Today, I wrote a letter (pdf, Scribd version) to the Federal Communications Commission asking the Commission to investigate the situation as quickly as possible and send a signal to the market – innovators, consumers, and licensees – that the openness conditions will be enforced. The letter explains what we know about the facts, why Verizon’s behavior violates the openness conditions, why this violation matters, and what the FCC should do.

This is an important case that will have implications not only for the mobile payments market, but also for any application or service potentially available on a mobile network:

First, Verizon’s behavior hurts Verizon customers, a full 35% of the mobile market, who are unable to use the very first mobile payment technology based on near-field communications that has come to market. These consumers are unable to use this application to pay for goods and services instead of using cash or a plastic card, and are unable to take advantage of the other features Google Wallet offers.

Second, Verizon’s behavior hurts competition in the emerging, potentially huge market for mobile payments technologies and associated services. While the market is nascent today, analysts expect that by 2015, $56.7 billion will be exchanged in mobile payment transactions. Verizon has an incentive to undermine competition in mobile payments, and to eliminate any competitor’s first-mover advantage, as it has partnered with AT&T and T-Mobile to launch a competing payment service called ISIS sometime next year.

Third, Verizon’s actions hurt innovation, in mobile payments or even in any other mobile technology. They do so by shaking innovators’ and investors’ confidence that there will remain one significant part of the wireless Internet in which they can offer their applications or devices without fear of blocking and discrimination by carriers hoping eventually to offer competing products. Innovators and investors are already concerned about the lack of strong network neutrality rules for the mobile Internet. If even Google, one of the nation’s largest corporations, can be blocked by the one wireless carrier that is subject to strong openness conditions, every mobile innovator and investor in the country will know that they are at the mercy of the carriers.

Finally, Verizon’s conduct undermines the Commission’s general approach towards mobile Internet openness by dismantling the protections for one part of the spectrum on which the FCC’s “incremental” approach to regulation in this space is built. Without enforcement, the openness conditions are effectively moot. Verizon violated these conditions earlier this year when it blocked tethering applications. Now it is blocking Google Wallet. This emerging pattern of disregard for its license conditions challenges the FCC to follow through on its pledges in the Open Internet Order to enforce the openness conditions in the 700 MHz band and to monitor the mobile Internet space for abuses by licensees.

Thus, to protect users and innovators in the mobile payments market and in mobile broadband markets more generally and preserve the Commission’s approach towards mobile Internet openness, swift action is needed.

The more detailed analysis is available in the letter (if you have read this post, you can begin on p. 2, Section “What is going on”). You can read the letter as a pdf here, on Scribd, or read it (without footnotes) below.

Text of the Letter

Dear Chairman Genachowski:

Two weeks ago, various news outlets reported that Verizon Wireless’s new Galaxy Nexus phone, an Android device that went on sale last Thursday, will not support Google Wallet, Google’s mobile payment application.

Based on what we know from press reports, it seems that Verizon Wireless is violating the open-devices and open-applications conditions in its legal licenses for part of the 700 MHz spectrum (the so-called “C-Block”) over which the company’s LTE network operates. There is, however, great uncertainty about what exactly is going on. I am writing to ask the Commission to investigate the situation as quickly as possible and to send a signal to the market – innovators, consumers, and licensees – that the openness conditions will be enforced.

The outcome of this case has important implications not only for the mobile payments market, but also for any application or service potentially available on a mobile network. First, Verizon’s behavior hurts Verizon customers, a full 35% of the mobile market, who are unable to use the very first mobile payment technology based on near-field communications that has come to market. These consumers are unable to use this application to pay for goods and services instead of using cash or a plastic card, and are unable to take advantage of the other features Google Wallet offers.

Second, Verizon’s behavior hurts competition in the emerging, potentially huge market for mobile payments technologies and associated services. While the market is nascent today, analysts expect that by 2015, $56.7 billion will be exchanged in mobile payment transactions. Verizon has an incentive to undermine competition in mobile payments, and to eliminate any competitor’s first-mover advantage, as it has partnered with AT&T and T-Mobile to launch a competing payment service called ISIS sometime next year.

Third, Verizon’s actions hurt innovation, in mobile payments or even in any other mobile technology. They do so by shaking innovators’ and investors’ confidence that there will remain one significant part of the wireless Internet in which they can offer their applications or devices without fear of blocking and discrimination by carriers hoping eventually to offer competing products. Innovators and investors are already concerned about the lack of strong network neutrality rules for the mobile Internet. If even Google, one of the nation’s largest corporations, can be blocked by the one wireless carrier that is subject to strong openness conditions, every mobile innovator and investor in the country will know that they are at the mercy of the carriers.

Finally, Verizon’s conduct undermines the Commission’s general approach towards mobile Internet openness by dismantling the protections for one part of the spectrum on which the FCC’s “incremental” approach to regulation in this space is built. Without enforcement, the openness conditions are effectively moot. Verizon violated these conditions earlier this year when it blocked tethering applications. Now it is blocking Google Wallet. This emerging pattern of disregard for its license conditions challenges the FCC to follow through on its pledges in the Open Internet Order to enforce the openness conditions in the 700 MHz band and to monitor the mobile Internet space for abuses by licensees.

Thus, to protect users and innovators in the mobile payments market and in mobile broadband markets more generally and preserve the Commission’s approach towards mobile Internet openness, swift action is needed.

My more detailed analysis is below. I file this letter as a professor of law and, by courtesy, electrical engineering at Stanford University whose research focuses on telecommunications platforms and innovation. I have had the privilege of testifying before the FCC several times on issues that raise similar concerns, and welcome the opportunity to discuss these important matters further.

What is going on

Google Wallet is a mobile payment application that allows smartphone users to use their phone as a virtual wallet. In particular, it allows users to pay in participating stores by tapping their phone on a card reader at the point of sale. The user’s credit card information is stored on a chip called the “secure element” that is separate from the phone’s operating system and hardware. Only specifically authorized programs can access the secure element. Usually, Google Wallet is one of these programs.

Samsung developed the new Galaxy Nexus phone in close cooperation with Google. The phone has the necessary hardware (i.e., the secure element and the near-field communications antenna needed to communicate with readers) to support Google Wallet.

While published facts are sparse, it seems that Verizon is making it impossible for Google Wallet to access the secure element. Without this access, Google Wallet cannot function as intended.

The Google Wallet application is not preloaded on the Galaxy Nexus phones offered by Verizon and is currently not available for download. But even if a user was able to download the Google Wallet application to the phone, the application would not work without access to the secure element.

Verizon has not explained the motivation for its behavior. There do not seem to be any technical reasons. In particular, the technology does not seem to pose any threats to the security or integrity of the wireless network. An earlier version of the phone, the Sprint Nexus S, which includes and supports Google Wallet, has been operating on Sprint’s wireless network without any problems.

Google Wallet directly competes, however, with a mobile payment service called ISIS. ISIS, developed by a joint venture of Verizon, AT&T and T-Mobile, will launch in selected US markets sometime in 2012. Thus, Verizon’s behavior towards Google Wallet looks like an attempt to either permanently prevent a competing mobile payment application from accessing Verizon’s customers or, at least, to temporarily stall that competing application until Verizon’s own application is launched.

While no information about AT&T’s or T-Mobile’s approach towards Google Wallet has become public, it is likely that Google is running into the same type of problems with these carriers. In this respect, it is quite telling that the only provider who currently offers an Android phone that supports Google Wallet is Sprint, which is not a member of the ISIS consortium.

Why this violates the openness conditions

The openness conditions prohibit Verizon Wireless from denying, limiting, or restricting the ability of their customers to use the devices and applications of their choice on the part of its network that operates in the so-called C-Block of the 700 MHz spectrum. It seems that Verizon Wireless’ actions “deny, limit or restrict” users’ ability to use Google Wallet.

Verizon has published a denial:

Although the argument is not explicitly linked to the openness conditions, Verizon seems to claim that Google Wallet is not an “application,” since it “needs to be integrated into a new, secure and proprietary hardware element in our phones.” Given that it is not an application, Verizon appears to suggest that the openness conditions do not apply.

Fortunately, we need not worry about whether this argument makes sense or not, because another subsection of the openness conditions directly applies to this situation: According to §27.16 (e), “no licensee may disable features on handsets it provides to customers, to the extent such features” comply with “published technical standards reasonably necessary for the management or protection of the licensee’s network.” As the FCC’s 700 MHz Second Report and Order explains in more detail, this provision is designed to prohibit carriers from requiring equipment manufacturers to disable certain capabilities in mobile devices.

Thus, the FCC explicitly considered the possibility that certain functionalities or services may be based on certain hardware capabilities of the phone, and chose to prohibit carriers from disabling these capabilities. The secure element seems to be such a hardware element. Verizon is disabling Google Wallet’s access to that element, making it impossible for Google to offer a mobile payments service that competes with Verizon’s own mobile payment offering.

