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Battle Royale

Fri, 03/31/2006 - 7:00pm
Leslie Ellis, Independent Analyst and Contributing Editor

If you think cable lobbyists lead placid lives, think again. The 2006 regulatory season is in full harrumph, and it's a doozy. There are the telcos, not wanting to follow established video franchising obligations. And the broadcasters, still seeking "multicast" carriage of their secondary digital feeds. And don't forget the indecency mess, spawned by the 2004 Super Bowl, and now careening toward a la carte policy.

'In This Corner'
In this corner: A sampling of who’s on which side of the debate:
Neutrality (from left): Jeffrey Citron, chairman & chief strategist, Vonage; Vinton Cerf, VP and chief Internet evangelist, Google; Lawrence Lessig, professor of law, Stanford Law School. Diversity (from right): Ed Whitacre, CEO, AT&T; Ivan Seidenberg, chairman & CEO, Verizon; Dr. Christopher Yoo, law professor, Vanderbilt University; Kyle McSlarrow, president & CEO, National Cable & Telecommunications Association.

But as high-stakes policy matters go, "network neutrality" is the one to watch. At press time, the House Energy and Commerce Committee was teetering closer to a bill that, on the one hand, would allow telcos national video franchises—and the neutrality legislation was in there, too.

Yes, you've seen this movie before. "Network neutrality" is indeed code for "dumb pipe vs. smart pipe." It's arising now because broadband, as a category, is a worldwide success story: More homes have broadband than dial-up Internet connections now. In North America, 47.1 million homes take some form of high-speed connection, according to recent tabulations from Kinetic Strategies.

The bigger the broadband footprint, the more entrants who want to ride it into homes. Increasingly, that means services that compete with those offered by broadband network owners. (Somewhere along the line, those entrants became known as "over-the-top" providers, because the bits of their wares ride on top of cable or DSL modem bandwidth.)

"Over-the-top" voice is already happening (witness Vonage, Skype, etc.). Video is starting to happen, with offerings like Movielink, Vongo, Slingbox, and others. It comes as no surprise to the readers of this magazine that video needs orders of magnitude more bandwidth than voice.

Right now, those "over-the-top" bits are treated as "best effort" bits—same as the bits that constitute an e-mail, or a Web page. No special treatment is applied to them by the network. First come, first served.

Cable (and telephone) operators use network tools, like QoS (quality of service), to fortify some of the services they offer over their own broadband pipes. Cable-delivered voice-over-IP (VoIP), for instance, uses QoS to apply priorities to voice bits, because voice conversations are live. Voice bits need to get there fast, and in the right order.

That's like reverse discrimination, the neutrality side submits: Your bits get better treatment than my bits, for an equivalent service. Foul.

The neutrality side

In essence, the neutrality side believes that all bits are created equal. Owners of broadband pipes shouldn't block bits, or discriminate against them.

Companies like Google, Amazon.com, and Vonage are on the side of neutrality—to the point of testifying in front of the Senate Commerce Committee in February.

Companies like DirecTV show their neutrality stripes by press release, announcing in late February a video-on-demand service that hauls bits over "any broadband connection."

Here's a sampling of the neutrality-side prose, as delivered to the Senate Commerce Committee:

"Allowing broadband carriers to reserve huge amounts of bandwidth for their own services will not give consumers the broadband Internet our country and our economy need. Google believes that consumers should be able to use Internet connections that they pay for the way that they want." —Vinton Cerf, VP and chief Internet evangelist, Google Inc.

"What would happen if tomorrow one of these network operators decided to block Google, Vonage, Yahoo, or Amazon? Innovation would be left behind with no possibility of due process." —Jeffrey Citron, chairman and chief strategist, Vonage Holdings Corp.

The diversity side

Hold on a second here, the diversity side rebuts. Nobody's blocking anything. Nobody is going to block anything. "It's putting the cart before the horse, frankly," says Michael Wilner, chairman & CEO of Insight Communications. "It implies that we may do something in the future, that would disadvantage people who want to use the Internet to deliver some sort of service to customers—and that regulation is needed to prevent that from happening."

The diversity side, not surprisingly, is populated by those who spent triple-digit billions to build, own and maintain broadband networks. That means cable and telephone companies. (Oh, the irony.) They maintain that some bits need special attention, in order to work well at the receive end. It's not about blocking or degrading. It's about flow control.

So far, it's the telcos—AT&T, BellSouth, and Verizon—shouldering most of the neutrality arrows, mostly because of public comments they made earlier this year favoring transport fees for providers of high-bandwidth services. In that scenario, companies wanting "priority handling" for their bits, over the network, pay a priority fee.

Cable's position on neutrality is less inflammatory: Imposing neutrality would stifle innovation.

