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Tuesday, April 12, 2005

VoIP Blocking: The Case of Clearwire
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Clearwire, a wireless broadband company backed by Craig McCaw and just entering US markets, has caused a minor stir by saying up front that it will block third-party VoIP applications like Vonage. Clearwire's terms of service disclose this fact that they can restrict high-bandwidth applications.

Near as I can find, the relevant term of service is here:

You may not use the Service or take any action that will result in excessive consumption or utilization of Clearwire's system or network resources, or which may weaken network performance, or which adversely affects the performance of the Service for other Clearwire customers, all as determined in Clearwire's sole discretion. Such prohibited actions include, but are not limited to: using the Service to host a web server site which attracts excessive traffic at your Premises, continuously uploading or downloading streaming video or audio, usenet hosting, or continuous FTP uploading or downloading. In the event that Clearwire detects excessive use by you, Clearwire may restrict your access to Clearwire's network, increase the fees associated with your Service, including upgrading you to a higher class of Service, or terminate your Service.

The Agreement does not mention the term "Voice over Internet protocol" or "VoIP".

It is therefore unclear whether Clearwire needs to restrict all bandwidth-heavy uses, or only third-party bandwidth-heavy uses in favor of its own, integrated offerings. If it's the latter case, this would facially violate one of former Chairman Powell's Four Net Freedoms, or the stronger (proposed) regulations for "net neutrality." ["Four 'Net Freedoms" sounds vaguely Maoist, doesn't it? Now that he's moved on I can allege it: Michael Powell, crypto-Maoist!] Under a 'Net Freedom analysis, if Clearpoint offered its own integrated VoIP offering and to ensure quality of service or allow better price differentiation for the whole offering, that would be a slightly different case than if all applications were subject to the same bandwidth restrictions. Still another case would be if Clearwire wanted payment from the applications provider -- in this case Vonage -- to carry its application.

I think Kyle Dixon nails the political economy of these "openness" debates -- it is a battle that shifts rents from network providers to applications providers. It further limits the ability of network owners to engage in (consumer beneficial) price discrimination, and thus decreases incentives ex ante to invest in and improve networks.

With Clearwire, then, notwithstanding its motivation for 'port blocking,' I am not sure there is anything troubling about its practice. There are two other broadband platforms already in Clearwire's limited footprint, and they (by contract for cable or regulation for DSL) adhere to an "open" non-port blocking offering. As a new entrant with a new pre-standard WiMax offering, Clearwire may need for technical or economic reasons to vertically integrate its VoIP offering with the platform. Indeed, if Clearwire wants to offer a largely "private" Internet model that offers limited connectivity to only certain applications and sites, I am not sure public policy should care. Such a limited openness model, so long as it is disclosed, may be good for economic reasons (price discrimination) or market demand reasons (family-friendly Internet access, for instance, or no access to sites that allow content pirating). Thus the corollaries, or exceptions, to 'Net Freedoms should include:

a) the ability of network owners to offer diffentiated services based on contract offerings not mandated by government regulations;
b) the freedom for third-party payor models to be tried in the market even if they limit connectivity to rival, competitive applications and involve payments from applications to network owners;
c) any ex post attempts to impose openness are rebuttable by sound business or technical justifications (and fee-shifting to discourage overzealous openness attempts).

These corollaries, if recognized, would allow broadband providers to experiment with business models and, perhaps, increase penetration by connecting those inframarginal customers who will, for instance, endure limited connectivity or increased advertising for lower end-user rates.

So, let Clearwire, be Clearwire! As a Vonage customer, addicted to its toll-bridging capabilities, I would never subscribe -- but that's why markets serve consumers better than uniform, government mandated offerings.

posted by Ray Gifford @ 2:53 PM | Net Neutrality , VoIP

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