authors

Valérie CHAILLOU is a Senior Consultant at IDATE since 2000. Valérie's prime areas of expertise are the Internet and broadband sectors, and access technologies in particular. Valérie has been the Project Manager for several market reports, including: FTTH, World Internet Atlas, Wi-Fi, Powerline Carrier Systems and WiMAX, in addition to contributing her talents to various studies dealing with IP networks and services, on behalf of operators or local authorities. Before coming to IDATE, Valérie took part in a variety of computer science projects, working as a consulting engineer for Cap Gemini. Ms. Chaillou holds a Telecommunications Engineer degree from ENST Bretagne (Ecole Nationale Supérieure des Télécommunications de Bretagne, 1997) and a Master's Degree in Physics (Université II de Montpellier,1995).
v.chaillou@idate.org

Nicholas ECONOMIDES is a Professor of Economics at New York University's Stern Business School and Executive Director of the NET Institute.
economides@stern.nyu.edu

Toshiya JITSUZUMI is professor of industrial policy at the Faculty of Economics, Kyushu University, Japan. He has earned an LL.B. from the University of Tokyo, an M.B.A. from New York University, and a D.Sc. from Waseda University, Japan. Prior to starting his academic career in the year 2000, Professor Jitsuzumi worked for 15 years at the Ministry of Internal Affairs and Communication, Japan. His research interests include public economics and communication/Internet economics, and he is currently focusing on network neutrality. During 2007–2008, he was a visiting scholar at the Columbia Institute for Tele-Information (CITI), Columbia University, and he was sponsored by the Social Science Research Council/Japan Foundation Center for Global Partnership. His works include "Discussion on network neutrality: Japan's perspective" (Communications & Convergence Review, 3(1), pp.71–89, 2011); Economics of the Telecom Industry (Kyushu University Press, 2010); and IT Investment and Its Performance in Japan: Management Strategies and Policy Initiatives (Kyushu University Press, 2005). His research works have also appeared in various journals, including Telecommunications Policy, Foresight, and Socio-Economic Planning Sciences.

Marc LEBOURGES is in charge of European and Economic Regulation for Orange Regulatory Affairs. He graduated from Telecom Paristech and holds a PhD in Computer Science from University Paris VI. First involved in R&D in Operation Research, he moved to France Telecom HeadQuarters where he contributed to regulatory and strategic issues such as interconnexion pricing, universal service obligations costing, Internet strategy and network strategic planning. He was then marketing director for domestic wholesale market, before joining his current position.

Eli M. NOAM is Professor of Finance and Economics at Columbia University Business School since 1976. Served as Public Service Commissioner for New York State and on several high level Federal boards. Director of the Columbia Institute for Tele-Information, he published 27 books and over 350 articles on many aspects of media and communications economics and policy, and has been a regular columnist for the Financial Times online edition. Eli has BA, MA, JD (law) and Ph.D. (economics) degrees from Harvard as well as honorary doctorates from the Universities of Munich and Marseille.

William B. NORTON is Founder of DrPeering.net, an Internet Peering portal and consultancy, with over twenty years of Internet experience. From 1998-2008, Mr. Norton's title was Co-Founder and Chief Technical Liaison for Equinix. From the beginning, Mr. Norton focused on building a critical mass of carriers, ISPs and Content Providers. To this end, he created the white paper process, identifying interesting and important Internet peering operations topics, and documenting what he learned from the peering folks. He published and presented his research white papers in a variety of international operations and research forums. These activities helped establish the relationships necessary to attract the set of Tier 1 ISPs, Tier 2 ISPs, Cable Companies, and Content Providers necessary for a healthy Internet Exchange Point ecosystem. From 1995-1998 Mr. Norton chaired the North American Network Operator's Group (NANOG), and he created the business plan for taking  NANOG commercial. From October 1987 to September 1998, Mr. Norton served in a variety of staff and managerial roles at Merit Network, Inc., including directing national and international network research and operations activities. Mr. Norton received a B.A. in computer Science and an M.B.A. from the Michigan Business School.

Claudia SAAVEDRA works as an economist at the Regulatory Affairs Department at Orange. She has earned a Ph.D. in economics from Ecole Polytechnique and a master's degree in game theory from Paris VI. She has previously worked as a research and teaching assistant in Bolivia where she earned an engineer's degree in applied mathematics. Her research has focused on theoretical industrial organization and its applications to telecommunications, content markets and network industries.

Jean-Jacques SAHEL is Director of Government and Regulatory Affairs for EMEA at Skype. He joined the company in 2008 from the British Government where he served UK interests in many telecoms and IT negotiations and forums such as the OECD, WTO and ITU.  He was a vice chair of the OECD anti-spam task force, and chairman of the OECD working party on the information economy. He is the UK signatory of the 2006 UN treaty on telecoms (ITU Convention and Constitution). Jean-Jacques chairs the UK Chapter of the International Institute of Communications (IIC). He is a Member of the Ofcom Spectrum Advisory Board and a vice-chair of the Business and Industry Advisory Committee (BIAC) at the OECD for ICT issues.

Jean-Paul SIMON has been Senior scientist at the Institute for Prospective Technological Studies (IPTS), European Commission, Directorate-General JRC, (Sevilla, Spain) since January 2010. He works on the economic assessment of (I'm not sure if this should be removed) the IT sector in BRICs countries and the media and content industries. Prior to that he held different positions in the industry and worked as a consultant specialised in media/ telecom law and regulation. He holds a Ph D in Philosophy (1975) and is a graduate from the Ecole des Hautes Etudes Commerciales (HEC) (econometrics) 1971. He has written several books and articles on communications and public policy. He is a frequent speaker on telecommunications and media in Europe and the USA.

Nadia TRAINAR has been engaging in ICT policies for several years, leveraging on a diverse and international experience. Graduated from ENST Bretagne (telecom engineering school) and Sciences Po Paris (Master in European Affairs), she began her career working with incumbent international carriers (France Telecom in Canada) and alternative Service Providers (9 Telecom, now part of SFR). She then moved to a leading technology provider (Schlumberger) with responsibilities encompassing strategic analysis, marketing or pre-sales activities. Afterwards, she was hired to promote private/public good practices within an independent organization advising local authorities, before joining ARCEP in 2008. Recently, as the deputy head of the European affairs unit, her main involvements have included: leading the revised telecom framework negotiations and implementation, and driving the net neutrality project.

Dennis WELLER is a Senior Advisor to Navigant Economics LLC.  Prior to joining Navigant, Mr. Weller served as Chief Economist at Verizon. Mr. Weller did his graduate work in economics at Stanford.
wellerdennis@mac.com



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