Before theFederal Communications Commission

Washington, D.C. 20554

In the Matter of

Preserving the Open Internet

Broadband Industry Practices

)))))

GN Docket No. 09-191

WC Docket No. 07-52

To: The Commission

COMMENTS OF ALCATEL−LUCENT

Paul KenefickVice President, Public Affairs

Americas RegionALCATEL-LUCENT

1100 New York, Avenue, N.W.Suite 640 West Tower

Washington, D.C. 20005

January 14, 2010

TABLE OF CONTENTS

SUMMARY ................................................................................................................................ i

I. INTRODUCTION AND BACKGROUND..................................................................... 2

II. BROADBAND DEMAND IS GROWING EXPONENTIALLY AND CANNOT BE REASONABLY ADDRESSED BY GROWTH IN CAPACITY ALONE................. 5

III. NETWORK MANAGEMENT PRACTICES ARE CRITICAL FOR ADVANCING HIGH-SPEED INTERNET ACCESS SERVICE AND OTHER IP-ENABLED SERVICES.............................................................................................. 8

IV. TO MEET BROADBAND DEMAND, NETWORK PROVIDERS MUST BE PERMITTED TO DEVELOP AND OFFER MANAGED SERVICES ......................... 10

A. The Commission Should Embrace Managed Services........................................ 11

1. Service Sensitive to Packet Loss ............................................................ 14

2. Service Sensitive to Packet Delay .......................................................... 16

3. Service Requiring Secure Private Connectivity ...................................... 17

4. Service Requiring Bandwidth Guarantees .............................................. 18

5. Customer–Requested Enhanced Treatment ............................................ 19

B. Managed Services and Internet Access Service Offerings Will Co-Exist and Flourish ...................................................................................................... 20

V. THE FCC SHOULD ENABLE FLEXIBLE MANAGEMENT AND BUSINESS MODELS AND SHOULD TREAD CAUTIOUSLY IN THE DYNAMIC BROADBAND MARKET............................................................................................ 22

VI. THE FOUR CURRENT PRINCIPLES WHEN COUPLED WITH OTHER LEGAL TOOLS ARE SUFFICIENT TO PROTECT CONSUMERS. .......................... 24

VII. THE COMMISSION’S PROPOSED RULE ON NONDISCRIMINATION IS A SIGNIFICANT DEPARTURE FROM POLICIES OF THE UNITED STATES AND IS FAR MORE RESTRICTIVE THAN OTHER ADVANCED NATIONS......... 25

VIII. THE COMMISSION SHOULD CONSIDER PLATFORM DISTINCTIONS WHEN IMPLEMENTING ITS RULES........................................................................ 27

IX. CONCLUSION............................................................................................................. 29

SUMMARY

Alcatel-Lucent (“ALU”) submits the following comments in the Federal

Communications Commission’s (“Commission”) Open Internet Docket. ALU agrees with the

Commission that the openness of the Internet is its greatest asset and most profound strength.

An open Internet fosters innovation and investment in both the core and at the edge, driving

broadband adoption and increasing use. Alcatel-Lucent has been involved in the net neutrality

debate since 2003, when it worked with the high tech community to craft the connectivity

principles that eventually became the cornerstone of the Commission’s Internet Policy

Statement, and later in the 2007 Federal Trade Commission forum and the Commission’s

Broadband Notice of Inquiry.

Alcatel-Lucent’s comments include the attached White Paper, which clearly demonstrates

that the Internet traffic demand growth acknowledged by the Commission in its National

Broadband Plan proceedings and industry is a reality. We are entering an unprecedented period

of capacity demand due to ubiquitous broadband availability, the rapid uptake in devices

connected to the Internet, and a change in consumer behavior with users spending more time

online, demanding more bandwidth-intensive applications and services, and maintaining more

data online. This “perfect storm” of users and uses is straining wireline and wireless broadband

networks throughout the world. The White Paper includes the following data:

• Annual network traffic growth, for both wireline and wireless networks, will be between 100% and 114%, with other studies from other parties showing even more intensive growth.

• 100s of millions of new fixed and mobile Internet-connected devices will enter the marketplace.

• Consumer usage behavior is changing rapidly, with fewer passive users and more power users, who typically will consume exponentially larger amounts of bandwidth.

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The solution to this unprecedented level of capacity demand is for the Commission to

create an environment that provides incentives to invest in continually increased bandwidth

networks with reasonable network management and managed services so that tomorrow’s

Internet maximizes consumer value. All networks need to be managed, including POTS and

“best effort” broadband. The Commission should encourage, not discourage, reasonable network

management practices and innovative managed services that ensure quality, mitigate congestion,

and provide proven benefits to consumers.

The Commission should recognize that managed services are an asset to consumers and

an incentive to drive broadband deployment, and the final regulatory proposal should exclude

managed services from any rules developed for “best effort” Internet service. New, dynamic

services are being made available to enhance the consumer experience on the Internet. These

managed services not only include the traditional operator-provided service (e.g. IPTV or

managed VoIP) but new consumer-demanded services that will empower users to demand

enhanced quality and reliability for applications and services offered online. These services

complement and benefit “best effort” Internet service, and service providers should be free to

optimally manage their networks to meet varying consumer demand.

At this point, the Commission should continue to rely on its existing principles to protect

consumers. There is no compelling evidence that the current principles are inadequate and need

to be expanded or enhanced. Furthermore, the proposed rules, particularly the unqualified

“nondiscrimination” rule, are overly restrictive, would inhibit innovation, and may be a barrier to

effective network management techniques. Such rules would also distinguish the United States

and be a departure from the views recently expressed by other nations that have examined the

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issue of broadband discrimination. Such a distinction could have an international

competitiveness impact.

Finally, in the event the Commission moves forward with the adoption of rules, ALU

urges the Commission to recognize the distinct characteristics of wireless services. The physical

limitations of radio spectrum bandwidth particularly require the Commission to implement these

rules in a cautious manner. The Commission should examine the data submitted in this

proceeding and possibly consider a further notice to thoroughly understand how the application

of these rules could impact the wireless broadband market.

Before theFederal Communications Commission

Washington, D.C. 20554

In the Matter of

Preserving the Open Internet

Broadband Industry Practices

)))))

GN Docket No. 09-191

WC Docket No. 07-52

To: The Commission

COMMENTS OF ALCATEL−LUCENT

Alcatel−Lucent (“ALU”) welcomes this opportunity to submit the following comments in

response to the Federal Communications Commission’s (“Commission”) Preserving the Open

Internet Notice of Proposed Rulemaking, the proceeding to consider net neutrality rules.1 In

these comments, ALU provides the Commission with extensive and compelling data on the

current and expected capacity demands posed by increasing Internet usage, high-bandwidth

applications, and the number of Internet connected devices. Given this unprecedented level of

demand, the FCC should encourage effective network management practices and innovative

managed services while continuing to rely on the four principles employed in the 2005 Internet

Policy Statement.2 The proposed rules in the Commission’s Notice could inhibit the very tools

that broadband Internet access service providers need to meet this unprecedented level of

demand while providing quality of service and offering new, innovative applications and

services.

1 Preserving the Open Internet; Broadband Industry Practices, GN Dkt No. 09-191 & WC Dkt No. 07-52, Notice of Proposed Rulemaking, 24 FCC Rcd 13064 (2009) (“Notice”).2 Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, CC Dkt Nos. 02-33, 01-337, 95-20, 98-10; GN Dkt No. 00-185; CS Dkt No. 02-52; WC Dkt No. 07-52, Policy Statement, 20 FCC Rcd 14986 (2005)(“Internet Policy Statement”).

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I. INTRODUCTION AND BACKGROUND

Alcatel-Lucent is the leading provider of broadband access solutions worldwide, and the

company’s market leadership and experience provides unique insight into policy prescriptions

for the broadband era. With a presence in 130 countries, Alcatel-Lucent has significant

experience in deploying current and next generation wired and wireless broadband under a

variety of geographical, regulatory, and economic conditions, for private and public entities

alike. Specifically, Alcatel-Lucent is the world leader in—

• Current Generation Broadband Access:

o (3G) mobile wireless broadband solutions, including CDMA (EVDO Rev. A) and UMTS (HSPA+); and

o Digital Subscriber Line (DSL) wireline technology.

• Next Generation Broadband:

o (4G) mobile wireless solutions utilizing Long Term Evolution (LTE) technology;

o WiMAX fixed wireless technology;

o Gigabit Passive Optical Networking (GPON) solutions utilized in Fiber-to-the-Premises (FTTP) deployments; and

o Innovative DSL solutions utilized in Fiber-to-the-Node (FTTN) deployments, including VDSL, VDSL2 and ADSL2+.

As demonstrated below, the nation’s continually expanding demand for broadband

connectivity is outpacing available bandwidth. The virtuous cycle of innovation and deployment

has created a scenario whereby demand cannot be met exclusively through additional bandwidth.

As bandwidth is added, it is rapidly consumed by ever more consumers and increasingly

sophisticated devices and applications, creating even more demand for bandwidth. The solution

is to combine continually increased bandwidth networks with reasonable network management

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and managed services so that tomorrow’s broadband will produce maximum consumer

innovation and value.

As more Americans subscribe to broadband Internet access at faster and faster speeds, the

market and technology are evolving to improve upon “best effort” Internet service. At Alcatel-

Lucent, we see an evolutionary trend in which today’s binary relationship between networks and

applications is being bridged through “applications enablement” – a set of capabilities that

enable a more personal web experience, with guaranteed quality of experience, for any user-

selected application that chooses to use the network capabilities exposed to the application

provider. Applications enablement empowers the end user to enjoy the best of both worlds: the

rich diversity of numerous applications and content available through the Internet, along with a

higher level of quality of service (“QoS”), privacy and/or security typically reserved for network

operator controlled services. By bridging this gap between applications and networks, the

applications enablement technology permits the service provider to offer a new class of managed

services where the consumer can have a choice beyond subscription service tiers and demand

enhanced quality and control for a specific application at his/her discretion.

