VoIP and pay-to-play: broadband's attempt to push away direct competition.

• Author: Silverstein, Mark L.

INTRODUCTION

In late 2005 and early 2006, top executives of broadband providers indicated that they plan to charge a fee to Internet application companies like Google, Yahoo!, and Vonage, for access to consumers' homes through new "managed and secure" fiberoptic networks. Multiple broadband providers have expressed support for the plan to charge Internet application companies for assured fast and priority delivery over the Internet. (1) Broadband providers assure consumers that they will not block their networks from Internet application companies that do not pay the access fee. However, in an age where more and more applications--such as Voice over Internet Protocol (VoIP), music and video delivery, and online gaming--are time sensitive, the inability to pay such a fee and the subsequent penalty of slower delivery may effectively block an Internet application company from providing content.

Broadband providers argue that they made an investment in cable and DSL infrastructure and that Internet application companies are free riding on their "pipes." (2) On the other hand, Internet application companies contend that the customer is already paying for the bandwidth and that broadband providers are using their power in the local high speed Internet access market to extort fees from application companies. (3)

Framing the current debate is the principle of "network neutrality" (NN), which generally holds that Internet data packets should move nondiscriminatorily (that is, without restrictions or limitations imposed by a broadband provider). If a "pay-to-play" policy for high speed Internet is adopted, there is an enormous risk that end-to-end (e2e) innovation, (4) one of the great benefits of the Internet, will be swallowed into a centralized system of protocols determining which Internet applications receive priority and, thus, enhanced exposure to users.

This Comment focuses on one Internet application that will be directly affected by the proposed broadband pricing policy: Voice over Internet Protocol. Although not a new concept, VoIP has begun to proliferate only during the last few years. Internet companies such as Vonage have used the technology to substantially reduce the cost of telephone service for consumers. (5) Many broadband providers have recently started to offer VoIP services themselves, including Verizon's VoiceWing, AT&T's CallVantage, and Comcast's Digital Voice. (6) However, as a result of broadband providers' control over the last mile of the network, every VoIP competitor will have to pay a surcharge in order to ensure timely delivery of the information packets necessary for VoIP to function. As early as March 2004, market analysts predicted that Vonage would be driven from the market by this anticompetitive pay-to-play system:

It may seem like a dodgy competitive tactic, but broadband network operators could slow down Vonage's service. As subscribers increase their use of latency sensitive and graphic-rich IP traffic, broadband providers could give network precedence to their own revenue-generating services. Unless Vonage pays fees to the network provider, there is no reason the operator should not make the service a lower priority on the network. (7) Thus, broadband providers' VoIP services will always maintain a significant competitive advantage over non-broadband VoIP services, not because of the merits of their services, but because of the additional fee they can require competitors to pay.

This Comment argues that the pay-to-play tactics proposed by broadband providers have significant anticompetitive effects that may violate United States antitrust laws under the Sherman Act. Some commentators suggest that the Federal Communications Commission (FCC) or the Federal Trade Commission (FTC) should regulate the Internet using an "antitrust-like" approach, in order to avoid competitive harms before they occur. Although this approach has strong merit and could seamlessly incorporate the principles articulated in this Comment, the current regulatory policy remains hands-off. Thus, in the time period between the present deregulation of the broadband market and the competitive ideal of the future, there is a need for an interim solution to protect innovation. I argue that a court enforced, case-by-case antitrust framework would provide that solution, and that it is thus important today to articulate such liability.

Part I of this Comment explains how time-sensitive applications such as VoIP work and what makes them vulnerable to a pay-to-play priority distribution system. Part II describes the potential effects that a pay-to-play system would have on innovation in the application markets. Part III discusses three potential government responses to the pay-to-play system. Finally, Part IV examines the antitrust doctrines that a pay-to-play system might violate.

