Congested consumers and sectoral regulation in the broadband age: a European perspective Jonathan Cave July 2013
Outline • The problem with congestion ( Say’s law and its antithesis) • A brief discussion of broadband congestion from a customer-centric perspective • Some examples • The regulatory and policy perspective – The role of consumers in managing congestion – ‘Informational remedies’ transparency, switching and other reactions – Congestion pricing – The role of the regulator – Net neutrality – EU wrinkles • Some theoretical excursions • Conclusion and topics for discussion
The problem with congestion • Congestion can distort technical, allocational and dynamic efficiency or the trade-offs between them • It can show up as slow speeds or QoS problems (latency, jitter, etc.); different in wired, wireless domains • It differentially affects different uses and users • Can slow or narrow broadband adoption and entry • It arises in different parts of the network – topology matters (holes and hubs, tiers, IXs, transit/peering arrangements)
The problem, continued • It is not just a capacity utilisation issue (turbulence, bunching, local bottlenecks, and behavioural feedbacks) • It is ‘felt’ in different ways by different parties • It is not bad for everyone, and may not be bad for anyone – Market segmentation – Induced state aids – Value of spectrum, infrastructure rights – The power to shape and to ration – Resets and total download volume; WTP for bypass • Investing in scarcity • May not be discernible, predictable, controllable at ISP, network operator or system level (complexity and self-organisation)
Analogies • Electricity – ‘Solutions’ • Congestion pricing (e.g. ToD) • Smart Meters, CHP and grids • Interruptible supply contracts – Analogy inexact • BB traffic not homogeneous, routing matters more than i 2 R • Storable traffic, network less rigid • ‘Cogeneration’ in P2P, symmetric DSL form • Transport – ‘Predict and provide’ mindset – Endogeneity of capacity problems (Say’s Law)
Some examples 1. Bifurcated response – online gaming – Fat traffic, thin clients – rendering in server farms – Thin traffic, fat clients – local rendering – Implications: hardware; user-generated content; monetisation and sludge-passing (NN) 2. Non-linear content sharing (iPlayer, iCloud) 3. Cloud computing (thin clients, data centres) – Correlation of demand, feedbacks
A provocative example • High-frequency, computerised trading • Initially, algo-trading (liquidity trades) • Then, momentum trading • Arbitrage – speculation – manipulation • May 2010 – market and network efficiency collide – Sequellae: circuit breakers, speed limits and the normalisation of deviance
A few more • The network epidemiology of congestion • Multi-use spectrum (the 2.6 GHz auction – minimise interference, maximise innovation, artificial scarcity) • Unbundling strategies: the use of virtual lines to evade competition authorities
The role of consumers in managing congestion • Voting with their feet? • Underwriting investment (pledges) • Shareholder activism
Transparency – about what, and why? • Proposed as light-touch remedy (mobility?) • But policy isn’t outcome and ISPs may not be able to control congestion • Will the grass be greener when you (and everyone else) gets there?
Congestion pricing • All pay auctions • To pay for infrastructure • To change behaviour, rationalise demand • As a sin-tax (hypothecation for capacity and management – note unmonetised peering)
The role of the regulator • Coasian liability • Walled Gardens • Consumer protection, prudential and macro- prudential approach • Self- and co-regulatory approaches
ex ante regulation to ensure net neutrality? • Preliminary – What’s so great about NN in a Ramsey world? – Monitoring and enforcement? – Attribution and remedies • Different meanings in different market settings – Commission has reversed itself – hence ‘natural experiments’ (e.g. Nl.) – Good (necessary) vs. bad discrimination – General belief in ‘level playing field’ or virtue of simplicity (?) • Just an argument over DPI? – Privacy, security externalities – KPN-WhatsApp, ACTA – Many offers have explicit or implicit (Fair Use) caps – Beneficial uses of P2P – inadequacy of individual controls – 3 rd - party or ISP liability a 2-edged sword
Further regulatory and policy challenges • Goals – – what kind of efficiency? – Peak-load, strategic manipulation, innovation and investment? • Lower price, higher speed, better QoS, alternative infrastructures, extended value chain efficiency? • Is congestion a useful stimulus to entry or do entrants just free-ride while incumbents live off their rents? • How (if at all) to (co)regulate cloud, HFT? • Incorporate QoS in Universal Service? • What is ‘price’ (freemium -type models, third-part revenues)? • Who is (usefully) responsible for congestion management? • Consumer protection-antitrust duality: can either work?