Network management and the provision of managed services enable more intensive and

efficient use of broadband, optimizing the network for a broad array of users, and improving

individual user’s broadband usage experience. The Commission should strive to preserve the

flexibility and dynamism that pervades the broadband ecosystem today, which is driving

technological innovation and investment along with competing business models – all to the

benefit of consumers.

Alcatel-Lucent respectfully submits these comments to the Commission not only as a

network vendor with a broad understanding of the world’s communications networks, but as a

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longstanding active participant in the network neutrality and open Internet debate. Beginning

with the Wireline Broadband Proceeding,3 Alcatel-Lucent, through its leadership in the High

Tech Broadband Coalition, helped formulate and submit the Connectivity Principles to the

Commission in 2003.4 These principles became the cornerstone of the Commission’s Policy

Statement that has governed broadband Internet access since 2005. Since the adoption of the

Policy Statement in 2005, Alcatel-Lucent has consistently stated that the existing four principles,

along with preexisting competition and antitrust laws, are sufficient to protect consumer

interests.5 In this proceeding, Alcatel-Lucent maintains that the Commission’s record does not

provide any compelling evidence that the existing four principles are inadequate, and any

enhancement to the existing principles, particularly an unqualified “nondiscrimination” standard,

is not only unjustified but could have significant, negative consequences on the very innovation

and investment the Commission seeks to protect.6

3 See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Dkt Nos. 95-20, 98-10, Notice of Proposed Rulemaking, 17 FCC Rcd 3019 (2002).4 Letter from High Tech Broadband Coalition to Michael K. Powell, Chairman, Federal Communications Commission, CC Dkt No. 02-33 et al. (Sept. 25, 2003).5 See How Internet Protocol-Enabled Services are Changing the Face of Communications: A View from Technology Companies Before the Subcomm. on Telecomm. and the Internet of the H. Comm. on Energy and Commerce, 109th Cong. (2005) (statements of Patricia Russo, Chairman and CEO, Lucent Technologies and Michael Quigley, CEO, Alcatel North America); Comments of Alcatel-Lucent, Broadband Connectivity Policy Workshop Project No. V07000 (filed Feb. 12, 2007); Reply Comments of Alcatel-Lucent, RM-11361 (filed May 15, 2007); Reply Comments of Alcatel-Lucent, WC Dkt No. 07-52 (filed July 16, 2007).6 “The Commission seeks to promote investment and innovation with respect to the Internet.” Notice at ¶ 51.

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II. BROADBAND DEMAND IS GROWING EXPONENTIALLY AND CANNOT BE REASONABLY ADDRESSED BY GROWTH IN CAPACITY ALONE

Alcatel-Lucent agrees with the Commission that the “exaflood” of demand on Internet

capacity is real.7 The demand for bandwidth has been growing dramatically in recent years and,

as Alcatel-Lucent demonstrates below and in the attached White Paper, growth is expected to

continue exponentially for some time. Broadband capacity growth, however, has been more

linear than exponential, since the investment in network capacity required to support this traffic

growth simply cannot be sustained based on a linear (or sub-linear) increase in revenue. Looking

ahead, merely increasing bandwidth will be insufficient to provide users with an improved

Internet experience, since the anticipated concurrent increase in diverse, high-bandwidth

application usage will result in peak network traffic loads that will result in service degradation.

In recent years, the broadband marketplace has evolved from low-bandwidth ASCII text

files to richly formatted text; from simple graphics to high-resolution photos; from brief, low-

quality sound effects to CD-quality (and better) audio; and from small still pictures and crude

animations to higher-and-higher-resolution and quality video. High quality network television

shows can now even be streamed on-line from Hulu and similar sites. HD-quality videos are

readily available for streaming or download from sources such as YouTube and Apple’s iTunes

Music Store. 3D TV is already commercially available, and 3D content will undoubtedly be

streamed and downloaded over the web in the next few years. Applications and upgrades that

once were distributed on CDs or DVDs are now provided online — and some programs (such as

antivirus applications) may be updated multiple times a day, not just monthly or annually as in

7 Id. at ¶ 8 (“[T]he volume of Internet traffic is increasing rapidly, leading broadbandproviders to try new ways of managing congestion on their networks.”); ¶ 57 (“With the rapid growth of broadband applications and content, especially video, access providers may face capacity constraints.”).

6

the past. Operating system updates of hundreds or thousands of megabytes are downloaded —

frequently with no involvement by the user — monthly or even more often, by nearly every

networked computer. Indeed, anecdotally, a number of mobile operators have indicated that

automatic software upgrades and “patches” consume a significant percentage of the available

bandwidth at certain times and limit the bandwidth available for end-user requested services.

The impact on capacity demand has been dramatic. Network capacity is and will

continue to be constrained as consumers use voice, data and increasingly video applications,

often simultaneously, that are more and more bandwidth-intensive. Likewise, as high

downstream (to the end user) and upstream (from the end user) broadband connections become

more prevalent, more video communications, monitoring and streaming applications will be

developed and more content will be maintained in the network, rather than on the end user’s

device, which will further compound usage and demand of network resources.

This bandwidth demand growth is the result of both usage behavior (with video

becoming incorporated into the vast majority of services) and growth in the quantity of devices

as well. Each household, for example, has an increasing number of connected devices — not

only a computer, but multiple computers, smartphones, cameras, Internet radios, High Definition

televisions, networked digital picture frames, intelligent appliances, utility meters, etc. —

resulting in a massive multiplication of the household’s need for bandwidth. Moreover, as

households find more uses for broadband connectivity, usage is likely to be spread across more

hours than is the case when it is just used for web browsing and email, so that all hours become

“busy hours.” Thus, the traditional statistical multiplexing effect of bandwidth usage that is

based on (human) users naturally spreading their service usage across different specific times in

a given period, will no longer be appropriate, further straining network capacity.

7

Alcatel-Lucent has prepared the attached White Paper that provides an assessment of

future broadband demand growth trends, as well as the expected shortfall in capacity:

• An Exponential Growth in Bandwidth Demand

Analysis demonstrates annual traffic growth rates of between 100% and 114%through 2014 for both wireless and wireline networks, with some studies showing even more aggressive growth. Moreover, these growth curves accelerate in the out years of the analysis, indicating continuous growth beyond 2014.

• An Unprecedented Increase in the Number of Devices Connected to the Internet

100s of millions of new devices will be connected to the Internet – effectively, two new devices per person by 2014.

• Usage Behavior Change That Further Compounds Bandwidth Demand

With ubiquitous broadband connections, increasingly innovative services and more devices connected to the Internet, consumer behavior is dynamically changing with more users migrating from Passive Users (low demand) to Social Users (medium demand) to Power Users (high demand). By 2014, growth in Power Users, with an average bandwidth consumption eight times that of Passive Users, will increase 67%.

For broadband providers to successfully navigate the “perfect storm” of expanding

broadband demand, increased connections and more intensive consumer behavior, they must

combine increases in bandwidth with (1) continued and better network management, which will

resolve harms and ensure that bandwidth is consumed intelligently and efficiently, thereby

lowering the occupancy of bandwidth; and (2) growth in managed services, which will optimize

the user experience for QoS-enabled offerings, and will in turn relieve some congestion for “best

effort” high-speed Internet access services.

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III. NETWORK MANAGEMENT PRACTICES ARE CRITICAL FOR ADVANCING HIGH-SPEED INTERNET ACCESS SERVICE AND OTHER IP-ENABLED SERVICES

To the extent the Commission adopts any regulations in this proceeding, Alcatel-Lucent

urges the Commission to apply a very expansive view of permitted network management

practices. Service providers offering broadband Internet access must be able to engage in

reasonable network management practices, particularly given the current and expected dramatic

increases in capacity demand articulated in the attached White Paper. Without the ability to

employ a wide range of network management tools, networks would not be able to innovate,

capacity shortages would be exacerbated, and the consumer experience would be diminished.

Network management is not new. It exists in legacy circuit-switched voice networks, for

example, in managing subscriber lines and allocating individual voice circuits to higher-order

bearers (e.g., T1, T3) for switching across the inter-office TDM transport network. Today,

broadband network operators and other partners in the broadband ecosystem engage in a variety

of additional network management practices. These practices involve enforcing per-subscriber

service-level agreements; managing the aggregate traffic as it is multiplexed across the IP edge

and IP/MPLS and optical core networks; preventing harms to the network by malicious activities

such as Denial of Service attacks; ensuring the requisite security of VPNs and administration and

adherence to Digital Rights Management agreements. All of these activities are necessary to

ensure that the expected level of services are delivered to subscribers, in accordance with the

subscriber contract with respect to bandwidth, availability, security, and reliability.

One clear example of network management used as part of a “best effort” Internet access

service today allows all subscribers to share the high speed Internet (“HSI”) service bandwidth

fairly. This management practice prevents any one subscriber from using all the available

service bandwidth in a portion of the network to the exclusion of other subscribers at any point in

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time. In addition, different service tiers are typically offered and enforced using similar network

management schema.

Another example of a reasonable network management practice, as recognized in the

Notice,8 is Spam mitigation. It is estimated that between 45 and 73 percent of all email in the

United States is Spam,9 which is not only a nuisance but the false advertising and phishing scams

included in some of these emails are a threat to the end user. Spam protection is best effectuated

inside the service provider domain, where the ISP can filter email to delete unsolicited, bulk

emails that meet an industry or individual ISP standard. Furthermore, innovative, network-based

management of email spam or malicious email attachments using packet inspection in the

network path can provide today’s “best effort” broadband Internet end user with an extra level of

service protection and therefore a superior Internet experience. If such network management

practices were impermissible or not available, then more Spam would be delivered to the end

user. This would have two immediate, negative effects: first, email traffic would increase by

100 percent or more, which would exhaust more broadband access capacity; and, second, with

email remaining one of the primary broadband applications, the user experience would be

significantly diminished, possibly impacting broadband usage.

