# Presentation: 149802

## The Internet and The Complexity of Success

**The Internet and The Complexity of Success**

**Robert Pepper**
- Chief, Office of Plans and Policy
- Federal Communications Commission
- <rpepper@fcc.gov>
- ISPCON
- San Francisco, California
- August 21, 1997

## Internet Trends

- High rate of growth
- 1.2 million domain names as of 4/97, up from 30,000 in 1/94
- Flat-rated pricing ($19.95/month standard)
- Some ISPs move away from this model (e.g. Netcom), but mass shift to metered pricing has not taken place
- Increasing numbers of ISPs
- Over 4,000 in North America, and 31 national backbones *(Boardwatch July/August 1997 ISP Directory)*
- Expected "shakeout" hasn't really happened yet
- Innovation in both software and hardware
- Internet telephony
- Web TVs
- Push media

-  Streaming audio/video
-  Wireless services
-  Networked interactive games

## Reasons for Growth

- Demand for services and bandwidth
- Technology becoming easier to use and cheaper
- Scalable architecture
- Competition decreases costs
- software, hardware, and backbone networks
- "Unregulated"
- BUT...  longstanding government funding and active involvement in ARPANET, NSFNET, DNS and IP number assignment, NAPs
- ALSO... FCC Computer II decision expressly safeguards enhanced services from RBOC discrimination (back then AT&T)
- ALSO... ISPs and customers take advantage of regulated telephone rates, and leased data circuit rates that have dropped dramatically since the breakup of AT&T

## The Complexity of Success

- Be careful what you ask for
- Expectations change with growth
- The (good?) old days
- The whole industry could sit around the table of a Chinese restaurant
- average users are engineers, academics, and scientists
- major services are ftp, and email
- The (better?) new days
- takes this ballroom just for one conference
- 30 million US households, filled with 9 year olds playing online games
- the Web, and emerging streaming audio/video

## The Complexity of Success

- The new realities of the Net create questions
- What if everyone logged on at once to play the same networked game?
- What if the average Internet connection was in use as much as the average television set -- 8 hours per day?
- Tragedy of the Commons
- Individual users and service providers may not have the proper incentives or resources to address collective challenges
- What this means -- the Internet is growing up

## ?

**?**

**Emerging Policy Questions**

- Network congestion
- Reliability and service quality
- Governance
- Investment and innovation
- Definitional issues (services? facilities? carriers?)
- Universal access (esp. schools, libraries, health care)
- Privacy
- Inappropriate materials for children
- Electronic commerce

**?**

**?**

**?**

- (Policy = Regulation)

## Policy Goals

- Competition
- Technological innovation
- Investment and job creation
- Affordable access
- Increasing bandwidth to businesses and the home
- Result -- continued growth of the Internet

## Who is Standing in the Way?

- Government?
- local? state? federal? foreign? international?
- Incumbent telephone companies?
- Spectrum hogs?
- State and local taxation authorities?
- Software hogs?
- ISPs? (tragedy of the commons)

## Internet Myths

**1. The Internet has prospered because government has not been involved**
- Oh? So the FCC shouldn't have prohibited telcos from charging ISPs per-minute access charges?
- What about the 20+ years of R&D funding from DARPA and NSF?
- And isn't the government the single largest institutional user of information technology in the United States?

## Internet Myths

**2. The Internet is totally decentralized**
- Could there be multiple authoritative roots for the Internet addressing system, so that typing in www.boardwatch.com in your browser might take you to several different sites?
- If a major backbone ISP broadcasts incorrect routing information from one of its downstream ISP customers, is there no threat to the stability of the network?

## Internet Myths

**3. The Internet community is comprised of "cyberlibertarians" who reject all authority**
- Should there be no penalties for committing fraud on the Net?
- Should ISPs rely on the goodwill of monopoly telcos to deploy affordable high-bandwidth data networks?
- Should companies be able to do whatever they want with your personal data they obtain online?
- Do you enjoy being spammed?
- Is there nothing wrong with children accessing pornography online?
- If the major Internet backbones crashed for 3 days, would you mind?

## Internet Governance

- Governance is not the same as government
- A vacuum is a dangerous thing
- Fools rush in
- Who governs when the Internet governs itself?
- How do you vote? Where do you go to vote?
- Who gets a seat at the table?
- Who is responsible when things go wrong?

## Network Reliability

- Internet usage increasing rapidly
- Represents 5-10% of total minutes on the telephone network today
- Increasingly important for "mission critical" applications
- Need for better data about congestion effects
- Network Reliability and Interoperability Council has traditionally addressed large-scale outages (e.g., cable cuts), not localized congestion
- Responses to FCC Internet NOI provide some information, but more comprehensive and consistent data are required
- Solutions should be industry-driven, but industry must act and government can facilitate

## Internet Congestion Points

- Router

**INTERNET**

- Router

- Firewall

- Server

- Router

- Point of Presence

- Packet Network

- Headend

**Cable Network**

**4**

**5**

**7**

**13**

**14**

**9**

**10**

**12**

**6**

**8**

**2**

- Router

- Internet Service Providers

- Customer Premises

- Internet backbones

- Telephone Network

**3**

**1**

## Congesting the Phone Network?  (Packet Data in a Circuit World)

*Sources: Usage studies submitted to FCC in 1996 and 1997 (CC Docket 96-263 and public file CCB/CPD 96-16)*

## The Local Telco Dilemma

- Continue circuit switch investment
- Premium rates for data services
- Defend core businesses from competition

- Average voice call 3-5 minutes; Internet call 20 minutes
- Internet usage doubling annually.