What the FCC should do

While it seems that Verizon’s behavior towards Google Wallet is violating the openness conditions of its license, we don’t know enough about what is going on to make this determination with certainty. So far, Google and Verizon have not commented publicly beyond their very brief, published statements. Thus, as a first step, the FCC should investigate the facts. Knowing the facts is the basis for sound policy making.

The FCC has the power and duty to investigate based on two sources:

1. the FCC’s authority under Title III of the Communications Act to oversee and enforce the openness conditions in the 700 MHz band, and
2. the FCC’s Open Internet Order.

While the Commission included only limited restrictions on blocking in the actual Open Internet rules, the text of the Open Internet Order made very clear that the Commission’s decision not to adopt further rules for the mobile Internet in the Open Internet Order should not be interpreted as blessing discriminatory behavior that would violate the Open Internet rules for fixed broadband, but not for mobile broadband, and that the Commission would monitor developments and investigate incidents as they arise:

We emphasize that our decision to proceed incrementally with respect to mobile broadband at this time should not suggest that we implicitly approve of any provider behavior that runs counter to general open Internet principles. Beyond those practices expressly prohibited by our rules, other conduct by mobile broadband providers, particularly conduct that would violate our rules for fixed broadband, may not necessarily be consistent with Internet openness and the public interest.
We are taking measured steps to protect openness for mobile broadband at this time in part because we want to better understand how the mobile broadband market is developing before determining whether adjustments to this framework are necessary. To that end, we will closely monitor developments in the mobile broadband market, with a particular focus on the following issues: (1) the effects of these rules, the C Block conditions, and market developments related to the openness of the Internet as accessed through mobile broadband; (2) any conduct by mobile broadband providers that harms innovation, investment, competition, end users, free expression or the achievement of national broadband goals […] We will investigate and evaluate concerns as they arise. We also will adjust our rules as appropriate.

Why it matters

Investigating what is going on and enforcing the openness conditions, if necessary, is crucial for protecting users and innovators in the mobile payments market and in the market for mobile broadband more generally.

1. Impact on the market for mobile payments and associated services

Verizon’s behavior towards Google Wallet hurts consumers today. As a result of Verizon’s conduct, the Galaxy Nexus, the flagship phone for the new generation of Android’s operating system, comes to the market without an innovative payment application that observers view as one of two main contenders in the market for mobile payment services. Google Wallet is the first commercially available payment service that employs near-field communications technology to allow users to securely pay by tapping their phone. This technology is now unavailable to the 107,695,000 customers of Verizon Wireless, as well as to those who are considering switching to Verizon to take advantage of the company’s 4G LTE network.

The behavior also threatens to undermine competition in the nascent market for mobile payments and associated services. Beyond mobile payments, Google Wallet and ISIS enable a rich array of services in the areas of mobile marketing and customer loyalty. For example, Google not only stores credit card information, but also loyalty rewards, purchase points or offers for deals that users receive through Google Offers. While the market is nascent today, analysts expect that by 2015, $56.7 billion will be exchanged in mobile payment transactions.

In this potentially huge, emerging market, Verizon’s behavior excludes one of the main contenders (and currently the only contender) from access to Verizon’s cell phone customers. Verizon, the largest carrier, has 35 percent of the market for wireless providers. Mobile payments technology faces a chicken and egg problem. The larger the number of users, the more likely it is that merchants are willing to make the investments necessary to support the technology, and vice versa. By excluding the technology that is first to market from access to a significant chunk of the market, Verizon can break or, at least, slow down, this virtuous cycle.

Moreover, so far neither AT&T, which has 32 % of the market, nor T-Mobile, which has 10 % of the market, offer Android phones that support Google Wallet. Like Verizon, they have no incentive to support a technology that will compete with their own mobile payment technology. If Sprint, with 17 % the nation’s third largest wireless carrier, remains the only carrier that supports Google Wallet, the technology will be dead upon arrival.

2. Impact on the market for mobile Internet applications and on the Commission’s policy towards mobile Internet openness

The impact of Verizon’s conduct reaches beyond mobile payments. The openness conditions for the C-Block are a centerpiece of the FCC’s approach to mobile Internet openness. In 2007, the Commission adopted these conditions to ensure that even if market forces would not be sufficient to allow users to use the applications and devices of their choice and to provide application developers and device manufacturers with guaranteed access to users (a question that the Commission did not resolve at the time), at least a part of the valuable 700 MHz spectrum remained open for applications and devices. The Commission deliberately chose the C-Block, a large 22 MHz block, for the openness conditions to “provide sufficient potential market penetration to attract investment and achieve economies of scale in the equipment market place.”

The Commission’s approach to mobile network neutrality in the Open Internet Order fundamentally relied on the existence of these conditions. As the Commission made clear in the Order, the existence of openness conditions in the C Block of the 700 MHz band was an important reason to proceed more incrementally with respect to mobile broadband and adopt more limited rules for mobile than for wireline broadband. Reflecting the importance of the openness conditions, the FCC explicitly reaffirmed its commitment to enforcing these conditions as part of the Open Internet Order.

For the second time in one year, Verizon seems to engage in conduct that violates the openness conditions. In June 2011, various news outlets reported that Verizon Wireless had asked Google to disable tethering applications in Google’s mobile application store, the Android Market. Tethering applications allow users to use laptops or other devices over their mobile Internet connection by attaching them to their smart phones. In early June, Free Press filed a complaint with the FCC alleging that this behavior violates the C-Block conditions.

This pattern of behavior threatens mobile Internet users and innovators alike. By ignoring the openness conditions in the C-Block, Verizon deprives consumers of the ability to use the applications of their choice in the one part of the wireless Internet that the FCC intended to stay open.

How the Commission approaches these incidents – whether it swiftly investigates them or whether it chooses to stay silent – will also send an important signal to innovators who consider developing new mobile applications or devices and to the investors who fund them. So far, the existence of the openness conditions promised innovators and their investors access to at least a part of the market that, by design, was large enough to achieve substantial market penetration and realize economies of scale. If the Commission does not act, this promise becomes moot. After all, the existence of openness conditions does not matter if they are not enforced. Thus, in the face of Verizon’s repeated violations, Commission inaction will seriously undermine innovators’ and investors’ confidence that there will remain one significant part of the wireless Internet in which they can offer their applications without fear of blocking and discrimination. By investigating both incidents, the Commission can prevent this outcome from happening.

Very truly yours,

/s/ Barbara van Schewick

Barbara van Schewick
Associate Professor of Law and (by courtesy) Electrical Engineering
Faculty Director, Center for Internet and Society
Stanford Law School

cc:
Commissioner Michael Copps (via electronic mail)
Commissioner Robert McDowell (via electronic mail)
Commissioner Mignon Clyburn (via electronic mail)
Rick Kaplan, Chief, Wireless Telecommunications Bureau (via electronic mail)
Michele Ellison, Chief, Enforcement Bureau (via electronic mail)
Leonard Kennedy, General Counsel, Consumer Financial Protection Agency (via electronic mail)

In early June, Free Press filed a complaint with the FCC alleging that this behavior violates the openness conditions that govern the use of the part of the 700 MHz spectrum over which Verizon Wireless’s LTE network operates. The FCC seems to have designated the proceeding as a restricted proceeding under its ex parte rules, which means that the public will not be invited to comment on the issues raised by Free Press’s complaint.

Today, I asked the FCC to open up the proceeding for public comment. (The full text of the letter is here (pdf) and copied below.) The questions raised by the complaint are too important to be decided without public participation: The C Block of the 700 MHz band is currently the only spectrum that is subject to mobile network neutrality rules.[1] Knowing that there is at least some part of the mobile spectrum that is protected by basic network neutrality principles is important for users, innovators and investors. Whether the openness conditions indeed afford protection depends, however, on how they are interpreted and enforced. Thus, the proceeding has important implications for many businesses, innovators and users in the Internet ecosystem, so they should have a chance to have their voice heard, too. In addition, as I explain in the letter, the proceeding raises important issues regarding openness in mobile networks in general.  Here is the text of the letter.

“Dear Chairman Genachowski:

Recent news reports suggest that mobile broadband providers such as Verizon Wireless, AT&T, and T-Mobile have asked Google to disable tethering applications in Google’s mobile application store, the Android Market.[2] These free and low-cost applications represent an important innovation in the development of the mobile Internet — they allow users to attach multiple devices to a single broadband connection. I understand that Free Press, a nonprofit organization with a commitment to open Internet issues, recently filed a complaint alleging that if Verizon Wireless asked Google to disable these applications, it violated the rules that govern its LTE network.[3]

Verizon Wireless’s practice and Free Press’s complaint raise fundamental issues of Internet openness policy. While only two parties are named in the complaint proceeding, the outcome of the proceeding will have a far-reaching impact on many businesses, innovators, and users in the Internet ecosystem. Verizon Wireless is the largest provider of wireless broadband services and Android is the most popular wireless operating system, so this practice has a significant market impact and will affect a large number of users and applications-innovators. Allowing network providers to pick winners and losers online — whether by actively blocking particular applications or simply by making them more difficult to use — harms application-level innovation.[4] As the Commission made clear in its Open Internet Order, the existence of Openness conditions in the C Block of the 700 MHz band was an important reason to proceed more incrementally with respect to mobile broadband and adopt more limited rules for mobile than for wireline broadband at this time.[5] As a result, Free Press’s complaint implicates not only the specific question of whether Verizon Wireless has violated the conditions associated with its spectrum licenses, but also the more general question of how to apply openness rules to mobile networks.

