Reference no: EM132230924

THIS IS CASE STUDY PLEASE GIVE ANSWERS FOR THE QUESTIONS (THE PROBLEM) The explosive growth of streaming video and mobile technologies is creating bandwidth problems over the Internet. The Internet was designed to transmit content such as e-mails and Web pages. However, media items being transmitted across the Internet today, such as high-definition movies, are vastly larger in size. To compound this problem, there are (in early 2015) over 180 million smartphone users in the United States, many of whom use the Internet to stream video content to their phones. The Internet bandwidth issue is as much about economics as it is about technology. Currently, consumers can send 1-kilobyte e-mails or watch the latest 30-gigabyte movie on their large-screen televisions for the same monthly broadband fee. Unlike the system used for power and water bills where higher usage results in higher fees, monthly broadband fees are not tied to consumer usage. A study from Juniper Networks (www.juniper.net) highlights this “revenue-per-bit” problem. The report predicts that Internet revenue for carriers such as AT&T (www.att.com) and Comcast (www.comcast.com) will grow by 5 percent per year through 2020. At the same time, Internet traffic will increase by 27 percent annually, meaning that carriers will have to increase their bandwidth investment by 20 percent per year just to keep up with demand. Under this model, the carrier’s business models will face pressures, because their total necessary investment will exceed revenue growth. Few industry analysts expect carriers to stop investing in new capacity. Nevertheless, analysts agree that a financial crunch is coming. As Internet traffic soars, analysts expect revenue per megabit to decrease. These figures translate into a far lower return on investment (ROI). Although carriers can find ways to increase their capacity, it will be difficult for them to reap any revenue benefits from doing so. The heart of the problem is that, even if the technology is equal to the task of transmitting huge amounts of data, no one is sure how to pay for these technologies. One proposed solution is to eliminate network neutrality. (A POSSIBLE SOLUTION)Network neutrality is an operating model under which Internet service providers (ISPs) must allow customers equal access to content and applications, regardless of the source or nature of the content. That is, Internet backbone carriers must treat all Web traffic equally, not charging different rates by user, content, site, platform, or application. Telecommunications and cable companies want to replace network neutrality with an arrangement in which they can charge differentiated prices based on the amount of bandwidth consumed by the content that is being delivered over the Internet. These companies believe that differentiated pricing is the most equitable method by which they can finance the necessary investments in their network infrastructures. To bolster their argument, ISPs point to the enormous amount of bandwidth required to transmit pirated versions of copyrighted materials over the Internet. In fact, Comcast reported in 2010 that illegal file sharing of copyrighted material was consuming 50 percent of its network capacity. ISPs further contend that net neutrality hinders U.S. international competitiveness by decreasing innovation and discouraging capital investments in new network technologies. Without such investments and innovations, ISPs will be unable to handle the exploding demand for Internet and wireless data transmission. From the opposite perspective, proponents of network neutrality are petitioning Congress to regulate the industry to prevent network providers from adopting strategies similar to Comcast. They argue that the risk of censorship increases when network providers can selectively block or slow access to certain content, such as access to competing low-cost services such as Skype and Vonage. They also assert that a neutral Internet encourages innovation. Finally, they contend that the neutral Internet has helped to create many new businesses. For example, one venture capital firm said that it would avoid funding startups in the video and media arenas. The firm further stated it would not invest in payment systems or mobile wallets, which require rapid transaction times to be successful. In another example, the U.S. Federal Trade Commission (FTC) is suing AT&T after the carrier allegedly “misled” millions of its smartphone customers regarding its unlimited data plans. The FTC claimed that AT&T charged its customers for “unlimited data,” but still reduced browsing speeds for as many as 3.5 million users, most analysts expect that users who consume the most data eventually will have to pay more, most likely in the form of tiered pricing plans. Americans, however, have never had to contend with limits on the amount of data they upload and download. So, there may be pushback from users. In 2008, Comcast openly challenged net neutrality when it slowed down the transmission of Bit Torrent (www.bittorrent. com) files, a form of peer-to-peer transmission that is frequently used for piracy and illegal sharing of copyrighted materials. The Federal Communications Commission (FCC) responded by ordering Comcast to restore its previous service. Comcast then filed a lawsuit challenging the FCC’s authority to enforce network neutrality. In April 2010, the Washington D.C. Circuit Court of Appeals ruled in favor of Comcast, declaring that the FCC did not have the authority to regulate how an ISP manages its network. By endorsing differentiated pricing, the court struck a major blow against network neutrality, despite this ruling, on December 21, 2010, the FCC approved network neutrality rules that prohibited wireline based broadband providers —but not mobile broadband providers—from engaging in “unreasonable discrimination” against Web traffic. These rules are known as the Open Internet Order. (THE RESULTS) In 2012, Verizon initiated a legal action against the Open Internet Order, claiming the FCC had overstepped its authority and arguing that its network neutrality rules are unconstitutional. Verizon may have a valid point. The FCC can regulate the physical infrastructure over which packets travel on the network. It is less clear, however, whether it can also regulate the actual service or content those packets deliver. In January 2014 Verizon won a partial victory. The U.S. Court of Appeals for the Washington, D.C. Circuit rejected Verizon’s claim that the FCC lacks jurisdiction over broadband providers. However, it also ruled that the FCC cannot regulate broadband service providers the same way it regulates telephone companies. This ruling suggests that network neutrality cannot be enforced without further legislative intervention. On February 23, 2014, Netflix agreed to a deal with Comcast to ensure that its movies and TV shows stream more quickly. This agreement demonstrates a shift in the balance of power in favor of ISPs. It also suggests that prices for consumers will increase. On May 15, 2014, the FCC decided to consider two options regarding the network neutrality issue: (1) permit fast and slow broadband lanes, which would compromise network neutrality; or (2) reclassify broadband as a telecommunications service rather than an information service, which would preserve network neutrality. The FCC accepted a first round of public comments through July 15, 2014, and a second round through September 15, 2014.On November 10, 2014, President Obama asked the FCC “to implement the strongest possible rules to protect net neutrality,” and to extend those rules to cover mobile broadband. The president’s plan would prevent ISPs from blocking legal content; prevent ISPs from slowing data flows; and ban paid prioritization of Internet traffic. (Paid prioritization means that users will have to pay more for faster service.) In early 2015, FCC Chairman Tom Wheeler indicated that the agency will classify ISPs as telecommunications services under the Communications Act of 1934.This vote will provide the FCC with the legal authority to prevent ISPs from lowering transmission speeds or prioritizing speeds for certain content providers in exchange for payment. In essence, the vote will favor network neutrality.

(Questions)

1. Are the content providers (e.g., Netflix) correct in claiming that eliminating network neutrality will encourage censorship by the ISPs? Support your answer.

2. Are the content providers correct in claiming that eliminating network neutrality will result in consumers paying higher prices for the content they watch over the Internet? Support your answer.

3. Why is the debate over network neutrality so important to you? Support your answer.