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Wednesday, September 18, 2013

Question for IGF net neutrality coalition: Regarding specialised service

Given that Internet traffic continues to grow (even if only 17% YoY in Western Europe according to Cisco), does this make sense?
[1] Internet traffic volumes require continual investment in capacity in order for service NOT to degrade (I accept this can be relatively trivial backhaul upgrades to produce really significant extra capacity but nevertheless..)
[2] Decisions to invest in specialized services are likely to come from free cash flow from existing telco services, including provision of public Internet services (and pension payments, fleet renewal and a million other telco costs)
[3] therefore, the law must NOT write in a zero-sum game, ‘not reduce’... but a positive-sum outcome.
[4] Suggest “Investment in specialized services must be accompanied by further investment in public Internet capacity.”
[5] The language in the law therefore needs to be “provision of specialized services shall only be approved when accompanied by an investment plan to increase public Internet capacity. This shall be audited by the relevant NRA on an annual basis to ensure that the capacity is actually deployed, and that public Internet capacity continues to grow per citizen served by the relevant IAP.”
[6] That last element is essential in order not to penalize subscriber growth – and to ensure that ISPs continue to invest in significantly increased capacity as well as marketing cheap-as-chips DSL service….

I should add that the hike in monthly line rental rates is to me the most transparent possible way to pay for local access speed increases. The £16/€20 monthly fee is far more important than advertised ‘free for the first 6 months’ broadband plans which are deliberately confusing for the 2-year contracted consumer.

1 comment:

Paolo Siciliani said...

The problem is that specialised services as a source of revenue make sense until there is an access bottleneck. Once this is fixed with fibre rollout why would either consumers or content providers want to purchase them? Hence the business case for specialised services is opposed to the one for NGA roll out. Therefore, conditioning the former to the latter is problematic as shown but telcos resistance to the original Kroes' proposal to allow incumbents to raise LLU prices only in those areas where NGA investment would take place (otherwise telcos would have faced margin squeezing over their legacy DSL platforms).
From an economic standpoint there is an important subtle difference between the rules of the game in a scenario with specialised services as opposed to NGA roll-out. When it is content providers who pay for specialised service delivery at the wholesale level, the underlying economics strongly resemble the traditional market failure with mobile termination, where each operator is a monopolist on his own customer base, hence prices can be increased independently from rivals' reaction (which in turn lead to an equilibrium where termination wholesale prices can be raised across the board without the need to collude). In contrast, with fibre roll-out ISPs would ultimately have to compete in the retail market for customers (akin to mobile retail access and origination services), whereby pricing rivalry is very intense unless rivals manage to coordinate somehow.
This is to say that from a public policy point of view, the objective of inventivising NGA roll-out and sanctioning the widespread adoption of specialised services are, perhaps counter-intuitively, inconsistent and contradictory.