I understand that the proceeding is currently designated as a restricted proceeding under the Commission’s ex parte rules.[6] Because I believe the issues presented by the complaint raise central questions about the future of the mobile Internet, I urge you to open this proceeding up for public comment by re-designating it as a permit-but-disclose proceeding under the Commission’s rules. In particular, I would welcome the opportunity to discuss these issues with you further. I am sure that many innovators, entrepreneurs and investors in mobile applications would want to do so as well. These issues are too important to be decided without meaningful public participation.

Very truly yours,

Barbara van Schewick
Associate Professor of Law and (by courtesy) Electrical Engineering
Faculty Director, Center for Internet and Society, Stanford Law School.”

The letter as filed with the FCC is available in pdf here.

Since Julius Genachowski, the chairman of the FCC, circulated his proposal for network neutrality rules to the other commissioners on December 1, Commissioner Copps and Commissioner Clyburn, the two other Democratic commissioners, had been negotiating with the chairman over improvements to the order. Since the two Republican commissioners had made clear that they would not back any network neutrality proposal, a rejection by Copps (or Clyburn) would have killed the proposal.

When the FCC published the text of the order on Thursday afternoon, it became clear how important these negotiations have been. While Commissioners Copps and Clyburn did not get the exact protections for users and innovators they had asked for, they managed to improve the chairman’s original proposal quite a bit. In particular, the text of the order

•  sets out important principles that will guide the commission’s interpretation of the non-discrimination rule and the reasonable network management exception;

•  explicitly bans network providers from charging application and content providers for access to the network providers’ Internet service customers;

•  stops just short of an explicit ban on charging application and content providers for prioritized or otherwise enhanced access to these customers (this second practice is often called “paid prioritization”); and

•  keeps alive the threat of regulation with respect to the mobile Internet.

1. Non-discrimination rule and reasonable network management exception

The chairman proposed, and the FCC adopted, a non-discrimination rule that bans discrimination that is “unreasonable.” Whether a certain discriminatory conduct meets these criteria, will be determined by the FCC in case-by-case adjudication. The non-discrimination rule has an exception for reasonable network management.

While the order did not adopt the bright-line non-discrimination rule that many had argued for, the text of the order sets out important principles that the FCC will use to determine whether a certain discriminatory conduct constitutes unreasonable discrimination: transparency, end-user control, and use-agnosticism. [Use-agnostic discrimination (or “application-agnostic” discrimination), the FCC explains, is discrimination that does not discriminate among specific uses of the network or among classes of uses.]

Why is this relevant? Instead of completely leaving the interpretation of the non-discrimination rule to future case-by-case adjudications, the FCC provides principles that observers can use to assess the likelihood that certain discriminatory conduct will be considered reasonable in the future.

Substantively, the principles reinforce key values that were at the core of the Internet’s success. In the words of Commissioner Copps:

“In discussing the “no unreasonable discrimination” standard, we put particular emphasis on keeping control in the hands of users and preserving an application-blind network—a key part of making the Internet the innovative platform it is today.”

The details will have to wait for the next blog post, but, as I have argued in the past, using these principles (“application-blindness” and “user choice”) as guidelines has direct consequences for which types of discriminatory behavior should and should not be allowed.

Thus, the principles provide additional clarity to market participants and guidance to the bureaus within the FCC which may end up enforcing the order. Substantively, the principles may have an immediate effect on network providers’ behavior: Network providers’ desire to minimize the risk of having to defend themselves in costly and highly public adjudications at the FCC may motivate them to invest in network technologies and choose practices that keep control in the hands of the users and preserve the application-blindness of the network over technologies and practices that do not. In other words, the rules motivate network providers to invest in network technologies and choose practices that preserve the factors that have made the Internet valuable to society in the past and to refrain from technologies and practices that violate these values.

Two additional aspects are worth highlighting. First, the order makes clear that the same principles that guide the Commission’s interpretation of the non-discrimination rule will guide the Commission’s evaluation of network management practices. This is an important clarification. Some had argued that discriminatory practices should automatically qualify as “reasonable network management,” as long as they were designed to solve network management problems. However, the harm to users and innovators from exclusionary conduct is the same regardless of the network provider’s motivation, making it necessary to impose stronger constraints on reasonable network management. In line with these considerations, the order makes clear that network management will be evaluated by the same principles that guide the interpretation of the non-discrimination rule.

Second, the order clearly rejects the view that the rules should only prohibit discrimination that is “anticompetitive.” Such a rule (or an interpretation of the FCC’s rule that restricted unreasonable discrimination to discrimination that is anticompetitive) would have made it impossible to bring complaints against many types of discriminatory conduct that network neutrality proponents are concerned about.

2. Pay-to-play access fees

Commissioner Copps and Commissioner Clyburn wanted a clear ban on access fees. Access fees come in two variants: In the first variant, a network provider charges application or content providers for the right to access the network provider’s Internet service customers. In the second variant, which is sometimes called “paid prioritization” or “third-party-paid prioritization,” a network provider charges application or content providers for prioritized or otherwise enhanced access to these customers.

The rules themselves do not address access fees. The text of the order discusses the two types of access fees separately.

Fees for access to end users

The text of the order clearly prohibits network providers from charging application and content providers for access to the network providers’ Internet service customers (i.e. from just charging for access, without offering anything in return).

67. Some concerns have been expressed that broadband providers may seek to charge edge providers simply for delivering traffic to or carrying traffic from the broadband provider’s end-user customers. To the extent that a content, application, or service provider could avoid being blocked only by paying a fee, charging such a fee would not be permissible under these rules. Footnote: We do not intend our rules to affect existing arrangements for network interconnection, including existing paid peering arrangements.

The order discusses this question in the context of the rule against blocking on the fixed Internet. To the extent that the rules prohibit blocking of a specific application on the mobile Internet, the no-blocking rule also prevents network providers from charging this application an access fee.[1]

Fees for prioritized or otherwise enhanced access to end users (“third-party-paid prioritization”)

While the text of the order stops short of an outright ban of “third-party-paid prioritization” arrangements, it seems to get as close to explicitly banning these arrangements as one can get without explicitly banning them. The order explicitly endorses the concerns against these arrangements, unequivocally rejects the main arguments in favor of them, and concludes that “as a general matter,” arrangements of this kind are “unlikely” to be considered reasonable.

In different parts of the order, the order clearly endorses the concerns that commenters have raised against third-party-paid prioritization (see paras 76 and 24-34). At the same time, the order unequivocally rejects the two main arguments that have been used to justify paid prioritization –that paid prioritization would increase investment in broadband networks or lower the price of Internet service for end users, which in turn may increase broadband penetration:

40. Some commenters contend that open Internet rules are likely to reduce investment in broadband deployment. We disagree. (See also para 28.)

The clear rejection of these arguments makes it highly unlikely that a network provider who desires to enter into third-party paid prioritization arrangements could use these arguments to justify a deviation from the general determination that these practices are unlikely to be considered “reasonable.”

Finally, after eloquently discussing the various harms associated with these arrangements in the non-discrimination section of the order, the order concludes:

76. [...] In light of each of these concerns, as a general matter, it is unlikely that pay for priority would satisfy the “no unreasonable discrimination” standard.

All this, taken together, not only provides clear guidance to the FCC bureaus which may end up adjudicating case-by-case complaints (see para 159). It also considerably changes the risk calculus for network providers. In the absence of an explicit ban on third-party-paid prioritization, network providers remain, of course, free to enter into these arrangements. They can, however, be almost certain that these arrangements will be challenged at the FCC and are very likely to be declared unreasonable. This may very well motivate providers to stay away from these arrangements altogether.

3. Wireless

Commissioner Copps and Commissioner Clyburn wanted to extend the same protections to the mobile Internet that the order extends to the fixed Internet. This did not happen. The rules only prohibit the blocking of some applications – of websites and of applications that compete with video telephony or voice applications in which the network provider has a financial interest. The rules do not prohibit discrimination on the mobile Internet.

