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Apr9

Internet Protocol (IP) isn’t “pixie dust” – It’s a Real Game Changer

In writing about the Internet Protocol transition proceeding now pending at the Federal Communications Commission, Harold Feld has said that IP is being treated as if it is somehow “IP Pixie Dust.” Harold’s point, I think, is that IP does not, in and of itself, mean regulation is not needed.

To be fair, Harold does see the ongoing IP transition as an important process (terming it “the single most important development in telecom since passage of the Telecommunications Act of 1996”). But the transition is much more than a “simple” change in network protocols or operating procedures. IP is just one part of a complex series of changes that have occurred in the broadband/Internet network world, which have fundamentally altered the markets and technologies involved in the Internet’s operations. Taken together, these changes make a major difference regarding how we think about traditional regulation of broadband networks. 

So what are these “complex changes” I am referring to? 

1. Open architecture. Unlike the proprietary phone and cable architecture of the old days, the protocols for the IP world are an open architecture. These protocols were crafted by engineers and multi-stakeholder bodies, which designed these standards to meet the best technical specifications. Competing network providers can participate on equal terms with other network providers through multi-stakeholder organizations like the Internet Engineering Task Force to shape the protocols that run the Internet and govern things like interconnection and traffic routing. No one party or central player can now mandate how networks work, and technical standards governing IP networks don’t favor incumbents over competitors.

2. More Core Network Providers. The open nature of IP architecture has enabled a number of players, other than incumbent carriers, to deploy their own core networks (what we used to call the “backbone”). In fact, a large share of the core networks have been built by companies that no one would have even imagined would be in the business of running networks. Companies like Google (the third largest operator of core networks in 2009), Akamai and Level 3 are now managing core networks, and in some cases local extensions called Content Delivery Networks or CDNs. These CDNs are typically huge, and the video content they store and deliver is in high demand by customers connected to ISPs’ local networks.

3. Decentralized Interconnection and Routing. The move from circuit switched routing to packet switched routing, along with the proliferation of core network operators, means that rather than traversing a dedicated, end-to-end circuit path, the information bits can now be divided into a number of tiny packets, sent over multiple routes, and repacked at the receiver for delivery. IP traffic can route to customers quite easily over interconnection points that are not directly connected with the customers’ access provider. Indirect routing has proven to work well. Improved bandwidth, better software and coding techniques and improved network equipment have helped improve delivery of even real-time applications no matter how or where interconnection occurs. The leverage of all networks in the Internet ecosystem has changed due to IP and packet networks, helping to level the playing field dramatically. It is no longer the case that a few large networks – in previous years owned largely by ISPs – represent the major part of the market. Now, many large networks exist and offer competition.

As a result of these innovations, Everyone Offers Everything: The IP world has overhauled the competitive dynamics of the Internet marketplace. In the old days, voice service was delivered over the telephone network, video was delivered over cable, and text messaging and the Internet did not exist.  The network and the service were one and the same in the old world of TDM and traditional cable TV.

Now, you can do everything over everything – make calls over cable, deliver video over wireless networks, deliver Internet through Satellite service and send text messages over the Internet.   As FCC Commissioner Ajit Pai mentioned in recent comments at the Hudson Institute, “Increased competition, new technologies, once-separate industries battling on the same turf—these are the hallmarks of convergence today”.

All kinds of players in the IP world –telephone, cable, satellite, wireless providers, makers of apps, providers of operating systems, device makers, and providers of applications like VOIP and IP delivered video – are competing against each other to attract the consumer. This highly competitive and rapidly changing world has an impact on everything, including IP interconnection. There are several strong incentives for companies to work out interconnection arrangements, not the least of which is the fact that a large array of players – companies, collaborators and consumers –benefit from these arrangements.  

What Does This Mean for Internet Policy? The communications world has changed, and IP has played a significant role in bringing about this change. In the words of Commissioner Pai:

“Underlying these changes is a technological revolution. Analog signals have gone digital. Circuit switching is giving way to packet switching. And first-generation cellular has been replaced with ultra-fast LTE. The common thread knitting all of these changes together is IP, a near-universal way to organize and transmit data.”    But it is just one of many changes that include IP that have helped make the market far more competitive and innovative than it has ever been.”  

Technology changes alone don’t dictate how policy should change.  But they often do spur major changes in the market, in consumer demand, in the leverage of various players in the market, and in the competitive dynamics that define how a market place works.   For example, disruptive technology has had a huge impact on the video market place. Movie ticket sales have been declining from their 2002 peak for the last decade, and part of the decline is due to the new technologies that enabled home-viewing to rival the theater experience – like large HDTVs and DVDs – and the surge in online streaming. Any policies dealing with video content that fail to take into account the changing structure of the movie business could potentially harm the increased choices consumers have today for video.

To ignore broad shifts in technology when crafting policy is to make changes that either could hamper further technological advances, or cause unintended negative consequences for future competition. While the underlying principles of universal access, interconnection and affordable access to primary services remain important, the policies required to achieve these objectives are very likely to be different in scope from those that applied in the old TDM world of the past.