Internet and the 1996 Act

• Impact of the Act on Internet evolution

• Internet as « inspiration »

NII prototype

• new network paradigm

• inspired NII political program

• industrial policy?

– “stimulate” (neither regulate nor litigate... yet)

– spin-offs from DARPA programs

Governance

• competition modalities (on what basis)

• tariffs and pricing

• interconnection

• universal service / cross-subsidies

User-driven Experimentation• infrastructure technologies

• applications and services

• path dependence

Network size

Willingness to pay Demand:

p=n(N-n)

Supply

Three equilibria:1) Failure2) Critical Mass3) Network size

Internet adoption in comparative perspective

History: 3 periods

• Defense

• Research

• mass-medium

Defense - ARPANET (1970s)

– 1969: BBN wins RFP

– Protocol (TCP/IP) and Gateways

– Three basic applications

• e-mail

• file transfer (FTP)

• remote login (Telnet)

Research - NSFNet (1980s)

• NSF backbone linking supercomputer centers

– One backbone

– Regionals: BARRnet, Merit, NYSernet

– three dominant applications

• Acceptable Use Policy (AUP) and commercialization: expanding visions

• “privatisation” of NSFNet April 30, 1995

Mass Medium (1990s)

• New Structure

– several nationwide backbones - National Service Providers (NSPs)

– Thousands of Internet Service Providers (ISPs)

– Network Access Points (NAPs)

Emerging Industry Structure

• 2-3 Backbone providers ??

• lots of ISPs for small customers

• direct connection to NSPs for big customers

Subs. Market(million Share

1 America Online 26.3 23.70%2 MSN 7 6.30%3 United Online [NetZero + Juno Online] 6.1 5.50%4 EarthLink 4.9 4.40%5 @Home 3.7 3.30%6 Prodigy [Plus SBC Narrowband] 3.5 3.20%7 CompuServe [AOL Owned] 1.8 1.60%8 Gateway.net [AOL Alliance] 1.7 1.50%9 Road Runner [AOL Owned] 1.6 1.50%10 AT&T WorldNet 1.4 1.30%11 AT&T Broadband [@Home, Road Runner] 1.3 1.20%12 Verizon 1 0.90%13 Comcast 0.793 0.70%14 Cox Cable 0.779 0.70%15 PeoplePC 0.56 0.50%16 Charter Cable 0.546 0.50%17 BellSouth 0.463 0.40%18 Cablevision 0.368 0.30%19 Bluelight 0.14 0.10%20 Other U.S. ISPs 46.8² 42.30%

Rank ISP

source: IP Planet, Nov 2001

Ret

ail

ISP Market ShareWorldCom 27.90%AT&T 10.00%Sprint 6.50%Genuity 6.30%PSINet 4.10%Cable & Wireless 3.50%XO Communications 2.80%Verio 2.60%Qwest 1.50%Global Crossing 1.30%

Total US Market $6.1 billionsource: Probe Research

Top ISPs - 2001W

ho

lesa

le

New Governance, and its limits.• Service and Pricing structure

– Best-effort delivery

– Sender keep all

– Flat fee pricing (binary logic)

– BUT congestion, different service level requirements.

New Governance (cont’d)

• Interconnection and peering

– Decentralized governance - Difference with phone network

• Incentives for cooperation

– Emerging tensions

• Standard setting

– Cooperative / democratic

– IETF, IAB,

– emerging tensions

Four Key Success Factors

• Expanding Community of Users

• Users invent it

• Pricing: Network’s binary logic

• Decentralized governance

Emerging Issues

• Congestion

• Peering

• Broadband

• Future of end-to-end

Congestion

• Local access and Backbone

• Pricing solutions

• Quality of Service

Interconnection: Peering

• From multilaterals to bilaterals

• Peering vs. Transit

• NAP Control

• FCC approach (Kende)

– Decentralized, cooperative approach was good because didn't require regulation

– Assess market competition

– Antitrust remedies if there is a problem

How different from “old issues”?

– industry structure (monopoly,...)

– Natural Monopoly?

– Tariffs, access charges and int’l settlements

– Cross-subsidies

– Innovation at the end

Internet and Freedom: Jeffersonian myths• Internet can't be regulated

– Tech

• decentralized architecture

• no single control point

• cooperative governance

• "routes around censorship"

– Government has no "moral right" over new space (cyberspace) and no credible means of enforcement (Barlow)

"Jeffersonian syndrome"

• Political: direct democracy

• Self-governing communities

• Economic: Perfect markets