The order makes clear, however, that the Commission’s decision not to adopt further rules for the mobile Internet at this time should not be interpreted as blessing discriminatory behavior that would violate the open Internet rules for fixed broadband, but not for mobile broadband:

104. [...] We emphasize that our decision to proceed incrementally with respect to mobile broadband at this time should not suggest that we implicitly approve of any provider behavior that runs counter to general open Internet principles. Beyond those practices expressly prohibited by our rules, other conduct by mobile broadband providers, particularly conduct that would violate our rules for fixed broadband, may not necessarily be consistent with Internet openness and the public interest.

This text seems to have been motivated by the concern (fueled by the experience in Europe) that network providers may interpret the decision not to impose stronger protections as a “free pass to discriminate” in the mobile sector, and may start discriminating away. The order clearly rejects this interpretation. Instead, the relevant text, combined with the stated intent to continue to monitor the mobile sector, signals the commission’s desire to keep the threat of regulation alive.

Thus, those interpreting the decision as the beginning of a bright future for the vendors of deep packet inspection devices for the mobile Internet may have celebrated too early. The threat of regulation can act as a powerful deterrent from discrimination. As the order makes clear, a mobile Internet provider who engages in discriminatory conduct that would violate the rules for fixed networks, but not for mobile networks, will refuel the debate over stronger protections for wireless and may provide the FCC with the motivation to move forward on stronger rules. Only time will tell how effective this approach will be. But the order clearly complicates a network provider’s calculus on this issue.

In sum, instead of the clear, bright-line decisions that many had hoped for, the order has often opted for more muted signals. But the signals are there nonetheless. Network providers’ desire to avoid costly and not necessarily reputation-enhancing complaints may get us a long way towards an Internet that preserves the aspects that have made the Internet important and valuable for society in the past. If it doesn’t, the power of the rules will depend on the Commission’s willingness to live not just by the text of the rules, but by the text and spirit of the full order. As Commissioner Copps put it at the FCC’s open meeting,

“If vigilantly and vigorously implemented by the Commission—and if upheld by the courts—today’s Order could represent an important milestone in the ongoing struggle to safeguard the awesome opportunity-creating power of the open Internet.”

Today, I share his careful optimism.

Thank you’s

This is not the end of the debate, but rather the beginning of a long process. Still, it is an important milestone, so I would like to say some thanks.

I would like to thank Commissioner Copps, Commissioner Clyburn, and their staff for their tireless efforts to improve the order. They care deeply about preserving an open Internet for everyone, to the benefit of society. Their efforts would have been moot, though, without Chairman Genachowski’s willingness to actually propose an order, and to accommodate them at least to some degree, and for this, I would like to thank him, too.

Since the Open Internet proceeding started, I have had many conversations and discussions with staff in the chairman’s office and in the many bureaus of the FCC. More often than not, I have been deeply impressed with people’s desire to really understand the issues, think long and hard about them, and try to look beyond the interests of particular constituencies to identify what is in the public interest. They may not always be able to do what they think is best, but I’m grateful for their efforts nonetheless.

Over the past years, I have benefited a lot from conversations with many people on all sides of the issues. These discussions have greatly improved my understanding of the technical, economic and practical questions relevant to this debate, and I greatly appreciate their willingness to share their thoughts with me.

And, of course, we wouldn’t be where we are today without all the users, innovators, investors, public interest organizations and academics whose joint efforts have driven this process forward. Thanks a lot for all your hard work, and for your willingness to become involved in this debate in the first place.

Read this post in pdf-format here.

Since I posted the letter by Zediva, an online video company, that describes what the current Open Internet proposal would mean for them and how the proposal should be improved to protect them and other innovators, many have asked me about the broader lessons from Zediva’s story. Others have asked for a bit more detail about the proposed improvements to the rules.

What Zediva’s story teaches us about network neutrality

1. Concerns about discrimination impede application innovation today. Thus, the FCC needs to act now. As the Chairman’s current proposal shows, he understands this with respect to wireline networks, but thinks we can wait and see how the wireless ecosystem evolves. After all, he says, it is “evolving rapidly.” But the idea that waiting has no costs is wrong. Waiting to extend meaningful protections to wireless will allow networking technologies to evolve in discriminatory ways that may be difficult to change later on. As the story of Zediva shows, the lack of protections will immediately have a dampening effect on innovators’ inclination to dedicate the next few years of their life to a wireless application (and on potential investors’ willingness to fund these efforts). The ongoing network neutrality debate motivated network providers’ to stay away from discrimination in order not to fuel the debate. An order that explicitly determines that only the blocking of a restricted set of applications, content and services should be prohibited at this time may fundamentally change this calculus. After all, if the FCC thinks this type of behavior is o.k., why not engage in it? Skype’s experience (pdf, p. 7) in Sweden underscores this point: Until last year, mobile operators in Sweden generally allowed the use of Skype over the mobile Internet. But since the Swedish regulator decided at the beginning of this year that rules that require network providers to disclose any blocking or discrimination are all that’s needed to protect innovators and users, both leading mobile operators have introduced restrictions on users’ ability to use Skype.

2. Banning only anticompetitive discrimination is not enough. If Zediva cannot get to its users it is harmed, regardless of whether the network provider interfered with its service in order to harm a competitor or to manage congestion. Thus, the fact that a discriminatory measure is designed to manage congestion does not mean it should be allowed. Instead, we need to make sure that the Internet remains a level playing field even during times of congestion by imposing strong constraints on the types of network management for which network providers would be allowed to violate the general ban on blocking and discrimination. Otherwise, users and innovators will not be sufficiently protected against what I believe will become one of the most common motivations for discrimination as the increased use of bandwidth-intensive applications puts pressure on networks.

3. As Zediva’s examples illustrate, access fees would seriously stymie the ability of start-ups or other innovators with little or no outside funding to compete against established players. As if this were not bad enough (throughout the history of the Internet, innovators with little or no outside funding have developed many important applications, and there is no reason to believe that this would change in the future), access fees may impose serious collateral damage on values like free speech or a more participatory culture by making it more difficult for individuals or non-profit groups to be heard or to find an audience for their creative works. Consider the case of Miro, an open source, not-for-profit Internet video application that was developed by a non-profit group in Boston called the Participatory Culture Foundation (PCF). As I argued (together with other academics) here (pdf, pp. 31-38, citation from pp. 34-35), “[u]sing peer-topeer protocols, Miro allows anyone—from amateur high school teachers to professional television networks—to create and distribute to anyone online their own “television” channel at low cost to PCF and free to users. Unsurprisingly, the collective set of video channels currently available on Miro exhibit an enormous diversity of subject matter—diversity that far exceeds what is available on today’s cable networks”, making it “a powerful avenue for free speech, both for speakers and listeners.” But if YouTube always loaded faster than Miro or if watching YouTube didn’t count towards users’ monthly bandwidth caps since YouTube paid for all this, but Miro couldn’t, people would be much less interested in watching the content available on Miro.

4. Details matter. Many people have given up on the debate because it has become so detailed. But as the story of Zediva shows, details matter. Different versions of network neutrality rules offer very different protection for users and innovators. Thus, it is not enough to strengthen the non-discrimination rule by clearly banning application-specific discrimination. If the reasonable network management exception still allows the network providers to engage in discriminatory network management as long as it is “tailored,” Zediva and many other start-ups are still not sufficiently protected. Similarly, it is not enough to protect some wireless applications, content and services against blocking – applications that are not part of this group are still not sufficiently protected. And so on. Thus, attention to details is important, and I hope you (and the Commissioners) will take the time to understand these issues.

What the FCC should do

As Zediva explains in its letter, the FCC’s current proposal does not adequately account for these insights. It does not do enough to protect users and innovators against the risk of discrimination. But it is not too late. The proposal can still be improved. Here is what should be done:

1. Adopt a non-discrimination standard that clearly bans application-specific discrimination, but allows application-agnostic discrimination

The FCC’s current proposal bans discrimination that is “unjust” and “unreasonable” and leaves it to later case-by-case determinations by the FCC whether specific discrimination meets these criteria. As Zediva’s letter explains, this rule does not provide the type of certainty that application developers [for brevity, I use “applications” as a shorthand for “application, content and services”] and their investors need, and tilts the playing field against those – end users, application developers and start-ups – who do not have the resources necessary to engage in extended fights over the legality of specific discriminations in the future.

Instead, the FCC should adopt a non-discrimination standard that clearly bans application-specific discrimination (i.e. discrimination based on application or class of application), [again, I use “applications” as a shorthand for “application, content and services”] but allows application-agnostic discrimination.

Thus, a network provider would not be allowed to treat Vonage differently from Skype, or Comcast’s Fancast differently from Hulu. That would be discrimination based on application. Nor would it be allowed to treat online video differently from e-mail. That would be discrimination based on class of application. But it would be allowed to treat data packets differently based on criteria that have nothing to do with the application or class of application. For example, during times of congestion, a network provider could give one person a larger share of the available bandwidth than another, for example because this person pays more for Internet access or has used the Internet less over a certain period of time. But it could not throttle the bandwidth available to Zediva in particular, or online video in general. That would be application-specific discrimination.

