Analyst: FCC Order Could Cripple ISPs, Fuel Customer Cannibalization
Says Order Restricts Carriers' Flexibility When Designing Business Plans
John Eggerton -- Multichannel News, 3/8/2011 2:31:00 PM
The Federal Communications Commission's new network neutrality rules, which apply to ISPs but not Web application or content companies (like Google and Amazon), appear to be based on the belief that edge services are "embryonic," while the core network is "mature and static," an assumption that could wind up crippling ISPs, harm both sides and lead to forced customer cannibalism.
That is according to the prepared testimony of former investment analyst Anna-Maria Kovacs for a March 9 network neutrality hearing in the House Communications Subcommittee.
Kovacs will say that while transport is provided free by ISPs to applications providers, including content and service providers, those ISPs have to compete with them on the application level. "The order restricts the carriers' flexibility in designing their business plans, limits their sources of revenue, dictates that they spend capital to expand their networks at the edge-providers' will, and forces them to subsidize competitors who cannibalize their customer base," according to Kovacs, while leaving applications providers free to "transform their business plans at will."
She plans to tell legislators that the order is essentially a transfer of wealth from ISPs to applications providers. She said that could cripple ISPS, "forcing them to subsidize competitors who cannibalize their customer base." But added that could also harm applications providers.
"A transfer of wealth that will ultimately cripple the party on which the other relies for its very existence is profoundly harmful to both," according to the testimony. Kovacs said it was that implicit assumption that the edge of the net could be protected "at the expense of the core," that most worried her.
She will be preaching to the choir when it comes to the Republicans on the committee, who are strongly opposed to the rules and what they see as their negative impact on the economy and innovation.
While Kovacs will gives the FCC some props for potentially allowing usage-based pricing, she doesn't believe it's enough. "The FCC places so many restrictions on the way those plans can be designed that the carriers' marketing will be restricted to one dimension-price for quantity carried--while consumers may well want very different things," she says, adding that what is more significant is that the order assumes today's revenues can continue to support the network "even as the Order radically undercuts the sources of those revenues."
Kovacs argues that that the fates or the core and edge are inextricably entwined: "I believe that the combination of restrictions and demands it places on broadband Internet access providers threatens the long-term viability of the core, and thus also threatens the edge."
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