Net Neutrality or Net Bias?--Handicapping the Odds for a Tiered and Branded Internet A Presentation at the 35 th Annual Telecommunications Policy Research Conference George Mason University Arlington, Virginia September 30-October Rob Frieden, Professor of Telecommunications Penn State University web:

2 Goals of the Paper Compare and contrast the telecommunications settlements procedure with Internet peering and transit arrangements. Compare and contrast the telecommunications settlements procedure with Internet peering and transit arrangements. Identify instances where a maturing and diversifying Internet marketplace can promote diverse QOS and pricing models that constitute lawful price and service discrimination. Identify instances where a maturing and diversifying Internet marketplace can promote diverse QOS and pricing models that constitute lawful price and service discrimination. Explain how “better than best efforts” packet routing can offer an worthwhile value proposition and enhancement of legacy routing arrangements. Explain how “better than best efforts” packet routing can offer an worthwhile value proposition and enhancement of legacy routing arrangements. Identify scenarios where discriminatory and unlawful practices violate fair trade, antitrust and other laws. Identify scenarios where discriminatory and unlawful practices violate fair trade, antitrust and other laws. Consider claims that network neutrality obligations would stifle innovation and eliminate incentives to invest in necessary broadband infrastructure upgrades. Consider claims that network neutrality obligations would stifle innovation and eliminate incentives to invest in necessary broadband infrastructure upgrades.

3 Explaining the Concepts— Network Neutrality Advocates for network neutrality have identified threats, scenarios and some instances where an Internet Service Provider (“ISP”) has blocked, delayed, or otherwise thwarted the delivery of specific bitstreams. Advocates for network neutrality have identified threats, scenarios and some instances where an Internet Service Provider (“ISP”) has blocked, delayed, or otherwise thwarted the delivery of specific bitstreams. Net neutrality advocates want to convert “aspirational” views of a democratic and nondiscriminatory Internet into enforceable rules that would restrict ISP flexibility in terms of pricing, service quality and offerings. Net neutrality advocates want to convert “aspirational” views of a democratic and nondiscriminatory Internet into enforceable rules that would restrict ISP flexibility in terms of pricing, service quality and offerings. Advocates for net neutrality believe this principle should apply to all packet routing arrangements where a direct, enforceable contract exists, e.g., customer to ISP and ISP transiting and peering agreements, and also arrangements that lack “privity of contract,” e.g., ISPs that “advertise” routes upstream and downstream from the source of content through other intermediary ISPs eventually to end users. Advocates for net neutrality believe this principle should apply to all packet routing arrangements where a direct, enforceable contract exists, e.g., customer to ISP and ISP transiting and peering agreements, and also arrangements that lack “privity of contract,” e.g., ISPs that “advertise” routes upstream and downstream from the source of content through other intermediary ISPs eventually to end users. Net neutrality advocates believe that the Internet has contributed to national productivity, economic opportunity and innovation in light of “best efforts,” end- to-end connectivity. Net neutrality advocates believe that the Internet has contributed to national productivity, economic opportunity and innovation in light of “best efforts,” end- to-end connectivity.

4 User3 Carrier A Collects revenues Collects traffic Carrier B Receives half AR Terminates traffic User 1User 2 User 1 User 2User 3 Traditional Accounting Rate Settlements Carriers match half-circuits and split all transport and switching costs.

5 ISP A Exchanges traffic ISP B Collects revenues Requests and terminates traffic One-way (thick pipe) User 1 User 2User 3 For Internet paid peering or transit traffic, ISP B pays for both halves of the International circuit(s) which are used for access to ISP A’s network (peering) or for access to some or all of the networks to which ISP A has access (transit). ISP B also pays for traffic exchange (“port charges”). ISP B may pay for the circuit directly, or in conjunction with one or more carriers. ISP = Internet Services Provider ISP pays the full cost of the int’l circuit Two-way (thin pipe) Web 1 Internet Paid Access

6 Telephony Causation The caller usually triggers a complete end-to-end network setup using facilities provided by the originating carrier and other carriers secured by the originating carrier. Traffic measurement and tracking Metering and tracking likely. Parties Agree on a multilateral basis to divide cost and share toll revenues based on ITU Recommended model. Internet Causation Traffic types and routing vary making it difficult to use traffic flows for determining who should pay; conduit and content merge. Traffic measurement and tracking Possible, but does not necessarily indicate which party initiated the link and who benefits. Upstream and downstream flows often asymmetrical. Parties A connectionless protocol where many carriers may be involved in switching and routing packets on “best efforts”model; evolved from zero cost peering to a commercial hierarchy of peers and clients. Telephony and Internet Models

7 The FCC’s Four Network Freedoms In a Policy Statement The FCC has articulated four non-biding In a Policy Statement The FCC has articulated four non-biding “principles”: “principles”: (1) consumers are entitled to access the lawful Internet content of their choice; (1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers, and content providers. (4) consumers are entitled to competition among network providers, application and service providers, and content providers.