Initially Internet access service on wireline networks addressed the non-guaranteed

service quality of “best effort” Internet by over provisioning bandwidth — that is, by building

the network with bandwidth capacity to adequately address anticipated peak usage times. This

network design paradigm is a thing of the past, however; with rapidly increasing bandwidth

demands, network capacities can no longer be over provisioned with reasonable economics for

8 Id. at ¶ 138.9 Spam Laws, Spam Statistics and Facts, http://www.spamlaws.com/spam-stats.html (last visited Jan. 11, 2010).

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the network provider. Therefore, active network management has become imperative for both

wired and wireless networks in order to ensure an optimal experience for the vast majority of

users of the “best effort” Internet service. As outlined above, this may mean limiting the peak

information rate (“PIR”) for an HSI subscriber to ensure fair usage of the bandwidth among

subscribers, or in some cases even rate-limiting particular types of traffic that have a

disproportionate impact on other users. For example, TCP-based applications try to use all

available bandwidth until congestion of the network is detected (at which point so-called

“backoff” occurs) and modifying the TCP parameters can help ensure a better user experience on

average. Notably, for wireless networks, some applications tie up a radio bearer with “keep

alive” control messages, but do not actually transmit any data over this bearer, effectively

wasting this precious resource (spectrum). In such cases, it is beneficial to all users to be able to

modify the network parameters associated with these “chatty” applications using network

management techniques, so as to optimize the availability of spectrum for actual data transport

by other applications, services and users.

Thus, network management is an essential component of the future of broadband and is

critical for advancing HSI and other IP-enabled services in an atmosphere of unprecedented

demand.

IV. TO MEET BROADBAND DEMAND, NETWORK PROVIDERS MUST BE PERMITTED TO DEVELOP AND OFFER MANAGED SERVICES

Increasingly, consumers will be better served by QoS management practices that result in

“managed services” designed to optimize users’ broadband experiences, as described below.

Currently, “managed services” is a term typically associated with operator or service provider

defined and packaged services created to serve a clear need for guaranteed QoS. Plain Old

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Telephone Service (POTS) was the first such service and was offered over a dedicated network

that initially supported no other services, but then evolved to support fax and dial-up modem

services. Subsequently, with the advent of genuine broadband access using advanced Digital

Subscriber Line (DSL) technologies (as well as DOCSIS-based Hybrid-Fiber Coax networks),

additional IP services could be provided over the same basic physical infrastructure in the last

mile. Indeed, sufficient bandwidth could be provided in fiber to the node (FTTN) architectures

so that high bandwidth IP video services could be delivered over this infrastructure. However, in

order to prevent generic TCP-based Internet “web services” such as web browsing from

consuming the available bandwidth and degrading the video service, a separate bandwidth

partition was created as a managed service video offering. Similarly, due to the stringent delay

requirements associated with voice services, another forwarding class was created to provide a

Voice-over-IP (VoIP) managed services offering. Now, looking ahead, the universe of managed

services continues to develop as manifold new applications are developed on the Internet and

increasingly adopted by consumers and with the desire for similarly stringent QoS requirements.

Thus there is a mounting interest in user-requested managed services that can be offered in

addition to the conventional operator-provided managed services. These services complement

the “best effort” Internet access services that do not have strict QoS requirements, and the

additional value created by such service offerings will justify the sustainable private sector

investment that is the backbone of broadband investment in the United States.

A. The Commission Should Embrace Managed Services

The Commission recognized in the Notice that there can be much more to broadband

service than high-speed Internet access — there is also an important role for “‘managed’ or

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‘specialized’ services.”10 The Notice did not provide a definition for this category of services,

but instead described certain examples: “Internet-Protocol-based offerings (including voice and

subscription video services, and certain business services provided to enterprise customers),

often provided over the same networks used for broadband Internet access service.”11 The

Commission also cited examples given by the Rural Utilities Service and National

Telecommunications and Information Administration: “managed services, such as telemedicine,

public safety communications, and distance learning, which use private network connections for

enhanced quality of service, rather than traversing the public Internet.”12 Alcatel-Lucent urges

the Commission to embrace managed or specialized services to ensure that this regulatory

initiative does not constrain the growth of these services, e.g., to allow the diverse array of user-

requested managed services offerings described above. The managed services demanded by

consumers in 2011 may not exist in 2010, and the Commission’s rules, which are amended by

rulemaking proceedings measured in years, will constrain the development of these services if a

limited, exhaustive list of permissible managed services is adopted.

The Commission should defer to service providers and consumers, who should be free to

define the performance parameters of a class of service. From an engineering viewpoint,

“managed services” are those services that have some level of guaranteed quality of service,

thereby differentiating them from services or applications that run on “best effort” high-speed

Internet access, for which no specific guarantees are provided. Managed services include one or

several of the following characteristics: (1) guaranteed (low) packet loss, (2) guaranteed (low)

10 Notice at ¶ 148.11 Id.12 Id. at ¶ 148 n.266, quoting from the Notice of Funding Availability for the Broadband Technology Opportunities Program/Broadband Improvement Plan, issued jointly by RUS and NTIA, 74 Fed. Reg. 33104, 33111 (July 9, 2009).

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packet delay, (3) secure connectivity, or (4) guaranteed bandwidth. This characterization of a

managed service does not depend on whether the service is carried over a private network, a

virtual private network, the public Internet, or even whether the service is IP-based.13 Notably,

the Commission recognized this reality as well, as the Notice itself asks whether services with

assured quality of service “should be more properly understood as managed or specialized

services rather than broadband Internet access services?”14 The answer is yes.

In the event the Commission moves forward with a definition of managed service, it

should consider the following:

Managed service. A managed service is a service provided in whole or in part over facilities also used to provide “best effort” high-speed Internet access, for which enhanced service treatment is employed due to the fact that the service is:

(a) a service sensitive to packet loss;(b) a service sensitive to packet delay; (c) a service requiring secure, private connectivity;(d) a service requiring bandwidth guarantees; or(e) a service for which the user has requested enhanced service treatment.

These criteria should be interpreted broadly and disjunctively – that is satisfaction of any one of

these elements classifies the service as a managed service. These criteria are discussed in the

following sections.

13 Internet Protocol (“IP”) based services include some services carried over the public Internet, as well as services carried over private networks; moreover, IP is only one of many protocols used on the Internet. Thus, there is not necessarily any connection between use or non-use of IP in carrying a service and use of the Internet.14 Notice at ¶ 113.

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1. Service Sensitive to Packet Loss

Any Commission definition of managed services should include applications or services

that contain enhanced service treatment because they are sensitive to packet loss. Studies show

that users have a very low tolerance for packet loss for video-rich services or applications. As

shown in Figure 1, the Broadband Forum has defined recommended packet loss rates for

standard definition (“SD”) and high definition (“HD”) video, based on studies that showed that

users were willing to tolerate one noticeable visual distortion every 30 minutes for SD and only

one every 4 hours for a “premium” service such as HD.

Figure 1. Recommended (standard) metrics forvideo packet loss, based on user perception

This translates to a packet loss rate approaching one in a million for SD video (PLR = 1 x

10-6) and one in 15 million for HD video (PLR = 7 x 10-8). These numbers are in stark contrast

to the behavior observed for a standard high-speed Internet access service offering over DSL, for

which approximately 50% of lines will show a visible artifact more frequently than every 4

hours, and 25% show a visible artifact every 30 minutes (Figure 2).

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Figure 2. Evaluation of the number of DSL lines (high-speed Internet access subscribers) that could deliver (receive) desired video service, as documented in BBF WT-126

One solution is to provide a managed service consisting of a combination of marking the

video packets as high priority, expedited forwarding of video packets within a higher quality of

service class, and error correction techniques or fast retransmission of missing packets. This

solution can be used for the transmission of video programming similar to cable TV by the same

company that provides the broadband Internet access, using a bandwidth segment or partition

that is separate from that used for high-speed Internet access. A managed service with these

attributes can also be used to provide enhanced quality to video streamed over the high-speed

Internet access connection. This type of service would provide QoS guarantees to so-called

“over the top” video services of premium interest to the end user, allowing these services to be

delivered with similar resolution and quality as conventional managed service video offerings.

This service is expected to be increasingly attractive as users consume streaming web video that

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is long-form HD, for which the tolerance for packet loss will be low but the probability of loss

will be high due to the significant load that such services put on the network.15

2. Service Sensitive to Packet Delay

Any definition of managed services must also recognize those applications or services

that contain enhanced service treatment because they are sensitive to packet delay. There is a set

of applications for which users have shown a tolerance for packet loss, but very limited tolerance

for packet delay. Two such applications or services are: i) voice or communications services;

and ii) interactive gaming.

For voice communications services, the “round trip time” (“RTT”) — the time between

the speaker finishing speaking and the response to arrive — must be less than 300 - 400ms for

there not to be a perceptible delay in the communication. Therefore, voice services delivered as

a managed service would consist of marking the voice packets as “highest priority” and

expediting the forwarding of these packets using the highest priority class (which is served

before any other traffic).16 Looking forward, the same managed service treatment will clearly be

beneficial for any inter-person communications service, such as video calling, video

conferencing, interactive videocasting (sharing live audio video with friends and family), as well

as for e-health and e-learning, and remote monitoring/security services, all of which depend on

such interactive communications services.

For gaming, an RTT (known to gamers as “ping”) of below 60ms is optimal for on-line

interactive gaming to be acceptable to users. As shown in Figure 3, user rating of satisfaction

15 When the BBC put its programming online for viewing in the UK using an application called iPlayer, network traffic increased dramatically. See Plusnet, iPlayer Usage Effect: A Bandwidth Explosion (Feb. 8, 2008), http://community.plus.net/blog/2008/02/08/iplayer-usage-effect-a-bandwidth-explosion/.16 In addition, this treatment can also minimize any echo effect due to the fact that the packet arrives outside the echo cancellation window of analysis.

