The Open Internet: a platform for growth

4 October 2011

A new report published today by Plum Consulting, commissioned by the BBC, Blinkbox, Channel 4, Skype and Yahoo! shows that online content and application providers drive demand for broadband connectivity, which in turn has driven fixed and mobile broadband revenues of approximately €155 billion in Europe in 2010.

Without an Open Internet enabling content providers' considerable investment in innovative consumer services to fuel growth in uptake of high-speed broadband, telecoms companies would experience a rapid decline in revenues.

The report highlights how the open nature of the internet - with its low barriers to entry - has enabled a wave of innovation, and allowed companies to develop new business models, apps and services. Plum's analysis concludes that telecoms companies have benefited significantly from growth in traffic and growth in bandwidth-intensive applications - and without content providers' considerable investment in innovative consumer services to fuel growth in uptake of high-speed broadband, telecoms companies would have experienced a rapid decline in revenues.

The BBC, Blinkbox, Channel 4, Skype and Yahoo! commissioned Plum Consulting to assess the value of content providers to the internet value chain, and inform the ongoing policy debate about the Open Internet across Europe.

In the UK, the Government has committed to hosting a second "open internet roundtable" meeting in the autumn, following a discussion in March 2011 where Sir Tim Berners-Lee agreed to work with industry to build upon new transparency guidelines on traffic management to include the rights of consumers and business to connect to whomever they wanted on the Internet without discrimination. Further, Ofcom is expected to publish guidance about traffic management around the same time, while the Body of European Regulators (BEREC) is also expected to publish a report on transparency and other measures in the coming weeks.

Plum's report, titled "The Open Internet: a platform for growth", considers the impact that increasing internet traffic is having on the current network infrastructure. The report concludes

• Demand for internet content is good as it supports revenue growth and broadband investment;
• Telecom providers costs are not ballooning because of data growth;
• Content and application providers do not cause traffic;
• Content and application providers invest considerably in distribution infrastructure and technologies and do not "free ride" on networks;
• Investment in next generation broadband would not necessarily increase - and may decrease - if content and application providers were required to pay for access to consumers.

The study concludes that the Open Internet is the most efficient model in delivering continued benefits for consumers and the economy, including telecoms operators, and recommends that additional safeguards are put in place to maintain a high quality "best efforts" Open Internet that sustains innovation and drives growth.

Specifically, the report recommends:

• EU institutions, national governments and regulators should signal a clear commitment to safeguarding the Open Internet
• Internet access should be clearly defined and the use of the term in marketing restricted to those who provide open access to the internet.
• The application of an industry code of conduct and dispute resolution procedures, through "self-regulation with oversight", should be promoted. The code should require:

1. Open access to and distribution of internet-based, lawful content and applications for consumers; no blocking of legal services or discrimination on the basis of commercial rivalry.
2. Protection against unilateral and opportunistic requests for payment i.e. holding market players to ransom.
3. A principle of parity of access if and where prioritisation is provided on voluntary commercial terms for any content or applications i.e. the same opportunity on the same terms should be available to all (analogous to the principle of equivalence applied at the network access layer).

• Policy-makers and national regulators (e.g. Ofcom) should closely monitor market developments given the risks to innovation. If the suggested measures prove insufficient, then intervention should be considered - either by national regulators utilising their powers to protect the Open Internet under the revised EU Electronic Communications Framework or by policymakers through a new legally-binding Open Internet requirement.

Brian Williamson, Director at Plum Consulting said: "The open internet has supported a virtuous circle of innovation in applications and content provision and in broadband access provision.  The open internet benefits consumers and the whole economy.  A commitment to the open internet is now required, given the costs and risks involved in a possible departure from the open internet norm, in order to sustain innovation and investment along the value chain, to the benefit of all."    

 

Q&A

Why has this report been launched now?

• This report came about because of the on-going UK and EU debate around net neutrality and the current introduction of new EU rules on the matter. There are a number of important milestones on the horizon, including
• Ofcom due to issue guidance on net neutrality in October, to be followed by a second roundtable on net neutrality by Minister for Communications Ed Vaizey.
• The European Parliament continues to discuss the topic with a resolution on net neutrality being drafted right now and to be voted in October by the Industry Committee, together with a plenary parliamentary debate planned for November.
• The European Regulators Group (now known as BEREC) are due to issue a report on the state of discrimination and the Open Internet across the EU by the end of the year, and rumoured to be about to release a public consultation on the topic.
• European governments are expected to issue a joint declaration on net neutrality at their Ministerial Telecom Council on 13 December.
• European governments are currently in the process of implementing in practice the net neutrality protections contained in new EU-level telecom legislation.

 

What does this report aim to achieve?

Our aim in producing this report has been to bring clarity to the issues, and to provide a clear sense of direction for those charged with policy making and policy implementation, without being overly prescriptive given the pace of change and innovation which characterises the market.

 

How has this group of organisations worked with those on the other side of the debate?

