1. Network Neutrality and Its Potential Impact on Carrier Pricing Network Neutrality and Its Potential Impact on Carrier Pricing Rob Frieden, Pioneers Chair and Professor of Telecommunications Penn State University email: rmf5@psu.edu; web site: http://www.personal.psu.edu/faculty/r/m/rmf5rmf5@psu.eduhttp://www.personal.psu.edu/faculty/r/m/rmf5 blog site: http://telefrieden.blogspot.com/http://telefrieden.blogspot.com/ A Presentation at the Strategic Telecoms Pricing and Services Bundling Forum 2007 Herndon, Virginia June 5, 2007

2. Explaining the Concepts— Network Neutrality Advocates for network neutrality have responded to provocative media statements of telephone company executives and have identified threats, scenarios and some instances where an Internet Service Provider (“ISP”) has blocked, delayed, or otherwise thwarted the delivery of specific bitstreams. Advocates for network neutrality have responded to provocative media statements of telephone company executives and have identified threats, scenarios and some instances where an Internet Service Provider (“ISP”) has blocked, delayed, or otherwise thwarted the delivery of specific bitstreams. Net neutrality advocates want to convert “aspirational” views of a democratic and nondiscriminatory Internet into enforceable rules that would mandate non-discrimination and restrict ISP flexibility in terms of pricing, service quality and offerings. Net neutrality advocates want to convert “aspirational” views of a democratic and nondiscriminatory Internet into enforceable rules that would mandate non-discrimination and restrict ISP flexibility in terms of pricing, service quality and offerings. Net Neutrality would impose common carrier-type non-discrimination requirements and could affect pricing flexibility and content access. Net Neutrality would impose common carrier-type non-discrimination requirements and could affect pricing flexibility and content access. Advocates for net neutrality believe this principle should apply to all packet routing arrangements where a direct, enforceable contract exists, e.g., customer to ISP and ISP transiting and peering agreements, and also arrangements that lack “privity of contract,” e.g., ISPs that “advertise” routes upstream and downstream from the source of content through other intermediary ISPs eventually to end users. Advocates for net neutrality believe this principle should apply to all packet routing arrangements where a direct, enforceable contract exists, e.g., customer to ISP and ISP transiting and peering agreements, and also arrangements that lack “privity of contract,” e.g., ISPs that “advertise” routes upstream and downstream from the source of content through other intermediary ISPs eventually to end users. Net neutrality advocates believe that the Internet has contributed to national productivity, economic opportunity and innovation in light of “best efforts,” end-to-end connectivity. Net neutrality advocates believe that the Internet has contributed to national productivity, economic opportunity and innovation in light of “best efforts,” end-to-end connectivity.

5. User 3 Carrier A Collects revenues Collects traffic Carrier B Receives half AR Terminates traffic User 1User 2 User 1 User 2User 3 Traditional Accounting Rate Settlements Carriers match half-circuits and split all transport and switching costs.

6. Tier-1 ISP Exchanges traffic Small ISP Collects revenues Requests and terminates traffic One-way (thick pipe) User 1 User 2 User 3 For Internet paid peering or transit traffic, the small ISP pays for access to Tier-1 ISP’s “advertised” routes. Payment might cover both halves of the international circuit(s) used for access to the Tier-1 ISP’s network. The small ISP may pay for the circuit directly, or in conjunction with one or more carriers. Two-way (thin pipe) Internet Paid Access WWW

7. Telephony Cost Causation The caller usually triggers a complete end-to-end network setup using facilities provided by the originating carrier and other carriers secured by the originating carrier. Traffic measurement and tracking Metering and tracking likely. Parties Agree on a multilateral basis to divide cost and share toll revenues based on ITU Recommended model. Internet Cost Causation Traffic types and routing vary making it difficult to use traffic flows for determining who should pay; conduit and content merge. Traffic measurement and tracking Possible, but does not necessarily indicate which party initiated the link and who benefits. Upstream and downstream flows often asymmetrical. Parties Many carriers may be involved in switching and routing packets on a “best efforts” model; evolved from zero cost peering to a commercial hierarchy of peers and clients. Telephony and Internet Models

8. The FCC’s Four Network Freedoms In a Policy Statement The FCC has articulated four non-binding In a Policy Statement The FCC has articulated four non-binding “principles”: “principles”: (1) consumers are entitled to access the lawful Internet content of their choice; (1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers, and content providers. (4) consumers are entitled to competition among network providers, application and service providers, and content providers. Note that the FCC says nothing about pricing. A recently initiated Inquiry and Rulemaking primarily addresses the adequacy of statistics gathering.

9. Net Bias Versus Reasonable Price and Service Discrimination Impermissible Net Bias Deliberate Packet Loss Creating Artificial Congestion Targeting Large Volume Content Generators for Punishment or Extortion Most Types of Port Blocking (but not to control spam and denial of service attacks) Unilaterally Imposing Upstream and Downstream Rules That Violate Existing Service Level Agreements Affiliate Favoritism That Violates SLAs, Fair Trade and Antitrust Laws Fees for Overriding Firewalls and Filters Permissible Network Bias Variable Bandwidth and Throughput Bandwidth Partitioning Metered Service Better Than Best Efforts Routing Akamai-type Enhanced Traffic Routing and Management Special or Exclusive Content Deals

10. Conclusions and Recommendations The next generation Internet will not offer a plain vanilla, one size fits all “network of networks.” Flexibility in pricing, service provisioning and quality of service options can make economic sense. The next generation Internet will not offer a plain vanilla, one size fits all “network of networks.” Flexibility in pricing, service provisioning and quality of service options can make economic sense. However deliberate blocking or degrading traffic does not. However deliberate blocking or degrading traffic does not. ISPs should be able to partition bandwidth and offer downstream end users and upstream ISPs different levels of bandwidth and QOS at different price points. ISPs should be able to partition bandwidth and offer downstream end users and upstream ISPs different levels of bandwidth and QOS at different price points. Better than best efforts is not a contradiction, but existing interconnection and SLAs may restrict this option as might competition laws and commitments made to secure merger approval (AT&T-BellSouth). Better than best efforts is not a contradiction, but existing interconnection and SLAs may restrict this option as might competition laws and commitments made to secure merger approval (AT&T-BellSouth). ISPs should fully disclose terms and conditions as well as report on network usage. Requiring transparency does not foreclose net flexibility, but it can prevent Enron- type gaming and induced congestion. ISPs should fully disclose terms and conditions as well as report on network usage. Requiring transparency does not foreclose net flexibility, but it can prevent Enron- type gaming and induced congestion.

11. Conclusions and Recommendations (cont.) Net flexibility should not extend mid-stream to the switching and routing of traffic between a content source and end user unless and until a single ISP can offer a superior and complete routing from server to client. Net flexibility should not extend mid-stream to the switching and routing of traffic between a content source and end user unless and until a single ISP can offer a superior and complete routing from server to client. SBC-AT&T Chairman Ed Whitacre has not demonstrated how content providers such as Google have enjoyed a free ride. On the other hand ISPs should have the option of offering a more expensive, premium content delivery option if ISPs can deliver it. SBC-AT&T Chairman Ed Whitacre has not demonstrated how content providers such as Google have enjoyed a free ride. On the other hand ISPs should have the option of offering a more expensive, premium content delivery option if ISPs can deliver it. Net bias to mid-stream traffic should not occur simply because certain content providers generate a lot of traffic and have greater market capitalization, or because an ISP can create congestion like Enron did. Net bias to mid-stream traffic should not occur simply because certain content providers generate a lot of traffic and have greater market capitalization, or because an ISP can create congestion like Enron did.