Net Neutrality Would Increase Likelihood of Content Discrimination, Phoenix Center Says

"Net neutrality regulation is motivated fundamentally by the belief that broadband service providers will,
at some future date, seek to extract profits from the content segment of the Internet marketplace, and
net neutrality aims to stop it," says a new white paper issued by George S. Ford, Phoenix Center for
Advanced Legal and Economic Public Policy Studies chief economist, and Michael Stern, Assistant
Professor of Economics at Auburn University.

Net neutrality supporters that fear surplus profit extraction will take the form of “exclusionary” practices
such as unfair or discriminatory access prices, “fast lanes” and “slow lanes” where preferential delivery is given to content firms willing and able to pay more, or outright monopolization of content, the authors say.

Such concerns about business advantage, whether "unfair" or not, are different from the separate issue of whether currently-envisioned network neutrality rules actually provide incentives to engage in such behavior, the authors say.

Some observers might be shocked to learn that net neutrality rules could actually encourage such
business behavior, not restrain it.

In fact, the latest Phoenix Center analysis suggests that net neutrality regulation actually increases
incentives to engage in exclusionary conduct in the content sector.

"Firms always have an incentive to take those steps, which increase their profits," the authors say.
"Ironically, net neutrality rules, which are supposed to suppress privately profitable exclusionary conduct,
will actually have an effect opposite of what is intended."

Because net neutrality regulations now under consideration will not reduce the profits associated with monopolization of content, but only those associated with the participation in a competitive content market, the proposed rule encourages broadband service providers to take steps to reduce the diversity of voices on the Internet to the detriment of the public interest, Ford and Stern argue.

The point is that network neutrality rules impose pricing rules, and the issue is whether such
pricing rules are likely to encourage or discourage business policies that increase or restrict content
options.

An important question is whether or not the proposed price regulations “promote consumer
choice and competition among providers of lawful content, applications, and services” by
addressing an ISP’s alleged motivation “to exclude independent producers of applications,
content, or portals from their networks.”

The answer is “no,” the authors say. "Net neutrality rules of the type proposed by the FCC and the
Markey-Eshoo Bill encourage exclusionary behavior rather than impede it."

The policy implications of this analysis are numerous, but can be summarized at a very
high level as follows: the analytical foundation for net neutrality remains in its infancy and the
concept needs more time to evolve, the authors argue.

Since even the advocates of net neutrality regulation admit that there exists a “de facto net neutrality
regime” today, there seems to be little reason for a headlong rush into bright-line regulatory
rules when so little is known about the issue.

The rules proposed by both the FCC and Congress create incentives that may not even exist absent the regulation, and increase whatever incentives do exist for ISPs to behave badly in the content market.

Most troubling about the proposed rules is that net neutrality, it now appears, has become little
more than a quibble over profits between providers, a far cry from the origins of the concept wherein the focus was on the freedom to distribute and consume information without undue interference.

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Canada's Telecom Market Faces Deregulation

Canada's telecom market looks to  be on the cusp of a major wave of market restructuring as national government authorities now appear committed to liberalizing the Canadian telecom market by allowing investment by foreign interests above the current 46 percent cap on foreign investment in any Canadian provider.

That could potentially allow majority control by foreign investors. Observers say that if the liberalization moves succeed, it likely will drive a major wave of consolidation among Canadian providers, driven in part by the need to bulk up in advance of an expected wave of new entrants, many of whom will have significant resources.

The Canadian telecom business is about a $40 billion a year business and only recently allowed Egyptian-backed Globalive Communications Corp. into the mobility market.

Some speculate that any new rules would cap such control to firms controlling about 10 percent of the total Canadian market. One logically would expect the major interest to be in wireless assets, as wireless is the segment of the business with the strongest growth prospects.

Canada's leading service providers, such as Rogers Communications, BCE and Telus have criticized the Globalive decision.

Some financial analysts are not so sure there will be too much interest, though. "Even if foreign ownership restrictions were lifted today, we do not see much foreign strategic interest in Canadian incumbents," says Dvai Ghose, Genuity Capital Markets analyst.

AT&T, Verizon and Comcast still seem focused on domestic operations. In addition, Canadian telcos and cable companies currently trade at significant premiums to U.S. and European peers.

Still, mobile challengers are likely to attract some interest. That likely means more cap[ital will be available for mobile upstarts Wind, Public Mobile and Dave. Incumbents are likely to consider mergers as a defensive move, says Jeff Fan of Scotia Capital.

"We believe opening the doors to foreign investment in Canada will benefit the new wireless entrants in the near term by providing them with greater access to capital and allowing them to simplify their business structures," says  Phillip Huang, UBS Securities Canada analyst.

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Google Personalizes Search

Google personalizes as much as 20 per cent of a user's web searches, based on location, Web history, or online contacts, according Google software engineer Bryan Horling.

In addition to that, searches automatically are tailored based on what a user is looking for in a particular country, and has been doing so forr years.

