Growth in Internet Traffic Underscores the Need for Smart Regulatory Actions

A recent study of Internet traffic conducted by Cisco reveals encouraging signs of progress for the applications and technologies that benefit consumers. However, there are areas of regulatory shortcoming that need attention to prevent undermining these benefits.

We have already seen smartphones become dominant over wired devices for Internet access. By 2021, wired devices connected to the internet will account for “37 percent, compared to 63 percent for mobile and Wi-Fi devices” and “smartphones will account for a third of all (Internet protocol or IP) traffic, while PCs will comprise only a quarter.” Ironically, this transition to the relatively small screen of the smartphone is coincident with higher consumer dependence on video, an application not ideally suited to small screens.

Annual IP traffic is growing at a compound 24% per year, almost tripling between 2016 and 2021. The video portion of that traffic is growing massively as TV programs and streaming content are diverted from TV screens and sent to computer monitors and phones. Video traffic destined to the consumer’s IP devices is no longer the exclusive burden of public Internet Service Providers (ISPs). By 2021, 71% of video flowing to consumers’ wired or smartphone devices will cross a private content delivery network (CDN) built “by content providers, such as Netflix, Google, Amazon and Facebook, for their own content and without excess capacity available for rival content providers.” The private CDNs typically shunt video to public IP networks (mobile or wired) for carriage over the “last mile” to the consumer.

The advent of private CDNs should permit expansion in innovation and customized treatment of consumer-requested video traffic. The private CDNs are expected to enjoy a dominant share of the IP transport and related revenues, probably because private CDNs are competing against public ISPs under very uneven conditions. The private CDNs engage in vertical integration producing benefits that can be denied to all other competitors.

Unlike for public ISPs, the private CDNs have no regulatory obligation to either carry competitors’ traffic nor to treat all customers’ IP traffic equally. The so-called Net Neutrality regulation applies only to public ISPs and it governs their actions even when consumers may want some traffic treated differently for financial reasons or technical requirements such as those we can expect in 5th generation mobile (5G) bandwidth and the Internet of things (IoT).

The tall wave of video traffic will soon by joined by a tsunami of machine-to-machine IP traffic from the IoT. The number of devices connected to IP networks will more than triple by 2021, reaching 27.1 billion networked devices in 2021. Mobile bandwidth, enough to support information distribution into the IoT, has not yet been fully allocated (usually sold to the highest bidder) by the Federal Communications Commission (FCC). When the FCC allocates that capacity, it will support one thousand times the capacity of today’s Internet. Fortunately, plenty of spectrum for the IoT is available in the unallocated frequencies above 3 Gigahertz.

While wireless spectrum is best suited to download capacity for IoT, the backhaul (upload) capacity needs of the IoT can be met by fiber optics, especially if the FCC relents in its foot dragging over allowing the replacement of old-style copper wired voice services with fiber optic services. There appear to be a throng of anticompetitive excuses for denying carriers’ permission to replace copper circuits with fiber.

Consumers need uniform privacy regulations that apply to private CDNs, to public ISPs, and across the evolving IoT. The IoT is in dire need of better, more consistent security precautions to protect consumers. As was done in the past, there is no justification for inventing inconsistent versions of consumer privacy rights under the control of rival agencies.
Growth in IP traffic is a good economic sign, but it can be thwarted when regulations fail to keep pace with the technology and changes in consumer needs.