[e2e] not quite the differentiated services I was thinking of

[Aaron Falk]

Phone, Cable Firms Rein In Consumers' Internet Use
Big Operators See Threat To Service as Web Calls,
Videos Clog Up Networks

By PETER GRANT and JESSE DRUCKER
Staff Reporters of THE WALL STREET JOURNAL
October 21, 2005; Page A1

Several large telephone and cable companies are starting to make it harder 
for consumers to use the Internet for phone calls or swapping video files.

Some of the companies say the users are hogging bandwidth, taking up too 
much space on networks and slowing down service for all customers that tap 
the Internet for email, video, music, phone and other services.

Wireless phone companies like Verizon Wireless and Vodafone Group PLC 
stipulate in their subscription contracts that customers can't use the 
company's high-speed Web-access networks for Internet calling -- or may 
prohibit usage in the future. Several cable companies are using technology 
to cap the speed at which some of their customers can swap videos. A number 
of equipment companies are selling software and other products designed to 
block and monitor Internet applications such as phone calls, video and 
photo downloads.

Many telephone and cable companies have begun to closely monitor the uses 
of their network with an eye toward controlling activity by users who are 
swapping movies, TV programs, pornography and other video files. Operators 
say file sharing is growing so quickly, it threatens to sharply slow down 
other uses.
[Bandwidth Surge]

In August alone, one cable broadband subscriber consumed a total of 1.5 
terabytes, the equivalent of 1,500 standard-definition movies, according to 
CableLabs, the cable industry's research and development arm. Fewer than 
10% of the subscribers of Time Warner Inc.'s cable unit consume more than 
75% of its bandwidth, says Mike Lajoie, chief technology officer of Time 
Warner Cable. "It can be frustrating for people using email or sending 
pictures to their moms," he says. "It tends to slow down the rest of the 
network."

Critics say the big operators are using their concerns about heavy network 
traffic to fight competition from smaller rivals that are using the phone 
and cable companies' networks, like Internet calling companies Skype 
Technologies SA or Vonage Holdings Corp. Others say that telecom companies 
may use their control over the networks to charge users more money if they 
want higher quality.

"They claim it's a network-management issue when it's really a 
revenue-maximization issue," says Mark Cooper, research director for the 
Consumer Federation of America.

The battle features big companies with multibillion-dollar telephone, cable 
and cellular networks into homes and tiny competitors who don't own any 
network but whose low-cost or free services compete with those of the big 
operators. Consumers could get caught in the squeeze.

The crackdown is controversial: Consumers have come to expect unfettered 
use of the Internet. Any effort by phone or cable companies to curtail use 
so far has sparked an outcry.

Kevin Martin, chairman of the Federal Communications Commission, has said 
that market forces would prevent operators from curtailing applications 
that run on their networks, but he also says the FCC is looking into 
guidelines to protect consumers on this issue. Earlier this year, telecom 
provider Madison River Communications stopped blocking Vonage's service 
after the FCC intervened.

While there aren't yet specific laws to enforce so-called net neutrality, 
an FCC spokesman said the commission relied on its broad authority "to 
ensure an efficient communications network at reasonable charges" in its 
action on Madison River earlier this year. He declined to comment on 
Verizon Wireless's contract language prohibiting Internet calling. "It 
would involve looking at the facts of the situation." Verizon Wireless is a 
joint venture between Verizon Communications Inc. and Vodafone.

The big operators' efforts at Internet traffic control reflect, in part, 
the skyrocketing use of video files and other bandwidth-intensive 
applications by the tens of millions of households with high-speed Internet 
connections. Video file sharing can use up more than 20 times as many bits 
as other Internet applications, such as making a phone call.

One kind of video-file-sharing software alone, called BitTorrent, accounted 
for 18% of Internet traffic on U.S. cable operators' networks this year, 
according to a recent CableLabs survey. "These applications, run unchecked, 
could consume all of the bandwidth available in the network," says Ralph 
Brown, CableLabs' chief technology officer.

