The Net Neutrality issue has raised its head again, as reported in this Light Reading piece. This time, EU telecoms are pushing back against the big US-based web companies (not named, but the identities are obvious), who they say are exploiting telco investments in access infrastructure to reach their users and earn significant revenues and profits. Yes, they may be correct, but I think that expecting a neutrality-linked resolution isn’t the right, or even a possible, solution.
Up to the 1980s, telecommunications services were universally based on a model that shared the revenue for a service across operators who participated. Even voice calls involved a “termination charge” assessed by the operators who received a call, since the charge for the call was paid to the originating operator. But from the first, the Internet adopted a “bill-and-keep” model, meaning that there was no settlement among providers for their role in a given service.
The bill-and-keep model favors having Internet-based services connected to the Internet through specialized operators rather than retail ISPs, so a social-media site wouldn’t pay AT&T or Verizon or BT or Orange for even their own connections. Retail broadband Internet has the lowest revenue per bit of any service, so this means that the retail ISPs are stuck with large investments to cover residential users—investments that have a very low ROI. Consumers need increased Internet bandwidth to consume the services they’re being offered, but they’re not willing to pay proportionally for the increased capacity. That, telcos have long said, is a disincentive for infrastructure investment.
On the other hand, the bill-and-keep model favors Internet startups, and the VCs that fund them, because it limits the cost of accessing prospective users and delivering new services. That, it can be argued, is largely responsible for the wave of innovation we’ve seen in the Internet. The telcos, the retail ISPs, had the opportunity to play a role in these higher-layer services, but not only were they unwilling to jump into a new and uncomfortable (for them) business, they were often inhibited by regulatory policies that were aimed at protecting Internet competition from players who built their business as regulated monopolies.
The specific focus of the operators’ complaints is the cost of mobile infrastructure, meaning 5G, and this whole complaint is IMHO linked to operators’ concerns that 5G will not generate any new revenue for them, or at least not nearly enough to create a suitable return on the investment it requires. They also mention that spectrum license policies, which often admit bidders who have little credibility and may be acquiring licenses only to sell them later at a profit, is driving up the cost of mobile deployment.
The problem with this is that being “made to bear some of the costs of network development” is a goal and not a mechanism to achieve it. Do they expect the tech companies to make some sort of direct payment? How would they be compelled to do that. Do they want a return to settlement practices? In many countries, regulations prohibit that. Finally, it sure seems likely that whatever measures were suggested to make OTTs share in network costs would need legislation/regulation to establish and enforce. That raises the big problem: ordinary people.
Ordinary people see “the Internet” as what they get over it. They see “broadband” or their “ISP” as a kind of water and sewage company, a provider of a pipe that matters only if it’s not working. Tell the OTTs that they have to contribute to telco infrastructure and they’ll run a million ads to convince their users that this is going to hurt their social-media experience or raise the cost of their streaming service. Let’s see, a billion consumers go to their leaders and threaten them with political expulsion, with a dozen telcos on the other side. We know how that will turn out, because it’s turned out that way many times in the past when neutrality policy came up.
Then there’s the stock market. All those retirement plans and ETFs that are invested in OTT stocks. Hit the OTTs with a big new cost and what happens to their share price? D..U..M..P. More people are now rushing to their political leadership demanding a reversal, and so are all the big financial companies and pension plans.
There was a time when this discussion was useful, and I was involved in it at that time. When there was no real OTT industry, no streaming video, and little more than dial-up Internet, it might have been possible for enlightened regulation to come up with a solution. Even the nascent Internet industry, in the 1980s, feared the impact of bill-and-keep on infrastructure investment. But nothing was done then, and it’s time to face a hard truth, which is that nothing is going to be done now either.
For over 30 years, this problem has been visible, and it’s not been fixed. ISPs forecast doom if something didn’t reverse the trends, and yet they’re still operating and we don’t see any major stress cracks—at least no more than we’ve seen all along. Operators have cut costs in various ways to address the low ROI on broadband infrastructure, and we chug along. Maybe at some point, there will actually be an ROI crisis for ISPs, but not today, nor tomorrow, nor likely (in my view) in the next three years or so. In politics, anything you can put off for three years, you put off without another thought.
If we’re going to see a remedy for this, it’s not going to come from forced settlement between OTTs and operators. It’s going to have to come from enlightened thinking on the part of the operators themselves. If infrastructure is too costly, we need to make it cheaper. Most of the cost improvements we’ve made in networking have been tweakings of the legacy models of networks that operators have clung to for decades. A new, better, network model is needed.
That’s why I’m so focused these days on metro, because it’s metro that matters, for three reasons.
Reason One: Metro is where operator 5G investment is focused. If operators are looking for mobile infrastructure cost relief, this is where the majority of cost will happen, so this is where the relief needs to be focused.
Reason Two: Metro is where new services will reside. Edge computing in particular is dependent on achieving a balance between close-to-the-user and deep-enough-for-economy-of-scale. Metro is where that balance can be expected. Telco partnerships with cloud providers, which could be valuable in reducing infrastructure investment, are already focused in the metro.
Reason Three: Metro is where OTTs will need resources for their own future services. Meta (Facebook) interest in the metaverse makes it all but certain that a metaverse will be a part of social-media evolution. You need to host a major chunk of the metaverse at the edge, in the metro. CDNs, vital for streaming video, are already there.
If operators want OTTs to help with investment, they need to work out a symbiotic model for metro investment, a model that lets the players contribute their needs and resources to build what’s essentially a multi-tenant metro framework. That doesn’t mean the operators need to define the model, and in fact it’s probably more likely that vendors on the software and server sides, and the public cloud providers, will cooperate to do the heavy lifting. What operators need to do is make that mission into a mandate, rather than hoping for changes that we’ve failed to accept for three decades already.