Roslyn Layton

[Commentary] Around the world there are different definitions of network neutrality and the so-called “open Internet.” A survey of national net neutrality rules shows that the concept is an empty vessel used to capture concerns ranging from vertical foreclosure to privacy to parental controls.

As each country’s telecommunications market is different, “each telecom authority must develop its own solution.” The lack of clarity offers governments a Trojan horse. On the ruse of protecting consumers, governments can legitimize increased control of the Internet -- and its users.

[Layton is studies Internet economics at the Center for Communication, Media, and Information Technologies at Aalborg University in Copenhagen]

[Commentary] Network neutrality is a global debate. A number of countries have implemented laws or are in the process of doing so. Each country defines the issue differently and thus creates laws with different provisions.

This creates a problem of international harmonization for the Internet, which is inherently global. Net neutrality rules are a difficult compromise between consumer protection and increased governmental control of the Internet, but the multi-stakeholder model strikes a balance.

Norway’s model for net neutrality, established in February 2009, is the longest running regime of that type in the world. No violations of net neutrality have been documented under the model. Swedish regulators observed at a recent event that the model is working, and ISPs are actually becoming more transparent.

The Nordic model preserves a role for the regulator to frame the discussion while at the same time encouraging participation by operators, content/application providers, and consumers. In this way, the regulator is less of a warden and more of a mediator.

Nordic regulators have agreed to cooperate on net neutrality. Should an EU law come to pass, it would supersede the enlightened approach taken by the Nordic countries. The better outcome would be to build on the efforts of the Nordic regulators, and make their model the global standard.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen]

[Commentary] The European Union just released the 2014 Digital Scoreboard, which tracks member nations’ progress towards their digital goals and a digital single market, something the US already enjoys.

Though some objectives have been achieved, the EU is still far from meeting its goals in two key areas: closing the digital skills gap and deploying next generation networks. The EU reports that 90% of jobs require at least some digital skills but 39% of the workforce lacks those skills. Indeed, 100 million Europeans have never used the Internet, according to the report. That’s about 20% of the region’s population.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen]

[Commentary] With its proposed acquisition of DirecTV, AT&T is making a stake to be the nation’s premier pay TV provider on every screen -- TV, laptop, mobile phone and tablet. Its dream is seamless connectivity and streaming video from home to car to office and even to airplanes.

AT&T recognizes that most consumers don’t know, much less care, whether their connection is fiber, xDSL, LTE, or satellite. They just want a good service, preferably at a low price as possible.

Coming on the heels of another mega merger between Comcast and Time Warner Cable, the AT&T/DirecTV development is a textbook example of dynamic competition, characterized by high capital costs, technological change, and network effects. In dynamic markets, competition is created not by the number of providers but by the level of technology.

Only two players, albeit with different technologies, are needed to create dynamic competition. AT&T and Comcast have to go through increasingly burdensome and obligatory merger review from not only the Federal Communications Commission, but also the Department of Justice and the Senate Judiciary Committee.

If we care about innovation and investment, we should encourage these players to grow as big as possible for the simple reason that the larger they are and the larger their revenues, the larger the incentives for upstarts to disrupt them. The best outcome would be to approve both mergers as soon as possible and let the companies duke it out in the marketplace. The battle of superpowers is America’s forte. Let it flourish.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] While many technology policy debates are characterized by a lack of reason, at least one area of vital national interest proceeds in a rational and transparent fashion: the process to update America’s Communications Act. Reps Fred Upton (R-MI) and Greg Walden (R-OR) lead the process with a series of opportunities for public comment.

While sharing has a role in spectrum policy, the US should certainly not give up the valuable efforts to auction relinquished spectrum for licensed use.

Indeed, the UK trades 84 percent of its spectrum, and where necessary, the government has seized spectrum from uncooperative government agencies. The Base Realignment and Closure (BRAC) project facilitated the difficult process of closing bases in phases following the Cold War. The US needs to take the same approach with spectrum, also known as “BRAC the spectrum”.

It is no small goal for which auction revenues are being raised the First Responder Network, FirstNET, a national communications network for public safety. As 9/11 and Hurricane Katrina revealed, the current patchwork of emergency communications in the US needs to be upgraded to a national state of the art network, and the cost is in the tens of billions of dollars. Spectrum license revenue could directly contribute to that effort and help fortify public safety.

Communications regulation needs to be transitioned from the current silo-based, sector specific paradigm to a modern, technology-neutral, competition-oriented approach. Most of the functions of the Federal Communications Commission are duplicative of functions performed by other agencies. Functions and resources should be rationalized effectively and redeployed to the appropriate agencies, or bundled into a specific agency for the management of spectrum.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] Americans have good feelings about Canadians -- and for good reason. The US and Canada have the world’s largest bilateral trading relationship, trading goods and services worth $2 billion every day.

American Enterprise Institute’s Jeffrey Eisenach has studied the US and Canadian wireless markets in detail, and his report prepared for the GSMA, the world’s mobile operators’ and standards association, notes the findings. Canadians use twice the voice and data as Europeans, resulting in lower unit costs for mobile. Canadian wireless providers invest 2.3 times more than providers in the EU. Together the US and Canada deploy 4G/LTE wireless networks faster than the EU, resulting in 75% higher speeds. Canadian LTE adoption exceeds the EU by a factor of 8, and the gap is growing.