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decreases for delays of 60ms or more, with 100ms and beyond regarded as unacceptable delay.

For this reason, on-line games typically assess the RTT to each potential opponent and rank the

opponents in order of connection (low RTT) quality, so that the user can have a higher chance of

a satisfactory gaming experience.17

Figure 3. User perception of quality ofgaming experience versus delay

In order to optimize their Internet-based gaming experience, avid gamers may choose to

upgrade their high-speed Internet access service to a higher tier (more bandwidth), because this

diminishes the data transfer time even though it does not directly impact the RTT. The preferred

alternative would, however, be to use a managed service for the particular gaming application,

with expedited forwarding (low delay) characteristics, if such a service were available on a

subscription or on-demand basis.18

3. Service Requiring Secure Private Connectivity

Any definition of managed services must also incorporate those applications or services

that contain enhanced service treatment because they require secure, private connectivity. There

is a set of services that do not have particular delay or packet loss requirements, but do require

17 See generally N. Degrande, D. De Vleeschauwer, R.E. Kooij, M.R.H. Mandjes, Modeling Ping Times in First Person Shooter Games, Proceedings of the 2006 ACM CoNEXT conference, available at http://www.kennisportal.com/main.asp?ChapterID=4745.18 See id.

18

security of connectivity with freedom to choose the packet addressing schema and with

guaranteed immunity from impingement by any other traffic whether malicious or not. Layer 2

and Layer 3 Virtual Private Network (“VPN”) services are two such managed services, with the

former creating the VPN using Ethernet header information, and the latter using IP header

information, to map the traffic to Multi-Protocol Label Switching (“MPLS”) tunnels across the

IP/MPLS core to the destination(s). Such VPN schema also prevent any unauthorized traffic

from unknown Ethernet or IP sources from traversing these connections. The requirement for

secure communication alone does not mandate the need for a managed service, as techniques

such as IPSec can be used to secure connections over the Internet, but a combination of: i) secure

communication, ii) prevention of other traffic traversing the same connection, and iii) the support

for the subscriber-selected addressing scheme, does mandate the use of a managed service.

4. Service Requiring Bandwidth Guarantees

Any definition of managed services must also recognize those applications or services

that contain enhanced service treatment because they require bandwidth guarantees. In many

cases the service requirement may not be for a specified packet loss, or packet delay, or secure

private communication, but instead for a guaranteed bandwidth associated with a specific service

so as to provide a well-defined data throughput. An example of such a service is a file transfer

for back-up to a web-based store, or download of specific content to an end user device within a

specified period of time. A basic form of such a service could be provided as an upgrade to the

subscriber’s Internet service tier and implemented using network management techniques, but

the advanced concept described here is for an application-specific temporary bandwidth boost

that is more appropriately defined as a managed service offering.

19

5. Customer–Requested Enhanced Treatment

The preceding subsections described applications that are recognized widely as benefiting

from delivery as managed services in order to guarantee the consumer-desired level of packet

loss, packet delay, security and/or bandwidth. But, in addition to these operator-driven services,

there are myriad other applications that have emerged − and will continue to emerge − and are of

sufficient value to the consumer that individual users will desire to see them enhanced in order to

receive a guaranteed quality of service. In the majority of cases, the managed service

requirements will be those outlined above, but the important distinction here is that the user has

the freedom to define any service as one that is delivered as a managed service, rather than this

service being created as a packaged, operator-defined managed service with broad appeal. Such

user-requested managed services could include:

• Temporary boost or guaranteed level of bandwidth for a fast file download, e.g., for a large movie/video file requested by the end user;

• Temporary boost or guaranteed level of bandwidth for a fast file upload, e.g., for on-line storage or backup, or for remote access to specific content stored in the home requested by the end user;

• Guaranteed low level of delay for a communications application selected by the end user;

• Guaranteed low level of packet loss for a video application selected by the end user; or

• A temporarily higher level of security for sensitive information defined by the end user.

Alcatel-Lucent refers to this ability to empower consumers as “Applications Enablement.” In

each case, the user may desire the enhanced service to only be applied to a specific end point or

application, as a more efficient (and economical) alternative to boosting their entire service tier.

For example, the end user may be satisfied with a particular service tier for “best effort” Internet

access, but he/she may desire managed service level of quality and reliability for online gaming,

20

for a specific gaming service not offered as a pre-packaged operator managed service. The

service provider can therefore provide the consumer with two choices: i) the choice of a higher

tier subscription service that would provide more bandwidth in general; or ii) a specific

applications enablement option where the managed service level of quality and reliability is

provided for the online gaming application while maintaining the current “best effort” Internet

access subscription. This increase in consumer choice with regard to service quality will lead to

greater adoption of Internet applications both as “best effort” services and managed services,

which in turn will lead to greater stimulus for innovation and investment in next generation

Internet services and networks.

B. Managed Services and Internet Access Service Offerings Will Co-Exist and Flourish

Alcatel-Lucent does not see managed service offerings as a threat to “best effort”

broadband Internet access but rather as a full complement to this form of access and one that will

financially justify the widespread broadband availability the Commission seeks to achieve.19

The broadband networks deployed by today’s service providers are capital-intensive with a cost

recovery horizon measured in years or even decades. For example, providing video or television

as a managed service (whether as IPTV or otherwise) alongside high-speed Internet access and

other services justifies the investment in fiber for broadband (either to the home, or to the node),

whereas the revenue from high-speed Internet access alone is not sufficient to make this

investment. Given competition in the broadband marketplace, as well as the diversity of

broadband user needs and wants, network operators will need to offer high-speed Internet access

19 Telecommunications Act of 1996, Pub. L. No. 104-104, § 706(a), 110 Stat. 56, 153 (1996), codified at 47 U.S.C. § 1302(a) (“The Commission… shall encourage the deployment on a reasonable and timely basis of advances telecommunications capability to all Americans…”).

21

as a valuable and compelling product and will have every incentive to continue developing and

improving it for the foreseeable future.

In fact, a case can be made that the offering of managed services, whether operator-

provided or consumer-demanded, maintains and strengthens the open Internet environment the

Commission is seeking to protect in this proceeding.20 If managed services were severely

limited by the Commission’s rules, then many of these services would have to be offered on the

“best effort” Internet access service, creating increased network congestion between services in

the same service class, which invariably results in service degradation across the board, with no

accounting for specific application requirements and characteristics. For example, when a file

download using the UDP protocol starts up, it can consume all the available bandwidth and will

not back-off like TCP-based transfers. The result will be the degradation of all other services

such as streaming video in an indiscriminate fashion, i.e., such that all video sessions will be

compromised and suffer packet loss.21

Service differentiation is commonly used to deliver a wide range of services in the

marketplace (e.g., overnight mail delivery vs. standard delivery) that maximize consumer utility

by producing a range of products at variable prices. Managed services offer a differentiated,

user-empowered class of services to the broadband Internet user. Unless the Commission’s

record provides compelling evidence that today’s broadband business models, which provide

these differentiated services and base investment on revenue derived from both managed services

20 The White Paper includes capacity growth estimates demonstrating increased overall capacity and capacity available for “best effort” Internet access when both “best effort” and managed services are offered. A dynamic environment that permits both services to be offered will provide the necessary capital for service providers to invest more aggressively in bandwidth.21 The White Paper discusses the quality benefits enjoyed by all users when traffic that is sensitive to delay or jitter is segregated from “best effort” onto a managed service. Jitter is reduced for all users, including those on the “best effort” Internet service.

22

and “best effort” Internet access service, are anticompetitive or otherwise flawed, then the

Commission’s rules should not interfere with this model by limiting or restricting managed

services.

V. THE FCC SHOULD ENABLE FLEXIBLE MANAGEMENT ANDBUSINESS MODELS AND SHOULD TREAD CAUTIOUSLY IN THE DYNAMIC BROADBAND MARKET

As the Notice recognizes, the broadband market is dynamic and robust.22 Innovation

abounds, and demand is growing exponentially as described above and in the attached White

Paper. New network management practices are developing to address both capacity issues and

the growing interest in QoS-enabled offerings, and business models are evolving as the

broadband ecosystem develops multiple models that address the varying needs of different user

populations. Consumers are best served by a regulatory structure that embraces such

experimentation. Absent evidence of clear consumer harm, the Commission should refrain from

imposing a regulatory structure that will hinder experimentation or engender significant

uncertainty and unintended consequences.

The needs of broadband users are as diverse as the Internet itself. For many Internet

users, “best effort” high-speed Internet access may serve their needs quite well, while others may

seek enhanced video streaming or communications or telemedicine applications but have little

need for enhanced gaming performance, and still others have a wholly different mix of needs. In

a competitive environment, network operators can use the capabilities of their network offerings

as important selling points. For example, network providers might seek competitive advantage

by providing a better customer experience with respect to gaming or other applications by

22 See, e.g., Notice at ¶¶ 12, 20-22, 56-59.

23

delivering them as managed services. Rigid rules regarding what may be offered as managed

services or overly restrictive network management policies will introduce uncertainty and could

impede the delivery of services in a manner that is both technically and economically optimal.

While consumers will undoubtedly have continuing demands for more bandwidth,

today’s services will continue to evolve, new services will be developed, and some services will

fall out of favor. Today there is no uniform approach to the provision of service through speed

tiers, monthly usage tiers, hard and soft usage caps, or other billing arrangements. The

deployment of next-generation networks will cause a further evolution in the architecture and

business models for the provision of voice, video, Internet, and other services. Network

operators thus will need the flexibility to change the “dividing lines” between high-speed

Internet access and managed services as they respond to consumer preferences and competition.

Ultimately, consumer demand will drive network operators’ decisions regarding network

intelligence, differentiated services, and appropriate management techniques.

With a market as dynamic and evolutionary as broadband, policymakers should not

discourage the ability of network operators’ to meet this consumer demand. Regulatory

proposals that limit the ability of network operators to meet this demand will inevitably result in

uncertainty and a chilling of network operators’ willingness to invest in both ubiquitous

geographic coverage and bandwidth.

