Net Neutrality Structurally Flawed, Entropy Economics Says

Network neutrality has deep structural flaws, says Bret Swanson, Entropy Economics president.

Though aiming to ensure equal treatment of applications on the best-effort Internet, network neutrality would ban packet prioritization that might actually benefit consumers, denying them the ability to voluntarily buy services that ensure best performance for voice and video, or any other applications they may deem equally important.

Network neutrality as envisioned by the Federal Communications Commission also would prohibit creation and offering of new differentiated services, he argues.

The FCC seems to argue that although the Internet and the Web have been wild successes, the market cannot be counted on to take the Internet to the next level, Swanson argues.

"The events of the last half-decade prove otherwise," he says. Since 2004, bandwidth per capita in the U.S. grew to three megabits per second from just 262 kilobits per second, and monthly Internet traffic increased to two billion gigabytes from 170 million gigabytes—both tenfold leaps.

The FCC's desire to extend wireline rules to wireless likewise is dangerous, he argues. No sector has boomed more than wireless, yet the FCC wants to extend new regulations to the technically complicated and bandwidth-constrained realm of wireless, he argues.

Wireless carriers invested $100 billion in just the past three years, and the United States vaulted past Europe in fast 3G mobile networks while Americans enjoy mobile voice prices 60 percent cheaper than foreign peers, he argues.

The danger is that heavy-handed new rules will stifle needed investment in new networks.

"My research suggests that U.S. Internet traffic will continue to rise 50 percent annually through 2015, and hundreds of billions of dollars in fiber optics, data centers, and fourth-generation mobile networks will be needed," Swanson says. "But if network service providers can't design their own networks, offer creative services, or make fair business transactions with vendors, will they invest these massive sums to meet, and drive, demand?"

"If you don't build it, they can't come," he says. And that is the danger.

Enterprise Telecom Spend Now $1500 to $2000 Per Employee, Says Gartner

North American enterprises spent between $1,500 and $2,000 per employee on telecoms services in 2008, say analysts at Gartner. Total telecom spending represents about 20 percent of IT budgets. Wireless spending represents about 15 percent to 30 percent of total telecom spending but remains both the strongest growth category.

Fixed services continue dominate spending primarily due to enterprise spending on data networks.

But enterprises are shifting the way they buy services. Wireline services generally are sourced from multiple providers, as you might expect, given the regional nature of fixed access networks.

Wireless services ncreasingly are sourced on a national basis, when possible. That also makes sense since the tier one mobile providers offer nationwide service.

Contracts that combine buying of fixed and wireless service are more popular when possible, as they generally lead to volume discounts.

MPLS rates fell by double digits in 2008 as enterprises squeeze their VPN transport accounts, Gartner says.

The average North American fixed services contract is a three-year deal with an incumbent provider, although cost concerns have proven a boon for alternative providers and technologies such as audioconferencing.

Enterprises increasingly are bundling wireless with wired services to gain volume discounts, Gartner says. As a result, enterprises have reduced total communicatons spending.

T-Mobile UK Offers "Free Texting for Life"

It appears a "free text messages for life" promotion lead to the highest-ever single-month gain in new subscribers for T-Mobile UK in September 2009.

T-Mobile UK gained an estimated 100,000 net new subscribers in September, compared to a net loss of 200,000 subscribers in the first six months of the year.

The promotion runs month to month, allowing any users that tops up a prepaid subscriber information module to £10, in any month, unlimited texting the next month. So the promotion requires subscribers to top up their prepaid accounts to that level, every month, to keep the "unmlimited texting" feature.

Growth in T-Mobile UK's prepaid business accounted for most of the increase in the month, but the company says there was also a "healthy increase" in the number of contract customers in the period.

The thing about mobility is that it is a multi-product business, allowing service providers a number of options for "merchandising" features to enhance new customer acquisition, retention, revenue or profit margin. In this case, T-Mobile UK has opted for merchandising of text messaging to boost customer acquisition and retention.

Speakeasy Joins Google Voice in Refusing High-Cost Terminations

It is unclear whether a common carrier or Internet service provider lawfully can refuse to terminate calls to some area codes, though the issue now will have to be resolved. Google, for example, refuses to terminate calls to some high-cost areas in Iowa and elsewhere commonly used by free conferencing services.

Tier-one service providers also have tried to refuse terminations to these area codes and have been forbidden to do so by the Federal Communications Commission.

Speakeasy now apparently also does not want to terminate calls to some high-cost area codes, at least as part of its standard service.

"Speakeasy will disallow voice traffic to a few selected area and prefix codes (“NPA-NXX”) in North America," says Michael Czerwinski, Speakeasy VP. "In addition, we are clarifying our non-standard use clause and will be extending additional options to these specific customers affected."

Operators of services such as adult lines and “free conferencing” are using these local area codes and are causing additional fees, he notes. "Instead of passing on these fees to you, we have chosen to maintain the most competitive rates possible by implementing this policy," he says.