8 Explaining the Concepts— Network Flexibility Advocates for network flexibility reject constraints on their ability to price discriminate and recoup sizeable investment in broadband infrastructure. Advocates for network flexibility reject constraints on their ability to price discriminate and recoup sizeable investment in broadband infrastructure. They view net neutrality as thwarting competition and creating disincentives to invest in NGNs. They view net neutrality as thwarting competition and creating disincentives to invest in NGNs. Advocates for net flexibility note that ISPs do not operate as common carriers. Advocates for net flexibility note that ISPs do not operate as common carriers. As information service providers, ISPs have flexibly negotiated interconnection arrangements without evidence that any ISP or user group has faced concerted refusals to deal boycotts, or and other anticompetitive practices. As information service providers, ISPs have flexibly negotiated interconnection arrangements without evidence that any ISP or user group has faced concerted refusals to deal boycotts, or and other anticompetitive practices.

9 How Does Either Concept Jibe with Existing Internet Protocols? ISPs have achieved widespread geographical reach by securing “best efforts” routing and reciprocal carriage agreements from other ISPs information service providers. ISPs have achieved widespread geographical reach by securing “best efforts” routing and reciprocal carriage agreements from other ISPs information service providers. They acquired significant market penetration by offering subscribers unmetered “All You Can Eat” service options. They acquired significant market penetration by offering subscribers unmetered “All You Can Eat” service options. “Nethead” philosophy about the Internet emphasizes lofty notions about ubiquitous access with less emphasis on cost recovery and analysis of cost causation. “Nethead” philosophy about the Internet emphasizes lofty notions about ubiquitous access with less emphasis on cost recovery and analysis of cost causation. Netheads favor zero payment Sender Keep All/Bill and Keep “peering.” Netheads favor zero payment Sender Keep All/Bill and Keep “peering.”

10 Revenge of the Bellheads: Internet Privatization Changes Who Rules As the Internet grew government incubators withdrew financial support forcing a more commercial orientation. As the Internet grew government incubators withdrew financial support forcing a more commercial orientation. The Internet industrial structure became more hierarchical with small ISPs paying for transit and a few Tier-1 ISPs continuing to peer. The Internet industrial structure became more hierarchical with small ISPs paying for transit and a few Tier-1 ISPs continuing to peer. Because the major telecoms carriers own the major ISPs, a Bellhead management and telecoms cost recovery template predominates. Because the major telecoms carriers own the major ISPs, a Bellhead management and telecoms cost recovery template predominates. The telecom template has a route specific focus with comprehensive route tracking, usage metering and cost accounting. The telecom template has a route specific focus with comprehensive route tracking, usage metering and cost accounting.

11 Challenges to a Telecoms-Based Economic Model Customers pay ISPs a monthly subscription for access to both the conduit to the Internet cloud and the content “freely” available within the cloud. Customers pay ISPs a monthly subscription for access to both the conduit to the Internet cloud and the content “freely” available within the cloud. Traffic streams typically are asymmetrical, i.e., a small upstream request triggers a large cascade of traffic, often augmented by unsolicited advertising. Traffic streams typically are asymmetrical, i.e., a small upstream request triggers a large cascade of traffic, often augmented by unsolicited advertising. ISP transiting and peering are connection and bandwidth based with less, if any, emphasis on session-by-session metering. Telecommunications network interconnection and access pricing relies primarily on direct contractual relationships and metering. ISP transiting and peering are connection and bandwidth based with less, if any, emphasis on session-by-session metering. Telecommunications network interconnection and access pricing relies primarily on direct contractual relationships and metering. Until recently Internet metering costs exceeded the benefits, and “tunneling” a complete end-to-end link was technologically difficult. Until recently Internet metering costs exceeded the benefits, and “tunneling” a complete end-to-end link was technologically difficult. As a “network of networks,” Internet connectivity involves interconnection between directly contracting parties, but also access to networks operated by carriers that have no direct contractual arrangement. As a “network of networks,” Internet connectivity involves interconnection between directly contracting parties, but also access to networks operated by carriers that have no direct contractual arrangement.

