Monday, May 15, 2006

If it's not neutral it's not Internet

By Daniel Berninger, VP, Sr Analyst, Tier1 Research,

Definition: Internet - collection of all networks that choose to beinterconnected by standard Internet Transport Protocol(s).
(Reference: David P. Reed,

The success of a proposal by AT&T and Verizon to end net neutrality does notthreaten the Internet. The broadband customers of AT&T and Verizon willjust no longer have access to the Internet. The development appropriatelycreates alarm among AT&T and Verizon's customers, but the combined customerbases of these companies represent less than 2% of the billion or so usersof the Internet. The fact access to the Internet requires net neutralitydoes not depend on laws passed by the US Congress or enforced by the FCC.Neutrality arises as a technical and business imperative facilitating theinterconnection 250,000 independent networks that choose to participate inthe Internet. Net neutrailty will remain a requirement as long as it servesthe interests of the global Internet community.

Nothing stops AT&T and Verizon proceeding with their non-neutral networks.They just can't label their offers Internet access. We call non-neutralnetworks - private networks. There already exists a market for privateconnectivity serving needs not addressed by the public Internet. AT&T andVerizon can pitch their various ideas about quality of service to theproviders of commercial Internet content like Google as well as theirrespective end user customers. AT&T and Verizon already have a portfolio ofprivate network offers only the attempt to frame them as some sort of"enhanced" Internet access is new.

Selling private networks as Internet access amounts to false advertising ofthe type prosecuted by state AG's and the FTC. The Federal Trade CommissionAct requires advertising be truthful and non-deceptive. Advertisers musthave evidence to back up their claims. The difference in the number ofavailable end points makes it easy to distinguish between private networksand the Internet. Calling a service Internet access means providing fullconnectivity. The continuously expanding Internet presently reaches about400 million computers even before considering end user devices. AT&T andVerizon may believe the owners of these computers should pay a toll for theprivilege of reaching end users, but they still need to demonstratesufficient value to justify these tolls. Any attempt at enforcement ofgatekeeper status will inevitably leave their customers with limitedconnectivity to large swaths of the Internet not unlike people stuck behindthe Great Firewall of China.

The present attempt to unwind Internet neutrality represents just the latest(and unlikely the last) of ongoing efforts by telephone companies to defendlegacy revenue streams. AT&T resisted interconnection of the 56k modemsassociated with the original Internet links in the 1960's until the arrivalof intervention by the Department of Defense. The Bells complained bitterly(all the way to the bank) about modem traffic associated with the dial-upInternet in the 1990's. The Bells resisted offering DSL and then worked toundermine the independent companies like Northpoint and Covad that tried todeploy the service. Efforts to derail municipal broadband initiatives andnow net neutrality all fit the same pattern. Claim rules leave no incentiveto invest. Win regulatory concessions against competitive threats. Repeat.Hint: Incentive to invest = monopoly market power in Bellco speak.

These longstanding efforts have not achieved the goals of derailing theInternet or producing prosperity for the Bells, but they did manage to slowprogress enough to allow a dozen countries pass the US in Internetpenetration rates. The resolution of the policy issues in the netneutrality debate will determine the extent to which the US enjoys thebenefits of the Internet, but the Internet as a global phenomena willproceed with or without the permission of the Bells, the US Congress, or theFCC.

The Internet certainly suffers from a range of maladies, but only companieswith large at risk legacy revenue streams see the solution as discriminationby use and user. Network infrastructure companies like Cogent, Earthlink,Abovenet, Savvis, and Global Crossing accept neutrality as fundamental tothe health of the Internet. There exist a number of forums for the Bells topitch the merits of their ideas for improving the Internet. The fact theyplan to proceed on a unilateral basis demanding a ransom for their customersreveals their true agenda.

The customers of AT&T and Verizon did not ask to get cut off from theInternet. Only the lack of alternatives (aka monopoly) will prevent acustomer exodus with the loss of net neutrality. There exist no examples ofsuccess with the "walled garden" approach, because the nothing can match thebreadth of content and innovation of capacity of the public Internet. Thedecoupling of connectivity from use and user associated with neutralitymakes this breadth of content and innovation possible.

The opposition to net neutrality arises like all regulatory debates as themeans to raise prices, but people in the US already pay more for lessbandwidth than citizens of Europe and Asia. Communication serves as aninput to all economic activity, so expensive communications drags on theeconomy in the same way as high energy prices. Policy makers must decidebetween protecting the Bells 20th century business model or working to makesure US enjoys the benefits of the Internet. Internet traffic outside theUS already dwarfs the traffic from within the US, and the failure of policymakers to defend net neutrality will only continue the trend of the US toward third world status in connectivity.