24

VI. THE FOUR CURRENT PRINCIPLES WHEN COUPLED WITH OTHER LEGAL TOOLS ARE SUFFICIENT TO PROTECT CONSUMERS.

The four existing “net neutrality” principles,23 along with other statutory protections that

provide consumer protection and restrict anticompetitive behavior,24 currently provide consumer

protection and guidance to network operators, as does the resolution of the two concrete cases

that have reached the FCC — the Madison River case, which was promptly settled through a

consent decree, and the Comcast case, in which Comcast agreed to modify its network

management practices.25 In both instances, the combination of high-profile FCC action,

widespread Internet coverage, and media attention persuaded the network operators to change

their practices, in one case through a consent decree and in the other during the course of an

investigation. In the future, the likelihood that the spotlight will quickly be focused on any

network operator perceived to be violating the Internet Policy Statement makes the adoption of

regulations unnecessary.

In particular, the Commission’s consideration of an unqualified “nondiscrimination”

standard is not only unsupported by any clear showing that the current rules are inadequate, but

this strict regulation, which has been limited typically to monopoly utility markets, will harm the

very innovation and investment the Commission is seeking to protect. Moreover,

“nondiscrimination” presupposes that all applications and content on the “best effort” Internet

23 See Internet Policy Statement.24 Because network providers are not “common carriers” insofar as they are engaged in the provision of broadband Internet access, this service is subject to the terms of the Federal Trade Commission Act. See 15 U.S.C. § 45(a). Among other things, that Act gives the Federal Trade Commission authority to take action against “unfair or deceptive acts or practices in or affecting commerce.” See id. In addition, the provision of these services may also be governed by state laws of general applicability prohibiting unfair or deceptive trade practices. 25 See Madison River Communications, File No. EB-05-IH-0110, 20 FCC Rcd 4295 (EB 2005); Free Press and Public Knowledge v. Comcast Corporation, WC Docket No. 07-52, Memorandum Opinion and Order, 23 FCC Rcd 13028 (2008) (subsequent history omitted).

25

are on equal footing, but this is not accurate as, for example, some content delivery networks

currently enable higher levels of QoS to proprietary or paying customers. The ability of service

providers to innovate and offer differentiated services will benefit consumers through increased

competition among services and applications. In any case, the Communications Act expressly

prohibits the Commission from imposing common-carriage obligations (such as

nondiscrimination requirements) on entities with respect to their provision of an offering that is

not a “telecommunications service.”26

VII. THE COMMISSION’S PROPOSED RULE ON NONDISCRIMINATION IS A SIGNIFICANT DEPARTURE FROM POLICIES OF THE UNITED STATES AND IS FAR MORE RESTRICTIVE THAN OTHER ADVANCED NATIONS.

The Commission’s proposal in this proceeding, particularly the “nondiscrimination”

standard, is a significant departure from the longstanding policies of the United States to refrain

from undue regulation of the Internet. In 1997, the Clinton Administration adopted “A

Framework for Global Electronic Commerce,” which encouraged “governments [to] adopt a

non-regulatory, market-oriented approach to electronic commerce.”27 This policy was

maintained through the Clinton and Bush administrations, not only in domestic law but as

advocated in international fora as well. The Commission’s current proposal is a departure from

this deregulatory standard, and it is a move that in some instances may affect the nation’s

international competitiveness, and in other instances may signal to other countries to move

26 See 47 U.S.C. § 153(44) (“A telecommunications carrier shall be treated as a common carrier under this chapter only to the extent that it is engaged in providing telecommunications services….”).27 A Framework for Global Electronic Commerce (White House, 1997).

26

forward with Internet regulations that may be a pretext to limit broadband deployment or curb

free speech.

As an international company, Alcatel-Lucent has a unique viewpoint on the various

broadband Internet access policies adopted in other nations. Recently, two nations and the

European Union engaged in extensive consideration of network management practices of ISPs,

and in each case the regulating entity specifically allowed for reasonable network management

practices, including transparent discrimination, in order to manage demand and network

congestion. In the end, these nations did not regulate Internet access to the point that the

Commission is proposing. If the proposed rules are adopted in their current form, particularly

the unqualified nondiscrimination principle, then the United States will be an outlier and

innovation and investment could be driven to countries that have a more liberalized regulatory

structure.

In Canada, the Canadian Radio-television and Telecommunications Commission

(“CRTC”) published its review of Internet traffic management practices of Internet service

providers and concluded that reasonable traffic management practices, so long as such practices

are transparent and not unduly preferential, are permitted.28 The CRTC recognized that the

current and near-future remarkable increase for capacity demand will be addressed by a

combination of network investment and reasonable network management practices. The CRTC

appears to share the FCC’s concern over anticompetitive activity, but the CRTC is relying on

competition, investment, and reasonable network management practices to preclude such

harmful activity.

28 CRTC. Telecom Regulatory Policy 2009-657

27

Similarly in the EU, the European Commission’s recently enacted Telecoms Package

examined the issue of traffic discrimination and concluded that traffic shaping to avoid network

congestion and meet quality of service requirements is permissible. The EU directed the national

regulatory authorities charged with executing the Telecoms Package to ensure such practices do

not restrict competition and are properly disclosed to consumers.

Finally in Japan in 2008, the Ministry of Internal Affairs and Communications (“MIC”)

proposed guidelines for achieving reasonable network management. The MIC recognized that

bandwidth-intensive applications are becoming more popular and, even with Japan’s widespread

FTTH deployment, packet shaping would be permissible in order to alleviate network

congestion. As with the EU, the MIC relied on a passive regulatory model where traffic shaping

or discrimination was permissible so long as the regulator polices the marketplace and guards

against anticompetitive activity.

In sum, such rules would distinguish the United States and be a departure from the views

recently expressed by other nations that have examined the issue of broadband discrimination.

Such a distinction could have an international competitiveness impact.

VIII. THE COMMISSION SHOULD CONSIDER PLATFORM DISTINCTIONS WHEN IMPLEMENTING ITS RULES.

In the Notice, the Commission seeks comment on the application of the principles to

different access platforms, particularly to what extent the principles should apply to non-wireline

forms of Internet access.29 Wireless broadband services are constrained by limited and

dynamically changing radio resources shared among multiple users, and service providers need

29 Notice at ¶ 154.

28

to be free to manage their networks in order to meet the current and expected consumer demand

and service quality obligations. Alcatel-Lucent and numerous other parties have advocated the

Commission seek new spectral resources to dedicate to licensed, wireless broadband in order

to help meet the current and expected demand for these services. Even with new spectral

resources, the basic physics of wireless networks will limit the available bandwidth when

compared to high capacity wireline networks, and the wireless operators must be free to manage

network capacity.

The Commission should recognize the technological, market structure, consumer usage,

and historical regulatory differences between different Internet access platforms. In so doing, the

Commission should recognize these differences when implementing rules on non-wireline forms

of Internet access. In addition, it is important to realize that much of the backhaul, IP edge,

network core, and application infrastructure used for wireless access may be shared with wireline

access as well as with unlicensed wireless access. As such, any rules associated with wireline

access may potentially affect the service providers’ ability to economically and

effectively provide network management for wireless services.

Given the distinct characteristics of mobile broadband, the Commission should carefully

examine the record built in this comment cycle and consider, among other options, a further

notice or proceeding to gather more information. If the Commission pursues rules here, this

approach will provide the Commission with the ability to ask more granular questions and offer

specific proposals on whether and how to potentially implement these rules in the mobile

broadband market.

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IX. CONCLUSION

Alcatel-Lucent respectfully submits these comments and looks forward to working with

the Commission in this proceeding. While supportive of the Commission’s goals to preserve and

protect an open Internet and the original principles adopted in the Wireline Broadband Order,

ALU is not supportive of the rules as proposed. Particularly given the anticipated demands on

capacity and the national goal of ubiquitous broadband deployment, now is not the time to

initiate rules that may hinder the ability of service providers to manage their networks, innovate,

and deploy new services.

Respectfully submitted,

ALCATEL-LUCENT

By: ____________________Paul W. KenefickVice President, Public AffairsAmericas RegionAlcatel-Lucent1100 New York, Avenue, N.W.Suite 640 West TowerWashington, D.C. 20005

January 14, 2010

Alcatel•Lucent

Copyright © 2010 Alcatel-Lucent Page 1

Analysis of the impact of traffic growth on the evolution of Internet access

Corporate CTO Organization, Bell Labs, Alcatel-Lucent

Executive SummaryThe growth of IP traffic per subscriber on fixed and mobile networks is growing at rates of 30-100% per annum due to the development and use of: i) manifold new web applications; ii) the increase in the number and variety of IP-enabled devices; and iii) the bandwidth consumed per application. However, the average revenue to the provider per subscriber of their broadband access service is approximately flat for both fixed and mobile networks. Thus it would appear that there is an essential economic conundrum in which the investment in infrastructure required to support the continued innovation and expansion in access to such web services by more users on more devices may not be sustainable. In this paper, we investigate the validity of this argument by comparingthe cost of the network expansion required to match the traffic growth with the revenue potential projected by simple extrapolation from current trends. We find that indeed this dichotomy is real, with the cost of network expansion per subscriber exceeding the revenue per subscriber in the next 2-3 years, for both fixed and mobile networks.

There are two clear solutions to this conundrum: a) to invest at a level less than required to support the traffic growth that would otherwise occur; or b) to increase the revenue associated with the anticipated traffic growth by an increase in broadband services adoption. We argue that the latter is clearly preferable from the standpoint of the subscriber, the network operator, and the application and content providers, as it maximizes the subscriber experience and the innovation potential associated with the Internet and associated IP services. We also propose a mathematical model that shows that the best effort services actually benefit from the existence of the managed services, so that the two can be regarded as ‘symbiotic’ in nature.