This proposal would prevent network providers from distorting the playing field between applications or classes of applications. It would provide certainty to all market participants. Network providers would know how they can manage their networks, and application developers (and their investors) could be sure that they won’t be discriminated against. The proposal allows networks to evolve. In particular, it allows certain (but not all) forms of Quality of Service.

2. Clarify that “reasonable network management must be as application-agnostic as possible”

As Zediva has shown, the current proposal does not sufficiently constrain what counts as “reasonable network management,” leaving users and innovators vulnerable to network management practices that single out specific applications or classes of applications. This could seriously constrain users’ ability to see the Internet as they see fit during peak times, when people want to use the Internet most, and impede the ability of those applications that were singled out for network management purposes to compete.

Instead, the rules should make clear that reasonable network management must be as application-agnostic as possible. This proposal gives network providers the tools they need to manage their networks, while preserving application innovation and user choice as much as possible. Since network providers can allocate bandwidth among users using application-agnostic criteria, they can prevent aggressive users from overwhelming the network. But how users use the bandwidth available to them, and whether they would like to give some of their applications priority over others, would be choices left to the users. At the same time, the exception provides a safety valve that allows network providers to react in more application-specific ways if a problem cannot be solved in an application-agnostic way.

3. Clearly ban pay-to-play access fees

The current proposal does not clearly ban access fees. This is not only the wrong policy choice. The failure to specifically ban such schemes creates uncertainty, and investors may hesitate to invest in innovative new applications if such applications must compete with established players who can pay for special treatment. It also places the risk associated with such uncertainty on the party least able to bear it — the emerging entrepreneur rather than the established Internet service provider, who has the resources to fight over the legality of access fees under the proposed “unjust or unreasonable” standard.

Instead, the FCC should clearly ban access fees. That is, it should prohibit a network provider from charging application, content or service providers who are not the network provider’s Internet service customer a fee for access to users or for prioritized or otherwise enhanced access to users (this second type of access fees is often called “paid prioritization”).

4. Extend meaningful protections to wireless

The current proposal prohibits the blocking of only some applications – of websites and of applications that compete with video telephony or voice applications offered by the network provider. They do not prohibit discrimination. The limited rule against blocking leaves many applications, content and services unprotected. Moreover, banning blocking, but allowing discrimination effectively makes the rule against blocking meaningless by providing an alternative to blocking that is equally effective and less costly.

Ideally, the same protections should apply to wireline and wireless networks. It should not matter over which network technology users access the Internet. The threat of discrimination and the rationale for protection are the same. There may be some technical characteristics of specific wireless technologies or special problems associated with mobility that make it impossible to solve certain network management problems in an application-agnostic way. In these cases, the reasonable network management exception described above would allow network providers to solve these problems in more application-specific ways. Thus, these problems, to the extent they exist, can be accounted for when applying the reasonable network management exception. But they will be problems associated with specific wireless technologies (for example, people in the industry usually agree that LTE does not pose any issues that are fundamentally different from the issues faced by, let’s say, the provider of a DSL network). They do not justify applying fundamentally different levels of protection to wireline and wireless networks in general.

What you can do

If you agree with me and want to do something, you could e-mail the FCC Commissioners, in particular write to Chairman Genachowski, Commissioner Copps, and Commissioner Clyburn. (Commissioner Baker and Commissioner McDowell have publicly rejected any network neutrality rules.) Tell them that you share the concerns outlined in my post and ask them to improve the proposal along the lines explained here. The sunshine period which is designed to shield the FCC’s final deliberations from outside influence starts on Tuesday, December 14, around 5 pm EST, so if you want to write, you need to do it before then if you want your e-mail to make a difference.

You should also spread the word (even after the sunshine period starts). This rule will affect all of us, whether we use the Internet for work, school, or in our free time, and the more people understand the issues, the more likely that public opinion will make a difference now or in the future. Share this post and others about the same topic – post on Facebook, on Twitter, on Tumblr, on WordPress, or on whatever innovative application that’s part of your life and the product of an open Internet.”

If you want to learn more

This is a complicated debate. Although this is a long post, it doesn’t come close to doing justice to what are complex, multi-faceted issues. If you want to learn more, here is what you can do:

Watch
You could watch my recent talk at Stanford (it is 45 minutes long, followed by Q&A). It provides a good overview over the network neutrality debate (including a discussion of access fees). It also discusses alternative proposals for non-discrimination rules and makes the case for the non-discrimination rule described above.

Read
You could read more of my writing and testimony.

On network neutrality in general
This testimony describes the factors have fostered application innovation in the past and that should guide any evaluation of network neutrality rules.

On non alternative proposals for discrimination rules, problems associated with case-by-case adjudications, and my proposal for a non-discrimination rule
Read abstract and download PDF here. A newer version of this paper will be posted at that URL in the next few days.

Reasonable network management
This testimony explains why we need non-discriminatory network management. A more detailed description about what exactly should be done with respect to reasonable network management and why is here (pp. 4-8).

Access fees
This testimony explains the problems with access fees and paid prioritization – i.e. with allowing network providers to charge application and content providers who are not the network providers’ Internet service customer for access to the network providers’ customers or for prioritized access to these customers. An additional aspect of the problem is described here (pp. 4-6).

Read this post in pdf-format here.

On December 1, the chairman of the FCC proposed a set of rules designed to protect the open Internet. He would like the commission to adopt this proposal at its open meeting on December 21. Since then, many have posted their evaluations of the proposal. Some unequivocally support the proposal. Some acknowledge they would have preferred a different solution, but think this is an acceptable compromise. A final group of commenters (which includes academics, public interest organizations, organizations that rely on the open Internet for their work, investors, and companies) can be summarized as follows: “We are glad that the chairman has decided to act. However, the chairman’s proposal needs to be improved to adequately protect users and innovators.”

Why do innovators and users need protection? If a network provider blocks or discriminates against an application I want to use, I cannot use the Internet in the way that is most valuable to me. If a network provider restricts access to content I am interested in, my ability to educate myself, contribute to discussions of the subject and make informed decisions will be limited. Ideally, open Internet rules would ban this type of discriminatory behavior and provide an easy mechanism for users to ask the FCC to stop it. In the absence of good rules, users just have to live with it.

If an application is blocked, it cannot reach its users and the application developer cannot reap its benefits. In the absence of meaningful protections, there is nothing the application developer can do about this. And concerned about the threat of discrimination, innovators (or potential investors) may decide not to pursue innovative ideas. Thus, without meaningful network neutrality rules, we will get less application innovation. And since applications, services and content are what makes the Internet useful to us, an Internet without meaningful network neutrality rules will be less useful to us in the future.

I’m sure you have heard that a lack of meaningful network neutrality rules harms start ups and reduces application innovation before. But for many, it sounds like an abstract theoretical concern. Yesterday, a start up from Silicon Valley called Zediva filed a letter with the FCC that explains what the Chairman’s current proposal would mean for them.

The letter does a great job of showing how different proposals for network neutrality rules can provide very different protections for innovative start ups and where the current proposal needs to be improved, so I asked Zediva for permission to post it here.

This is one example of many

Is this just the experience of one company, or does Zediva’s story stand for more? Over the past few years, many entrepreneurs have told me that potential investors identified the risk of blocking or discrimination as one of the main risks associated with their company and used this fact to justify their decision not to fund them (I talked about the experience of one start up here).[1] Even those who haven’t had similar conversations with funders yet are usually concerned about the problems described by Zediva. Thus, Zediva’s story is not an outlier. It stands for the problems faced by many start-ups and innovators.

You may wonder why we don’t hear more from entrepreneurs, if this is the case. My conversations with entrepreneurs suggest a number of reasons:

First, entrepreneurs focus on getting their product to market and making it the best product they can. They do not have the time to follow the latest twists and turns of the Washington policy debate and write letters to the FCC.

Second, many do not come forward because they fear that network providers may retaliate against them in the future. I used to hear this a lot from application and service providers in the mobile space. But over the past year, this concern has started to come up in many conversations with innovators whose applications and services run over wireline networks.

Third, many start-ups do not want to draw public attention to their vulnerabilities, fearing it may scare potential investors away.

And finally, having been declined funding is not something that entrepreneurs like to brag about.

What you can do

I believe that the concerns described by Zediva are real problems, and that the current proposal needs to be improved along the lines described in the letter to make sure that innovators who develop or provide applications, content and services for the Internet are adequately protected. It is not too late to make these changes.

People often ask me what they can do to help make this happen. If you agree with Zediva and want to do something, you could e-mail the FCC Commissioners, in particular write to Chairman Genachowski, Commissioner Copps, and Commissioner Clyburn. (Commissioner Baker and Commissioner McDowell have publicly rejected any network neutrality rules.) Tell them you share Zediva’s concerns, and ask them to improve the order in the way Zediva suggests.