"This is a huge step backward in the wrong direction," says Kyle McSlarrow, CEO of the National Cable & Telecommunications Association (NCTA), in an unprecedented call with reporters on March 10. "There is robust broadband competition. Bandwidth usage is growing exponentially. The marketplace, not the government, should elect the right business models."

Canada and neutrality: Pay up

One of the bigger surprises so far in the neutrality vs. diversity debate was a complaint by Vonage Canada on March 8 that Canadian MSO Shaw Communications is suggesting that cable modem users pay an additional monthly fee, if they are using an over-the-top VoIP service provider.

Calling it a "thinly-veiled VoIP tax" and "anti-competitive," Vonage Canada alleged that Shaw is recommending that its high-speed customers pay an additional $10 charge for such a service, and has asked the Canadian Radio-Television & Telecommunications Commission (CRTC) to investigate the matter.

On its Web site, Shaw does promote a "Quality of Service Enhancement" for $10 per month "to improve the quality of Internet telephony services offered by third-party providers."

Shaw President Peter Bissonnette told CED recently that the "discretionary" package includes a DOCSIS 2.0 modem and some RF clean-up and fine-tuning. The packets for Vonage and other third-party VoIP services are not given the kind of priority that Shaw gives its own PacketCable voice service, however.

Play it out

What's the worst that can happen? Depends on the viewpoint. There's the emotional stance: Say you're Coca-Cola. One day, it comes to pass that you're required to share your factory with Pepsi, Diet Pepsi, and dozens of other competing brands. At the same time, you're supposed to be holding your lead with your own delicious beverages.

By enforcing an "all bits are equal" stance, including anything (like QoS) that makes a bit healthier for its ultimate destination, network owners would, essentially, be sharing their "mixing factories" with their competitors.

Lastly, there's the "nothing happens" angle. No regulations. No "all bits are equal" stipulation. Nirvana? Probably not. Right now, the number of "over-the-top" service providers can be counted with the fingers on one hand, maybe both. More are assuredly coming. Many will have video intents.

Plus, if current history is any guide, the cable vs. telco speed wars won't abate. Both industries will likely continue to widen downstream speeds. More speed, wider pipes, more stuff to pump through them.

Even without a mandate for neutral networks, the business of managing the burgeoning IP bit load isn't heading toward "easier."

Net economics

Net neutrality isn't just of interest to the policy intelligentsia. Economists are studying it, too. In February, Dr. Christopher Yoo, a law professor at Vanderbilt University, issued a 56-page paper on the subject (http://law.vanderbilt.edu/faculty/Yoo%20-%20Network%20Diversity%202-6-06.pdf).

The paper's title indicates its conclusion: "Promoting Broadband through Network Diversity." The condensed version: Business models and economics can be envisioned for both paths—diversity and neutrality. Therefore it is unwise to apply regulations, because the marketplace is poised to prove it out.

"Requiring network owners to share the benefits of any improvements to their network with their competitors curtails the motivation of incumbents to upgrade existing networks," Yoo writes.

At press time, the supplier community was still formulating its official position on neutrality. Cisco Systems Corp., during a Webcast with analysts to shed light on its plans for and with Scientific-Atlanta, put it this way: If a customer buys a 6 Mbps downstream connection, that customer should be able to use that 6 Mbps any way she or he wants.

But if there's bandwidth left over in that downstream channel, that the network owner wants to put to use for other services, that's fair game, too.

What happens next?

Regulatory catbirds point to the House bill as the most likely vehicle for network neutrality legislation. There's a chance it could wind up inside a proposed re-write of the '96 Telecom Act, or as a separate bill—not unlike how regulators are trying to impose steeper fines on television networks, when wardrobes malfunction.

"So one way or another, this is going to be an issue which may see some legislation moving through the Committee this year, and maybe onto the Floor," says Steve Effros, the policy watchdog and cable curmudgeon.

Until the introduction of the bill, cable operators were taking a "don't poke the bear" position on the neutrality issue. Let the telcos take the heat, the reasoning went.

Of course, laying low doesn't fend off the risk of being splashed with another industry's mud. While one company's merger conditions, at the federal level, don't usually have a direct impact on another industry, it does seem certain that neutrality rules will be applied to "all broadband networks," including cable.

"We're opening up a Pandora's box here," NCTA's McSlarrow says of national video franchising, a la carte pricing, and network neutrality. "This is clearly a sweetheart bill for an industry (telcos) that clearly doesn't deserve it."

Given the uncertain ending to the network neutrality situation, and the constant influx of new "over-the-top" services, one thing seems clear: It's probably time to finally get those policy servers and flow control mechanisms in place—if only to make sure information keeps moving.

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