Copyright © 2010 Alcatel-Lucent Page 2

IntroductionWhile the growth in consumer traffic has been remarkable in recent years − one mobile operatorsaw 5000% Compound Annual Growth Rate (CAGR) in three years − the reality is that the potential for higher growth is still to come. Consumer traffic has been driven in large part by the demand for video-related services, such as web video streaming and video file sharing or downloading. By all accounts, video represents the lion’s share of the traffic on the Internet today if all forms of video are considered (including video files downloaded via P2P or HTTP) as shown in Figure 1[1]. The bandwidth generated by Internet video increases each year as broadband access speeds have increased and the average quality of the subscriber experience consequently improves. In addition, many content providers are providing options that move beyond streaming to the PC (with the typical low-to-medium quality experience associated with those services) to streaming directly to the TV through Internet-video enabled Set Top Boxes (STBs) and soon to broadband enabled TVs, whose numbers are predicted to rise from 130 million in 2009 to more than 360 million in 2014 [2].

49.4%

2.5%

14.8%

18.0%

15.3%

(peak) traffic breakdown: downstream

HTTP (video)Flash / RTSP videoUsenetP2Pother

Figure 1. Analysis of the relative contribution of video to Internet traffic [1]

Figure 2 illustrates the disparate bandwidth requirements of a variety of different video services that can and will be delivered over the Internet. Given that the quality of Internet video today is well below that of broadcast video, the potential remains high for even greater traffic growth. For example, a single one hour broadcast quality High Definition (HD) video application consumes as much network bandwidth as 150 ten minute web-quality videos or 600 ten minute Voice-over-IP (VoIP) phone calls. Today cable, satellite, and telecommunications providers are offering HD at 720p (which equals 720 lines of horizontal resolution, with 60 full frames per second). However,the demand for full 1080p resolution is growing to match the video quality of Blue-Ray DVDs and the 1080p content offered for download by online content providers. As shown in Figure 2, this alone will double the bandwidth of today’s broadcast quality HD. Beyond 1080p there is now strong momentum around 3D HD technology, with ESPN and other broadcasters announcing that they will offer 85 different sporting events in 3D in early 2010 [3]. 3D HD will act as a further bandwidth multiplier (with the precise multiplier depending on the methodology and the number of viewing angles embedded) further increasing network demands by as much as an additional 60-100%. It appears that there is no end to the consumer appetite for a better, more immersive content experience – an experience that is ‘as good as, or better, than being there’.

Copyright © 2010 Alcatel-Lucent Page 3

One potentially offsetting factor is the improvement in video compression technology that typically occurs over time, with, for example, MPEG2 1080i HD video requiring approximately 20Mbps, whereas the newer H.264/VC-1 (MPEG4 part 10) standard requires only approximately 6-9Mbps to encode the same content without visibly inferior quality. This effect is represented in Figure 2, in the form of the bandwidth demands projected for 2014. It is apparent that, at best, the bandwidth requirement per stream will be halved, but with the number and resolution of video-related applications consumed by subscribers expected to increase significantly with the continued expansion of ultrabroadband networks with bandwidths in excess of 25Mbps per subscriber (which today comprise only approximately 13-16% of broadband connections [4]), the gain due to increased compression efficiency will not significantly alter the essential bandwidth growth trajectory.

Figure 2. Comparison of bandwidth demands of different Internet services

Last, the growth in the number of IP or Internet-enabled devices must be considered, since this serves as an additional bandwidth multiplier that represents the growth in subscriber demand, as subscribers evolve from their current Internet-usage patterns to more advanced usage. In Figure 3,we show aggregate data for the anticipated growth in fixed and mobile IP devices in the United States over the next few years.

Copyright © 2010 Alcatel-Lucent Page 4

Figure 3. Growth in the number of Internet-enabled devices in the US. (The non-Handset Mobile device category includes laptops, netbooks, tablets, e-books and portable gaming consoles. The

Fixed IP device category includes laptops, VoIP phones and IP STBs). Source: [5]

Referring to Figure 3, it is apparent that 100s of millions of new fixed and mobile IP-enabled devices will become active in the US in the next few years, representing approximately 2 new devices for every resident. This is therefore a greater compounding factor to the bandwidth demand than the drive towards higher resolution video, which will likely benefit from the improvements in compression technology as outlined above.

In this paper, we build subscriber traffic growth models for fixed and mobile networks using a “bottoms up” approach that takes into account subscriber types, the applications they use, and the required “busy hour” dimensioning. These traffic forecasts are then used to dimension the respective fixed and mobile networks to evaluate the net impact on the network capacity. This, in turn, is used to quantify the cost of the required network expansion, for both fixed and mobile networks due to the traffic growth. Finally, we evaluate the consequences of this significant growth in services on the end user experience, if all services are treated equivalently and if no network capacity expansion occurs, and contrast that with the manifest benefits of the converse: services differentiation and attendant network capacity expansion.

1. Fixed Network Traffic GrowthDetermining a representative network traffic profile is challenging as there are potentially many types of users using many different applications. To this end, our analysis of consumer traffic growth will start with the assumption in a recent Instat study [6] that there are three types of user or household profiles: Passive, Social, and Power or Early Adopters (or A, B, and C). We will also adopt the partitioning of consumer entertainment usage behaviors in that study as our starting point: Passive users represent 47% of consumers, 41% are Social users, and 12% are Power users.

Copyright © 2010 Alcatel-Lucent Page 5

Next we will consider the various traffic sources (applications and content) that will be used, the bandwidth associated with each, and the multiplex of applications associated with each user type. Since we are concerned with the traffic per home, we must account for multiple concurrentapplication consumption due to multiple users per home.

Different analysts have communicated a wide range of consumer traffic models, in part due tounique demographics. Regional differences can also play a part, e.g., significantly higher percentage of European households watch online video than US households, probably due to the high penetration of cable/satellite (high quality video) in the US (above 80%) compared to Europe,which has average cable penetration rates below 20% [7].

Table 1 illustrates bandwidth requirements of different Internet applications, and the association with each user type: A, B, and C. Based on the applications selected, the peak bandwidth requirements for each user type are calculated. This represents the maximum bandwidth assuming that all applications are accessed concurrently. This essentially assumes that households have multiple Internet users, or that some applications run as background processes (e.g., Peer to Peer (P2P) or scheduled updates, backups or content downloads) resulting in a high level of application coincidence or concurrency. In reality this does not occur, and so the distribution of the application usage over time needs to be considered, which we consider in the following section, using ‘busy hour’ dimensioning.

Table 1. Consumer Traffic sources and example of peak bandwidth requirements

Application Desired Quality Downlink BW, Kbps Uplink BW, Kbps

Type A Household (Passive)

Type B Household

(Social)

Type C Household

(Power)VoIP 3.92 MOS 32 32 ü üVideo Calling Standard Def 1,000 1,000 ü üAudio Streaming Standard Def 67 0 ü üWeb Radio Standard Def 67 0 ü üWeb Video Streaming Small window 403 0 ü üWeb TV SD Standard Def 1,000 0 üBroadcast quality TV HD High Def 6,000 0 üInteractive Gaming Premium 3,000 85 ü üInstant Messaging No options 1 1 ü ü üWeb Browsing Standard 1,000 1 ü ü üPeer2Peer No options 500 500 ü üEmail No options 0.040 0.040 ü ü ü

1,472 7,070 11,600 Worst Case Peak Bandwidth Requirements

Even from this simple analysis, it is apparent that there is a potentially an almost eightfolddifference in bandwidth consumption between type A users and type C users (1.5 Mbps compared to 11.6 Mbps). This difference is due in large part to the differences in the amount and type of video consumed.

Table 2 illustrates the expected migration of users towards an increasingly heavy consumption pattern, representing the evolution in number of devices (Figure 3) and application usage projected above. The assumption we make to derive the future profile mix is that a proportion of passive users become social users over time and the social users of today become power users in the future. This is a reasonable assumption if we look at the recent past: for example, Internetvideo on the TV was non-existent two years ago but according to InStat Online Entertainment [6], 30% of broadband homes have now viewed online video on the TV. Another Internet video service, Netflix, has 11 million subscribers in the US (less than a decade after launch) and 40 % of their customers watch online streaming video to the TV or PC, consuming a minimum of 1.5 Mbps, with 4Mbps or more desired for an optimum experience.

Copyright © 2010 Alcatel-Lucent Page 6

These user/household profiles will be used together with the bandwidth requirements per profile, and the busy hour dimensioning to determine the actual aggregate bandwidth requirements in the network.

Table 2. Evolution of user type distribution

User Definitions Distribution 2009 Distribution 2014Passive User 47% 30%Social User 41% 50%Power User 12% 20%

1.1 Network Dimensioning Based on Busy HourNetwork operators do not dimension their networks by calculating the simple sum of all bandwidth required across all users and user profiles (the analysis presented above) assuming 100% concurrency of usage, but rather they evaluate and dimension the network based on the ‘busy hour’ usage – i.e., the bandwidth required at that point in the day when the traffic is heaviest, which typically occurs in the ‘prime time’ window between 6pm and 10pm. To turn the above consumer traffic profiles into busy hour traffic on which we can dimension a network we therefore combine 3 elements: user profiles, network application bandwidths, and busy hour dimensioning.

To calculate the contribution of users’ traffic to the busy hour, the bandwidth per service is divided by the period over which the service is used. For example, if we assume an average user watched 20 minutes of online video a day at 400 kbps (PC Quality video), and that occurs during a four hour window in the evening, the contribution to the busy hour is: 20 mins/4 hours multiplied by 400 kbps or 33 kbps. In essence, this is the statistical gain due to different users logging on and consuming services at different times of the day. However, such statistical gains are likely to diminish as the consumption of long form (20+ minute TV-type to multi-hour movies) video increases. To calculate busy hour dimensioning we need to know the total number of minutes for each application and the bandwidth associated with each application. Table 3 is our 2014 projection of daily minutes per Household (HH) for key Internet services for a moderate growth projection.