Regulatory arbitrage is a fact of life in the communications business. Sometimes it is a mnor irritant; sometimes it rises to a more-painful level. One suspects high termination rates in a few jurisdictions now are rising to a level when some action is to be expected.

Is Net Neutrality Possible?

It has been quite some time since the typical service provider executive has had confidence about the stability of rules governing the communications business. To greater or lesser degrees, there has been some element of regulatory instability and uncertainty since the mid-1990s, to go along with heightened market uncertainty.

Investors and executives do not like uncertainty. Yet greater uncertainty is likely what the industry now faces as the Federal Communications Commission ponders new rules about network neutrality, wireless competition and national broadband policy.

The latest reason for heightened uncertainty is the fundamental nature of questions inevitably raised by some of the regulatory discussions and rule makings, and the time it will take to sort out the application of the rules.

How does regulation separate "common carrier" obligations carriers may have from content rights they may have as providers of their own information and content services?

What does "common carriage" mean in an Internet era, for Internet-delivered services that might not work reliably and consistently in a strict "best effort" delivery mode?

What scope exists for "private IP" services provided to consumer users, much as business users have the right to buy "private IP" services that allow prioritization of packets?

How can regulation provide fair and equitable treatment of like services when the fundamental regulatory frameworks apply to different providers?

How does the framework handle instances where a "service" or "application" provider also acts as a "carrier"? When it is impossible to prevent a single legal entity from acting simultaneously as an information provider and a service provider and an application provider and a carrier, how does regulation handle the contradictions between treatment of roles?

Above all, will the sum total of new rules create more freedom, or less? And when freedom for one actor conflicts with freedom for another, how will balance be maintained?

The answers ultimately will matter for reasons other than perhaps-abstract notions about extending or squashing freedom; protecting individuals and companies from the power of government. At a time when everybody agrees that continued robust investment in facilities is in the public and national interest, how will the new rules affect investment and innovation?

The issue is not so much whether the outcome is greater freedom for application providers--that certainly will happen no matter what the outcome--but whether facilities providers also have freedom to change their business models to take advantage of new freedoms.

Virtually all regulators assume that the proof of deregulatory success is that incumbents lose market share and revenue. Some financial pain, inflicted on incumbents,  therefore is the whole point of deregulation.

But there is some point beyond which the infliction of pain must stop, or wider disruption of core facilities is impaired.

A rational observer might argue that "level playing fields" have yet to be fully created.. The issue is when such a point will have been reached, and how we will know it.

Will Net Neutrality Affect Teleworkers?

New "net neutrality" rules proposed by the Federal Communications Commission could affect teleworkers across the country, says Irwin Lazar, Nemertes Research VP.

If new rules strictly require Internet access providers to treat all traffic equally, which has a nice ring to it, it follows that it would also be unlawful to prioritize traffic, such as giving top priority to voice traffic or conferencing traffic at remote work sites.

That might have implications for the sorts of broadband access services organizations are able to buy for remote workers.

Enterprises and organizations might very well require the ability to prioritize voice and conferencing sessions, while assigning lower priority to Web surfing or entertainment video, for example.

That might mean it is not possible to buy standard broadband access services, and might require sourcing of private business class connections where such prioritization is possible. The ability to create virtual tunnels and virtual private networks might be required, and therefore might preclude buying of consumer broadband connections.

That could prove troublesome for teleworker support, as Nemertes Research now estimates that 86 percent of companies are planning to increase the number of teleworkers.

Proposed Net Neutrality rules may hinder their ability to utilize latency sensitive applications without purchasing a business-class service with performance guarantees. Uses of client-based optimization as well as desktop virtualization are likely to increase.

"Do not continue to assume that your employees will always have cheap access to high-speed residential services," says Lazar. "Develop contingency plans that include purchasing of business class services, use of optimization, and, or desktop virtualization to guarantee application performance."

UC Glass Half Full?

Unified communications can improve productivity, a survey by Orange Business suggests. The poll shows that 41 percent of the CIOs of large multinationals are considering unified communications. The other way of looking at matters is that 59 percent are not looking at it.

CIOs say UC features such as integrating mobile devices into the enterprises, implementing real-time identification through presence, instant messaging, and adding audio conferencing and desktop videoconferencing to work-flows enhance business efficiency.

Orange's report polled more than 600 CIOs from multinational corporations across various vertical industries. It revealed that most companies had to track and support seven different communications tools and applications.

This multitude of communications tools not only hampered an MNC's ability to collaborate internally, but it also delayed businesses processes and decision making.

While 95 of the CIOs polled said that new communications technologies have increased productivity, the amount of communications tools used within their respective companies slowed down internal communications.

Some 45 percent of CIOs indicated that multiple communication channels cause severe delays in colleague response time which can negatively impact business processes and productivity.

Customer service was seen as the primary UC beneficiary by 33 percent of respondents, while 28 percent thought sales benefitted most.

What is not clear is how much those respondents are willing to pay to acquire various capabilities, or how much enterprise workers will agree with CIO assessments.