Net Neutrality – just a symptom?

James Enck
December 2006
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Nov. 7, 2005: The shot heard ‘round the
world

- $
=
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We’re not in Kansas
anymore…
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 The world has changed a lot in a year

I’m not so concerned that telcos will be evil

Rather, I am concerned that they will be naïve and inept

And that the market overestimates the potential for this model
to succeed

Most of all, I’m concerned that we may be distracting

ourselves from the central issue:

Infrastructure

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How realistic is a “my pipes” strategy?

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Consider the complications

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 Yes, BitTorrent has “evil” uses
Weekly and normalized monthly download figures, top ten global video titles
70,000,000

60,000,000

50,000,000

40,000,000
Weekly total
M onthly run rate
30,000,000

20,000,000

10,000,000

0
D 05

Se 06
Se 05
M 05

O 05

M 06

06
Ja 4

Ja 5
Fe 05

Fe 6
A 05

A 06
N 05
Ju 5

Ju 6
A 5

A 06
M -05

M -06
Ju 5

Ju 6
-0

-0
0
0

0
l-0
-0

-0
-

-
b-

p-

b-

p-
n-

n-
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ct-
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n-
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ug

ov

ug
ec

ec
ar

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pr

pr
ay

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D

Source: Daiwa, from p2pnet.net and BigChampagne data

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 And here’s the telco impact

Source: PlusNet
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But it’s also a company with content partners

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It’s also an enabler for others with similar aims

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It’s also used for game updates

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And even Auntie likes it…

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How do you solve a problem like a mash-up?

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How do you solve a problem like a mash-up?

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How do you Redline a virtual world?

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Are you willing to infuriate your
corporate customers?

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Not “your father’s” internet anymore

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Net Neutrality debate is a symptom

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 Infrastructure is the problem

What we want/need

What we have
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 Buying the scarcity story?

Recent study from Arthur D. Little came to the following

conclusions about European broadband in 2011:
? “Not more than 10% of broadband households are
expected to exceed 30Mbps” (downstream);
? Upload speed of 8Mbps will be sufficient;
? “FTTH will mostly be relevant at a local/regional
level, assuming it is able to offer more than superior
bandwidth.”

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 The “broadband” vision is too narrow

• The industry views the issue through the

lens of voice, web, entertainment. What
opportunities are we not capturing?
– Education
– Social service delivery
– The power of grid computing
– Things we haven’t even thought of yet

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 Failure to communicate

Telcos Governments
"...future proof data infrastructure is
for Rotterdam just as important as a
good connection by means of water,
road and railtrack. A fiber network
Autumn 2005, Cisco executive: has proven to be an important
“Broadband is not a universal human settlement criterion for young
right.” professionals, knowledge-intensive
companies, port-related companies
and companies in the medical-
technological sector.”

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Will the current model deliver?

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 Look at the Dutch market

• Seemingly a perfect example of the EU

vision of facilities-based competition:
– DSL vs. cable 60/40 split
– ULL takes c.30% of the DSL market
– Among the highest broadband penetration rates
in the OECD
But…

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 …times do change
• KPN has acquired a number of other smaller players, now c.75% of
the retail DSL market
• Two of the three largest MSOs now under control of private equity –
expecting to merge
• KPN moving from 1,350 C.O.s to 28,000 local access nodes for FTTC
– project to be funded by sales of the old C.O.s (OPTA has placed
some safeguards as of October)
• Dutch press reported last week that KPN may seek to saddle remaining
ULL players with opex of legacy exchanges after FTTC migration.
• Ministry of Economic Affairs study reportedly assumes 300% rise in
cable prices over five years, coupled with capex reductions, to produce
suitable returns for private equity investors. Less intensive cable
investment may ease the pressure on KPN to upgrade?
• Possible legacies: market concentration, duplication of investment,
stranded ULL assets, greater uncertainty for challengers, lower long-
term investment, economic benefits diluted?
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 Points of disconnect

• Traditional players:
– Vertically integrated business models
– Addicted to scarcity
– Risk averse
– Primary focus on capital markets/investors
– Poor track record in innovation
– Maximum investment horizon 3 – 5 years

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 Who fills the gap?
• Entrepreneurial capital, thinking outside the box (cf., Iliad)
• Utilities
• Property companies/REITs
• Specialist infrastructure funds
• Public/private partnerships
• Municipal/regional governments/development agencies
(Amsterdam, Cataluña, Loma Linda CA, Seattle,
Singapore, UTOPIA)
• Incumbent telcos, pending a change in DNA

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 Conclusions
With true, symmetrical broadband, the “preservation
of scarcity” argument underpinning the Net Neutrality
debate recedes

However, the status quo access model in place looks ill-suited

to delivering this

Nevertheless, there is an opportunity here – for local

communities, entrepreneurs, adjacent industries, the capital
markets…

…and for incumbent telco transformation

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Thanks for listening!

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