Copyright © 2010 Alcatel-Lucent Page 7

Table 3. Forecast minutes and bandwidth consumed in 2014 (Moderate Growth Profile)

ModerateServices Kbps Passive Social Power Passive Social PowerVoIP 32 0 10 15 0 1 2Video Calling 1000 0 20 30 0 83 125Audio Streaming 67 30 30 0 8 8 0Web Radio 67 0 30 60 0 8 17Web Video 403 15 30 30 25 50 50Web TV SD 1500 5 20 30 31 125 188Web TV-HD (10% 3D) 9900 0 0 105 0 0 4331Interactive Gaming 3000 0 15 30 0 188 375Instant Messaging 1 5 5 5 0 0 0Web Browsing 1000 12 18 24 50 75 100Peer2Peer/HTTP Download 500 9 30 45 19 63 94Email 0 4 6 8 0 0 0

134 602 52821397

Video Minutes per Household 29 80 21045Weighted Average Video Minutes/User

Weighted Average Bandwidth/HouseholdAverage Bandwidth per Household

Min per HH Kbps per Application/BH

For this calculation, we assume multiple concurrent users per home (2) and the distribution of user types described in Table 2. The bandwidth per application is multiplied by the total minutes of usage per application and per user type. We then we assume a four hour evening window in which users consume the majority of their fixed network applications/content, so that the total minute usage is divided by 4 hours (or 240 minutes) to determine the contribution of that application to the busy hour. Then using the distribution of different user types we can calculate the weighted average bandwidth (1400 Kbps) and video application minutes. Using a similar methodology we have calculated an aggressive bandwidth growth that results in a value of 4300 kbps per household and 79 minutes of video application usage per user.

Figure 4 summarizes our forecast for subscriber busy hour traffic, for the two different traffic growth models. As indicated above, the moderate growth rate traffic profile reaches 1400 kbps per household, and the high growth rate profile reaches 4.2 Mbps per household in 2014. Using these two data points one can calculate the compound annual growth rate of traffic from the values observed currently (in late 2009). In this way we find a CAGR of 67% for the moderate projection and 100% CAGR for the high growth rate.

A September 2009 comScore [8] survey found that the average user watched 9.8 hours of on line video that month, representing a 100% CAGR from the previous year. We note, therefore, that our aggressive growth rate corresponds to the growth rate reported by comScore for the past year, so it may in fact be a conservative estimate in reality, given the manifold increase in services and bandwidth per service anticipated in the introduction.

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Figure 4. Traffic forecast in Fixed networks (Moderate and Aggressive Growth models).

1.2 Mobile Network Traffic GrowthWith the emergence of easy-to-use “smartphones,” the mobile data subscriber’s usage has grown from minimal to levels that could ultimately approach that of fixed networks, as applications that were initially targeted at fixed users (e.g., web browsing, video streaming, gaming, video calling) are now commonplace on the mobile terminal.

Table 4 illustrates the different applications and associated bandwidths for mobile networks and the three different user types as previously defined. Compared to the fixed network, the required bandwidths are 7-14 times smaller on a mobile network, primarily due to the smaller mobile device screen sizes, which reduce the bandwidth required per video stream for mobile terminals. However as mobile users begin to use 3G and LTE modem cards on their laptops, there is thepotential for fixed network levels of video traffic on mobile networks in future; this additional growth potential is not currently captured in our model.

Table 4. Mobile Consumer Traffic Sources and Bandwidths

Application (non-Voice)

Desired Quality of BW

Downlink BW (Kbps)

Type A User Passive Type B Social Type C User

Power

VoIP Good 12Push2Talk Excellent 15 ü üAudio Streaming Good 16 ü üMobile Web Radio Excellent 128 ü üVideo Streaming Good 192 ü üHD Video Streaming Excellent 578 üVideo share Excellent 128 üInteractive Gaming Low BW 25 ü üInstant Messaging No options 1 ü ü üPC Data Card Medium 800Web Browsin/Email Medium 240 ü ü üPeak Bandwidth Requirements 241 617 1,323

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To create a wireless traffic model we again assume three broad categories of users (Passive, Social,and Power), just as in the fixed network case. Also, as in the fixed network case, we assume that today’s Passive users will become Social users over time and today’s Social user will become tomorrow’s Power user, with slightly higher levels of Power users (30%) compared to the fixed case (20%) and a concomitant decrease in the fraction of Passive users (20%) in the mobile case, relative to the fixed case (30%).

To compute the busy hour bandwidth for mobile subscribers, we will take an approach similar tothat for the fixed network case. Notably, for mobile networks, it has been observed that the wireless network traffic profile is approximately flat from about 9am to 9pm (a total of 12 hours), meaning that mobile users use their device continuously throughout the day and there is no ‘prime time’ period as for the fixed network case. Table 5 summarizes the results for both the moderate and high growth rate cases of mobile users’ traffic consumption in 2014.

Table 5. 2014 Mobile Traffic Consumption per Subscriber (Moderate and Aggressive growth)

Moderate Traffic Profile Passive Social PowerBH BW (Kbps) 1.0 9.3 18.8 Sub Airtime Usage (mins) 14 55 101 Usage Mix 20% 50% 30%Weighted Average Peak BH BW (Kbps) 10 Total Usage per Day (minutes) 43 Content consumed (MB/Mo/Sub) 1,633

Aggressive Traffic Profile Passive Social PowerBH BW (Kbps) 2.8 25.9 52.5 Sub Airtime Usage (mins) 28 109 202 Usage Mix 20% 50% 30%Weighted Average Peak BH BW (Kbps) 29 Total Usage per Day (minutes) 121 Content consumed (MB/Mo/Sub) 7,016

We can see that the busy hour traffic per subscriber is smaller than the fixed network due to the extended period over which mobile users access the wireless network and the lower bandwidth per application due to lower screen resolution. We have also calculated the consumption of capacity in way that is commonly used in reporting mobile data service usage, using MB/month (per subscriber).

Industry analysts expect tremendously aggressive traffic growths as smartphones proliferate and new applications emerge, with traffic usage doubling multiple times a year. In December 2009 Yankee Group forecast mobile data traffic growth of 29 times (2900%) by 2015 [9]. Morgan Stanley reported that ATT traffic grew 50 times in the past 3 years and projects a 129% CAGR [10]. Once again, the near universal assumption is that today’s casual user will become tomorrow’s heavy user. This trend is already beginning to emerge with the increasing adoption of smartphones; Roger Entner, head of telecom research for Nielsen, reported that the typical smartphone customer consumes about 40 to 80 MBs of wireless capacity a month, whereas the typical iPhone customer uses 400 MB a month (nearly ½ GB)[11].

Using the methodology described, we again create two different mobile user traffic models;moderate and aggressive growth rates as shown in Figure 5. The moderate growth rate curve reflects a weighted average busy hour contribution of 10 kbps per subscriber and a total of 43minutes/day airtime in 2014. This results in a CAGR of 62% which, although seemingly high, is significantly lower than that forecasted by Morgan Stanley, Verizon, and others. The aggressivegrowth rate model assumes a busy hour contribution of 30 kbps at 121 minutes/day of airtime in 2014 – which results in a CAGR of 114%. We note that this value is still smaller than the Morgan

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Stanley forecast of 129%, so our models may in fact be conservative. As would be expected, very similar growth rates are computed when using the metric of MB/mo/subscriber (also shown in Figure 5).

Figure 5. Traffic Forecast for Mobile Subscribers; Left – Busy Hour, Right – MB/Sub/Mo.

2. Network Impact from Consumer Traffic Growth

2.1 Impact on Wireline Network Topology from Traffic GrowthFixed network topologies are typically a tree structure with several traffic aggregation points between the subscriber and the hub office (the point at which traffic typically leaves the operator network and traverses the wider Internet).

Figure 6 shows a typical fixed operator IP network with Digital Subscriber Line (DSL) Access equipment (labeled ‘D’), either in cabinets closer to homes or centrally deployed in the end office. The traffic from the access nodes is aggregated through Layer 2 nodes (‘L2’) and then Layer 3 nodes (‘L3’) with multiple aggregation levels depending on the size of the metropolitan area served. It is important to note that although the end user may have a connection that supports 20Mbps or more in the ‘first mile’ (from the access node, D, to the home), the multiple levels of aggregation result in only approximately 100 kbps per user on average of Internet traffic at the hub office. As indicated earlier, this busy hour dimensioning is possible due to the statistical multiplexing of service usage.

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Figure 6 Schematic depiction of a typical fixed operator network

2.1.1 Impact of Traffic Growth on Fixed Network To compute the net cost (operational and capital) to the network operator of the predicted traffic growth, we assumed a Fiber to the Node (FTTN) access architecture and used typical cost numbers for FTTN network [12], and used a 10 year cost depreciation model to map these costs to the period in question (2009-2014).

A second consideration for network operator is the cost of connecting their network to the wider Internet, typically termed transit costs. In the US the NANOG (North American Network Operators Group) reports a transit cost of about $25/Mbps/Month, so that a gigabit connection to the Internet costs $25000/month. We assume that this decreases at 10% per annum over the 2009 to 2014 period in question.

Pyramid Research [13] has forecast the Average Revenue per User (ARPU) for High Speed Internet users in North America will remain flat to slightly decreasing at around $30/month, as shown in Figure 7, along with the calculated per-subscriber costs due to traffic growth for the moderate and aggressive growth scenarios. It is immediately apparent that the average network cost per subscriber associated with the moderate growth curve approaches the revenue per subscriber by 2013, and the high growth scenario exceeds the average revenue per subscriber by the end of 2011, which is clearly a difficult economic scenario to sustain.