The group of sponsor organisations is involved in a number of discussions with other stakeholders in the UK, Brussels and other parts of Europe about the Open Internet and more broadly, the future of the Internet and ICT in Europe.

We are hopeful that through these debates and discussions, all parties involved will come to realise that the Internet value chain is a symbiotic ecosystem - we are complementary - and that the Open Internet is a platform that benefits all of us, and should be safeguarded.

 

What is the risk of allowing operators to discriminate against certain Internet services and applications?

The dynamism and innovation that have characterised the Internet are attributed to the fact that so far, anyone, anywhere on the globe, could put their idea, their business model online without requiring permission, and that any user could access all the content of their choice on the Internet. This principle underpins the idea of an "Open Internet".

The Open Internet has allowed start-ups such as Skype, Yahoo!, Spotify, YouTube, Google and Facebook to scale globally, and succeed. It has also allowed established content companies to provide content in new and innovative ways.

The norms of openness that underpin the success of the internet value chain are fragile. Individual enterprises may have incentives to depart from them, even if harm to the overall global and regional ecosystem of applications, content and networks would be the outcome. Applications and content providers and network operators need more certainty to support their investment decisions.

In short, an Open Internet is essential for growth and innovation. To quote the European Parliament[*]:

"The Internet's open character has been a key driver of innovation which has led to spectacular levels of development in online applications, content and services and thus of growth in the offer and the demand of content and services; has made it a vitally important accelerator in the free circulation of knowledge, ideas and information, including in countries where there is limited access to independent news".

 

Would an Open Internet prevent providers from engaging in network management techniques to reduce congestion, relieve capacity constraints, and enable new services?

Safeguarding end-user access would only limit network operators from hindering or imposing limits on usage based on the type or content of Internet traffic, out of commercial motivation. Network operators have other tools available to manage traffic congestion and protect the network that do not unfairly discriminate against certain types of content. Network operators are free to engage in developing other services alongside Internet access, as long as they do not use their control over the network connection to leverage these services.

 

Would an Open Internet slow investment in broadband networks? Would it discourage the deployment of new networks?

Many operators throughout have publicly argued that they are fully capable of investing in next generation networks, a move which will also cut their costs in many respects. This is independent from any Open Internet measures: the Open Internet exists nowadays already, without the cost implications that some warn about.

The case for investing in next generation broadband will not automatically improve if network operators discriminate against certain types of traffic or if content and application providers pay network operators for prioritised delivery. Instead it is continued innovation in content and applications that will drive consumer demand for higher bandwidth broadband access, thereby supporting the business case for next generation access investment.

 

What do you want the authorities to do?

We propose that adoption of the following policy measures, taken together, be considered:

• EU institutions, national governments and regulators should signal a clear commitment to safeguarding the Open Internet;
• a code of conduct on traffic management, with mechanisms for oversight and dispute resolution by national regulators such as Ofcom;
• the use of the term "internet access" in marketing to be allowed only for those who provide open access to the internet;
• further improvement of switching processes and transparency for consumers.

 

Isn't the marketplace able to deal with this issue without government regulation? Is transparency not enough in a competitive market? Why do you argue that transparency is not enough?

While transparency, as required under EU law, should help identify harmful practices, it will not necessarily prevent them. To be effective, it relies on consumers being able to switch easily to alternative providers that offer Open Internet access.

Unfortunately, in the UK and some other national markets, levels of switching among consumers are very low and declining as take-up of bundled packages of services increases. In 2010, the European Commission Consumer Markets Scoreboard (2010) identified internet access as the third worst ranking market in the EU judged against indicators such as comparability, consumer trust, consumer satisfaction, problems, complaints, the ease of switching providers and prices.

Competition has not proved sufficient to protect the Open Internet, as evidenced by the many restrictions faced by content and service providers across the EU - which include forbidding or over-charging for such common uses as video, audio and VoIP. In the event of unfair discrimination, reliance on ex post competition law may also be too slow and costly.

A presumption that competition and transparency measures alone are sufficient in the face of discrimination is counterproductive, and may encourage further discrimination and opportunistic behaviour. More safeguards are necessary to protect the Open Internet and users' "net freedoms".  

 

Is there a middle-ground that could be reached on this issue, which would keep both sides of the argument happy?

The ability of consumers to access internet content, applications and services is the reason consumers are willing to pay internet service providers for access. Access providers are dependent on this demand to monetise their substantial investments. The key policy challenge is to roll back harmful discrimination and assure all stakeholders that they can continue to innovate and invest without having to negotiate a maze of private contracts, and without fear of discrimination and/or foreclosure. Allowing the development of innovative access models whilst also constraining unfair discrimination is achievable. Measures to build greater confidence in the Open Internet are required to preserve existing benefits and support further innovation and investment.

 

* - Current amendment tabled for Industry Committee Resolution on Network Neutrality, European Parliament (to be voted on 5/6 October)