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Thursday, March 12, 2009

Game theory and principal-agent problems in net neutrality

Stephen Carter told Parliament he likes discrimination and behavioural advertising - which for a neo-corporatist communications professional should not shock you. You should also not be surprised to learn he was encouraged to intervene on behalf of the poor struggling dinosaurs, sorry that should read regional newspapers...

An interesting conversation this morning about principal-agent issues in NN. In government, all the principals are pushing for discrimination and/or trafic monitoring - they all want ISPs to invest in DPI and the like. Who are 'they'? Ofcom and BERR/Carter obviously (including on spam), but also DCMS on behalf of rights holders, the secret service and Special Branch (as was) on anti-terrorist issues and data retention as well as RIPA, Home Office and CEOP on child porn, Justice on porn (including manga) more generally, and of course Cleanfeed/CAIC. So they're pushing on an open door with price discrimination in all these ways.

So much for principals, what about agents? The types of actors can be classified as:
ISPs: Openreach; BT Wholesale, BT Retail, the mobiles, the others.
Content providers: BBC, other PSBs, Hollywood (both cable TV actors and content Disneyfiers), Silicon Valley (the 'usual suspects' in favour of some form of NN from Google to Yahoo! to Amazon), and the rest of us from Wikipedia to Joost.
So look at all the principals (for arguments' sake, carriers) and agents (say content providers, though the role can switch). Who has incentives and bargaining power in the relationship, as the BBC asks? Of course it varies, and the game theory is fascinating.

But there is a more profound set of questions - who has incentives to invest and where? We logically assume its about NGA and speed/bandwidth for end-user consumers. But as there is deceptive advertising, lack of enforced regulation and no transparency (posts passim), consumers don't believe current speeds. Why would they believe NGA speeds? They wouldn't. So what's the marketing proposition? It doesn't exist, especially given the BT problems with backhaul in Ebbsfleet. Perhaps Virgin will prove us all wrong with its DOCSIS3.0 roll-out?

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