EU Governance aspects • EU level (EC, CoM, EP) – Directives, regulations, state aids and policy chapeaux – Subsidiarity – what gets regulated at which level? – Competition and competitiveness and innovation – Telecom Regulatory Framework (under revision) – Policy challenges: Europe2020, DAE and H2020; reform of major Directives; REFIT; Recommendation for Regulation to boost Digital Single Market. • MS level – Converged regulation – Grands projets – esp. Broadband
Topics for discussion • Relevance of consumer protection, prudential rules, macroprudential regulation, etc. • How can regulators coordinate to measure real or expected congestion – and which matters more? • Who can/should be held responsible for congestion? • Are EU-like presumptions (pro-infrastructure, regulation of SMP players, dropping roaming, net neutrality, communication-converged regulation) appropriate here? • How can shaping, investment, ‘rewiring’ and demand-shaping be balanced and regulated? • Do we need new rules for IoT, Cloud, etc.?
A brief discussion of broadband congestion • Origins – Traffic growth (slowing?), geography (density, uses) – Specific hubs (backhaul, Internet Exchanges, etc.) – centrality – Specific types of computing • Dimensions/impacts – Time, location, – Traffic (crowding types, clustering, endogeneity) – Latency, jitter, bandwidth – Upload/download, local vs. backbone • Settings • Wired, wireless, WLAN, RLAN (diff. regulations)
The supply side • ‘Investing in congestion’ • ‘Crowding types’ and market segmentation • Cream-skimming and buck-passing • Traffic-shaping, capacity formation, structural change • Third part monetisation • N-sided market considerations • Discrimination: – by identity; network management; content; devices; standards – Using price, QoS , SLAs, security/privacy… • Behaviour often shared or emergent – Load-sharing – Connectivity cycles
The demand side • Congestion-sensitive uses – distribution, WTP and clustering • Specific kinds of demand – Entertainment – Work – Cloud – Internet of Things – HFT (interaction of congestion, financial efficiency, stability) • Limited rationality of switching behaviour
A theoretical excursion • The epidemiology of congestion • Routing and connectivity – strategic rewiring • The SLA game (stable and efficient networks) • Measurement for regulation
Epidemiology of Congestion • QoS is High or Congested • Probability of congestion = m * % of congested links; probability of recovery is r ; l = m / r is effective spreading rate ; • Every network structure has a critical value of l above which congestion outbreaks saturate network; close to 0 for scale-free • For fixed SF networks, can manage problem by targeting hubs • Suppose routing allows rewiring of w % of congested links; – Even SF networks become ‘flatter’ – Linking becomes associative (can’t target interventions) – New threshold for ‘epidemic’ or ‘endemic’ congestion – Gradual separation into congested and clear components • Complex ‘phase diagram’
Other theoretical excursions • Routing and connectivity – strategic rewiring – Passing traffic to congested neighbours spreads the problem; routing to clear ones eases it – Networks may be too centralised to survive (claim on capacity resources?) – Strategic connectivity cycles (observed in practice) • The SLA game (stable and efficient networks) – Behavioural dynamics (evolution of conventions) – Network partnering (pairwise stability) – Combined dynamics more ‘interesting’ • Measurement for regulation – Alignment as leading indicator of disruption – Real-time and partnering tracking (structural indicators)
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