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Google's coup: The internet's first rule book

With love from Brussels

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The power play is over how data intensive, high quality services such as video will be delivered. Only a handful of large US companies make any significant revenue from the web. In Web 2.0 land, start-ups talk of being in the "pre revenue phase".

While Google monopolises the "web economy", effectively setting the price of doing business on the web, it's a small pot compared to incumbent operators, either mobile or fixed, who send almost every household at least one utility bill a month. Even with the turnover, or "churn" of the mobile business, that's a stream of income web companies such as Amazon.com and eBay can only dream about.

Google's plan is simple. It will simply remove the ability of infrastructure companies to make money. Google can avoid competing with access networks, because it doesn't need to. By pouring billions into content networks instead - its own private internet - it can stand by and watch those last mile businesses become increasingly unprofitable.

Today, providing an access network for the consumer to use data is not a profitable business: there just aren't enough people willing to pay for it. But TV and mobile telephony have proven demand. So the operator can use the profits from cable TV or mobile to invest in the data capacity. We're seeing the fruits of this cross-subsidy model in the UK, with fast wireless broadband now available on pay-as-you-go for under a tenner a month. These national data networks couldn't have been built if the operator didn’t have the prospect of steady income from telephony - only a fool or a gambler would have have invested the capital.

Google's strategy was in evidence in its "bidding" for a chunk of wireless spectrum in the US this year. Google tabled a bid not to win the auction, but so it could enforce rules on the eventual winner, Verizon. And these rules (eventually watered down in a compromise) made it much harder for the winner to cross subsidize data using those traditionally profitable voice revenues.

It's under the flags of "open access" and "net neutrality" that the battle is being conducted - and now neutrality has arrived in Europe.

What's on the table

Last year the Commission formally proposed the establishment of a new pan-European watchdog, the ETMA or European Telecom Market Authority, taking over many of the powers of the 27 member states' national regulators such as OFCOM. This year, discussions on telecommunications reform ("The Telecoms Package") began in earnest, and this included the establishment of a super-regulator.

In September, the Commission published an amendment to the Universal Service Directive, or to give its official title, Directive 2002/22/EC of the European Parliament and of the Council.

A new Article, 22.3, proposes:

In order to prevent degradation of service and slowing of traffic over networks, the Commission may, having consulted the Authority, adopt technical implementing measures concerning minimum quality of service requirements to be set by the national regulatory authority on undertakings providing public communications networks.

This establishes a role for the new super-quango: deciding what's acceptable performance. It's a benign-sounding intervention, but nevertheless it's a precedent - the draft of the first chapter of a book that has never before been written.

However it was at the European Parliamentary committee stage that Google scored its coup, asking the Socialist delegation to include language almost identical to the requirement that split the FCC down the middle. Here's the EP's draft text:

A national regulatory authority may issue guidelines setting minimum quality of services requirements, and if appropriate, take other measures in order to prevent degradation of service and slowing of traffic over networks, and to ensure that the ability of users to access or distribute lawful content or to run lawful applications and services of their choice is not reasonable restricted.

The key change is that Parliament wants local regulators to set the rules, not the Commission. But at a stroke, Europe inserted itself in the role of deciding what content is lawful, and what applications are legal.

The French Presidency has suggested the following compromise:

In order to prevent degradation of service and hindering or slowing of traffic over networks, and to ensure that the ability of users to access or distribute lawful content or to run lawful applications and services of their choice is not unreasonably restricted, Member States shall ensure that national regulatory authorities are able to set minimum quality of service requirements on undertakings providing public communications networks.

The Commission may, having consulted the Authority, adopt technical implementing measures concerning minimum quality of service requirements to be set by the national regulatory authority on undertakings providing public communications networks.

Amazingly, the historic decision to regulate was inserted without any groundswell of support from the public: petitions, or interventions from Google-sponsored law academics, as was the case with "net neutrality" in the US. Judging from our mailbag, users are concerned with mis-selling, peak/off peak throttling and Phorm, rather than the absence of a Rule Book.

One of the paradoxes of regulating freedom is that once it's written down, we discover we have less than we had before. From the successful anarchy we have today, the scramble is now on to define "Lawful Applications", and "Non Discriminatory" network management, which open up a Pandora's Box of issues.

But will it fly?

Thanks to the intervention of a heavyweight, almost certainly.

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