**Risk loss of Internet customers to competitors**
- (CLECs, cable, wireless)

**Risk loss of Internet customers to competitors**
- (CLECs, cable, wireless)

**The Local Telco Dilemma**

*Network deployment and service offerings*

*Introduce legacy time-sensitive charges*

*Demand*

*Status quo:*
*Do nothing*

## The ISP Dilemma

- Rising costs of expanding modem pools and lines
- Competition from many sides (LECs, IXCs, cable, wireless, other ISPs)

- Internet usage doubling annually
- Customers increasingly unsatisfied with 28kbps dial-up connections

**Risk loss of customers to lower cost competitors**

**Lock in ineffcient low-bandwidth technology**

**The ISP Dilemma**

*Network deployment and service offerings*

*Use incumbent LEC **data alternatives*

*Demand*

*Status quo:*
*Do nothing*

## The Bandwidth Puzzle

- AT&T
- MCI
- Sprint
- Worldcom
- IXC
- Qwest
- Brooks Fiber
- TCG
- TCI
- McLeod
- DirecTV

-  Primestar
-  Sky Station
-  Teligent
-  Teledesic
-  Iridium
-  Metricom
-  Winstar
-  WilTel
-  Cox
-  Nextel
-  and many more!

-  Comcast
-  Media One
-  @Home

## Is there a Role for Government?

- Restrain dominant incumbents/promote competition
- Carve out unregulated services (insulate from regulation)
- Incentives for innovation (e.g., deployment of data-friendly networks, increased bandwidth)
- Fund research efforts
- Consider social welfare
- consumer protection, free flow of information,  affordable access
- Allow/encourage industry cooperation
- Be an informed information technology consumer

## Pressure on Traditional Models

**Pressure on Traditional Models**

- Common
- Carriage

- Capacity
- Constraint

- User Role

- Information
- Flow

- Broadcast

- Internet

- One-to-One

- Interconnection

- Little/nouser control
- (push)

- User-initiated
- point-to-point
- communnications

- Scarce
- Spectrum

- One-to-Many

- Any-to-Any

- Statistical
- Multieplexing

- User-initiated and user-controlled
- (push and pull)

## Category Difficulties

- Regulated vs. unregulated services
- "enhanced" services not subject to common carrier regulation under FCC rules
- 1996 Telecom Act has similar distinction between "telecommunications" and "information" services
- "Basic" vs. "value-added" services often used outside of U.S.
- Type of service
- Telephony, broadcasting, cable, etc.
- Jurisdictional Divisions
- local, state, national, international

- (work for lawyers)

## Old Rules vs. New Realities

- Literal readings generate strange results
- Is an email message telecommunications?
- Is cable Internet access different from access provided by a telco?
- Some line drawing is inevitable, even if only to exclude the Internet from traditional rules
- The Internet overcomes all boundaries
- No discrete connection paths
- ISPs may not even know what services run over their networks
- Technology and businesses keep moving
- For example, development of Internet telephony, and now phone-to-phone gateway services; streaming video
- Impossibility of tying down dynamic change

## The Future?

- Bandwidth demand will keep growing
- continued increase in Internet penetration
- push media and streaming video
- Internet games
- electronic commerce
- Local competition will develop
- Continued experimentation with different business models will continue, as companies search for the "killer app" and a justification for their market cap
- Converged networks will emerge
- voice just one service riding on packet-switched data networks

## The Future?

- External simplicity, internal complexity
- Many different technologies (wireline, cable, wireless, satellite) will succeed in different niches
- However, consumers care only about the end user service, not how it is provided, and increased penetration will require simplicity
- Increased user choice and control over content

## Coping with Dynamic Change

- Traditional legal and regulatory approaches become unworkable
- So do traditional business models (telephone indusry growth averages 4-6% per year; Internet bandwidth requirements more than double every year)
- Pace of technological innovation continues to increase (especially as competition develops)
- Need to break from the past
- "[T]he most important insight I've garnered from three years at the FCC: Study with scrupulous exactitude all telcom policies of historical tradition and then do the exact opposite."  -- FCC Chairman Reed Hundt, September 4, 1996

## Toward a Rational Approach

- Do not assume legacy regulation of new services
- Presume public utility regulation model should not apply to competitive data services
- Identify easy cases for non-regulation
- ISPs that are merely a conduit for voice applications employed by others
- Focus on underlying policy goals
- Simple, flexible rules
- essential due to rapid technological change and slippery boundaries
- Consider deregulating traditional services if market truly competitive

## Internet as Subsidy-Free Zone?

- FCC received over 300,000 email comments opposing imposition of access charges on ISPs
- This was a GREAT thing
- Demonstrates that the industry cares and can mobilize on issues
- BUT.. never have so many said so little to so few!
- The emails were attacking the FCC for something it explicitly proposed NOT to do.
- Few constructive proposals for increasing availability of bandwidth (most just opposition to paying more)
- The real issue -- how to create efficient incentives for carriers to invest in data-friendly networks that don't route data traffic through circuit switches?

## Chaos Isn't All That Bad

- Chaos theory:
- Complex systems can self-organize
- Benefits of decentralization
- great flexibility
- allows dynamic growth and evolution
- reduced need for (potentially cumbersome) central control structures
- Difficult or impossible for one firm to dominate
- new, unexpected competitive alternatives
- With proper incentives, solutions will emerge to meet demand
- Chaos leads to opportunity for the nimble

## For More Information

**FCC Web site <http://www.fcc.gov>**