Unravelling the web's future

The outcome of a looming regulatory debate will affect networks and web companies and could shape the future of the internet.

As the cost of deploying the next generation of fibre-optic landlines and high-speed mobile data networks weighs on telecoms, many are recognising the need for new revenue streams.

Is a telecommunications network a simple utility, such as roads or power lines, that is in the public interest and necessary for social and economic growth? Or is it a commercial venture that should be free to make the best decisions in the interests of its investors?

While the truth may be much less black and white than the questions suggest, they underscore a looming regulatory debate that many believe is the single most important issue facing the telecoms industry. Google says the outcome of the debate "will shape the future of the internet", while Tim Berners-Lee, the man credited with inventing the World Wide Web in 1990, says it questions "the fundamental basis of the society we have built on the internet".

Currently, the fixed-line and mobile networks that bring the internet to our computers act like public roads or water pipes, delivering content without judgement. A video from YouTube is treated just like a personal blog page or a Yahoo search result. But as the cost of deploying the next generation of fibre-optic landlines and high-speed mobile data networks weighs on telecoms, many are recognising the need for new revenue streams.

One opportunity is to charge some content providers, such as internet television channels or music download stores, for access to a "fast lane" on the network, reserved for priority traffic. In a report issued this month, telecoms analysts at HSBC said this type of service would let telecoms make a profit from the media business without developing their own content or competencies in the media industry. "There is a clear commercial logic to bundling telecoms and media services together into triple-play or quad-play offerings," the report says.

"The telecoms operator would charge the consumer for super-fast broadband access and supplement this by levying fees on the media company for prioritising its data packets. The fact that in this scenario operators would sidestep the need to acquire media and content expertise will doubtless reassure those understandably sceptical of telecoms companies' aptitude in this area." Such a system would keep the bandwidth-heavy entertainment services - which consume an estimated 75 per cent of global internet capacity - streaming into households and offices. At the same time, it would help fund the rollout of the next generation of networks needed to keep pace with exponential growth in demand for bandwidth.

But it would also transform network operators from simple utilities into major forces in determining the success or failure of internet content businesses. An online television channel that does not sign a deal - or is not offered one due to an exclusivity clause gained by a competitor - would not be able to offer a similar quality of service. For this reason, advocacy groups and internet businesses around the world have called for government regulators to make "network neutrality" a guiding principle of the regulatory system. They are being supported by internet giants such as Google and Yahoo.

"This is absolutely the most fundamental issue that the telecoms industry is facing today," says Bahjat Darwiche, a principal at Booz and Company, a management consultancy. "There is no simple solution for this issue, because it is really the most challenging transformation that regulators and operators have to manage over the coming few years." In the Middle East and across the world, network operators face increasing competition, falling prices and major investments in infrastructure. Devices such as the Apple iPhone and mobile broadband modems are making usage patterns on mobile networks increasingly similar to those of landlines, despite mobile networks having far less capacity.

Facing such a scenario, Mr Darwiche says companies and regulators must decide whether communications networks should be seen more as public utilities or private businesses. With many governments naming broadband internet projects as worthy recipients of economic stimulus investments, the case for building state-of-the-art utility networks with a combination of government and private funds could be tempting, he says.

"My advice to operators is they need to look at this as a long-term investment, they need to consider the national importance and they should be proactive in proposing national broadband plans that can be sponsored and supported by governments," Mr Darwiche says. "But if they want to play at moving beyond the infrastructure, they need to figure out how to become an enabler for the applications that will run over their networks. How can their systems offer unique features like location-based services, billing and customer support?"

Many believe that decisions made in the US and Europe - home to the world's most influential telecoms and internet companies - will determine the approach taken towards network neutrality in emerging markets such as the Middle East. Because the decisions will affect the business model for both networks and web companies, it is likely that the global nature of the internet will encourage a globally aligned system.

The International Telecommunications Union (ITU), a UN body that helps govern the global telecommunications system, will hold a global regulatory symposium in Beirut in November. "The whole issue of our position on network neutrality will be discussed in Beirut," says Dr Hamadoun Toure, the secretary general of the ITU. "At the conclusion of that meeting, we will have an official position." Creating an approach that lets both public infrastructure spending and private enterprise co-exist is a priority for Dr Toure, the first ITU chief to come to the organisation directly from the private sector.

"I do not doubt that the most useful economic stimulus is broadband. What we want to do is bridge the broadband divide around the world." he says. "The best thing is broadband doesn't need a financial bailout, it just needs good government policy and a good regulatory environment." [e-mail]