12 Net Bias Versus Reasonable Price and Service Discrimination Net Bias Versus Reasonable Price and Service Discrimination Net bias occurs when an ISP deliberately discriminates against a specific type of bitstream or generator of a bitstream without an operational justification. This includes blocking ports and “snifting” bits to identify and block, delay or drop certain types, e.g., a competitor’s VoIP traffic. Net bias occurs when an ISP deliberately discriminates against a specific type of bitstream or generator of a bitstream without an operational justification. This includes blocking ports and “snifting” bits to identify and block, delay or drop certain types, e.g., a competitor’s VoIP traffic. ISPs can and should drop bits and deny service based on congestion and the inability to route bits. Net bias occurs when an ISP denies access even though ample capacity to switch and route the traffic exists. Net bias may not always violate contractual terms, because no contract may apply to participating upstream and downstream ISPs. ISPs can and should drop bits and deny service based on congestion and the inability to route bits. Net bias occurs when an ISP denies access even though ample capacity to switch and route the traffic exists. Net bias may not always violate contractual terms, because no contract may apply to participating upstream and downstream ISPs. ISPs can and should offer end users different bandwidth and throughput speeds as well as different interconnection and access arrangements both upstream and downstream. ISPs can and should offer end users different bandwidth and throughput speeds as well as different interconnection and access arrangements both upstream and downstream. Net bias occurs when an ISP deliberately degrades service, drops packets and otherwise tries to punish a specific ISP or content source. Net bias occurs when an ISP deliberately degrades service, drops packets and otherwise tries to punish a specific ISP or content source. Net bias does not include services differentiation based on bandwidth, throughput, QOS, etc. Net bias does not include services differentiation based on bandwidth, throughput, QOS, etc.

13 Net Bias Versus Reasonable Price and Service Discrimination Impermissible Net Bias Deliberate Packet Loss Targeting Large Volume Content Generators for Punishment or Extortion Most Types of Port Blocking Unilaterally Imposing Upstream and Downstream Rules That Violate Existing Service Level Agreements Affiliate Favoritism That Violates SLAs, Fair Trade and Antitrust Laws Fees for Overriding Firewalls and Filters Permissible Network Bias Variable Bandwidth and Throughput Bandwidth Partitioning Metered Service Better Than Best Efforts Routing Special or Exclusive Content Deals

14 Conclusions and Recommendations Network flexibility in pricing, service provisioning and quality of service options can make economic sense. Network flexibility in pricing, service provisioning and quality of service options can make economic sense. However deliberate blocking or degrading traffic does not. However deliberate blocking or degrading traffic does not. ISPs should be able to partition bandwidth and offer downstream end users and upstream ISPs different levels of bandwidth and QOS. ISPs should be able to partition bandwidth and offer downstream end users and upstream ISPs different levels of bandwidth and QOS. Better than best efforts is not a contradiction, but existing interconnection and SLAs may restrict this option as might competition laws. Better than best efforts is not a contradiction, but existing interconnection and SLAs may restrict this option as might competition laws. ISPs should fully disclose terms and conditions. Requiring transparency does not foreclose net flexibility. ISPs should fully disclose terms and conditions. Requiring transparency does not foreclose net flexibility.

15 Conclusions and Recommendations (cont.) Net flexibility should not extend mid-stream to the switching and routing of traffic between a content source and end user unless and until a single ISP can offer a superior and complete routing from server to client. Net flexibility should not extend mid-stream to the switching and routing of traffic between a content source and end user unless and until a single ISP can offer a superior and complete routing from server to client. SBC-at&t Chairman Ed Whitacre has not demonstrated how content providers such as Google have enjoyed a free ride. On the other hand ISPs should have the option of offering a more expensive, premium content delivery option if ISPs can deliver it. SBC-at&t Chairman Ed Whitacre has not demonstrated how content providers such as Google have enjoyed a free ride. On the other hand ISPs should have the option of offering a more expensive, premium content delivery option if ISPs can deliver it. Net bias to mid-stream traffic should not occur simply because certain content providers generate a lot of traffic and have greater market capitalization, or because an ISP can create congestion like Enron did. Net bias to mid-stream traffic should not occur simply because certain content providers generate a lot of traffic and have greater market capitalization, or because an ISP can create congestion like Enron did.

16 Additional Research Questions Is Net Neutrality a solution in search of a problem? What potential exists for anticompetitive practices in terminating VoIP traffic via the PSTN?; via DSL/cable modems? Is Net Neutrality a solution in search of a problem? What potential exists for anticompetitive practices in terminating VoIP traffic via the PSTN?; via DSL/cable modems? Would Google have any problems finding alternative ISPs to carry its traffic if at&t refused? Do end users have options if a DSL/cable modem ISP blocked or dropped specific bitstreams, or imposed VoIP, gaming, or P2P surcharges? Would Google have any problems finding alternative ISPs to carry its traffic if at&t refused? Do end users have options if a DSL/cable modem ISP blocked or dropped specific bitstreams, or imposed VoIP, gaming, or P2P surcharges? Would net neutrality rules create disincentives for investment in next generation networks? Would net neutrality rules create disincentives for investment in next generation networks? Can non-sector specific regulators, e.g., FTC and Justice Department, and the courts remedy any actual abuses in lieu of the FCC? Can non-sector specific regulators, e.g., FTC and Justice Department, and the courts remedy any actual abuses in lieu of the FCC? What is the scope of Title I responsibilities the FCC can impose on ISPs? What is the scope of Title I responsibilities the FCC can impose on ISPs?