You should also spread the word – this rule will affect all of us, whether we use the Internet for work, school, or in our free time. Share this post and others about the same topic – post on Facebook, on Twitter, on Tumblr, on WordPress, or on whatever innovative application that’s part of your life and the product of an open Internet.

Here is the text of the letter

“Dear Chairman Genachowski:

We write to you as co-founders of an online DVD Rental company called Zediva. Our company is directly affected by the lack of clarity around Open Internet rules. We are concerned that your current proposal does not go far enough to provide young innovative video companies like ours the protections needed to foster innovation and investment in next generation technologies and business models.

Company Background

Zediva enables its users to rent DVDs, and watch their rentals instantly on their computer, without needing to pick up a physical copy of the DVD. Just like with Sony’s LocationFree, or Sling Media’s Slingbox devices, our technology allows a user to remotely “PlaceShift” their media to their viewing location over the Internet using streaming technologies.  Specifically, Zediva users can rent a DVD and a DVD player located in Zediva’s data centers, and watch their “PlaceShifted” rental at a place of their choosing – typically their home PC , TV, or portable wireless device (tablet or phone) over the Internet. They have complete control of the remote DVD player and rental DVD just as if they had a really really long video cable and really long remote control cable connected to the DVD player.

Investor Concerns over potential unfair competition

By enabling users to watch new DVDs online, our service may be perceived to directly compete with the Video-on-Demand service, PayPerView or other PayTV services offered by cable providers and, in some cases, the providers of fiber networks and wireless networks. At the same time, we depend on the broadband Internet access service offered by these providers to reach our users. In the absence of strong non-discrimination rules and meaningful restrictions on what constitutes “reasonable network management”, these competitors will be able to exploit their control over the provision of broadband access to put us at a competitive disadvantage. Since we started working on our product over two years ago, this concern has come up repeatedly in conversations with potential investors, who pointed this out as one of the risks associated with investing in our company. The very real potential for unfair competition by incumbents who control the networks (ISPs and Wireless Providers alike) causes great uncertainty about the size of the market and therefore reduces the confidence of investors in their ability to secure a reasonable return on their investment.

We outline below our concerns in four different areas, and respectfully urge you to consider these as you draft new rules for the Internet:

A. Non-Discrimination Rules

We understand that the current proposal only bans discrimination that is “unjust” or “unreasonable.” This type of rule does not solve our problem.  Whether specific discriminatory conduct meets these criteria, would be left to later case-by-case adjudications by the FCC. We don’t know whether we will be protected against discriminatory behavior until AFTER a broadband Internet access provider actually discriminates against us – and even then, we will only know whether we are protected after we have complained to the FCC and gone through a lengthy and costly process to determine whether the discrimination against our application was actually “unjust” or “unreasonable,” and thereby banned.

Significant Delays and Difficulty in Detecting Discrimination: In the event that our traffic is discriminated against, we would have no easy way to determine that discrimination has actually taken place, and which provider engaged in the discrimination. So it would be hard for us to even show that discrimination was taking place without undertaking a very expensive engineering effort, let alone file a protest with the FCC. Further, there are many providers and each may engage in different forms of discrimination making it a Herculean task for us, as a small company, to separate out systematic discrimination from normal internet packet losses or delays.

In the meantime, the damage to our customers and reputation will have been done. Unless there is some temporary relief, we will not be able to provide satisfactory service to our users, which may hurt our reputation in ways that will be felt even after the complaint is resolved. After-the-fact resolution is not the type of protection that would allow us to remove potential investors’ concerns about discrimination. Customers once lost are unlikely to come back to our service.

Instead, we need a rule that clearly maps out what type of discriminatory behavior is, and is not, allowed under the rules. We suggest that the right approach would be to ban all application-specific discrimination (i.e. discrimination based on application or class of application), but allow, to the extent necessary, application-agnostic discrimination. This would make it impossible for a competitor to single us (or video applications in general) out for discriminatory treatment.

B. Reasonable Network Management

Streaming video is an increasing source of traffic on the Internet, particularly during peak times. As a result, we are concerned that more broadband access providers will start restricting (or otherwise interfering with) streaming video applications during times of congestion.  British Telecom’s  (BT) throttling of streaming video to 986 kilobytes/sec in BT’s “Up to 8 Mbps Option 1” broadband plan between 5 pm and midnight in 2009 is an early example of the kinds of possible measures an ISP may take.[L1] The experience with network management practices in Canada, the UK, and the US shows that network providers often use approaches that single out specific applications or classes of applications in order to deal with congestion.

We are concerned that your current proposal may not do enough to protect us against the type of discriminatory network management described above. Given the available information about the order, it seems possible that restricting access to video applications (but not to other classes of applications) during times of congestion could be framed as a tailored approach to congestion, as long as the measure is restricted to times of congestion.

Discriminatory network management of this type would put the affected applications at a severe disadvantage. Companies that offer these applications and services will be less able to reach their users during times of congestion, which in turn may affect their success in the market (who wants to use an application or service that is less usable during peak time, when most people actually want to use the Internet?) and their ability to get funding – thus squashing innovation before it has had a chance to prove itself in the marketplace. 

We understand that network providers need to manage their networks, and may need to take measures during times of congestion to ensure that one user’s traffic does not overwhelm the network, or drive out the traffic of other users. As Comcast’s new application-agnostic network management practices demonstrate, this can be done without needing to single out specific applications or classes of applications and putting them at a disadvantage. There is nothing inherently special about streaming video that would suggest that streaming video should be less able to use the network during times of congestion than other potentially bandwidth-intensive applications (e.g. downloading large files or emails with big PowerPoint attachments, or high resolution pictures/videos of “Stupid Pet Tricks”).

Congestion means that a user’s ability to get all the bandwidth he or she may want may be limited. Even during times of congestion, applications and services should have an equal chance to reach their users and the decision of how to use the available bandwidth should remain with the user.

Thus, we strongly urge you to make sure that the “Exception for Reasonable Network Management” is defined in a way that – to the extent possible – preserves an equal playing field for applications and classes of applications during times of congestion and respects the principle of user choice. A definition that would require network management to be as application-agnostic as possible would reach that goal. To the extent that some applications may suffer more from congestion than others, this proposal would allow users to determine the relative priority among their own applications. Technology that realizes this approach is available today.

C. Access fees

The current proposal does not clearly ban broadband access providers from charging us, as service providers, access fees – fees for the right to reach their broadband access customers, or for prioritized or otherwise enhanced access to these.

We are concerned that allowing broadband service providers to charge access fees would put start-ups like us at a severe competitive disadvantage compared to incumbent companies in the video space. In the absence of significant outside funding, many start-ups will not be able to pay access fees.  But if streaming video over YouTube would not count towards your usage cap because YouTube (Google) paid for that arrangement, who would be interested in using an alternative streaming video application like Miro or justin.tv? Or if Netflix bought guaranteed bandwidth during times of congestion, while Zediva’s service was stuttering due to the broadband provider’s network management, who would want to rent a DVD from Zediva?

Thus, the final rule should clearly ban access fees – both for the right to reach users at all, and for prioritized or otherwise enhanced access to the users.

D. Wireless

One of the biggest requests from our users is for portability of their service with Zediva. They would like to watch their rentals on any device of their choosing – i.e. on the TV, PC, or Wireless phone or Tablet.  We currently offer our service on many wireless devices. We are very concerned that the current rules would significantly reduce our ability to continue to do so. We would not be protected from blocking or discrimination, and would be subject to whatever discriminatory network management a mobile provider comes up with.  Our concern is that a wireless provider could easily use discriminatory network management to unfairly discriminate against our service in favor of either their own services or a competitor of ours with whom they have a beneficial financial relationship. It seems to us that the rules would also allow wireless providers to restrict their basic Internet service to access to the Internet that excludes the right to use video applications, and restrict the right to use video to those users who buy a separate “video option.”[L2] The proposed wireless rules cause our investors and us to seriously evaluate whether, as a small company, we can afford to meaningfully compete in the wireless space.

We strongly urge you to extend the same protections to wireless networks that you intend to apply to wireline networks. It shouldn’t matter through which technology users access the Internet. In fact, our concerns about discrimination are even stronger in the wireless space. Wireless networks have a long history of control. The problems that Slingbox  ran into with AT&T Wireless gave us pause, and we understand that the current rules would not protect us if a wireless broadband access provider decided to ban our service (specifically, or together with other online video applications in general). We understand that some mobile networking technologies may face specific constraints due to bandwidth scarcity, or that mobility may pose specific problems, but these problems could be dealt with when applying the reasonable network management exception. They do not justify leaving innovators and users without meaningful protections.

