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A Two-Tiered Internet in Our Future?
[January 10, 2006]

A Two-Tiered Internet in Our Future?

TMCnet Associate Editor

The concept of a two-tiered Internet has been around for more than a decade - but the idea has become more of reality now that the big phone companies, including BellSouth and AT&T, are pushing for it in Congress.

It is expected that the House of Representatives will consider a bill proposing a second tier for the Internet early this year, when it once again takes up the issue of revamping the Telecommunications Act of 1996. The proposal is almost certain to result in outcry from the likes of Google, Yahoo, Time Warner Inc. and Microsoft, which fear that such a move will give the big phone companies too much control over the flow of traffic across the Web.

In essence, what the phone companies want to do is create a second tier of premium broadband designed for the fast and secure delivery of voice and video content (an Internet “superhighway,” if you will, for packet-based services) and then charge fees to the Internet service providers which wish to use it. In exchange, the phone companies will guarantee faster and better delivery of content to the service providers’ customers.

It is expected that the big carriers will use their political clout to influence Congress in this matter - but a fierce debate over how the Internet is used is likely to emerge. Some opponents to the idea have asked: is charging for better access fair? Won’t this give the big phone companies an advantage over their competition, as they prepare to deploy their own IP-based voice and video services?

At the center of the debate is the whole notion of “network neutrality.” Historically, network providers have agreed to deliver Internet traffic on a “best efforts” basis – in other words, the data gets there when it gets there; based on the speed and capacity of the network – and there is no prioritization. When it comes to email and web browsing, this hasn’t been a problem, because those services are not dependent on uninterrupted streams of data. But services such as VoIP and IPTV are highly dependent on uninterrupted streams in order to provide quality service. As networks become increasingly congested with voice and video data packets, network providers will become hard-pressed to deliver the needed bandwidth - thus the rationale for the second tier.

An added element is the fact that today’s networks are endowed with technology which enables broadband providers to prioritize the flow of data. With the advent of packet-based technology, they are now able to accurately control which data gets to its destination first – whether it be video, voice or otherwise. So what the phone companies are proposing isn’t just a second tier – it’s a second tier with the ability to control the prioritization of the data – and some feel that giving them that level of power would set a dangerous precedent.

One simple, but difficult question which has been raised is: Who will be responsible for ensuring that content is delivered at the level of priority which has been paid for? In other words, what safeguards are there to prevent a phone company from giving better priority to one particular service providers’ data? Certainly, if a two-tiered system is implemented, the phone companies will have to live up to their respective promises for improved service. But consumers don’t necessarily know whether their data is being delivered to them in the most efficient manner – and they certainly have no way of checking.

Some industry experts have said that if the phone companies start charging Internet access fees, the cable companies will quickly follow. Some cable companies have already started moving in this direction by offering multi-tiered pricing of broadband, based on the amount of broadband an individual user needs. Others are investigating ways to discourage individual customers from using too much bandwidth – such as charging them when they use “extra” bandwidth beyond a certain level.

One of the main reasons the phone companies are pushing for a two-tiered Internet is because it will enable them to recoup some of the money they’ve invested in their networks in recent years. The big carriers have invested billions on upgrades – mainly at the behest of the service providers, who have pushed for better networks in order to deploy voice and video services. But the phone companies argue that they haven’t really benefited from those upgrades. In fact, many phone companies have watched their share prices fall due to investors’ concerns over borrowing and spending for network upgrades. At the same time, the service providers have seen their share prices increase as they deploy new services over the phone companies’ networks. For example, Verizon Communications Inc.’s market capitalization is about $88 billion today, whereas it was $111 billion a year ago. Conversely, Google Inc., which relies in part on Verizon’s network to deliver its services, saw its market capitalization grow from $53 billion to $133 billion during the same time period. Allowing the phone companies to charge for premium bandwidth would help tip the see-saw back in their favor.

Meanwhile, service providers such as Vonage - which delivers VoIP service - and Google - which is gearing up to deliver a new video-on-demand service - claim that charging Internet access fees is tantamount to holding them ransom, thus hurting competition, and, ultimately, the consumer.

Furthermore, consumer advocacy groups have pointed out that if the phone companies charge for “priority” use of their networks, then the service providers will have to turn around and recoup those costs by charging their customers. As Jeffrey Citron, chief executive of Vonage, said in a recent article in the Wall Street Journal, “that’s like charging for bandwidth the customer has already paid for.” Meanwhile, BellSouth Corp. is reportedly in talks with several Internet movie companies and a gaming company and is trying to strike agreements on fees to guarantee fast delivery of content.

If a two-tiered Internet is to become a reality, there is a lot that will need to be worked out. For one thing, a universal or standard fee structure will need to be established – and then there must be a framework for determining how the data is prioritized. So far the Federal Communications Commission (FCC) hasn’t even touched on the regulatory issues - which some legal experts say will take years to resolve.

Meanwhile, compelling arguments have been forming on both sides of the debate: There are those who feel creating a two-tiered Internet would be a good thing, not only because it would lead to better and faster delivery of today’s rich entertainment services (such as HDTV), but also because it will stimulate the development of new technologies. On the other hand, there are those who feel it will establish a dangerous precedent, because what was once free would now become a charged service, thus opening up the possibility that the phone companies will charge access fees for future services. (And who’s to say there couldn’t be more tiers added in the future?)

Perhaps the most compelling arguments against a second tier are those that center on the issue of fairness in competition: For example, some smaller service providers might not be able to afford Internet access fees and therefore won’t be able to compete against the larger service providers which can. This means that only service providers with deep pockets would be able to promise fast, high quality delivery of services. Also, as the phone companies start to launch their own IP-based services, they could inherently gain an unfair advantage over competing service providers, which would have to pay the Internet access fees.

While Congress will likely sympathize that the phone companies are trying to recoup on their investments, the concept of “network neutrality” will also come into play – although it will probably be elusive to many lawmakers. As Michael Geist, Canada Research Chair in Internet and E-Commerce Law at University of Ottawa, pointed out in his widely-published article, “The Search For Net Neutrality,” network providers and ISPs alike have benefited from a free and open Internet. Network neutrality, he points out, “enables those with the best products and services, not those with the deepest pockets, to emerge as the market winners.”

Geist says it isn’t just the idea of charging for premium broadband that everyone should be concerned about - it’s the fact that there are fewer and fewer carriers competing against each other - and the prospect that the few which are left in power will begin to control the content flowing across their networks for their own benefit.

“While prioritizing websites or applications may hold some economic promise, the lack of broadband competition and insufficient transparency surrounding these actions will rightly lead to growing calls for regulatory reform that grants legal protection for the principle of network neutrality,” Geist concluded in his article.

Perhaps the most important question for lawmakers on Capitol Hill to ask is: Why should we change the structure of the Internet, when the model we have today has been so amazingly successful?

Patrick Barnard is Associate Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page

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