The difference now is that Google is tweaking results based on the individual user's behavior. Horling says many of these changes are rather subtle. "When these techniques fire, the changes tend to relatively minor," he says. "We're moving a few results. We might be moving a few down. We're generally not changing the entire character of the page."

In early December of 2009, Google also began personalizing based on the cookies stored on any particular machine.

Google is also tailoring results to the user's particular metropolitan area or local region. Basically, the idea is provider greater granularity of results, based on as many behavioral and locational clues as possible.

Apparently, Google also is using contact information mined from Gmail and Google Chat or Buzz in its search results.

There are likely some implications for search optimization, as each user, in each place, on discrete machines, with discrete social networks, will see slightly different results when using the exact same search term.

That probably will defeat some amount of search optimization. That might not be such a bad thing for users, though some optimizers will not like it.

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Telecom Return on Investment: Implications for Broadband Policy

Return on investment for major U.S. communications service providers has been falling for about a decade, which means it is a clear trend.

In business terms, that means the largest, best-financed U.S. communications providers face a worsening situation, not a rosy and growing market.

Unless a person believes the U.S. government has access to enough capital to reinvent 90 percent to 95 percent of the nation's infrastructure, something that might cost $300 billion or more, policymakers are going to have to rely on the private sector to do the heavy lifting.

Though we are yet weeks away from knowing what the Federal Communications Commission actually will attempt to achieve as a "national broadband policy," we are years away from knowing how it all will work out.

The reason is that sweeping changes of this sort always result in years of litigation, even once rules are set.

It seems fairly safe to argue that, whatever emerges, the rules will not be as bad as service providers fear, nor as good as some policy proponents would like. So long as the nation requires private firms and private capital to do the vast proportion of the work, policies that negatively affect investment will doom the effort.

Nobody will be completely happy when the rules are announced, or modified and litigated. But rational policymakers will not kill the golden goose. And service providers likely will face some changes they would rather not have to confront. That's just the way these things work.

Mobile ARPU Illustrates Service Provider Issues

U.S. mobile service provider average revenue per user decreased by $0.45 over the last year, says analyst Chetan Sharma.

Average voice ARPU declined by $0.98 while the average data ARPU grew by $0.53.

Therein lies the problem: mobile service providers are growing data revenues, but losing voice revenue faster than they are able to replace the lost revenues.

That isn't to say they will not ultimately succeed in replacing the lion's share of lost voice revenue. But few executives likely believe the substitution will be one-for-one, or greater, at least in terms of broadband access replacing core voice revenues.

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50% Faster Email Performance Using Akamai and AppRiver

The amount of time it takes users to connect and sync with Exchange was reduced by half when using an Akamai-enabled AppRiver Secure Hosted Exchange solution, reports Compuware Gomez.

In other words, not all email services are created equal. Some can use optimization techniques such as Akamai to improve performance.

"AppRiver's relationship with Akamai is an excellent example of how network optimization can create a differentiated and improved IT service, in this case hosted Exchange," says Peter Christy, Internet Research Group principal analyst.

The enhanced performance also is an example of why overly-strict "network neutrality" rules that do not allow any forms of bit prioritization are problematic. There are lots of reasons to allow users, application and service providers to differentiate services and features, and better performance is foremost among them.

The AppRiver service offers a "one-of-a-kind, optimized hosted Exchange" service. The AppRiver and Akamai service essentially "privatizes" the connection between the user and the Exchange servers in order to create a high-speed virtual private network for AppRiver customers.

"By implementing Akamai's IP Application Accelerator service, AppRiver securely provides fast and reliable hosted e-mail for both wireline and mobile users," said . "Akamai improves the overall global experience for mobile device users by optimizing the Internet and minimizing the impact introduced by oversubscribed wireless networks," says Willie Tejada, Akamai VP.

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AT&T Will Use Yahoo as Default Search Engine on Motorola's Android-Based Backflip

AT&T apparently will launch the Motorola Backflip, its first Android device, pre-loaded with Yahoo, not Google, as the default search engine. The move is one more example of the growing complexity of value chains in the communications business, where access provider, handset manufacturer and application providers have distinct interests.

In a less-direct sense, the moves also are evidence that the days of the old Internet have changed. These days, there are lots of business deals and arrangements that shape user access to experiences on the Internet and World Wide Web, and which demonstrate that there are numerous "gatekeeper" roles now being played by a variety of participants.

Other Google apps, such as Gmail, Google Maps, Google Talk, Android Market and YouTube, remain.

It’s unclear if T-Mobile will ever have to do the same. It’s been about two years since T-Mobile USA launched its first Google phone, and it has yet to replace Google’s search on Android devces with Yahoo, despite having a similar exclusive partnership with Yahoo.

Last year, Microsoft got exclusive right to manage mobile search and advertising on Verizon’s handsets.

While Bing has been installed on several phones, including BlackBerry devices, Verizon’s Motorola Droid and HTC Droid Eris, come pre-loaded with Google’s search as the default.

Default settings still are seen as valuable because many users do not customize their application profiles on smartphones.

New York Times story