“NET NEUTRALITY”

Presentation to Women in Telecommunications

Bill NusbaumTURN

May 3, 2006

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Recent quotes

• Ed Whitacre, AT&T CEO started the current battles over net neutrality in a November 7, 2005 Business Week interview. In responding to the interviewer’s question about how concerned Whitacre was with internet companies like Google, MSN and Vonage, Whitacre said:

• “How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!”

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Recent quotes

• A few weeks later, BellSouth Chief Technology Officer William Smith said the Internet should become a “pay-for-performance marketplace.”

• Verizon CEO Ivan Seidenberg says that Web applications need to “share the cost” of the broadband services already paid for by consumers. “We need to pay for the pipe.”

• Verizon’s SVP and Deputy General Counsel, John Thorne has stated that: – "The network builders are spending a fortune constructing and

maintaining the networks that Google intends to ride on with nothing but cheap servers. It is enjoying a free lunch that should, by any rational account, be the lunch of the facilities providers."

– "The only way we are going to attract the truly huge amounts of capital needed to build out these networks is to strike down governmental entry barriers and allow providers to realize profits.”

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So, what’s all the fuss?

• Whether the owners of the pipes – be it telco or cable get to effect what content is available to consumers and at what speeds

• Is anyone really getting a “free ride”?

• Those who favor net neutrality have been labeled as extremists. For example, the Chairman of the House Energy and Commerce Committee, Rep. Joe Barton, the promoter of the ironically named “Communications Opportunity, Promotion and Enhancement Act of 2006” argues that:– Net neutrality is "still not clearly defined." It's kind of like

pornography: You know it when you see it." – He has also stated that “Net neutrality proponents were

overstating their case and exaggerating the dangers of a more laissez-faire approach. "I don't think all the Draconian things they (predict) will happen if we don't adopt” net neutrality requirements.

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An historical perspective

• Reminiscent of the battles over:

– The MFJ information services restriction and

– UNEs

• The 1984 consent decree on the divestiture of AT&T banned the newly formed RBOCs from providing information services – major reason – concern that the owner of the bottleneck pipe could discriminate against the providers of the content (lifted in 1991 by Court of Appeals)

• Open networks and the ultimate demise of UNEs

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More recent developments

• Massive telco industry consolidation

– SBC purchase of AT&T– Verizon merger with MCI– AT&T’s proposed acquisition of Bell South

• National video franchising

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Competition?

• The result: a duopoly of telco and cable

• Even Ed Whitacre appears to agree:

– “It's still about scale and scope. It's about owning the assets that connect customers. The assets that probably can't be duplicated except maybe by the cable companies. We have that, Verizon has that, BellSouth has some of that. The cable companies have it. It's the numbers of customers you can get to. So it's scale and scope.”

• Perhaps if consumers had a real choice among competing internet providers net neutrality would be less of an issue

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What is believable?

• So, the question is: which statements of the telco executives do you believe?

• ILECs’ track record

– Monopoly DNA– Broken promises– Investment blackmail

• What is the rationale reaction when an 800 pound gorilla says he will sit on you?

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Responding to the uproar

• In March 2006, Whitacre said:

• "Companies are trying to scare people into thinking the Internet is at risk or that the Internet as we know it will disappear," he said. "It's like Mark Twain said, a lie can travel halfway around the world before the truth has its shoes on.“

• “Any provider that blocks access to content is inviting customers to find another provider…and that’s just bad business.”

• "AT&T is not going to block anyone's access to the Internet and we are not going to degrade anyone's quality of service." And we won’t change (our position) no matter what sky-is-falling rhetoric you hear. Markets work best when consumers have choices.”

• In April, United States Telephone Association CEO Walter McCormick, testifying before the House Judiciary Committee hearing on Internet neutrality stated that telephone companies “will not block or degrade or impair content.”

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Why should consumers care?

• Internet is pervasive– Pew Internet & American Life Project – internet penetration is

now 73% of American adults– Google estimates that it has over 8 billion indexed web pages– There are over 27.2 million web blogs tracked by Technorati; the

blogosphere is doubling in size every 5 and a half months

• A change from an “all you can eat” to capacity-based pricing would have significant repercussions

• Threat to one of the internet’s most important contributions – the democratization of information

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The ILEC (and cable) arguments

• “Someone has to pay for network enhancements”– The internet is not currently treated as a free good– ILECs want a guarantee that network investment will pay off– Access charges redux?– What is the lesser evil?

• What about bandwidth hogs?

• Mandating network neutrality is “too regulatory”

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Closing thoughts

• Net neutrality is just the latest battle in the telecom policy wars on getting real, effective competition into the market

• Monopolists and duopolists will always do what they have always done – optimize their market power and position (this is every company’s goal, but when a market is truly competitive there is at least some checks on efforts to achieve that goal

• Captive policymakers

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Closing thoughts

• "If anything is going to halt necessary investments in next-generation networks it will be Congress dictating business models to companies," said AT&T spokeswoman Claudia Jones. "The finance community should be wary of wolves in sheep's clothing who are attempting to codify the status quo to their own benefit and to the detriment of consumers everywhere."

• "Net neutrality is not about being neutral, it is about companies that benefit from selling video on the internet and their potential advertisers looking to have the cost of the bandwidth they use paid by the consumer," said Bill McCloskey, BellSouth spokesman.

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Network Neutrality and Independent ISPs

Women in Telecommunications

May 3, 2006

Andreas Glocker

What does an ISP do?

• We buy Internet Transit for 8% of budget– Autonomous System AS6994– Mange BGP session– Defend against DDOS attacks

• Last mile access management:– Installation and maintenance of router– Coordination with ILEC– Monitoring of link uptime, dispatch of repair

What does an ISP do?

• We add Application support– Hosted VoIP PBX Solutions– Email hosting: MetricMail– Spam and Virus filtering: MetricScrub– Cisco VPN maintenance installation– User management

Public StandardTelephone Network Internet

Customer RouterCisco Netopia

Cisco Pix Firewall

DS3, T1 or DSL link

VoIP and DataNetwork

100 Mbpsmultiple transit

connections

What does an ISP do?

• Last mile access are delivered via contracted Layer 2 networks– ATM with AT&T for ADSL last mile– ATM with Covad for DSL provisioning– DS1, DS3 with AT&T– We interconnect via multiple DS3’s using

Cisco 7206 VXR access routers

Network Neutrality

• Definition is evolving

• ISPs provide value by managing QoS– We prioritize VoIP traffic to our Switch– We drop packets which are DDOS attacks– We support multiple building clients off a DS3

by managing bandwidth by subscription rate.

Bell / Cable / Power Control

• ILEC will discontinue Layer 2 relationship with Wholesaler

• ILEC will not allow access to wires

• Cable has proprietary access (does not share)

• Power company, who will control access?

• Wireless, who owns the license