IP Convergence: Beyond VoIP, Beyond Cost Savings

In a Washington Post editorial, FCC Commissioner Michael J. Copps once again decries the state of broadband deployment in the United States.  Unfortunately, Commissioner Copps is long on criticism and short on answers.  And he is not alone.  Numerous pundits cite the U.S.’s 15th place in the ITU rankings as evidence that we are somehow “behind”.  Putting aside the various arguments that the geography of the U.S. is the prime explanation for the ranking and that if you compare like geographies (e.g., Chairman Martin’s comparison of Massachusetts to France) we are on part with other countries, I still am not sure what significance the rankings have.

As an initial matter, one must consider the need for broadband.  Commissioner Copps says “universal broadband adoption would add $500 billion to the U.S. economy and create 1.2 million jobs”.  That may very well be, but you have a classic http://en.wikipedia.org/wiki/Chicken-and-egg_problem }“chicken or egg” problem.  Do consumers really need 25 Mbps for email or VoIP, the two “killer apps” on the Internet?  And is the quest for 100 Mbps worth it to watch some guy in a lab coat put golf balls in a blender?  I recognize that more sophisticated and useful applications may develop for the Internet, but from where I am sitting it looks like the Internet currently has about the right speed for what is currently available on the Internet.

The question is how you grow the speeds along with the applications.  AT&T and Verizon are proposing a pay-as-you go scheme with their premium pricing proposals.  I am not clear what Commissioner Copps or others are proposing.  If the suggestion is that the Internet should be operated as a utility, I can’t accept that.  First, the Internet is a network of networks so are you regulating all network operators as a utility and “neutralizing” them?  Second, anyone who remembers more than 10 years ago remembers what lousy service utilities provide and the perverse incentives inherent in utility regulation.  Finally, where does the innovation come from in this model, solely the application providers?

After all, you just don’t know how the Internet is going to evolve and what the future killer apps are going to be.  Moreover, there are a host of issues to be worked out before society can make good use of 100 Mbps.  Thankfully, Commissioner Copps talks about introducing competition as opposed to regulation, but if we really want to introduce competition for broadband services, we need to:

1. Eliminate barriers to infrastructure deployment.  The most expensive and time consuming part of network deployment involves accessing public and private rights of way.   If this country is serious about broadband deployment, it is going to have to dramatically change the way private companies access rights of way.  An interesting paradigm (although not necessarily the right paradigm) is the Wi-Fi deal in Philadelphia.  Although touted as a Wi-Fi deal, it really is a rights-of-way deal.  Earthlink basically negotiated the right to access the thousands of traffic lights in Philadelphia in exchange for a variety of service commitments and fees.  Without such a city-wide rights-of-way deal, the effort to bring Wi-Fi to the entire city would have taken far longer.

But carriers need to access private rights-of-way as well.  Landlords and building owners use their monopoly to extort concessions from carriers which increases the cost of network deployment both in terms of time and money.  This is a tough issue because of the legitimate property rights involved, but at a minimum Congress should require landlord and building owners to treat all carriers in a non-discriminatory fashion.  This way, if they granted the incumbent telephone company free access to the building, they need to do the same for all carriers. 

2. Reform inter-carrier compensation.  Because the Internet is a “network of networks”, traffic must be exchanged between networks in order for the whole system to work.  Currently, the incumbent telephone companies (and particularly the rural companies) are clinging to the old Calling Party Network pays paradigm.  Indeed, BT is trying to advance the model for its Next Generation Network efforts in the U.K.  This is patently absurd.  The Internet is an interactive experience with no clear cost-causer or even calling party.  When a consumer clicks on an Internet ad, who is the caller?  By placing the ad, is the company effectively “ringing” the consumer, or by clicking the ad is the consumer ringing the company?  If it is determined that the sender of content (be it a simple search query or a video clip) is deemed the Calling Party, then don’t carriers have an incentive to pursue eyeballs over content since more money is to be made receiving content than delivering it?

The Internet itself offers the clearest example of how inter-carrier compensation evolves in a truly competitive environment and incumbent telephone companies should not be allowed to distort the model by leveraging their last-mile monopoly over eyeballs.  Instead, policy-makers need to reform inter-carrier compensation for the PSTN and resist efforts to interfere with existing Internet peering and transit arrangements.

3. Establish a swift and efficient dispute resolution forum for inter-carrier disputes.  As part of the network-of-networks, carriers seek to interconnect for the exchange of traffic.  Inevitably, disputes arise over the terms of interconnection.  Unfortunately, the only forum for resolution of those disputes is a political forum (either the state PUCs, the FCC or Congress).  Carriers must have available to them a neutral, third-party arbitration forum.  The incumbents will never voluntarily agree to it because delay works to their advantage and they have more political influence than competitors.  Congress and the FCC need to make it clear they will no longer allow their process to hold up infrastructure deployment. 
4. Provide comfort to copyright holders and holders of other rights that their works will not be subject to rampant pirating.  Parties continue to struggle with the right business model that strikes the proper balance between copyright holders and distribution partners.  Until that balance is found, content on the Internet is going to be limited or amateur.  

Until these steps are taken, we will be resigned to, as Commissioner Copps puts it, a "cable and telephone broadband duopoly."