Network Neutrality Boils Down to "Quality or Equality"

Language matters. Sometimes language is used to halt debate, rather than engage with and contest ideas. In such cases, language is used--intentionally or not--in a fundamentally irrational way, as a substitute for thinking. All of us can think of instances where calling something or someone a name completely shuts down debate about ideas, and becomes a fight about character.

Sometimes language is used--deliberately--to shape thinking, in less invidious, but significant ways. Consider debates about network neutrality, the content of which is quite different in U.S. and European Union contexts.

Some argue in favor of network neutrality by citing instances of lawful application blocking, either in the U.S. or E.U. markets.

And, to be quite sure, “blocking of lawful applications” by an Internet service provider is viewed by regulators in the United States and European Union as a genuine problem, as they should, many would argue.

To be sure, examples of such blocking of legal apps have been quite rare in the U.S. market. In 2008, the Federal Communications Commission swiftly against Comcast blocking of BitTorrent.

Earlier, in 2005, the FCC had moved swiftly against a small telco, Madison River, for blocking Vonage.

In the U.S. market, that is the extent of the record of actual ISP blocking of lawful apps.

Blocking of lawful apps arguably has been a bigger problem in the EU, where lawful apps such as Skype have experienced routing blocking by some ISPs.

That is a problem many would agree must be addressed. People have the right to use lawful Internet apps.

Beyond that is where one might argue confusion begins. The U.S. FCC long ago made blocking of lawful apps an infraction of U.S. policy.

That has not universally been the case in the European Union, where “network neutrality” covers both the problem of lawful application blocking and potential quality of service mechanisms for consumer Internet access.

To be sure, one might reasonably argue that a “neutral” treatment of all consumer Internet apps is the correct term to cover both app blocking and equal treatment of all apps. It is appealing language, as it invokes notions of fairness.

But there inevitably are competing claims of fairness. If a consumer buys a service, that service should work “as advertised.” That applies to video streaming and voice services for which people pay money to use, for example.

That such mechanisms are necessary can be deduced from widespread use of content delivery networks whose value is such that backbone traffic patterns now are shifting from north-south to east-west (north south referring to traffic traversing long haul networks while east-west refers to metro-confined or data-center-confined traffic).

In other words, entertainment video and voice often require “unequal” treatment, to provide reasonable end user experience. People often do not realize that all voice networks actually are designed with “admission control” or actual “blocking” mechanisms to deal with periods of very-high usage.

People experience this as a recorded message that “all circuits are busy now; please try your call later.” That is actual lawful application blocking, but has in the past been necessary at times of peak load.

Internet, compared to circuit switched networks, can deal with congestion in other ways. Some argue ISPs should simply be forced to build networks with more capacity. Others argue that, in addition, apps the require predictable packet delivery should be supported that way networks get congested.

In large part, the arguments have business implications, in particular the allocation of capital investment burdens within the Internet ecosystem. One view is that ISPs bear the sole burden of providing enough bandwidth to support all apps, all the time. That is the “neutrality” argument, which as a practical matter means “best effort” delivery.

Another view is that apps susceptible to packet delay be afforded the ability to better assure packet delivery when networks are congested. That is the content delivery networks approach.

In business terms, “network neutrality” includes both the separate issues of application blocking and the use of “best effort only” or “content delivery network” approaches.

So “neutrality” is a fuzzy term. What we want is that consumers “can use all lawful apps” (no blocking) as well as “lawful apps actually work well” (content delivery networks or not).

In the E.U., “neutrality” covers both blocking and access mechanisms. In the United States, “neutrality” actually refers only to access mechanisms, as “application blocking” is covered by other existing rules.

So language does matter. On one hand, it is easy to understand the power of “equality.” In practice, virtually all consumers already experience content apps whose treatment is “unequal” because quality requires such treatment.

It is in real terms a “quality or equality” debate. Content delivery networks sacrifice "equality" to gain "quality." Best effort access assures "equality" at the risk of "quality."

Google Buys Drone Manufacturer Titan Aerospace

Google's purchase of Titan Aerospace, a manufacturer of solar-powered drones, is the latest expression of interest in drones, for any number of potential applications, by Amazon, Facebook and Google. 



