Internet & NGN: The Future of Interconnection

J. Scott MARCUS
IP-based NGNs and Interconnection: The Debate in Europe
Key words: interconnection, NGN, Internet Protocol (IP), bill and keep, Calling Party's Network Pays (CPNP), peering, transit.

Historically, interconnection in the world of the Internet has been approached significantly differently from interconnection in the fixed Public Switched Telephone Network (PSTN) and the mobile Public Land Mobile Network (PLMN). As fixed and mobile networks evolve to Next Generation Networks (NGNs) based on the Internet Protocol (IP), it becomes increasingly necessary to merge these perspectives in order to achieve a unified and integrated approach to network interconnection. There is a rich history of economic analysis of IP-based and of conventional switched networks that began to converge early in this decade. In 2008, this issue is coming to a boil, as regulators seek to provide regulatory certainty for the build-out of NGNs, even in the face of substantial uncertainties, and even though practical experience with NGNs is still in a very preliminary state. What can we learn from the historical evolution of the theory of interconnection for Internet, NGN, PSTN and PLMN? What issues are "in play" today? What is the appropriate destination in the long term? What nearer term measures are appropriate?

Elena GALLO
Is There a "Right" Charging Principle with the NGN Advent?
Key words: NGN, charging principles.

Historically, telecommunications services developed adding one network to another (voice and data networks), but Next Generation Networks (NGN) are developing as native multiservice networks. Main characteristics include: broadband capacity, IP protocol, ability to transmit voice, data and video, quality control, separation among different network layers. The fact to deliver with one only network different services such as voice and data, now treated in a very different way with respect to charging principles (interconnection for voice, peering for Internet exchanges), poses the problem of the charging model to adopt in the future. In the paper we will analyse pros and cons of the different charging principles, both at wholesale and retail level, from an economic perspective. The first conclusion is that there is no "magic solution", as any criteria has pros and cons, but that it appears more appropriate to leave operators to choose their retail models, once the wholesale criteria are settled. Then the paper concentrates on the different scenarios which can arise choosing different charging principles at wholesale level. Particular attention is given to the issues of quality safeguard and of recovering investments in innovative networks and services. On many aspects "intermediate" scenarios seem better to answer economic problems than the "pure" scenarios, (calling party network pays for all wholesale services, including Internet/data, or bill & keep for everything, including voice).

Peyman FARATIN, David CLARK, Steven BAUER, William LEHR, Patrick GILMORE, Arthur BERGER
The Growing Complexity of Internet Interconnection
Key words: internet interconnection, economics, public policy, routing, peering.

End-to-End (E2E) packet delivery in the Internet is achieved through a system of interconnections between heterogeneous entities called Autonomous Systems (ASes). The initial pattern of AS interconnection in the Internet was relatively simple, involving mainly ISPs with a balanced mixture of inbound and outbound traffic. Changing market conditions and industrial organization of the Internet have jointly forced interconnections and associated contracts to become significantly more diverse and complex. The diversity of interconnection contracts is significant because efficient allocation of costs and revenues across the Internet value chain impacts the profitability of the industry. Not surprisingly, the challenges of recovering the fixed and usage-sensitive costs of network transport give rise to more complex settlements mechanisms than the simple bifurcated (transit and peering) model described in many earlier analyses of Internet interconnection (see BESEN et al., 2001; GREENSTEIN, 2005; or LAFFONT et al., 2003). In the following, we provide insight into recent operational developments, explaining why interconnection in the Internet has become more complex, the nature of interconnection bargaining processes, the implications for cost/revenue allocation and hence interconnection incentives, and what this means for public policy. This paper offers an abbreviated version of the original paper (see FARATIN et al., 2007b).

David L. SIERADZKI & Winston J. MAXWELL
The FCC's Network Neutrality Ruling in the Comcast Case: Towards a Consensus with Europe?
Key words: network neutrality, discrimination, common carrier, network management, Comcast, European Directives.

In August 2008, the FCC found that Comcast's restrictions on peer-to-peer upload transmissions were unreasonably discriminatory, arbitrarily targeted a particular application, and deprived consumers of their rights to run Internet applications and use services of their choice. The Comcast ruling represents a significant change in the FCC's direction: given the FCC's past decisions that broadband Internet access services do not fall within the "common carrier" category, it is notable that the agency has now imposed nondiscrimination requirements on these services. This Article shows that the rationales articulated in the FCC's Comcast order, stressing both (i) concerns about protecting competition and (ii) concerns about protecting consumers from disruption of their ability to communicate freely and privately, are rooted in centuries of Anglo-American law defining the obligations of "common carriers." The FCC appears to be moving away from its traditional emphasis on the competition policy concerns, which justify asymmetrical regulation of dominant providers for the sake of enabling competition, and toward an emphasis on the consumer protection issues, which justify symmetrical regulation of all service providers regardless whether they have market power. These developments in the U.S. echo the discussion now going on in Europe in the context of the package of proposals on a new common regulatory framework for telecommunications, released by the European Commission on Nov. 13, 2007, and which is now being debated by the European Parliament and Council. On both sides of the Atlantic, a trend is emerging to permit network discrimination only if the discrimination is narrowly tailored to achieve legitimate objectives.

Peggy VALCKE, Liyang HOU, David STEVENS & Eleni KOSTA
Guardian Knight or Hands Off: The European Response to Network Neutrality
Legal considerations on the electronic communications reform
Key words: network neutrality, regulation, electronic communications, reform proposals.

Network neutrality refers to a policy principle regarding access for online content and service providers to broadband infrastructures. It implies a general and ex ante obligation of non-discrimination for network operators when granting access to providers of online services, with the aim of excluding practices such as blocking access to non-affiliated content, degrading the quality of transmission, imposing unreasonable restrictions or prioritising affiliated content. Whether such obligation should be "cast in the Stone Tables" of the law was first fiercely debated in the United States, and the issue is now gaining increased attention in other parts of the world, including the European Union, where the regulatory framework for electronic communications is currently under review. This article examines whether existing rules already provide the relevant authorities with the necessary tools to take action against broadband providers illegitimately discriminating or blocking content of those who are not prepared to pay a "toll" for the use of higher speed networks or better quality services. It focuses in particular on the EU regulatory framework for electronic communications networks and services, including the reform proposals published by the European Commission on November 13th (type should be like 24th below) 2007 and the resolution adopted by the European Parliament on 24th September 2008.

Eric BROUSSEAU
The Economics of Music Production
The Narrow Paths for Record Companies to Enter the Digital Era
Key words: economics of culture, cultural industries, digital business model, P2P, industrial organization.

On the basis of an in depth analysis of the flow of revenues within the music industry and of the emerging practices, we attempt to understand the logic at play in the current evolution of the structure of the industry. We claim that the record companies used to play a role that was useful for the dynamic and for the quality of music production, and analyze whether it can be maintained despite the impossibility for them to further control the formation and distribution of revenues generated by recorded music. Two antagonistic strategies, corresponding to different segments of the market, are highlighted in this paper. One targets the mass market and relies on the recognition by the on-line distributors of the mutual dependency between them and the record companies. It also admits that this music is characterized by short commercial life cycles and that it should be marketed as a consumer product. Moreover revenues are not necessarily generated by sales, but by the value of temporally exclusive release in some channels. The second model targets the wide number of niches at the fringe of this mass market and relies on the building of communities of customers sharing common tastes and values and on the development of their loyalty. The model is commercial, but relies clearly on the cooperation among the various stakeholders that build a common safe harbor enabling specific types of music to sustainably develop. Value added services funded by subscription have to be developed.