Innovational Complementarities
and Network Neutrality
Johannes M. Bauer and Günter Knieps
Michigan State University and University of Freiburg
TPRC 43
Arlington, VA, 24-27 September 2015
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Motivation
• FCC net neutrality order and much of policy
debate based on assumption that Internet
innovation is edge-driven
• Most economic models of the effects of net
neutrality regulation rely on a specific, wellunderstood but narrow, framework (M/M/1) to
model congestion
• Paper seeks to broaden analysis to a more
general model of interdependent innovation
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Diversity and heterogeneity of uses
Source: Sandvine 2015
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Continuous network innovation
(Download capacity for DSL, cable, and mobile 1988-2015)
Source: Bauer & Latzer, forthcoming
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Interdependent innovation
• Innovation
– Combination and re-combination of knowledge
– Evolutionary search process
• Drivers
– Opportunities (“adjacent possible”)
– Appropriability of rewards
– Capabilities
• In the ICT system innovation conditions at each
layers enable and constrain the innovation
conditions at the other layers
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Framing Internet innovations
• Modular core and edge innovations
– End-to-end does not per se oppose active traffic
management but suggests that preserving low-cost
options to innovate on the edges of the network has
substantial value
– This value is unlocked by keeping the core network
services and functions simple and cheap
• Network ownership versus ownership at the edge
– Considerable advantages in a network architecture in
which innovators at the edge do not intervene in the
competencies of network operators and vice versa
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M/M/1 queuing models
• Based on Poisson process of arrival rate of service
requests
• Average waiting time in the priority class differs from
average waiting time in the best effort class
• Analyzes average waiting time depending on network
traffic and transmission capacity
• Given the stochastic nature of the Poisson process,
deterministic traffic quality guaranties of maximal endto-end response time of any data packet in the top
priority class are beyond the M/M/1 framework
• Additional investments increase transmission capacity
and thereby increase average service
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All-IP networks
• The narrow focus on end-to-end response time of
content delivery can and needs to be extended to
encompass real time jitter-sensitive applications.
• To analyze the full innovation potential at the edge
and within all-IP networks and their
interplay/complementarities demands a more
general approach toward traffic quality.
• It requires taking into account not only stochastic
traffic quality (e.g. average expected response time)
but also deterministic traffic quality in determining
maximum response times (D) and maximum jitter (J).
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Complementary GPTs
• Innovations within the Internet are not only driven by
applications but can also be stimulated by developments
at the network and traffic layers.
• The all-IP infrastructure and Generalized DiffServ
architecture function as General Purpose Technologies
(GPTs) for applications and services.
• It is important that the GPTs on the broadband
infrastructure level and on the traffic architecture level
are open for innovative evolutions.
• Mutual feedback effects between applications and
network/traffic layers.
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Generalized DiffServ architecture
• Allows implementation of a variety of multipurpose
traffic architectures with deterministic and stochastic
traffic quality guarantees by creating different traffic
classes that can support time- and non-time-sensitive
applications.
• Traffic quality parameters are not only limited to mean,
statistical or probabilistic end-to-end response times but
also manage worst case analysis of the network behavior.
• Maximum response time guarantee as well as active
jitter management for real time applications can be
provided.
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An open innovation space
• The Generalized DiffServ architecture contains
frameworks and building blocks for a variety of
transmission architectures enabling the organization
of various traffic class hierarchies.
• Basic characteristics of each entrepreneurial
selection of the Generalized DiffServ architecture
– Application-blindness of the traffic network
– Active traffic management
– Market driven network neutrality
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End-to-end connectivity and market-driven
network neutrality
• QoS differentiation and traffic class pricing in the
Generalized DiffServ model do not incentivize ad hoc
discrimination of specific applications.
• Instead, market-driven network neutrality is realized,
where only opportunity costs of traffic qualities are
relevant for pricing, irrespective of the specific
application.
• Multipurpose traffic allocation rules for the total traffic,
having impact on all users rather than a particular
subset of users.
• Transmission capacities are shared among different
traffic classes with monotonic declining traffic quality.
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Complementarity of edge
innovations
• All IP-infrastructure and Generalized DiffServ
architecture function as GPTs for application services.
– A large and open set of application services can be
provided.
– E.g., e-mail services, content delivery as well as timesensitive protocol session dependent, interactive services.
• In contrast, vis-à-vis the network application services
at the edge do not have the characteristics of a GPT.
– E.g., Internet message format standards and the simple
mail transport protocol (SMTP), real-time transport
protocol for transmission of real-time data and providing
QoS feedback.
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Implications for net neutrality
• Overarching framework for the discussion
– The net neutrality debate in general and the specific policies adopted in
the U.S. use an overly simplified innovation concept.
– The underlying innovation model privileges innovations at the application
layer but infrastructure innovations are also a driver of innovation.
• Implications for net neutrality research
– Analytical models rely heavily on M/M/1 queuing model.
– Understanding innovational complementarities will require more general
congestion models.
• Implications for policy design
– Innovations at the application layer and at the network layer flourish
under different regulatory conditions that require balancing a trade-off.
– Improperly designed net neutrality policies may bias innovation efforts in
favor of services or infrastructure resulting in lower overall innovation.
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Recap
• Innovation is an evolutionary search process of combination,
recombination and selection.
• A large variety of innovations at the edge could evolve based on
TCP best effort transmission protocols.
• Growing diversity and heterogeneity of applications and services
implies that network differentiation will become a more important
precondition for the vibrancy of the interdependent innovation
system.
• In technologically dynamic industries with asymmetrically
distributed knowledge it is important to allow entrepreneurial
choices of for-profit and non-profit actors to experiment freely.
• Net neutrality policy as currently specified limits the technological
and economic space over which such experiments can take place.
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