Analyst: FCC Order Could Cripple ISPs, Fuel Customer Cannibalization

Says order restricts the carriers' flexibility when designing business plans
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The FCC'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 force 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.

Kovacas says 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 appliation 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," says 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," she said. 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 gives the FCC some props for potentially allowing
usage-based pricing, she said it was not 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. But she said
that what was more significant was that the order assumes today's revenues can
continue to support the network " "assumes that the revenues carriers
depend on today "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," she
says.

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