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Friday, February 12, 2016

The new GSMA / NERA paper on changing technology regulation is actually quite good

Regular readers will know that I'm not a huge fan of the GSMA. While it does some good stuff on areas like taxation, international development and energy efficiency, I think its application efforts are mostly awful (RCS....) and its public-policy work mostly Machiavellian. The annual MWC zoo encourages (forces?) the industry to waste a huge % of its time and marketing budget on something that people "must be seen" at, despite the chaos and cost.

So it may come as quite a shock to read something positive from me, about one of its recent expostulations on the topic of regulation.

But having read the new report on future regulation frameworks, written for GSMA by NERA Economic Consulting (pdf link here) I actually think it's pretty good. This is because it focuses on the need for fewer regulations of telcos in the pursuit of more innovation and lower prices for consumers, rather than for more regulation on Internet and device vendors, for protectionist and defensive reasons. It makes some very clear points - and some surprisingly honest admissions. It's not perfect, but it's a step in the right direction.

OK, it's still got a cringeworthy 1980s-era title about "digital ecosystems", but given that's it's aimed at regulators & policymakers who mostly still live in the last century, that's excusable. It even prefaces the dreaded "OTT" term with an appropriately-derisive "so-called".

I'm impressed that GSMA gave NERA a pretty free rein on this (or more likely, NERA insisted on it). It doesn't reference flawed rhetoric about "platform neutrality" (link), or make a big deal about Net Neutrality. It doesn't give strawman arguments that everything should interoperate (link). It doesn't mention the term "QoS" at all. It acknowledges the power of "permissionless innovation" and the benefits of "dynamic markets".

Most importantly, it doesn't mimic the execrable/laughable "analysis" that its rival ATKearney did for ETNO (Euro Telecom Network Operators' Association) 5 years ago in its infamous "Viable Future Model for the Internet" piece. That tried to suggest that "sustainability" would only arise if web companies were forced to subsidise telco infrastructure, via mythical "sender-pays" fees for traffic.

Broadly speaking the NERA report suggests less/more-flexible regulation for telcos, rather than more regulation for everyone else in the industry. It makes some very good points about the pace of regulatory change being too slow for such a dynamic market, and alludes to the fact that "services" do not exist independently of devices, applications and platforms.

A few extracts that resonated for me:

  • "On the demand side, it implies that consumers can use different combinations of products and services to achieve the same functional objective." 
  • "For regulators, the increasing number of ways for digital consumers to achieve the same function presents a tremendous challenge" 
  • "First and foremost, dynamic markets generate benefits by creating new and better products or services that displace inferior ones and challenge the dominance of incumbent suppliers." 
  • "The rational behaviour of a leading player in a dynamically contestable market is to assume that the market is becoming competitive and to anticipate challenges from competitors by out-innovating them and keeping prices at competitive levels." 
  • "Accordingly, a central objective of regulatory policy should be to promote (or at least not signicantly hinder) innovation-driven dynamic competition in the digital ecosystem." 
  • "Private actors have strong incentives to engage in rent-seeking—that is, to attempt to influence regulatory outcomes to impose costs on competitors and achieve advantages for themselves."
The document makes some valid points about telcos being constrained by various layers of legacy regulation - does anyone really care about SMS roaming, in the days of Whatsapp? But moreover, it makes the point that the regulatory process absorbs a huge amount of management time and resource, and can mean that new service introductions get delayed while regulators and lawyers are consulted. 

It doesn't quite say it as such, but the pitch for ex-post regulation rather than ex-ante aligns with a desire to emulate fast Internet companies, which "ask for forgiveness, not for permission".

One of the most interesting recognitions is that in the first quote above - consumers can achieve the same end result, using different blends of products/services/networks, which often makes it unreasonable to regulate individual bits in isolation. If a user wanting music can download, stream, listen to broadcast, side-load via a variety of devices and networks, the net outcome is the same: listening to music, even if the path followed is different. Aligning regulation with function where possible is a good goal - and also fits in with some of the debate I have about voice vs. telephony, for example. 

That said, there's a lot of nuance here about standalone functions, vs. secondary embedded capability. The theme of "similar services" isn't really explored in the report, although a reference to VoIP and emergency calling for "voice systems" is made. For me, similarity has to go beyond "function" towards context and purpose. A voice call made on Skype is sometimes "similar" to a phone call, but can also be used in lots of different ways as well - nobody would argue that a baby-monitor or karaoke app should include 911/112/999 capabilities.

Perhaps the most surprising tonal difference from the usual GSMA output is the praising of competition/innovation leading to lower prices, as legacy services get substituted by "newer and better" functional equivalents. One interesting point the report makes is that differential regulation for similar services can lead to *raised* prices. Which seems to imply that a "level playing field" of regulation for telephony- or SMS-similar services should lead ideally to prices below the current near-zero fees from WhatsApp or FaceTime. I suspect that's probably NERA's view more than it is GSMA's, but bravo for publishing it anyway.

My main criticism of the report is its fairly arbitrary split of the overall value chain into "devices", "communications", "applications" and "content", although the appendix section points out that platform players can orchestrate overall services/capabilities across these domains, even if they don't own or control them directly.

There is no mention of the role of software or web developers in the report, or the role of APIs to expose capabilities from one party to another. The role of network equipment and software vendors is overlooked, as well as changes emanating from the move to cloud and virtualisation.

Overall, I'd agree that the technology industry's regulation needs an overhaul - especially given the convoluted system in the US, as well as the pomposity and antiquated procedures at ITU. I also agree with sentiments about faster (and more flexible) assessment of market power and more streamlined approaches to mergers.

One question I'd like to see addressed is how ex-post regulation can be done more efficiently and quickly. What can be done to address (lets say) ten times the number of complaints, ten times as fast? Can we look forward to legal/regulatory AIs investigating and ruling in an instant, on anti-competitive network management practices, or unfair wholesale pricing?

A few questions remain. It's not obvious that the proposals adequately take into account non-commercial actors, such as users of unlicenced spectrum, which have complex and multi-layered ecosystems of their own. There is also very little consideration of enterprise communications and IT systems, and how they might fit (or get caught in) any future regulatory framework shifts. The same is true of IoT - as more systems embed comms/networking capabilities, is the expectation that the regulator's purview expands to include machinery, vehicles and corporate software and collaboration systems? That would be a retrograde step, I believe.

And I'm a little concerned that some of the phrases used by NERA ("balanced, holistic approach that improves the availability and affordability of the entire digital ecosystem platform") may get twisted in future pronouncements, back towards some of the telecom industry's traditional anti-innovation defensiveness. Unfortunately the GSMA's press release contains the discredited "trigger word" phrase "level playing field", when the report itself makes it clear that many different sports are being played. It's possible that I'm being naive here, and am missing the more-subtle-than-usual Machiavellian undertones. It will be important to double-check for misleading analogies in future missives.

But overall, credit where credit is due. There's some good stuff in there & it's worth a read.

1 comment:

Grean Herbz said...
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