The increasing attention being placed on broadband traffic control promises 
to be a boon for network-gear businesses like Ellacoya Networks Inc., 
Sandvine Inc. and P-Cube, which was acquired by Cisco Systems Inc. last 
year for $200 million. Some of these companies have developed a technology 
called "deep packet inspection" that enables network operators to tell 
whether bits on their network are email, videos, music, photos or any other 
use.

The use of such policing technologies by big operators is also driven by 
the popularity of competing Internet-calling services like those of Skype 
and Vonage. Those companies offer customers the ability to make free or 
cheap calls using their high-speed Internet connection without paying a 
telephone company for traditional voice service. Last month, Skype, which 
has 55 million registered users world-wide, was acquired by eBay Inc. for 
$2.6 billion.

Verso Technologies Inc. last month launched its "Skype Filtering 
Technology," marketing it to carriers seeking to block the use of Skype and 
other such services. "I can guarantee you that if a service provider has 
the ability to prioritize their voice traffic over Skype traffic, they'll 
do theirs," a Verso executive said.

Verizon Wireless's BroadbandAccess enables customers to use its cellular 
network for high-speed Internet access. But the service explicitly 
prohibits subscribers from using it for Internet calling because "we don't 
want people clogging up the network," says spokesman Jim Gerace. The 
carrier launched the service in two markets in 2003, but has only recently 
begun heavily marketing the offering, cutting prices by 25%.

Mr. Gerace adds that Verizon Wireless has to bear the cost of any 
dissatisfaction with an Internet-calling provider. "We offer a wireless 
connection. When it doesn't work well, who do they call? They don't call 
Skype; they call us," he said.

A Vodafone spokesman said the company's contract language, which applies 
only to its customers in Germany, was included as "a legal reservation" for 
potential future action. He said the carrier isn't blocking Internet 
calling and accepts that such a service is a competitor.

Time Warner Cable is considering several ways of controlling the traffic on 
its network, Mr. Lajoie says. The operator might simply give video 
file-sharing traffic a lower priority than other traffic so that it slows 
down first during periods of peak usage. Or it might restrict the flow of 
bits to a particular user's computer if the usage is too heavy. Time Warner 
Cable may also charge heavy users more if they want preferred treatment. 
"Revenue opportunities...definitely exist," Mr. Lajoie says.

Phone companies also may take such steps for their land-line broadband 
networks. Verizon Communications, for example, has put tools in place for 
monitoring the network, and managing it if necessary, says spokesman Eric 
Rabe. "We don't feel at this point [video file sharing] has caused the kind 
of problem that would force us to take extraordinary measures," he says. 
"But we're prepared to deal with it if we need to."

Telecom companies overseas have been more aggressive than those in the U.S. 
in controlling their networks. Verso says that interest in its service so 
far has come primarily from overseas carriers, since deploying such a 
technology here in the U.S. would be highly controversial. The only carrier 
it would name is Britain's Cable & Wireless PLC, which it says is 
interested in deploying the technology in its Caribbean markets. Cable & 
Wireless didn't respond to requests for comment.

Shaw Communications Inc., a large Canadian cable operator, has been using 
technology purchased from Ellacoya to manage its broadband network for 
about one year, says Shaw's president, Peter Bissonnette.

During some periods of peak usage, video file-sharing traffic is slowed to 
provide more bandwidth for subscribers accessing email, Web pages and other 
uses. "We try to manage those people who are avariciously using up 
spectrum," he says.

Shaw also uses the network management technology to increase revenue. For 
example, customers who use Vonage or another Internet phone service can pay 
an additional $9.95 a month to make sure that their calls get higher 
priority on the network than some other uses.

Businesses that sell services that piggy-back on cable and phone networks 
have been watching efforts by operators to control traffic with alarm. "To 
use a broadband connection for any legal application is critical to 
ensuring the vitality of the Internet," says Brooke Schulz, a Vonage 
spokeswoman.

Ashwin Navin, chief operating officer of BitTorrent, said he is "very 
disappointed" that operators are taking steps to slow down video 
file-sharing traffic. He says that he's mostly hearing about it happening 
in markets served by only one operator, depriving disgruntled consumers of 
a choice.

Write to Peter Grant at peter.grant at wsj.com1 and Jesse Drucker at 
jesse.drucker at wsj.com2
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