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Net Neutrality – economic aspects
CONFERENCES ON INTERNET, DEMOCRACY AND GOVERNANCE
Brussels, February 27, 2011
Philippe Defraigne – Cullen International
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
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Net Neutrality, restrictions and competition
What is the moral of this story?
Where some see a case for restrictions, others see a
market failure and opportunity to do business
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Net Neutrality, restrictions and competition
Underlying assumptions to this happy story
Competition
Transparency
Low switching costs
or
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Three Net Neutrality issues - real or symbolic
Restrictions to use of applications
Network management
Two-sided markets
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VoIP on mobile networks
Mobile issue
In most cases, at least allowed on premium packages
SMS and
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VoIP on mobile networks and revenues
Currently, revenues of mobile operators are
disproportionally tilted towards voice
Because:
Voice is priced relatively high compared to data, with
respect to the use of network resources
Because:
Consumers are more inclined to pay for voice than for data
Voice can be compressed at low bitrates (e.g. 6kbps)
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VoIP on mobile networks and revenues
Rebalancing of voice and data revenues is a huge
challenge for the mobile industry and will take time
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Growth of Internet traffic
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Growth of Internet traffic
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Industry response
1. Invest in NGA networks
(for a fair return!!!)
2. Cope with traffic exceeding maximum capacity
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NGA roll out – progress so far
Source: Cullen International
NGA coverage by incumbents, alternative operators and cable operators
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Electricity sector – time-of-use pricing
Lower off-peak electricity prices reduce the number of power plants necessary to cover demand.
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Traffic Management – why?
Why traffic management by ISP?
Coping with growing
volumes of traffic
while maintaining the best
possible QoS for end
users
For vertically integrated
ISPs, discrimination
against a competitor in a
downstream market
OR
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Traffic Management - transparency
Not all operators share the same enthusiasm for transparency
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Two-sided markets
Are content providers such as Google and
YouTube... free riders?
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Two-sided markets
Two-sided markets are economic platforms having two
distinct user groups that provide each other with network
benefits The economic viability of some business models rests on
both parties paying for use of the platform:
credit cards – holder and shopkeepers newspapers – subscribers and advertisers operating systems – end-users and developers video game consoles – gamers and game developers
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Two-sided markets and broadband networks
Broadband networks can be seen as two-sided platforms
€ €
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Two-sided markets and broadband networks
How much can content providers contribute?
€???
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Two-sided markets and broadband networks
How much can content providers contribute?
European Telecom
Year Turnover Investment
2009 €332bn €40bn
2010 €329bn €44bn
2011 €323bn €47bn (est.)
Worldwide financials
Year 2011 Turnover Profit
Google $38bn €10bn
Facebook $3.7bn €1bn
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Let’s be realistic about how much free riders might contribute
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Net Neutrality and minimum QoS
What industry and regulators should seek to avoid!
In order to prevent the degradation of service and the hindering or slowing down of traffic over networks, Member States shall ensure that national regulatory authorities are able to set minimum quality of service requirements on an undertaking or undertakings providing public communications networks (Art 23.3 - USD)