Net Neutrality and Business Models

I am glad that David Leshem writes for talkRA. Sometimes you need somebody like David to make a point that nobody else sees, and then hammer, hammer, hammer that point home. That is what David does, and revenue assurance needs him. In David’s case, the point is that telecoms RA is too insular. Boy, has he got it right. We have RA people with very limited perspectives – people who have worked their way up a specific career ladder like software development or data analysis but with little experience of anything else – trying to define what the RA profession should look like now and in future. Just take Papa Rob Mattison’s career. A data jockey, he wrote books about managing databases. Somewhere along the way this qualified him, in his own mind, to dictate who gets what RA jobs, so long as they first pay the tax for his certificate. But he is not the only one. The problem is these people are not leaders. They are followers. Where the telecoms market goes, they follow. Worst of all, they push a model of revenue assurance which shows no awareness of how telecoms companies are transforming. So let us talk about one topic that challenges the preconceptions of why we need revenue assurance, and threatens to invalidate much of the current pontification about what RA needs to do: IP networks and net neutrality.

Under the Obama Administration, the US telecoms regulator, the FCC, is leaning towards a broadband vision where IP is the backbone for commercial, information and cultural exchange. Good for them – it is a good model for the wider economy. The FCC are now hoping to extend their net neutrality policing powers, with the consequence that discrimination in the management or charging of traffic would be ruled out. One logical consequence that falls out is they will push for intercarrier traffic to be charged in the same way that retail broadband use is predominantly charged – by the total capacity of the pipe that is offered, not by the amount it is used. To use an analogy, they want telcos and customers to be charged for access to the road, not for how much time they spend driving.

Such a model may be great for the economy as a whole, as it promotes use of those roads. It is also fair, as it matches income to the major underlying cost – investment in infrastructure. By leaning towards net neutrality, they lean away from the idea of rationing supply. That means if roads get congested, then money should flow to those who build new roads. In contrast, congestion should not be used as a means to drive up prices for traffic, which in turn increases telco profits without creating an incentive for additional investment.

Big network players are the target for tremendous regulatory focus. Network providers have a tremendous importance to the economy. Good network infrastructure enables a country to thrive. Poor infrastructure strangles the country’s growth prospects. The net consequence is that the future of telecoms does not lie solely in the hands of technologists, CEOs or even investors. Politicians have a role to play too. They will and should influence the future of communications. So whilst RA people complain they need CEO sponsorship to succeed, they do not help themselves by failing to understand the bigger questions that CEOs have to tackle, including foreseeing the consequences of political decisions.

CEOs are not daft. They know that politicians are important. That is why they are not afraid to try to influence them. If your CEO does have not got time to sponsor your RA project, it is because they have bigger things on their mind. In recent weeks we have seen a big fuss made by the bigwigs at three big old European former monopolies: France Telecom, Deutsche Telekom and Telefónica. With one eye on what is happening state-side, they have been complaining about Google, and its YouTube subsidiary. The problem, as the incumbents see it, is that internet businesses like Google are popular and hence create so much traffic, without being made to pay a levy for that traffic. Stéphane Richard, France Telecom’s new chief executive, put it thus:

“Let’s see the development of digital society in terms of the winners and the victims. And today, there is a winner who is Google. There are victims that are content providers, and to a certain extent, network operators. We cannot accept this.”

Poppycock. You might as well argue that successful supermarkets should share their profits with failing car manufacturers, on the basis that people use cars to go shopping. If people have access to a network, and use it to watch videos of cats falling off pianos, then they have already paid for that access and that is the end to it. But it might not be an end to it, depending on whether the Eurocrats follow the lead of the US.

Note who made the big fuss here – 3 big old European former monopolies, who hope to get their backs scratched and beds feathered by government pals. And note the timing of their complaining – soon after the US broadband plan comes out, and just before new Euro ICT Commissioner Neelie Kroes wades into the net neutrality debate as part of her brief.

In the US economy, the politicians can balance the interests of American network providers with internet giants like Google and conclude the winners and losers cancel out, meaning the best bet for the economy overall is more internet traffic, more trade, and a better outcome for society in general. The European telcos might reasonably argue neutrality makes the European economies net losers – because the network operators subsidize the internet giants but the Europeans do not own the YouTubes and Facebooks of the world. So this debate is about protectionism in disguise. As with any protectionist arguments, the interests of the big businesses demanding protection are not aligned to the interests of consumers or even of the economy as a whole, no matter how much they complain that it is not fair that Google and YouTube are so popular. But the subtext here is that the big telcos had always had every advantage and could have delivered popular services that people really wanted. They did not. Others did. Now they complain life is not fair. It seems to me life, and free markets, are perfectly fair; if you cannot deliver services that people want to pay for, then you are not running your business right. I guess it is at this point we normally rely on a David Leshem to point out what should be obvious: that many telcos are not running their business right, because they invest in areas that make no money and do not know if they make money from where their invest.

European governments have two options. They can be like the US and support a free internet or protect the interests of the former state-owned telcos. These telcos did not deliver the music services that people wanted, did not deliver the auction sites that people wanted, did not deliver the apps stores that people wanted… did not deliver in general on anything but their dumbpipes. Now they are worried they may end up being ‘just’ dumbpipe providers. The European governments can hence protect the dumb businesses and help to undermine the prospects of the upstart start-ups that have made the internet what it is. Or they can genuinely support investment in the future instead of shoring up those dumb old dinosaurs. When tough-as-old-boots Viviane Reding was the relevant EU Commissioner, one suspects the Euro-incumbents would not have even bothered with this petulant outburst. The Euro CEO outburst looks like an early attempt to test the resolve of new girl Neelie Kroes.

So why am I writing about this in a blog dedicated to revenue assurance? Well, if you were paying attention, you understand why. If not, I recommend you waste a few weeks on a training course by Papa Rob Mattison, which should perfectly qualify you for being unemployed in about ten year’s time. The decisions of the politicians will decide the future business models of the telcos, and the future business models of the telcos will decide what needs to be assured. An all-IP future might not have usage charges. An overhaul of all charging and settlement is on the cards. Businesses are likely to polarize between the providers of dumbpipes and the providers of things that people really want – the things they use the dumpipes to get – and the assurance of one will look very little like the assurance of the other. A professional invests in the skills and education they need in future, as well as today. Keep an eye on the future, and act accordingly. And if you are not smart and agile enough to prepare yourself for the transformation of telcos, you could vote for the politicians that would slow it down.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.