This is an open letter response to Ofcom's latest discussion paper on traffic management and 'net neutrality'. The document raises several concerns to the future the British digital economy and British citizens. Instead of focusing on encouraging growth in the digital economy and creation of new companies and jobs, as well as protect UK citizens' interests, Ofcom's preliminary conclusions and arguments show that the regulator may more interested in protecting the interests of ISPs and established content and service providers in order to drive the development of fibre networks.
Firstly, Ofcom claims that it has seen little evidence that there is any need for regulation of some forms of network management. However, if this is the case then how can operators prioritise their own TV services at the cost of competing TV/entertainment services, or data intensive services? Ofcom, does this mean that in the UK TV/entertainment companies need to be ISPs as well to avoid the negative consequences of traffic management? The UK is famous for the limited bandwidth available for broadband usage (where actual speed differs significantly from headline, or advertised, speeds in many cases). At the same time operators are allowed to traffic shape in order to deliver their own high quality, bandwidth intensive TV services at the cost of broadband services.
Secondly, Ofcom favours what it coins the 'two sided economy' as a means to foot broadband costs. This means that consumers will pay a certain charge for online connectivity (as is today, servers (such as for video and entertainment services) pay for online connectivity, and on top of this ISPs can charge certain companies, such as video/entertainment, for customer access as an extra fee. The idea is ensure that customers will not be overcharged, and to ensure that there is a balance between consumer's willingness to pay and the investments by content/entertainment service providers.
This view is flawed at best. Let me explain:
1.Consumers will foot the bill since the video/entertainment provider would pass the charges back to the customer. This is likely to occur through either increased charges, data mining or advertising. It would be naïve at best to believe otherwise.
2.This model reduces market transparency by moving the charging away from access charging of users to individual arrangements to avoid traffic shaping and degradation of quality of service. It can also lead to more creative and less transparent methods of monetising British users and their data.
3.This model favours ISP/network operators and established content players that have the resources at hand to pay a tax to avoid network management. Companies that will benefit are the likes of Google, Microsoft, Sony, BskyB and Apple. It will inhibit British start ups from entering the market due to increased barriers to entry created by Ofcom's regulation. This is baffling given the UK's desperate need for growth, start ups, new businesses and innovation.
4.How will content providers interact with the hundreds of ISPs in the UK? Will Ofcom create a wholesale service? How will this service be transparent? Whom will be included in this system? Will it be based on bandwidth usage (well how is this not covered in the access charging for both the server and client). Will it be based on value transactions? If so then put to the extreme then HRMC could have to pay a charge for VAT and corporate tax filings over the Internet.....
5.How will this system handle non-commercial usage of networks, such P2P distribution of Linux and open source applications, or the use of distributed computing, for example SETI? Will customers be network managed since there is no commercial entity paying charges to the ISP?
Lastly, Ofcom considers this tentative policy view as important in the drive for faster broadband access in the UK. Like many other regulators, Ofcom wants to see a ramp up in fibre network deployments (BT is famous for its slow commitments to fibre networks). However, network deployment are limited by pricing and competition (for both the server and client usage). Operators are after all profit maximising organisations. Furthermore, how will Ofcom ensure that a 'content tax' goes to network development, and not to corporate dividends? Also, if the content industry foots the bill for network deployment, whom is the owner of the network and how should this network be regulated? Furthermore, if it is in Ofcom's view that operators need further financial incentives to invest in broadband infrastructure it is actually Ofcom that currently regulates wholesale pricing and interconnect charging. If Ofcom is not satisfied with deployments based on its pricing regulation then adding new schemes and market in-efficiencies is probably not the way to go.
We advise Ofcom to avoid any 'content tax schemes'. For innovation to prosper in the digital Britain usage needs to charged on an access level, and the quality of experience needs to be based on a service provider's choice of content delivery network infrastructure (either its own infrastructure or a rented service). Imposing a content tax is likely only to favour established and large operators and content providers, which in turn is likely to limit innovation, prosperity and job creation in the UK.
