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Telcos determined to charge for privileged access on last miles, if regulators let them Gary Arlen finds that telcos are facing criticism on several fronts
Today’s US brouhaha about ‘network neutrality’ pits century-old common carrier structure against new media economics. It is the latest variation on the debate about how - or if - to separate ‘content’ from ‘conduit’. Most significantly, the battle reflects the shifting dominance as digital programme aggregators and developers rival the power of entrenched distribution and transmission providers, notably the incumbent telephone companies (AT&T and Verizon in the United States) and cable TV operators. For now, the Net Neutrality battle focuses on ‘preferred’ access to broadband facilities built and controlled by existing telecom carriers. For telcos, it means the ability to offer better portal positions, higher speeds, enhanced Service Level Agreements or other benefits to content suppliers who pay for such privileges. Critics of this approach argue that not only does it violate the fundamental common carrier process, but it could virtually preclude start-up content suppliers - especially bandwidth- needy video companies - from a level playing field. Maximising revenues Telcos contend that their operations will not prohibit access by any provider - even new, small ones. They argue that since they have invested vast billions to build and maintain the circuits and facilities, they should be able to maximise their revenues by giving special attention to better-paying customers. The process becomes more complicated because in some cases the telcos intend to build financial alliances with the content suppliers - a relationship that traditionally has been prohibited under common carrier laws. That is where the level playing field concept becomes treacherous. Cable TV and satellite operators have long had stakes in both conduit and content. Witness Time Warner, which is the second largest cable system operator in the US as well as owner of an array of networks ranging from CNN to HBO, and News Corp., which owns the Fox studios, TV channels and satellite TV ventures around the world. Moreover, the existing portal relationships - such as AT&T’s broadband connection with Yahoo! and Verizon’s similar Microsoft Network alliance - show how the preferences can be built in the evolving high-speed content sector. Massive providers of Internet services, such as Google, also want to assure an equitable place in the video world - as do e-commerce and IP videoon- demand purveyors, who see broadband as a viable alternative to existing cable TV services. With the growing role of Video on Demand, switched digital video and other forms of streaming media, net neutrality has become a key element in the move toward Internet TV. Emerging features, like video search, add to the concern that dominating carriers could marginalize less favoured content. During a press conference at April’s National Cable & Telecommunications Association (NCTA) convention in Atlanta, FCC chairman Kevin Martin singled out the emergence of Internet Protocol video as a process that will generate greater competition, an allusion to the nascent telco IPTV ventures. In response to a question from IPTV News Analyst about his views on net neutrality, Martin said that, “Network providers should continue to have flexibility” and that the FCC has demonstrated its willingness to address such competition. “The FCC is focusing on a regulatory environment that enables new entrants to provide competition,” Martin said, insisting that he wants “to make sure that regulations are not a barrier to entry.” National franchises Further complicating today’s net neutrality frenzy in the US is its inclusion in the draft Telecom Reform legislation introduced this spring. The Communications Opportunity, Promotion, and Enhancement Act of 2006, authored by House Energy and Commerce Committee Chairman Joe Barton, allows telephone companies to operate video services under a national franchise in stark contrast to the expensive and contentious ‘local franchise’ that conventional cable operators must seek in thousands of communities. Predictably, the cable operators want the same treatment. In addition, local officials, who now receive as much as five per cent of gross revenue from franchise payments, strongly oppose the shift to national franchises. As with any high-stakes tech-policy battle, curious bedfellows are popping up. Notable by their absence, at least to date, are the IP technology vendors, who have a huge stake in this skirmish. Only Cisco CEO John Chambers has come out on behalf of the telco powers - especially intriguing in the wake of Cisco’s recent acquisition of Scientific Atlanta, the US cable industry’s second largest technology supplier. In the US, the net neutrality issue may simmer for a year or more. During that period, telcos will continue to expand their fibre optic reach and escalate their video services, which raises yet another potential flash point: some observers have accused telcos of favouring roll-outs only in high value markets, at the expense of low-income neighbourhoods. As the fibre roll-out continues, and as activist groups seek to mobilise grassroots support against the potential of telco favouritism, investors and developers can only ponder where this process will lead. Some who seek to downplay prejudicial policies contend that market forces may limit the telcos’ ability to overprice premium delivery, while others advocate some form of legislation. Gary Arlen is president of Arlen Communications Inc., a Washington DC-area research and consulting firm that has monitored media/tech convergence and policy developments for more than 20 years. He can be reached via GaryArlen@columnist.com |
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