1. HOW TIME-SENSITIVE APPLICATIONS WORK: WHAT IS VOIP?

   As the name VoIP expresses, the technology "transmits voice over the Internet in the form of Internet protocol." (8) Other Internet transmissions, including e-mail, video, and Web surfing, use similar transmission protocols. (9) VoIP converts a user's voice into digital bits and organizes them into thousands of "packets." (10) Each voice packet is "individually addressed [to the intended recipient] and sent over [the] physical networks" of broadband providers. (11) However, unlike traditional public, switched telephone networks, in which a voice transmission takes a "'permanent or exclusive' path from its sender to its recipient," Internet routers "read packet addresses individually and decide the optimal path of transmission for each packet." (12) Thus, despite the perceived "constancy" of a fixed connection between the conversing individuals, a VoIP transmission allows the voice packets to take a variety of routes to the same final destination. (13) Upon arrival of the individual voice packets, the participant's computer aggregates and reassembles them into a coherent conversation. (14) Through this method of transmission, "VoIP can carry significantly more information in a more efficient manner than analog transmission" over fixed telephone lines. (15)

   What differentiates VoIP from traditional Internet applications, such as e-mail and instant messaging, is the time-sensitive nature of packet delivery. When sending and receiving an e-mail, a one-second delay of a digital packet is usually undetectable by the user. However, when using the Internet to transmit voice or video, even a tenth-of-a-second delay could destroy the usefulness of the application. (16) Thus, with the increased use of the Internet for voice communication, video and music downloading, and gaming, there is considerable consumer demand for reliable and speedy packet delivery. (17) To meet this in creased demand, broadband providers are upgrading their networks. (18)

2. PAY-TO-PLAY: EFFECTS ON INNOVATION

   To date, broadband providers have generated income streams directly from consumers. Many providers price discriminate between residential and commercial users of their networks. (19) In addition, in order to ensure network quality and speed, providers often limit consumer bandwidth (20) or base their charges on bandwidth usage. (21) Although commentators disagree about whether consumer pricing based on bandwidth usage protects the open nature of the Internet and permits innovation on the "ends" of the network, (22) differing pricing levels--residential as opposed to commercial--based on bandwidth usage has been the industry norm. (23) However, recent pay-to-play musings by broadband providers violate many of the principles of NN and present serious risks, including stifling innovation.

   1. Network Neutrality Promotes Innovation

      Generally, the principle underlying NN focuses on the importance of protecting the ability of Internet users to access Web content and to use Internet applications without limitation or restriction by broadband providers. Academic promoters of the NN principle, like Tim Wu, seek to "preserv[e] a Darwinian competition among every conceivable use of the Internet so that ... only the best survive." (24) Although commentators disagree on the best method of preserving NN--most notably on the "dumb" versus "smart" pipe debate (25)--most, if not all, agree that preserving Internet innovation as the basis of "economic growth" is a principal goal. (26) Both sides of the debate view innovation, including "new companies, new services, and new products," and "not price competition," as the "principle driver of economic growth" and increased efficiency. (27)

      In order to protect such innovation, proposed NN rules create rights for Internet users. For example, a recently proposed rule reads:

      (b) General Right of Unrestricted Network Usage. Broadband Users have the right to use their Internet connection in ways which [are] not unlawful or harmful to the network. Accordingly neither Broadband Operators nor the Federal Communications Commission shall impose restrictions on the use of an Internet connection except as necessary to: [prevent uses illegal under statute or uses harmful to the network]. (28) In August 2005, the FCC adopted four NN principles (29) based on the fundamental proposition "that consumers should be able to use their broadband internet access service to access any content on the internet." (30)

      These proposed and adopted NN rules and principles are attempts to form a "pre-commitment rule for both government and in dustry ... prevent[ing] now what may be temptations tomorrow." (31) From the industry's point of view, NN rules and principles offer significant value to broadband providers by preventing the government "from blocking [broadband provider] entry into the application market," (32) and thus protecting broadband providers' ability to offer "competitive, vertically integrated applications themselves." (33) From the government's point of view, the NN rules and principles...