Margit Vanberg, Standard definitions of Internet service provision in:

Margit Vanberg

Competition and Cooperation Among Internet Service Providers, page 24 - 26

A Network Economic Analysis

1. Edition 2009, ISBN print: 978-3-8329-4163-5, ISBN online: 978-3-8452-1290-6

Series: Freiburger Studien zur Netzökonomie, vol. 14

Bibliographic information
24 2 Defining Internet service provision “By framing the question properly, the policymaker can gain better answers” (Cannon, 2003: 205). For any kind of policy analysis it is most essential to be precise in defining the subject matter being analyzed. This chapter lays the groundwork for the subsequent analysis by defining the central terms used throughout the thesis. Most importantly, it explains the usage of the term “Internet service provision.” Furthermore, it offers criteria for differentiating between Internet service provision and the closely related communications services, especially fixed-line voice telecommunications. 2.1 Standard definitions of Internet service provision As has been pointed out already in the introduction, the Internet is a relatively recent phenomenon. The first “official” definition of the term Internet was published by the Federal Networking Council on October 24, 1995. This definition states: “Internet” refers to the global information system that -- (i) is logically linked together by a globally unique address space based on the Internet Protocol (IP) or its subsequent extensions/follow-ons; (ii) is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) suite or its subsequent extensions/follow-ons, and/or other IPcompatible protocols; and (iii) provides, uses or makes accessible, either publicly or privately, high level services layered on the communications and related infrastructure described herein (Leiner et al., 2003: 14). A more simple definition, which nevertheless reflects the same central characteristics of the Internet, reads: “[…] the Internet is not a new kind of physical network. It is, instead, a method of interconnecting physical networks and a set of conventions for using networks that allow the computers they reach to interact” (Comer, 2006: 13). Both definitions focus on the two fundamental characteristics of the Internet. The first is the fact that the Internet is not a single physical network to which all Internet users connect (see Fig. 2.1 (a)). Rather, it is made up of thousands of connected but independent physical networks (see Figure 2.1 (b)). The second characteristic is that the underlying physical networks making up the Internet can be used for differing purposes. The common standards used for interconnecting these networks and for allowing communication between the computers (hosts) connected to these networks define the Internet. 25 Figure 2.1 a) and b): End-user view of the Internet Source: Comer, 2006: 37 The central characteristic of the Internet is therefore not a physical infrastructure but rather the logical structure of the Internet. The underlying physical networks can, and very often do, have viable functions apart from supporting Internet applications. They are, for instance, used for fixed-line voice telecommunications services, for mobile voice telecommunication, for television broadcasting, for satellite communication, etc. Internet application programs are explicitly written so that they can be executed independent of the underlying communications infrastructure (Comer, 2006: 36). A related development is that the standards used for communication in the Internet are increasingly being employed to accommodate applications which before could be executed only with alternative communications standards (for instance, telephone services or video-signaling are now transported using Internet logistics).9 9 Because Internet technology functions in different network environments, it is a primary driver of the trend towards the convergence of the telecommunications, media, and information technology sectors. Convergence is for instance evidenced by the fact that voice telehosts Internet hosts Internet (b) router physical network (a) (a) The user‘s view of a TCP/IP internet in which each computer appears to attach to a single large network, and (b) the structure of physical networks and routers that provide the interconnection. 26 2.2 Differentiating Internet core and Internet periphery In his definition of Internet services provision, Knieps (2003, 2007) focuses on the differentiation between market elements that are unique to Internet services provision and market elements that are related to the Internet but also have viable uses apart from it. The present analysis follows this approach by differentiating between Internet core services and Internet periphery services. The primary functions of the Internet, as defined by the Federal Networking Council, are counted among the elements of the Internet core. The complementary functions to the Internet core are counted among the elements of the Internet periphery. Figure 2.2 illustrates this concept. The Internet core services include Internet application services, meaning those services provided by Internet Service Providers (ISPs) that end-users are usually familiar with, such as E-mail services, homepage services, web-portal services, etc. Other customer-related services, such as accounting, billing, and technical support also belong in this category. The other two segments belonging to the Internet core are Internet access services and Internet backbone services. Both are Internet transport services. They encompass the hardware and software that enhance plain physical infrastructure with Internet logistics in order to allow Internet traffic to be transmitted over a network. Internet access services are transport services that are provided on top of local communications infrastructure and serve to transmit Internet traffic between the end-users’ premises and a point of presence of an ISP’s network. Internet backbone services are provided over long-distance communications infrastructure and serve to transmit data within an ISP’s networks and between ISPs’ networks. The installation of routers and switches as well as routing software, also IP-address assignment, the realization of interconnection with other networks, network management, etc. are part of Internet transport services. Internet application services and Internet transport services belong to the Internet core because they have meaningful functions only in connection to the Internet. communication services, traditionally offered only on public switched telephone networks (PSTN), are now also being offered on Cable-TV (CATV) platforms, while telecommunications platforms are recently being employed to deliver video-signaling. The Internet facilitates convergence, through its platform-independent protocols for data transmission, which allow any application, which can be broken down into information packets, to be sent over a variety of network infrastructures. With this trend towards platform-independent services previously independent industries are now competing on the same markets. The relevance of network convergence for the present analysis is discussed in chapter 4.

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Die Konvergenz der Netztechnologien, die dem Internet, der Telekommunikation und dem Kabelfernsehen zu Grunde liegen, wird die Regulierung dieser Märkte grundlegend verändern. In den sogenannten Next Generation Networks werden auch Sprache und Fernsehinhalte über die IP-Technologie des Internets transportiert. Mit den Methoden der angewandten Mikroökonomie untersucht die vorliegende Arbeit, ob eine ex-ante sektorspezifische Regulierung auf den Märkten für Internetdienste wettbewerbsökonomisch begründet ist. Im Mittelpunkt der Analyse stehen die Größen- und Verbundvorteile, die beim Aufbau von Netzinfrastrukturen entstehen, sowie die Netzexternalitäten, die im Internet eine bedeutende Rolle spielen. Die Autorin kommt zu dem Ergebnis, dass in den Kernmärkten der Internet Service Provider keine monopolistischen Engpassbereiche vorliegen, welche eine sektor-spezifische Regulierung notwendig machen würden. Der funktionsfähige Wettbewerb zwischen den ISP setzt jedoch regulierten, diskriminierungsfreien Zugang zu den verbleibenden monopolistischen Engpassbereichen im vorgelagerten Markt für lokale Netzinfrastruktur voraus. Die Untersuchung zeigt den notwendigen Regulierungsumfang in der Internet-Peripherie auf und vergleicht diesen mit der aktuellen Regulierungspraxis auf den Telekommunikationsmärkten in den Vereinigten Staaten und in Europa. Sie richtet sich sowohl an die Praxis (Netzbetreiber, Regulierer und Kartellämter) als auch an die Wissenschaft.