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Enterprise Networking: The Forgotten Issue in Regulation

The FCC is undertaking a major rethinking of broadband regulatory policy, one that could result in reclassifying broadband services and Internet connectivity as telecommunications services under Title II of the Communications Act. The debate on the impact of this issue has already begun, and it's ranging from how it might impact wireless deployment to whether it means fiber to the home is dead, or maybe just beginning.

One thing noticeably absent from the debate so far is comment on how regulations might impact the enterprise. Public policy has always tended to focus on voters, of course, but workers are voters too, and enterprises depend on their networks for critical productivity support. Because net neutrality isn't seen as a business issue, we're ignoring the fact that changes in policy made in the name of net neutrality might have a profound impact.

The FCC is proposing that the Internet be considered the "new broadband dialtone", a connectivity service that stands apart from the information elements (content, web pages) that are reached over the Internet. In truth, it's always been just that, and in truth the FCC's position in 2005 that the Internet and broadband, or connectivity and content, were indivisible has been clearly debunked by consumer offerings like IPTV and business services like VPNs.

Making Internet connectivity a fully regulated offering might have significant benefits to the Enterprise. The Telecom Act of 1996 required that carriers offer telecommunications services to competitors at wholesale rates. For enterprises, that might mean a broader set of retail providers and lower unit prices on VPNs. Better yet, it might mean that cloud computing providers would be able to acquire wholesale connectivity and bundle it with their cloud service offerings to create a more attractive package with greater QoS and lower prices.

The problem, for the enterprise, is that the FCC's proposal isn't really aimed at making the Internet a telecommunications service in the full sense of the Act. What they propose to do is to declare Internet connectivity a telecommunications service and then forbear from applying most of the regulations to the service. Specifically, they plan to exempt it from wholesaling requirements. For enterprises, this could easily become a worst-of-all-possible-worlds scenario, for two key reasons.

First, there is no real legal basis for what the FCC proposes; forbearance has never been applied like this before. If anyone decides to appeal the ruling (and there's no shortage of those who might) we could end up with a long protracted legal battle that would put the regulatory status of all public IP services in question for years to come. Enterprises like stable pricing and service availability for their own business planning, and having a huge regulatory sword dangling over the industry isn't likely to provide that.

The second problem is that the threat to telco profit and revenue stability created by all this uncertainty over the legal basis of the FCC's move could seriously curtail investment in infrastructure by network operators. When a network isn't realizing the return on investment that operators need, there's a strong tendency to "run hot", meaning to let utilization increase rather than spend more money building capacity. Hot networks don't provide QoS, and enterprises need QoS for most of their services. Service quality as a whole could be at risk.

These problems are exacerbated by the fact that it's been a long-standing national policy to set pricing on business services so as to partially subsidize residential services. Businesses pay more for phone services, and more for broadband, than residential users do--even though many tests have shown that the quality of the services is no different for the two sets of customers. If there's any profit pressure on operators, soaking the enterprise is more politically palatable than soaking the consumer.

It would be better for businesses if the FCC took the second of its three approaches, and simply declared Internet connectivity a telecommunications service with the full sharing requirements of the Act. That would quickly focus cloud providers on enterprise opportunities by letting them share in transmission revenues. It would remove the uncertainty associated with continued appeals of the forbearance principles that are the underpinning of the FCC's favored approach. It would probably even encourage ISPs to offer a broader range of QoS, as a way of creating new services, profits, and differentiation.

The problem with QoS today is the same as the problem with many service innovations—operators are afraid of rocking the boat in a regulatory sense, and being forced to sell wholesale QoS services to others. The fear of that consequence is likely more destructive than the consequence itself, to business customers in particular. If everyone knew that fair wholesale prices were going to be set for every service, we could simply get on with the process of building a sound set of services for the now-predictable future.

Full Title II regulation of Internet connectivity is the best answer for business, and maybe for the broad market as well. It might be smart for enterprises to start lobbying the FCC in support of their own agenda. Everyone else will surely be doing that, and the squeaky wheels will win out in the end.