We Interrupt this Internet for a Special Verizon Announcement

As POTS slowly dies as a service, the question of what we should have as the model for public communication has given birth to the FCC’s Net Neutrality guidelines. With over 125 years of policy associated with POTS, the transition to the public Internet is not going to be easy and it is understandable that the rules need to be constantly re-engineered.

Now the Internet has gone through a number of iterations. As our friend Scott Bradner of Harvard has pointed out, we started with the goal of supporting data and now we support voice and video all while migrating from low bandwidth modems to broadband solutions that continue to scale. It’s pretty amazing.

Policy has been iterated sometimes based on the shifting tax opportunities and sometimes based on jurisdiction; for example, the FCC yielded to states on some VoIP taxation issues.

I bring this up because Verizon has brought an interesting argument in its effort to revoke Net Neutrality. The logic that they are applying is very close to the rules that apply to cable broadcast operators. In effect, the Verizon argument is that they want to be thought of as a broadcaster. 

Looking at Cisco’s Visual Networking Report, you can see why Verizon thinks a broadcaster model is the right way to go. Here are some highlights from Cisco’s analysis:

• Globally, consumer Internet video traffic will be 69 percent of all consumer Internet traffic in 2017, up from 57 percent in 2012. This percentage does not include video exchanged through peer-to-peer (P2P) file sharing. The sum of all forms of video (TV, video on demand [VoD], Internet, and P2P) will be in the range of 80 to 90 percent of global consumer traffic by 2017.
• Internet video to TV doubled in 2012. Internet video to TV will continue to grow at a rapid pace, increasing fivefold by 2017. Internet video to TV traffic will be 14 percent of consumer Internet video traffic in 2017, up from nine percent in 2012.
• Video-on-demand traffic will nearly triple by 2017. The amount of VoD traffic in 2017 will be equivalent to six billion DVDs per month.

Clearly we are seeing a shift, and as we discussed at DevCon5, that will increase as HTML5 makes video easier to place on the canvas of the Web to every consumer device.

Adding to their view is the similarity of broadcasting to cable and Content Delivery Networks (CDNs) to access providers. Continuing to use the Cisco data, here are some points about CDNs:

• CDN traffic will deliver almost two-thirds of all video traffic by 2017. By 2017, 65 percent of all Internet video traffic will cross content delivery networks in 2017, up from 53 percent in 2012.
• CDNs will carry over half of Internet traffic in 2017. 51 percent of all Internet traffic will cross content delivery networks in 2017 globally, up from 34 percent in 2012.
• IP traffic in North America will reach 40.7 exabytes per month by 2017, at a CAGR of 23 percent. Monthly Internet traffic in North America will generate seven billion DVDs' worth of traffic, or 26.3 exabytes per month.

You can make the case that CDNs are capable of dealing with access providers as equals, and represent a place where market economics should be the driver. 

However, when I think of applying broadcast rules I remember friends coming over a few weeks ago to watch their fill of CBS and Showtime. Here the must-carry rules are showing signs of age, best exemplified when Time Warner and CBS faced off recently, leaving customers looking for alternatives on the Internet. 

Verizon’s interpretation is hard to accept when you consider that not all traffic is following this model. Again referring to Cisco’s report, we see that not all traffic is based on CDNs and that carriers may have tipped the scale when looking at mobile.

Globally, mobile data traffic will increase 13-fold between 2012 and 2017. Mobile data traffic will grow at a CAGR of 66 percent between 2012 and 2017, reaching 11.2 exabytes per month by 2017.

Global mobile data traffic will grow three times faster than fixed IP traffic from 2012 to 2017. Global mobile data traffic was 2 percent of total IP traffic in 2012, and will be 9 percent of total IP traffic in 2017.

Business IP traffic will grow at a CAGR of 21 percent from 2012 to 2017. Increased adoption of advanced video communications in the enterprise segment will cause business IP traffic to grow by a factor of three between 2012 and 2017.

The bottom line is that there must be some parsing around the “must carry” rules, and content needs to be found in order for Verizon’s interpretation to be broadly accepted. The biggest question I have is this: If Verizon ends up denying a CDN access to their customers, what alternatives will exist for the consumer? When CBS and Time Warner went at it, Hulu and other alternatives were available via the Internet. Will applying the broadcast vision that Verizon has, limit those alternatives as well? 

It is rare that regulation solves today’s problems; often policy solves the problems of the past. I doubt it will happen this time, however. I understand their perspective and believe they are bringing up important implications that will impact policy in the future.