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Figure 7. Projected fixed network revenue and costs per subscriber

2.2 Impact of Traffic Growth on Mobile Network Similar to the fixed network analysis, the mobile network model used leverages typical industry average data for network costs. The approach is a based on a holistic analysis of leading US mobile operators, using publicly reported financial data and other publicly released network, subscriber, and traffic data, and reflects a mix of 2G and 3G networks [12]. We estimate the revenues from subscriber data services from published data offers and the subscriber statistics. The cost of the network capacity takes into account all network operation, interconnect, roaming, facility leases, tower leases, power, and capital costs. We allocate costs due to data services in proportion to the total {data + voice} capacity required.

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Figure 8 Schematic depiction of a typical 3G/LTE mobile operator network

The analysis assumes a 15% reduction in Cost/MB per year for the next 3 years and 20% per year after that. The reduction is due in part to more subscribers and the advent of LTE, which will start deployment in earnest in the next 2-3 years. LTE brings a 3-4 times bandwidth improvement and thus helps lower the cost per MB for the access portion of the network.

Figure 9 provides a summary of the projected mobile network scenarios, showing the monthly ARPU per data subscriber, the monthly cost per data subscriber, and the two traffic growth curves. Using the moderate traffic growth assumption (46% CAGR) the costs exceed revenue by the end of 2012 (less than 3 years away); with the aggressive growth profile this point occurs by the end of 2010. These trends are similar to those described for the fixed network, although the problem is clearly even more severe for mobile networks. We also note that the rate of divergence of the cost and revenue curves for the aggressive growth case is manifold higher in the mobile network case, in line other industry analysts projections [9-11].

In summary, we conclude that the cost of building out fixed and mobile networks will be prohibitive, if the revenue model remains flat. The choice the network operator faces are: i) to limit the capacity expansion to something less than that required by the actual unconstrained bandwidth demand; or ii) to increase the revenue that is associated with, and will drive, the capacity expansion. In the next section, we will highlight how the former approach (limiting the capacity expansion) will result in an unacceptable level of quality of service and the clear benefit to all if an additional premium quality of service tier or capacity is offered.

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Figure 9. Projected Mobile network revenue and costs per subscriber

3. Impact of Network Congestion on InnovationIn addition to slowed web page downloads, freezing video streams, dropped VoIP calls caused by limited network capacity, there is yet another way in which constrained capacity will impact applications: increased delay or jitter. Jitter is simply the variation in the delay, which is the average time taken for data packets to appear, following a request.

Real time applications such as video conferencing, voice services, streaming video, Internet gaming and cloud computing are all sensitive to delay and jitter, as they require ‘round trip times’ of 100ms or less for the delay not to be perceptible to the end user [14]. In particular, innovation in cloud computing is really in its infancy and will impact every segment of residential and business applications as standard desktop and enterprise applications move into the cloud data centers in order to minimize the operational (IT) and capital (server upgrade) costs in the premises and create dynamic new business models. But, in order for this to be realizable, the delay in communication between the end user terminal and the application running in the cloud must be imperceptible from that experienced by the user when the application is locally hosted. This results in a strong requirement for minimized network delay, as well as variation in that delay (jitter).

We now investigate the impact of network congestion on delay and jitter. We will apply the traffic model of Norros [15] to illustrate the relationship between the aggregation of so-called ‘bursty’traffic sources and delay/jitter. The basic model is shown in Figure 10. We assume a line rate of 10Mbps and 20 bursty variable bitrate traffic sources with a mean of 400 kbps each, aggregated within this pipe. We increase the number of traffic sources (N) from 1 to 20 and look at the impact on delay and jitter. Secondly, we look at the impact of moving some of the traffic sources to a new enhanced QoS pipe.

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Figure 10. Traffic Model Assumptions

From the left panel of 11, it is clear that as the number of traffic sources (N) increases from 1 to 20, the jitter rises steeply at around N = 15 (Average BW/Line rate = 0.6). In other words, as the bursty traffic becomes greater than 60% of the line rate, the jitter grows by orders of magnitude, rendering the network essentially useless for delay-sensitive services.

Using the same traffic model as in Figure 10, we now add additional capacity that is associated with a premium quality of service. We further assume that only 5 users (of the 20) take advantage of this service. The right panel of Figure 11 shows the impact on the jitter. It is immediately apparent that when the 5 users are moved to an advanced service pipe there is considerable improvement the jitter that the remaining 15 users (those that did not participate in this service)experience, as the jitter experienced drops by a factor of 30, from 4s to 124ms, which is acceptable for many real time services. Lastly, we can see that if an additional 4.5 Mbps is given to premium service tier, the 5 premium users will have jitter well below 100ms under all circumstances. This service guarantee could be offered for a fee (determined by the subscriber’s willingness to pay), as is the case for all such ‘managed services’ in today’s network (e.g. Voice and IPTV services).

Figure 11. Evaluating the impact of Network Congestion on delay

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The conclusion is quite clear even from this simple example: that there is a net benefit to all parties in offering a premium or managed service. The benefit is actually threefold:

i) The reduction in network congestion associated with the creation of a managed service translates to reduction in the jitter to the point where advanced real time services can be offered to all users with an acceptable average service experience.

ii) The managed service itself further benefits subscribers looking for additional performance guarantees (beyond an acceptable ‘average’ experience).

iii) The managed service will also enhance broadband services adoption, thereby supporting the required capacity expansion, which will benefit all users.

To further investigate this connection between revenue-generating managed services and the concomitant improvement in best effort services, we have developed [16] a model of a dynamical economics system in which the main players are subscribers, network providers and application/content providers, with the key goal to track the evolution of the consequences of their decision-making over time. We have created two independent models, the first in which there is only ‘Best Effort’ Internet service and a second in which Best Effort and Managed Services co-exist; the intrinsic behavior of the Best Effort subscribers is common to both models.

An essential element in these models is that some fraction of total network revenue from each time period is applied to capital expenditures for enhancing network infrastructure in the subsequent period. Under a broad set of parameters, the natural consequence is growth over time of network capacity. In both models, Best Effort subscription prices are held fixed and the number of subscribers to the service is the equilibrium implied by the monotonicity of the willingness to pay for Quality of Experience, which in turn depends monotonically on per-subscriber network capacity. For Managed Services the demand is obtained from a constant elasticity model in which the price is obtained by an optimization performed jointly by the network provider and the application/content providers. In both scenarios, the initial network size is the same and the operator can invest up to 25% of its current revenue to add and maintain network capacity for the next period. We also assume that the cost to add and maintain network capacity is dynamic and decreases by 5% in each period.

In short, what we find is that since capacity expansion is constrained by a network operator’s resources (which ultimately depend on the revenue stream), offering Managed Services generates additional revenue, which gives the operator a larger budget for network expansion. Most notably, the users of the Best Effort service also benefit from this expansion, as is demonstrated by a comparison of the two scenarios and shown in Figure 12 below. The left panel clearly shows the growth in overall network capacity and the right panel shows the concomitant growth in the Best Effort capacity that is supported by this new revenue and investment.

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Figure 12. Increase in network capacity over time for two scenarios: Best Effort services only and Managed + Best Effort Services. Left: Total Network Capacity; Right: Best-Effort Capacity

4. Conclusions In this paper, we evaluated the cost of the capacity expansion required to meet the anticipated bandwidth demands for moderate and aggressive growth rate cases and compared these costs tothe attendant revenue, when viewed as a simple extrapolation from the current revenue. We find that there is a dichotomy, with the cost of network expansion per subscriber exceeding therevenue per subscriber in the next 2-3 years, for both fixed and mobile networks – a situation that is clearly undesirable from an economic standpoint.

There are two clear solutions to this conundrum – to invest at a level less than required to support the traffic growth that would otherwise occur, or to derive more revenue from the ensuing traffic growth. We argue that the latter is clearly preferable from the standpoint of the subscriber, the network operator and the application and content providers (ACPs), as it maximizes the subscriber experience and the innovation potential associated with the Internet and associated IP services. Furthermore, we show that a model whereby a combination of managed services and best effort services co-exist and there is enhanced revenue potential associated with the former, results in a highly desirable outcome in which the network capacity expands, and to the benefit of both service types.

5. References

[1] Alcatel-Lucent measurements of high speed Internet traffic running over operator networks, June to December 2009.

[2] DIGITAL TV BUSINESS, TECHNOLOGY & MARKET RESEARCH NEWS, “Broadband-Enabled TV Households to Top 360 Million by 2014”, January 15th 2010,http://www.digitaltvnews.net/content/?p=12137 .

[3] ESPN.com “ESPN 3D to show soccer, football, More”, http://sports.espn.go.com/espn/news/story?id=4796555 .

[4] Alcatel-Lucent analysis of Broadband Trends, Infonetics and Dell’Oro Q2 and Q3 2009 reports.

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[5] Alcatel-Lucent analysis of data supplied by Pyramid Research, Ovum and Strategy Analytics.

[6] InStat “Competing Business Models for the Future of Digital Entertainment,” December 2009.

[7] Solon Management Consulting GmbH & Co. KG, Solon European Survey 2009, Section 1.1.

[8] Source: www.comscore.com.

[9] Declan Lonergan, “The Holy Grail of Mobile Broadband Pricing”, Anchor Report Yankee GroupDecember 2009.

[10] Morgan Stanley presentation on Internet Trends, Web 2.0 Summit, San Francisco, October2009.

[11] Reported by PCWorld in December 2009, www.pcworld.com/article/184589/atandt_iphone_users_irate_at_idea_of_usagebased_pricing.html

[12] Model costs and methodology to be published in Bell Labs Technical Journal, 2010.

[13] Pyramid Research, US FIXED COMMUNICATIONS DEMAND - RESIDENTIAL - June, 2009.

[14] T. Coppens et al, “Access Network Delay in Networked Games”, NetGames03, Redwood Coty, CA (2003).

[15] Ilkka Norros, "A storage model with self-similar input", Queuing Systems, Volume 16, Numbers 3-4, pp. 387-396, September 1994.

[16] Bell Labs Mathematical Sciences research, Bell Labs Technical Journal, in preparation 2010.