Aside from providing Internet access, Titan seems to have capabilities in mapping, something of high interest for applications such as Google Maps. Amazon of course has suggested drones could be used for small package delivery. 



Facebook initially has suggested drones could be used to support Internet access in many areas of higher population density. 

Verizon Wireless Now MoreTransparent and Fair with Service Plans

Verizon Wireless has made a move for greater transparnency and fairness by giving customers the ability to add a smartphone that is not currently under contract to a More Everything service plan.



Starting on April 17, 2014, existing customers who are on month-to-month contracts can move to a More Everything plan and save money on those plans.



Customers buying plans with data allowances of 8 GB or below can add a smartphone for $30, a savings of $10, while customers who choose plans with data allowances of 10 GB and above can add a smartphone for $15, a savings of $25.



Also, new customers can add any smartphone they already own to a More Everything plan for either $30 or $15, depending on the data allowance they choose. 



The savings reflect greater transparency--and fairness--since contract plans traditionally include a subsidy for smartphones that is bundled in the price of a two-year contract. Customers who keep their plans beyond the contract term, and also keep using their original devices, wind up paying the device subsidy after the device actually is paid off.



So the new move provides a discount to customers who are not subsidizing a device. That is not only more transparent, but also arguably more fair. 

Amazon Smartphone Could Lead to Bigger "Bring Your Own Access" Trend

The news that Amazon is, at long last, going to produce and sell its own branded smartphone, after introducing its own Internet video set-top (the Kindle Fire TV) and Kindle tablets, raises issues about changing boundaries between industries and changing revenue models for at least some leading providers in industries.

The notion that a major and influential software company could support itself on advertising would have been almost completely laughable until Google proved it could be done, at least by one major firm in an industry.

Up to this point, Amazon has been viewed as a dominant retailer, but not as a technology company. With the growth of Amazon Web Services, and its new role as a supplier of tablets, smartphones and Internet video set-tops, as well as a growing role as a provider of online streaming video, that could be changing.

Amazon, in other words, could become the second big technology company to support itself using a non-traditional revenue model, in Amazon's case, retailing.

So far, no major communications service provider has made a similar transition. Many would question whether any major communications service providers ever will do so, though there have been sporadic attempts by smaller entrepreneurial firms to create communications services (not facilities based) whose revenue model is advertising, for example.

Even Google Fiber primarily earns its revenues directly, in the form of subscriber fees for Internet high speed access and video entertainment services.

But it seems possible some specialized forms of communications service might ultimately be created with a partly indirect revenue model, especially forms of access that rely substantially if not completely on untethered access (hotspots, not full mobile connectivity).

Amazon, for example, likely is banking on bigger smartphone-based commerce revenues. From there, it is a big step, but not a far fetched step, to add the actual "access service," though likely an approach emphasizing use of Wi-Fi first, then defaulting ot mobile access if necessary.

How much additional value Amazon could gain, compared to the cost, is debatable. The business case is stronger for others, such as cable operators, who would seek to leverage their fixed instrastructure to create a new "untethered first, mobile fallback" type of service.

That effort likely would be driven by an access fees model, not an indirect model, and gain business advantage largely by reducing the cost of providing the mobile service.

New Street Research estimates that U.S. cable companies could price Wi-Fi-based mobile phone service at a 25 percent discount to existing wireless carriers and still generate profit margins well north of 30 percent by doing so, since so much of the expected access would occur over Wi-Fi.

As much as 60 percent to 80 percent of any user’s Internet application requirements already happens over Wi-Fi, for example.

These days, perhaps only 10 percent to 20 percent of total mobile device usage, for all apps and purposes, actually happens when people are “on the go.” all the rest of the usage is in untethered mode at locations where there is Wi-Fi access.

Wi-Fi access, by definition an untethered but not mobile form of access, accounts for nearly half of all U.S. smartphone Internet access time.

True, the notion that cable operators might become mobile service providers using a Wi-Fi-first model is not as dramatic as Google, a technology company, earning its revenue from advertising, or Amazon, as a technology company, earning its revenue from commerce and transations.