It’s even more impressive to consider that while the US and Canada comprise just 6% of the world’s 7 billion mobile subscriptions, the two countries have half of the world’s LTE connections. The similarities and proximity between the US and Canada create value for both countries, particularly in the digital domain. A number of American Internet companies leverage Canada’s proximity and language to boost revenue.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] The EU Parliament voted on a telecommunications package that includes free roaming and net neutrality.

Future historians will likely mark the date as a key event for the onset of the EU’s digital crisis. U politicians have made free roaming the centerpiece of their digital market effort. Essentially, it is an effort to harmonize mobile roaming prices across the 28 member nations, regardless of the underlying costs. It is nothing more than “feel good” politics. Plus, it’s a cheap win for politicians as operators foot the bill. No matter where their customers go, operators are forced to eat the costs of their customers’ traffic, even if the costs exceed their revenues.

There are two nasty intended consequences of the free roaming regime. First, artificial price ceilings create a perverse market for mobile arbitrage. People and speculators can game the trade of SIM cards, buying them in low cost traffic countries (Lithuania) and bringing them to high cost traffic countries (e.g. UK or Germany where spectrum costs and taxes are considerably higher). Second, in order to police this illicit activity, the EU will have to start a surveillance regime. Europe, which is still smarting from the financial crisis, is on the course for another, digital one, where users will not be able to get the network service they need because operators are too poor to deliver it.

Wrong-headed and overzealous investment has stifled broadband investment. Network neutrality is a mess, not least for content/applications providers. Creating a world with a patchwork of net neutrality regulation will itself provide arbitrage opportunities.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] The European Union Digital Single Market initiative is a set of 7 goals (interoperability, security, broadband, research, innovation, digital literacy, etc.), with an associated 101 actions to be realized by 2020.

The EU tracks its progress on a Digital Scoreboard. From time to time, the EU Commission makes rules intended to expedite these goals. In in the EU has the courage to take on the root causes of its competitiveness problem because it requires a fundamental change to the status quo. Instead politicians rely on feel good proposals without substance, giving voters a placebo which they hope will make them feel better.

With EU Parliamentary elections in May, politicians have reached a new low in pandering to voters, as a recent Industry, Research and Energy Committee vote on mobile roaming demonstrates.

The only way an operator can be competitive is to own its own network across as large a distance as possible. The tortured EU approach of managed access means that an operator has to lease its network at a regulated rate. Whatever investment it makes must be shared with resellers. It is difficult, if not impossible, to earn a profit under this scenario. A single, low tax rate across Europe would do more for consumers and the ailing economy than any of the EU’s sugar-coated placebos. It would make the whole EU competitive, increase employment, and create a level playing field for goods and services. But don’t expect any bitter medicine in the EU, especially before an election.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] Content delivery networks (CDNs) are essentially digital libraries, allowing multiple copies of content to be placed strategically around the world. A request for Netflix’s House of Cards from Miami doesn’t need to go all the way to Mountain View (CA); it can be served closer to the user. In addition to caching, CDNs enable website acceleration, enterprise applications, peer to peer communications, and live video. The next stage in the evolution of CDNs may involve adaptation to individual users and self-organizing content delivery with associated quality of service levels.

So if the definition of net neutrality is that all traffic is treated the same and that all traffic moves at the same speed, then CDNs are already upsetting the balance. In any case, CDNs were specifically exempted in the 2010 Open Internet ruling. However those rules were struck down and the Federal Communications Commission is now going back to the drawing board. Thus CDNs are back on the table, along with all the other service providers.

If net neutrality morphs into regulation of interconnection, not just the last mile, as some net neutrality theorists suggest it should, it could bring this bustling connected TV affair to a grinding halt. Content providers, applications, and websites operate in a competitive environment. Using a CDN is a way to leverage technology to improve user experience and enhance market share. To say that this is unfair or discriminatory is to rebuke the market system itself. It is precisely because firms compete, whether by leveraging technology or creating partnerships, that consumers benefit.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] “Over the Top” (OTT) technologies cannot exist without a network. While the providers of these services invest in servers and data centers for their own operations, their operating model does not include the cost of the underlying infrastructure investment, namely the expensive last mile infrastructure.

As OTTs grow their user base and revenue, it becomes increasingly clear that there’s a double standard in regulation. Why should antidiscrimination and data protections rules apply only to telecommunications and cable companies when an increasing part of communication s goes on in unregulated platforms? Indeed placing rules on some part of the value chain but not others is itself discriminatory.

Additionally it grows increasingly untenable for European governments to allow profitable OTTs not to pay tax, especially when the telco sector is laying off 10% of its workforce for lack of profitability. The same antidiscrimination and taxation rules should be applied across the board. Fortunately some of these discrepancies may be righted through the process to update America’s Communication Act, as the siloes created in 1934 to apply to different communications networks are now obsolete. Fair competition and a level playing field means that all competitors need to play by the same rules.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]