Commission maintains its softly, softly approach on net neutrality (whilst carrying big stick)

Net neutrality. A topic that stirs strong emotion and strident commentary that sometimes bears little resemblance to the underlying issues.

The European Commission today published a remarkably thoughtful, balanced and considered Communication on the open internet and net neutrality in Europe.

It concludes that the current rules on transparency, switching and quality of service that form part of the revised electronic communications framework should produce competitive outcomes and that as the package is still being implemented it is too early to introduce additional measures.

However, the Commission:

  1. will work with the European national regulators’ collective body – BEREC – to explore potential issues including barriers to switching, practices of blocking, throttling or equivalent effect, transparency and quality of service and will publish a report by the end of 2012 any evidence uncovered;
  2. reserves its right to take action under the general competition rules (arts 101 and 102 TFEU) should that be needed;
  3. if required, issue additional guidance;
  4. if guidance is not sufficient, consider what additional legislative or other measures may be needed – focussing particularly on switching and transparency; and
  5. continue to work with member states on stimulation of broadband roll-out.

The relative calmness of the debate compared with the political polarisation in the US is striking. However, whilst the Commission is currently taking it easy, it is also signalling that it is prepared to use competition rules or introduce new laws should that be needed.

Does it add up: who will pay for network investment?

Today post is a guest post from John Enser and Matt Phillips, and is the executive summary of Chapter 2 (‘Pipes’) of their 2011 Convergence Survey:

The fundamental issue of how to deliver content and services is one that continues to dominate the industry, especially in the UK. The government needs to deliver on high-speed broadband – and the future take-up of advanced (bandwidth-hungry) services is dependent on this infrastructure being in place, as one TV industry executive explains:

“The backbones are not engineered for streaming simultaneous programming. They are engineered for downloading and somebody has to pay for new backbones to introduce a system that will give you the World Cup final streamed to 25 million homes in the UK, never mind anywhere else.”

Hybrid networks, which use broadcast technology for one-to-many transmissions, and IP delivery for point-to-point communications, are clearly part of the answer. A major challenge is for service providers to offer end-to-end quality of service. This plays into the strengths of both established pay TV platforms and new entrant IPTV providers.

However, telcos still have to battle to avoid being pushed into the role of “dumb pipes”, as they seek to secure both content and consumer attention.

In the UK, the “net neutrality” debate is still nascent, but is likely to intensify as the bandwidth bottleneck becomes more acute and as regulatory scrutiny increases. Although some content distributors and/or rights holders may find a commercial rationale which justifies paying for access to the fast lane, we suspect that most will not – and that they will instead push for regulatory protection against discrimination. Ultimately, the consumer is most likely to pay, but the financial model for any consumer contribution is not yet clear.

Is BT’s wholesale content connect the end of the world?

There has been a lot of discussion this week of BT’s wholesale content connect product, so I thought it would be helpful to unpack the story and explore exactly what BT’s product is (and is not), and what the views are of those objecting.

BT’s View

Let’s start with BT’s side of the story. BT has a dedicated microsite, explaining the product as they see it. 

Their ‘How’ animation explains that the product consists of local caches for video content, with delivery to the caches via links which guarantee end to end quality of service – this new infrastructure bypasses the internet, which doesn’t prioritise video packets.  Although not stated by BT these caches and associated delivery network clearly have required BT to incur both incremental capital and operational costs.

BT explains their rationale in their ‘Why’ animation as the increasing growth of ‘over the top’ video, particularly to TV screens (as opposed to PC screens).

In terms of benefits, BT explain these for different groups as follows:

  • for users a guaranteed broadcast quality viewing experience with no buffering;
  • for content owners a better user experience, customer interactions and new advertising revenue; and
  • for ISPs more cost-effective delivery of video and the opportunity to provide new digital media services.

What BT don’t explain in their published materials (although it is implicitly alluded to in the description of benefits for content owners and ISPs above) is the commercial model.  For content owners in particular, it is unclear why they would want to either pay directly, or indirectly, for use of BT’s product.  A key issue to watch is whether use of this wholesale product can be used to either increase ISP end-user revenues or content owner advertising / subscription revenues, and if either is true how the cake gets shared between the content owners, ISPs and BT. 

Open Rights Group comments

By contrast (although not surprisingly given relative resources and also as a reaction) the Open Rights Group comments are quite brief, so worth quoting in full:

“We are talking about ISPs competing with the Internet for content delivery. Whether films, music or gaming services, the idea is that ISPs will deliver content better and more reliably than the Internet. That says a lot about the state of investment in our Internet.

The result could be a fundamental shift away from buying services from the Internet to bundled services from ISPs: which would reduce competition and take investment away from Internet companies. That would be bad for everyone.”

Whilst they clearly don’t like BT’s proposal, it is not clear exactly what they are positively advocating.  Is it that BT shouldn’t offer this product at all, which wouldn’t help to enable over the top video viewing, or that BT shouldn’t charge for this service / enable ISPs to cut content deals with content owners?  The former seems like a bad consumer outcome and the latter a decision that would be in direct conflict with BT’s directors’ duty to act in the interests of their shareholders (i.e. only invest capital where a return is likely).

Their objection to ISPs bundling content with access is also worth unpicking.  I can see how this might be objectionable where there is no choice of access provider (which I understand to be driving the net neutrality debate in the US), but where there is effective retail competition between ISPs, underpinned by effective wholesale regulation of BT (as is the case in the UK), it seems to me that bundling and resultant multi-dimensional product competition is a good outcome in terms of driving product innovation and delivering consumer choice.

End to net neutrality?

The first point to make is that BT’s product is not about ‘internet’ traffic management or prioritisation at all – it is a separate content delivery network sitting alongside the internet.  Both ISPs and content owners are able to use the internet for content delivery.

If BT’s product is assessed against Ofcom’s current view of applicable net neutrality rules, provided that BT doesn’t degrade or block video traffic passing over the internet, then from the information available it wouldn’t appear to breach current rules.

Another related development is the proposed traffic light system for the BBC iPlayer, which will enable users to see how ISPs are managing video traffic – this type of user transparency could be turned against the ISPs by the content owners. 

However, this debate will clearly run and run, so I will no doubt return to the issue in future posts.  (With thanks to @mattjphillips for his input – mistakes are all my own).