[CAnet - news] The Broadband Incentive Problem

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[Another excellent paper on the issues any organization faces in delivering
Internet.  This is problem that will be faced by any municipal Internet
offering or by any entity that provides a shared stat-mux network facility.
Traditional providers are using the many issues identified in this paper as
justification why the need a multi-tiered Internet. There is no question the
problem is real but I suspect it will only be solved through a fundamental
rethink of the Internet business model, which is still largely based on the
service provider middle-man architecture used by other infrastructure
service providers like gas and electricity.  The key differentiation of the
Internet is that the intelligence is at the edge. Let's use it.  Some
excepts from the original paper -- BSA]

The Broadband Incentive Problem

a white paper prepared by the Broadband Working Group
MIT Communications Futures Program (CFP)
Cambridge University Communications Research Network
 

http://cfp.mit.edu/groups/broadband/docs/2005/Incentive_Whitepaper_09-28-05.
pdf

The future of broadband faces a crisis: an incentive
problem derailing the ability of mass-market Internet
users to take advantage of Moore's Law. Today's
prevailing business models give wired and wireless
broadband operators the perverse incentive to throttle
innovative, high-bandwidth uses of the Internet. If
this problem is not addressed now, many commonly
foreseen broadband developments are unlikely to happen
as planned. These include the next generations
of videoconferencing, interactive video and television
(broadly defined), collaborative gaming, peer-to-peer
applications, grid-oriented computing, network-based
backups, data-capable wireless networks (3G and
beyond) and the sophisticated portable networked
gadgets that will use them, and fiber-to-the-home
networks. Delays in these innovations will hurt the
makers and users of networks and all of their upstream
complements, including content, applications, services,
and devices.

The incentive problem is already evident in leading
broadband markets. Popular flat-fee pricing models
have encouraged penetration but also led innovative
users to adopt bandwidth-intensive behaviors that
impose additional costs on network operators, an
especially noticeable problem once penetration saturates
and revenue growth flattens. Leading network
operators have considered or imposed restrictions on
user behavior, employing a range of schemes that vary
in sophistication. Most simply focus on limiting user
traffic, while a few also seek to monetize additional
usage, typically in coarse ways that may bear little relation
to actual usage costs imposed.

Effective solutions to the broadband incentive
problem are not obvious. Today's responses will
prove inadequate as broadband markets expand. In
our observation, operators have not yet found access
pricing mechanisms that both make sense to users
and effectively align user behaviors with the costs they
impose. Overly broad limitations on user behavior
will be unpopular with users and, by unduly curtailing
the activities that motivate users to pay for broadband
in the first place, will ultimately prove unsatisfactory
to providers as well. Many operators have
also proposed to respond to rising usage-based costs
by extracting additional revenue from value-added
services beyond basic access, such as voice-over-IP and
IP-based television. We do not believe this response is
adequate to solve the problem, for two reasons. First,
we expect that operators' revenues from value-added
services will be insufficient to cover rising usage costs,
because service revenues will be limited by competition
from a growing set of third parties, and by legal
or regulatory attention to any perceived constraints on
such competition. Second, some bandwidth-intensive
broadband innovations will not have an associated
revenue-generating service. Reliance on value-added
service revenues does not give operators an incentive to
support this subset of applications, even though the innovations
they represent will be valuable to users and
upstream industries.

The intent of this white paper is to ensure that
stakeholders across the broadband value chain
recognize the reality of the incentive problem, and
are motivated to deal with it now, before it becomes
more difficult to solve. 


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