Traffic Management: The Respective Roles of Competition Law and Regulation
Frank Maier-Rigaud, Mar 30, 2012
The internet traffic prioritization, traffic management, or network neutrality debate (however it is labeled) fundamentally centers on the question of how packet inspection technology can be used and, more specifically, if data packet inspection should be used to differentiate price and or quality.
As most ISPs operate based on flat-rate contracts, end users typically face no incentive to constrain their use of the internet as their marginal cost for generating traffic is zero. As soon as congestion on the network occurs, however, the marginal cost of additional traffic becomes strictly positive. The economic efficiency of flat-rate tariffs is therefore dependent on total marginal cost being zero, something that is only the case for traffic below maximum capacity, i.e. in the absence of congestion. When congestion occurs, the effects are asymmetric as some services will not be or only marginally be affected by congestion, whereas other services such as online gaming, for example, may be substantially degraded or may not work at all.
Similar to electricity grids where, in theory, electricity prices could be adjusted depending on capacity utilization with an aim to spreading energy consumption in an efficient fashion over the day-mimicking generation patterns-data transfer could be based on life pricing. As this is difficult to implement in a transparent way for end users, traffic management may be a more efficient way to realize the same effects. It also appears superior to daily price schedules based on historic values.