Telcos Won’t Move to Higher Speed Broadband Until They Benefit from Internet Traffic Boom, Study Says
BRUSSELS -- There are “severe imbalances” in the growth rate of Internet traffic, with more revenue generated by traffic that’s not monetized by network operators, London School of Economics (LSE) Professor-Technology Management Jonathan Liebenau said Monday. Different business models apply to the different segments that generate traffic, and network operators aren’t part of the most profitable business activities, he told the Financial Times/European Telecommunications Network Operators’ Association digital agenda summit. Given EU goals to boost broadband build-out, the reluctance to invest in next-generation networks threatens the ability of network operators to respond, he said. That won’t change until investors are sure network owners will eventually benefit from traffic growth, he said. Speakers also urged regulators to safeguard net neutrality.
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The question of “who pays” for burgeoning Internet traffic is at the “heart of current market and regulatory controversies in Europe,” the LSE report said. With toll roads, cable-TV services or mobile telecom, the user pays, it said. There’s a paradox that traffic-neutral business models are being promoted by some regulators for telecom operators, while only differentiated pricing models such as Internet Protocol traffic apparently provide high returns, it said.
In the fixed broadband environment, the main revenue streams come from distributing traffic and content, aggregating content, providing devices to access content, search, and equipment manufacturers enabling the infrastructure, the LSE report said. Fixed-line broadband operators haven’t been able to compensate for the increasing traffic they carry with tiered pricing because of regulatory and competitive factors, it said. In spite of growing traffic, telcos have had an overall negative revenue trend since 2004, it said.
One aspect of the regulatory issues facing telecom operators is uncertainty about traffic management, particularly net neutrality, the LES said. There are not yet any European governmental policies imposing or maintaining net neutrality, with the exception of recent changes in Dutch law, it said. Most stakeholders are committed to safeguarding consumer rights, but the general community needs to understand what effect market intervention will have on key parts of the Internet value chain, it said. The main effects would likely be to those providing online services and Internet connectivity, it said. Network neutrality must be considered in any analysis, as future policy may lead to reallocation of resources in the value chain, which could affect pricing strategies and incentives to invest and innovate, it said.
Internet traffic growth is increasingly creating a situation where all stakeholders aren’t direct beneficiaries, the LSE report said. Network providers usually give customers flat-rate prices, while content providers aren’t charged for the data their content produces, it said. There’s no incentive for ISPs or consumers to restrict their data production and consumption, and network operators can’t compensate for the dramatic increases in IP traffic, it said. That hampers network operators from building new networks and threatens the whole EU digital agenda, it said.
The EU must address the issue of the sustainability of the current economic Internet model, said ETNO Executive Board Chairman Luigi Gambarella. Policymakers should encourage development of new offers that consumers like and that lead to new revenue streams for operators, he said. The Dutch law is a concern, he said: “We need more Europe” to avoid a fragmented single market. Operators should have the flexibility to adopt new business models, he said.
You're going to have to move toward consumption-based billing, said Research in Motion Co-CEO Jim Balsillie. Something has to respect scarcity, he said. Another thing carriers can do to boost revenue is to earn “trustedness” in Europe to become networks for banking and other sectors, he said. That’s a chance to create lots of jobs, he said. Flexible retail pricing is the sine qua non to bring Internet connections to all consumers, but only if there’s an end to the over-regulation that is keeping Europe behind in big services, said Vivendi CEO Jean-Bernard Levy. The EC should now take concrete steps to meet its digital target instead of engaging in yet more consultation, he said.
"Let’s not forget how we got there,” said William Kennard, U.S. ambassador to the EU. The Internet has gotten to the point where it is because regulators around the world decided to allow it to develop with very few rules, he said. The Internet is one of the greatest examples of “the value of regulatory restraint,” he said. Because the marketplace is so dynamic, it’s hard to predict what commercial arrangements will come along, and to determine which is the best or worst model, he said. Governments should limit themselves to ensuring transparency between consumers and companies and among providers, letting companies manage traffic on their networks, and coming down hard on anticompetitive behavior, he said.
Digital Agenda Commissioner Neelie Kroes again stressed the importance of an open, best-efforts Internet. She said her philosophy is that the best way to deliver an open Internet is via competitive markets, but that for competition to work well, customers must be able to make informed choices and know exactly what services they're getting. EU telecom regulators are investigating whether any throttling or blocking is going on, she said, and it’s important to wait for the facts and figures before acting. She criticized the Netherlands for acting on “passion.” Kroes wants industry to come up with initiatives to guarantee transparency, best efforts and traffic management.