But nobody thought cable TV networks would eventually become full service communication networks, either. Nobody thought mobile networks would become the way nearly every human being got access to voice services.

We might find, in the future, that new tuypes of networks likewise become the foundation for extending Internet access and communication services to underserved or unserved populations in developing regions, as well as providing new competition in developed markets as well.

In the meantime, Amazon's potential entry into the smartphone market is one more step towards "bring your own access" approaches where a user, device or communications provider stitches together a connectivity solution from any available source.

For the moment, any Amazon introduction of its own smartphone, in addition to tablets and Internet set-top boxes, directly underpins the commerce revenue model.

A bigger long-term question is whether a device-centric model based on using "any available access" might eventually prove attractive to Amazon and others, with a branded access offer being a part of that overall approach.

Amazon Smartphone Shows How Amazon is Changing

That smartphones play a wider role in the connected device, e-commerce also online advertising markets is illustrated by the introduction of a long-rumored smartphone by Amazon.

As has been the case with the other connected devices Amazon has introduced, the issue is how a connected device helps a retailer or application provider sell other products, not necessarily generate direct revenue from providing connectivity services or selling devices.

The Kindle was designed to help Amazon sell video and text content. The Amazon Kindle Fire TV will help Amazon garner information deemed valuable by potential advertisers, and incrementally boost use of Kindle video.

The new smartphone will play a role akin to both of the prior devices, even if it also supports voice communications, general Internet access and text communications.

The smartphone is becoming the most important “sensor” most people have with them all day, providing context and location, as well as information about what people are doing, and where.

But the smartphone also is becoming a retail platform, driving product purchases, as do tablets.

In fact, as one might describe Google as the first technology company whose revenue model actually is advertising, Amazon is becoming, in many ways, a technology company whose revenue model is commerce.

So, one way or the other, all Amazon brand connected devices aim to help Amazon boost product sales volumes.

For that reason, it is likely Amazon will follow it well-trodden path, selling devices a bit above cost, to seed the market with lots of devices that drive commerce revenues.

Strategically, therefore, Amazon is more than “just one more supplier of smartphones.” It is a competitor with different revenue streams, allowing it to package and retail devices in ways that are built on sources other than the actual sales of the devices.

One expects a cable TV company or telco to earn most of its money from Internet access services and a few key applications (voice, text messaging, video entertainment). One expects a consumer electronics manufacturer to earn most of its revenue from selling devices.

But Google and Amazon now are quite unusual, as Amazon is making a transition from “e-tailer” to technology company that earns its revenue by retailing. Just a few firms apparently can become very big by embracing such unusual models.

That might  be the biggest long-term implication of Amazon becoming a smartphone supplier.

Can Sprint and T-Mobile US Ever Catch Verizon and AT&T?

BTIG Research

As the U.S. Federal Communications Commission ponders some potentially market-altering mergers affecting the cable TV, satellite TV and mobile industries, the agency also faces the key issue of how it can best promote continued investment and innovation in the mobile business.

Paradoxically, as in the fixed network business, it is likely that only a few service providers can flourish, long term, even if conventional wisdom suggests more providers is to be desired.

And, one might add, part of the growing instability in the U.S. mobile market has yet to surface, namely the entry of new providers, such as one or more cable TV companies entering the market with widespread Wi-Fi-first access models.

New Street Research apparently estimates that U.S. cable companies could price Wi-Fi-based mobile phone service at a 25 percent discount to existing wireless carriers and still generate profit margins well north of 30 percent by doing so.

In other words, Sprint and T-Mobile US do not face AT&T and Verizon, they also eventually are likely to face Comcast and possibly Google, Apple or some other app provider.

The problem in most fixed network markets is that capital investment barriers are so high regulators essentially have had to rely on wholesale mechanisms to support competition. Ironically, such moves also tend to depress facilities investment.

BTIG Research

Though many would argue it is far from ideal, U.S. facilities-based competition between cable TV and telcos has been reasonably effective in sustaining competition, and the emergence of Google Fiber with a facilities-based approach arguably is starting to be even more influential.

The issue is how to best promote effective long-term competition in the mobile market, a question that can be summarized as "what is the minimum number of providers required to sustain long term investment and innovation?"