We have dedicated significant time and resources to finding new innovative ways to allow users to watch video on the Internet. Open access to the Internet has offered a level playing field enabling small companies to compete with incumbents in offering consumers a better service, product or technology (e.g. Amazon, Google, Facebook and Netflix).  Future innovative applications, services and business models are likely to come from small companies with innovative ideas backed by risk taking investors.  We strongly urge you to improve the protections for users and innovators alike, in order to allow us to continue to innovate in the future.

Respectfully,

Venky Srinivasan, Founder and CEO, Zediva

Vivek Gupta, Co-Founder and VP Engineering, Zediva

December 10, 2010″

The letter as filed with the FCC is available in pdf here.

Footnote L1:
http://www.bbc.co.uk/blogs/technology/2009/06/iplayerbbc_v_bt.html.

Footnote L2:
This is not a moot concern. Mobile providers in Europe routinely prohibit the use of many classes of applications (e.g., Internet telephony, Instant messaging, peer-to-peer file-sharing, and e-mail clients). Users who want to use a prohibited type of application need to buy a separately priced option that allows them to use applications in this class.

Read this post in pdf-format here.

In the book’s section on “The Generativity Principle and the Limits of End-to-End Neutrality,” Zittrain calls for a new “generativity principle” to address the Internet’s security problem and prevent the widespread lockdown of PCs in the aftermath of a catastrophic security attack: “Strict loyalty to end-to-end neutrality should give way to a new generativity principle, a rule that asks that any modifications to the Internet’s design or to the behavior of ISPs be made where they will do the least harm to generative possibilities.” (p. 165)

Zittrain argues that by assigning responsibility for security to the end hosts, “end-to-end theory” creates challenges for users who have little knowledge of how to best secure their computers. The existence of a large number of unsecured end hosts, in turn, may facilitate a catastrophic security attack that will have widespread and severe consequences for affected individual end users and businesses. In the aftermath of such an attack, Zittrain predicts, users may be willing to completely lock down their computers so that they can run only applications approved by a trusted third party.[1]

Given that general-purpose end hosts controlled by users rather than by third-party gatekeepers are an important component of the mechanism that fosters application innovation in the Internet, Zittrain argues, a strict application of “end-to-end theory” may threaten the Internet’s ability to support new applications more than implementing some security functions in the network – hence the new principle.

This argument relies heavily on the assumption that “end-to-end theory” categorically prohibits the implementation of security-related functions in the core of the network. It is not entirely clear to me what Zittrain means by “end-to-end theory.” As I explain in chapter 9 of my book, Internet Architecture and Innovation (pp. 366-368), the broad version of the end-to-end arguments [2] (i.e., the design principle that was used to create the Internet’s original architecture) does not establish such a rule. The broad version of the end-to-end arguments provides guidelines for the allocation of individual functions between the lower layers (the core of the network) and the higher layers at the end hosts, not for security-related functions as a group.

For example, if it is true that distributed denial-of-service attacks can be identified and stopped only in the network, the broad version clearly allows the implementation of the associated functions in the network. After all, the broad version allows implementing functions in the network if they cannot be completely and correctly implemented at the end hosts only.

In contrast, according to the broad version, a function (such as encryption) that can only be completely and correctly implemented end-to-end between the original source and ultimate destination of data should not be implemented in the network. This is because “a function or service should be carried out within a network layer only if it is needed by all clients of that layer, and it can be completely implemented in that layer.” (Reed, Saltzer and Clark, 1998, Commentaries on ‘Active Networking and End-to-End Arguments’, p. 69)

Finally, even if the broad version requires a function to be implemented at the end hosts, it is possible to deviate from the default rule established by the broad version based on considerations such as those advanced by Zittrain within the overall framework provided by the end-to-end arguments (see Internet Architecture and Innovation, p. 367-368). This does not mean that any implementation of security-related function in the network should automatically be justified. Given the Internet community’s experience with firewalls described in my last post, the long-term consequences of any such implementation for the evovability of the network need to be carefully considered first.

Thus, ultimately Zittrain and I agree that it may sometimes be possible and necessary to implement certain security-related functions in the network even if the broad version of the end-to-end arguments would, by default, require implementing the functions at the end hosts. Does this insight require a new generativity principle given that we can get there within the framework of the broad version of the end-to-end arguments? I’m not sure. (I’m not sure, either, whether Zittrain intends his principle to replace or complement the broad version of the end-to-end arguments, which may matter in answering the question.)

If Zittrain and I ultimately agree about the possibility of implementing certain security-related functions in the network (of course, we may disagree about specific cases), why does it matter how we get there? Whether the end-to-end arguments, as Zittrain seems to suggest, categorically rule out the implementation of security-related functions in the network is relevant to the broader debate about the future of the end-to-end arguments as technical design principles.

Most network engineers agree that a number of developments put pressure on the Internet’s technical foundations. These include the Internet’s growing size, its transition from a research network operated by public entities to a commercial network operated by commercial providers who need to make profits, and its transition from a network connecting a small community of users who trust one another to a global network with users who do not know one another and may even intend to harm one another.

When network engineers think about how to address these challenges (whether it’s in the context of incremental modifications to the existing Internet infrastructure or in the context of clean-slate approaches that aim to design a new Internet architecture from scratch), they need to decide whether using the end-to-end arguments as a technical design principle still makes sense. In these discussions, one class of counterarguments comes up again and again: that the end-to-end arguments constrain the development of the Internet’s architecture too much and prevent the network’s core from evolving as it should. For example, researchers advancing this argument assert that the end-to-end arguments prohibit the provision of quality of service [3] in the network, require the network to be simple, or make it impossible to make the network more secure. As I show in my book (pp. 106-107, 366-368), these claims are not correct. The end-to-end arguments allow some, but not all forms of quality of service; they do not require the network to be simple, or “stupid;” and they do not make it impossible to make the network more secure.

Of course, these insights alone do not imply that the end-to-end arguments should continue to guide the Internet’s evolution in the future (a question I take up in my book). It does mean, though, that the end-to-end arguments are not automatically out of the running on the grounds that they restrict the evolution of the network too much.

[Some of this post is taken from my book, Internet Architecture and Innovation.]

Footnote 1:
Some have wondered whether the chain of events described by Zittrain is realistic. Nobody knows whether there will be a catastrophic security attack. I’m convinced, though, that in the aftermath of a catastrophic attack neither users’ nor legislators’ desire for a quick solution to the security problem will leave much room for consideration of the consequences of any countermeasures for the Internet’s generativity – just as in the aftermath of 9/11, the desire to prevent another terrorist attack didn’t leave much room for consideration of the impact of the countermeasures on civil liberties. The resulting lockdown may affect the generativity of the end hosts or the generativity of the network, but the Internet’s overall generativity will certainly be affected.

Footnote 2:
The original architecture of the Internet that governed the Internet from its inception to the early 1990s was based on a design principle called the end-to-end arguments. There are two versions of the end-to-end arguments that both shaped the original architecture of the Internet: what I call “the narrow version”, which was first identified, named and described in a seminal paper by Saltzer, Clark and Reed in 1984 (Saltzer, Reed and Clark, 1984, End-to-End Arguments in System Design, ACM Transactions on Computer Systems, 2(4), 277–288) and what I call “the broad version”, which was the focus of later papers by the same authors (e.g., Reed, Saltzer and Clark, 1998, Commentaries on ‘Active Networking and End-to-End Arguments’, IEEE Network, 12(3), 69–71). To see that there are two versions, consider the following two statements of “the end-to-end principle”: “A function should only be implemented in a lower layer, if it can be completely and correctly implemented at that layer. Sometimes an incomplete implementation of the function at the lower layer may be useful as a performance enhancement” (first version) and “A function or service should be carried out within a network layer only if it is needed by all clients of that layer, and it can be completely implemented in that layer” (second version). The first version paraphrases the end-to-end principle as presented in the 1984 paper. The second version is directly taken from the paper on active networking and end-to-end arguments. Clearly, the second version establishes much more restrictive requirements for the placement of a function in a lower layer.

While the authors never explicitly drew attention to the change in definition, there are real differences between the two versions in terms of scope, content and validity that make it preferable to distinguish between the two. At the same time, the silent coexistence of two different design principles under the same name explains some of the confusion surrounding the end-to-end arguments. While both versions shaped the original architecture of the Internet, the broad version is the one that has important policy implications, such as the Internet’s impact on innovation. For a detailed description of the end-to-end arguments and their relationship to the Internet’s original Architecture, see Internet Architecture and Innovation, chapters 2 and 3.

Footnote 3:
A network that provides “Quality of Service” (QoS) offers different types of service to different data packets. For example, it may guarantee a minimum bandwidth or maximum delay, or it may give some traffic priority over others without giving absolute guarantees.

Which factors have allowed the Internet to foster application innovation in the past, and how can we maintain the Internet’s ability to serve as an engine of innovation in the future? These questions are central to current engineering and policy debates over the future of the Internet. They are the subject of Jonathan Zittrain’s The Future of the Internet and how to stop it and of my book Internet Architecture and Innovation which was published by MIT Press last month.

As I show in Internet Architecture and Innovation, the Internet’s original architecture had two components that jointly created an economic environment that fostered application innovation:

1. A network that was able to support a wide variety of current and future applications (in particular, a network that did not need to be changed to allow a new application to run) and that did not allow network providers to discriminate among applications or classes of applications. As I show in the book, using the broad version of the end-to-end arguments (i.e., the design principle that was used to create the Internet’s original architecture) [1] to design the architecture of a network creates a network with these characteristics.

2. A sufficient number of general-purpose end hosts [2] that allowed their users to install and run any application they like.

Both are essential components of the architecture that has allowed the Internet to be what Zittrain calls “generative” – “to produce unanticipated change through unfiltered contributions from broad and varied audiences.”

In The Future of the Internet and how to stop it, Zittrain puts the spotlight on the second component: general-purpose end hosts that allow users to install and run any application they like and their importance for the generativity of the overall system.

Three trends, he argues, threaten to get us to a world where users will increasingly access the Internet through information appliances or locked down PCs, endangering the Internet’s ability to serve as an engine of innovation in the future:

* the emergence of tethered information applicances;

* the move towards software as a service; and

* a misguided focus on end-host-based security measures.

Zittrain’s thought-provoking book creates much-needed attention for a component of the Internet’s architecture that network engineers and Internet policy had mostly taken for granted (for an early exception, see Gillett, Lehr, Wroclawski and Clark, 2001, Do Appliances Threaten Internet Innovation?) and for the different ways in which this component may be threatened.

I agree with Zittrain that without a sufficient number of general-purpose end hosts controlled by end users, the Internet’s engine of innovation would start to stutter. The questions of

* what exactly constitutes a sufficient number and

* whether something (and if yes, what) needs to be done to make sure that there enough generative end hosts remain

are important questions we need to think about.

I have two concerns:

1. In his desire to increase awareness of the importance of generative end hosts, Zittrain seems to downplay the importance of a generative network infrastructure. The generativity of the overall system, however, rests on both components. It would be a mistake to emphasize one at the expense of the other.

2. I ‘m not sure we need a new “generativity principle” to address the security problem that Zittrain describes. Instead, Zittrain’s concerns can be addressed within the framework provided by the broad version of the end-to-end arguments. I will tackle this issue in my second post.

Preserving the generativity of the network infrastructure remains important

It’s not entirely clear to me whether Zittrain thinks generative end hosts are more important than a generative network infrastructure. Some parts of the book leave the question open (“So what can generativity contribute to this debate? One lesson is that the endpoints matter at least as much as the network.”, Zittrain, p. 180 in the context of the discussion of the network neutrality debate). Other parts seem to suggest that protecting the generativity of the network, for example through network neutrality rules, may be less important. This assertion seems to rest on two arguments: 1) that the generativity of the network is not threatened, and 2) that even if the generativity of the network were compromised, generative end hosts would be able to overcome this problem.

1. The generativity of the network is threatened

In the section on “Network Neutrality and Generativity,” Zittrain argues that “so far, generativity is alive and well at the network level.” (p. 180). I don’t share this assessment.

In the past, the generativity of the network infrastructure resulted from the application of the broad version of the end-to-end arguments. As I show in chapter 7 of my book, an architecture can deviate from the broad version of the end-to-end arguments along two dimensions: It can become more “opaque” by implementing more application-specific functionality in the network’s core, or it can become more “controllable” by increasing network providers’ ability to control applications and content on their networks. The Internet’s architecture currently deviates from the broad version of the end-to-end arguments along both of these dimensions, with negative consequences for application innovation.

On the one hand, the network has become more opaque. The broad version of the end-to-end arguments requires the lower layers of the network to be very general; they should not be optimized in favor of specific applications. In the current Internet, asymmetric bandwidth to and from the home, network address translators and firewalls all implicitly optimize the network for the needs of client-server applications, creating difficulties for applications with different needs. In particular, network address translators and firewalls, taken together, have made it very difficult to develop and deploy new applications whose mode of operations differs from client-server applications. This applies, for example, to peer-to-peer applications, applications that use UDP, and applications that use one signaling connection to set up a second connection. Network address translators and firewalls have also made it almost impossible to deploy new transport protocols, leading to “ossification” of the transport layer (for more on this, see my book, pp. 385-386). Thus, deviations from the broad version of the end-to-end arguments create serious problems for innovation in new applications and transport layer protocols today.

At the same time, the network has become more controllable. A network based on the broad version of the end-to-end arguments is application-blind; as a result, network providers are unable to see which applications are using their networks and to control their execution. By contrast, in the current Internet, devices for deep packet inspection, i.e. devices in the network that can look into data packets, determine the application or content whose data the packets are carrying and process the packets based on this information, have been widely deployed. Whether network providers have an incentive to use this technology to discriminate against applications on their networks is hotly debated as part of the network neutrality debate. My research and conversations with innovators and venture capitalists (pdf) indicate that the threat of discrimination negatively affects innovation today.

2. Competition and generative end hosts won’t be sufficient to solve these problems

According to Zittrain, competition, to the extent it exists, will be able to mitigate this problem. In the absence of competition, “some intervention could be helpful, but in a world of open PCs some users can more or less help themselves, routing around some blockages that seek to prevent them from doing what they want to do online.” (p. 181)

I don’t share Zittrain’s optimism regarding the power of competition and user self-help.

First, as I explain in detail in chapter 6 of my book (pp. 255-264), a number of factors make competition, to the extent it exists, less effective in disciplining providers than is commonly assumed. These factors include the existence of switching costs or network providers’ ability to use discrimination instead of outright blocking.

Second, after consolidation among network providers, individual network providers now cover large, continuous territories. Under these conditions, “mov[ing] to a new physical location to have better options for Internet access,” as Zittrain suggests on p. 185, will not be an option for most users, if they want to live reasonably close to their work. And what if the new network provider later changes its mind and starts discriminating as well?

Third, Zittrain overestimates the ability of generative end devices to route around discrimination.[3] As Bill Lehr, Marvin Sirbu, Sharon Gillett, Jon Peha have explained (pp. 637-638), this ability is ultimately limited. For example, using anonymizers, encryption or port switching to evade discrimination will not help users if they want to use a real-time application and the network provider slows down all traffic (Zittrain mentions a similar example on p. 181). To the extent circumventing discrimination is at least possible, it may require a level of technical sophistication that many users do not have, leaving the majority of Internet users unprotected.

Thus, a focus on the importance of generative end hosts should not come at the expense of generative network infrastructure. If we want to maintain the Internet’s generativity, we need to preserve both.

Footnote 1:
The original architecture of the Internet that governed the Internet from its inception to the early 1990s was based on a design principle called the end-to-end arguments. There are two versions of the end-to-end arguments that both shaped the original architecture of the Internet: what I call “the narrow version”, which was first identified, named and described in a seminal paper by Saltzer, Clark and Reed in 1984 (Saltzer, Reed and Clark, 1984, End-to-End Arguments in System Design, ACM Transactions on Computer Systems, 2(4), 277–288) and what I call “the broad version”, which was the focus of later papers by the same authors (e.g., Reed, Saltzer and Clark, 1998, Commentaries on ‘Active Networking and End-to-End Arguments’, IEEE Network, 12(3), 69–71). To see that there are two versions, consider the following two statements of “the end-to-end principle”: “A function should only be implemented in a lower layer, if it can be completely and correctly implemented at that layer. Sometimes an incomplete implementation of the function at the lower layer may be useful as a performance enhancement” (first version) and “A function or service should be carried out within a network layer only if it is needed by all clients of that layer, and it can be completely implemented in that layer” (second version). The first version paraphrases the end-to-end principle as presented in the 1984 paper. The second version is directly taken from the paper on active networking and end-to-end arguments. Clearly, the second version establishes much more restrictive requirements for the placement of a function in a lower layer.

While the authors never explicitly drew attention to the change in definition, there are real differences between the two versions in terms of scope, content and validity that make it preferable to distinguish between the two. At the same time, the silent coexistence of two different design principles under the same name explains some of the confusion surrounding the end-to-end arguments. While both versions shaped the original architecture of the Internet, the broad version is the one that has important policy implications, such as the Internet’s impact on innovation. For a detailed description of the end-to-end arguments and their relationship to the Internet’s original Architecture, see Internet Architecture and Innovation, chapters 2 and 3.

Footnote 2:
End hosts are the devices that use the network, such as the devices that users use to access the Internet, or the servers on which content and application providers make their offerings available to the public.

Footnote 3:
Zittrain uses a similar argument to alleaviate concerns about allowing network providers to filter the network for security purposes: “Moreover, if the endpoints remain free as the network becomes slightly more ordered, they remain as safety valves should network filtering begin to block more than bad code.”(pp. 165-166)