And some argue the current structure of four leading providers cannot last, based on disproportionate differences in revenue, profit and ability to continue investing in next generation networks.

The single most important present issue is the structure of the U.S. mobile market, which now has become unstable, paralleling in many ways instability in markets such as those of France, where regulators likewise are facing the challenge of sustaining investment and competition with a possibly smaller number of leading providers.

“We believe Sprint and T-Mobile’s lack of capital investment in network infrastructure and spectrum over the past five years were the primary reasons for AT&T and Verizon’s market share gains during that period,” say analysts at BTIG Research.

Likewise, an analysis by New Street Research makes the same point.

BTIG Research

"Our analysis shows that neither Sprint nor TMUS have enough revenue to cover their fixed costs and it is highly unlikely that both will capture enough new revenue to do so," New Street Research analysts say. “There simply isn't enough revenue in the industry for four carriers to cover their fixed costs unless there is a significant shift in market share."

You can guess that the analysts believe there is scant chance the two smaller U.S. mobile service providers can do so.

The analysts also say it is possible that a reduction in U.S. mobile service providers still could provide consumer benefits. In three markets--Netherlands, Greece, and Austria--the number of nationwide competitors dropped from four to three and average pricing in the markets declined 15 percent to 40 percent after the consolidation.

"If the companies merge now, while they are in relatively good shape, the merger will result in lower costs in the context of an improving business, which our data suggests should lead to investment and lower prices," New Street Research believes. On the other hand, "If the companies are only permitted to merge when one has faltered or failed, the combined company will be less well-positioned to compete against the two well-funded incumbents."

Common sense might lead one to conclude that four providers indeed are better than just three. But long term stable markets might ultimately require contraction to just three providers. And it might matter when such contraction occurs.

T-Mobile "Tablet Freedom" Plan Shows Tablet Impact on Account Growth

T-Mobile US has launched another attack in the U.S. mobile market, aiming this time at connected tablets by allowing T-Mobile US customers to add a mobile-capable tablet to a postpaid voice plan for free. The plan gives customers 1.2 GB of free 4G Long Term Evolution data usage every month in 2014.

Verizon Verizon quickly responded, allowing tablet owners to add a connected tablet, with a gigabyte of free monthly data, on “More Everything” shared access plans.

Operation Tablet Freedom also now is selling mobile-capable tablets for the same price as Wi-Fi-only models, when T-Mobile US consumers also activate a new postpaid mobile Internet plan for a new tablet.

Voice customers adding the 1GB tablet plan for free for the rest of 2014 also fully qualify for these reduced prices, T-Mobile US says.

Also, T-Mobile US also will pay any early termination fees when users switch to T-Mobile US.

The point is that tablets are driving line growth in the U.S. mobile market, especially for T-Mobile US, and likely AT&T and Verizon Wireless as well.

If T-Mobile US and Verizon Wireless each gain nearly a million net customers in a quarter, AT&T adds half a million and Sprint loses half a million, in a context where 90 percent of net adds must come from some other carrier’s market share, the numbers do not add up.

Simply, there are more accounts being added than are possible, counting only phones.

What seems to be happening is that most of the net new additions are driven by tablets and other machine-to-machine connections of various types, such as alarm connections.

Analysts say AT&T has lost some phone accounts to T-Mobile US. Of 551,000 net postpaid wireless subscribers AT&T added in the second quarter of 2013, for example, 398,000 were for tablets.

UBS estimates 160,000 were for other connections, such as home security or wireless home-phone service. AT&T lost a net 7,000 mobile-phone customers.

UBS analysts also expected net additions of 350,000, virtually all from tablet connections, with 200,000 other net new connections canceling out a net loss of 200,000 phone subscribers.

Indeed, connected devices (tablets, principally) drove net mobile additions at AT&T during the third quarter of 2013.

AT&T added nearly one million net subscribers, including 63,000 mobile postpaid accounts. AT&T also added 192,000 prepaid accounts. But connected device net adds were 719,000, or 73 percent of net additions.

In the fourth quarter of 2013, AT&T likewise added  a net 566,000 customers on a contract, with 440,000 net new tablet customers.