The British ISP industry has spent a small fortune of its customers’ money fighting the people who would, in a saner world, be its business partners – only to suffer a crushing defeat. On Tuesday Lord Justice Richards threw out BT and TalkTalk’s judicial review against the 2010 Digital Economy Act.

Yet as trench warfare goes, they may consider it worth every penny.

It should be remembered that the telcos’ reasons for opposing the Act are very different to those of “digital rights” activists. For the activists, every day is the first day of the Counter Reformation. Every copyright enforcement proposal is fatally flawed: the task is quite simply to say “no” to every one that pops up. But ISPs are in fact a lot more pragmatic.

For the ISPs, it’s all about minimising risk and, at the end of the day, lowering their compliance costs. They don’t think copyright enforcement is spoiling the unicorn’s grazing meadow – they just think it’s going to be scarily expensive. And this concern takes precedence over innovation, the creation of new markets, growth, and ultimately profits. In short, they see more value from keeping the wild west much as it is today than they do from building on it – despite empirical evidence (pronounced “Sky”) that people cheerfully pay for content if it’s convenient and good value.

There is another advantage to the ISPs for pursuing a strategy of prevarication, in that it has successfully delayed the introduction of the 2010 Act. The original timetable envisaged letters being sent to copyright infringers in early 2011 and, should file-sharing have miraculously failed to cease after that, technical measures being imposed against diehards round about now. This is the sanction that copyright-holders wanted – attaching a real consequence to what today is a casual and risk-free grabbing of a bunch of movies and music. The first letters may not now go out until mid to late 2013.

In a shorter timeframe – in under three years, in fact – France introduced the vastly more ambitious (and more bureaucratic) HADOPI framework.

So focus has instead turned to the much vaunted successor to the 2003 Communications Act, and that’s where ISPs and copyright industries have come to blows. Remember that the DEA was a series of amendments to the 2003 Act. The Ministry of Fun says it wants draft legislation by April, and as you read this the Green Paper is being rewritten; the first draft was acceptable to nobody. So MPs will in effect be discussing the DEA’s replacement. Given the foot-dragging from the Mandarinate – our permanent government – it is hard to see how the Act has a vigorous life ahead of it.

In the meantime, private legal cases are filling the vacuum. Last year the Newzbin2 ruling established that ISPs were liable under copyright law – and despite shrill squawks from Consumer Focus and other activists that complying with this would bankrupt ISPs, the cost turned out to be minimal: £5,000 a pop to block a site with the ISP picking up the bill. Sky preemptively halted access to Newzbin2, avoiding the need to reach into its pockets.

But as I wrote when the SOPA hysteria was at its peak, copyright enforcement hasn’t kept pace with the technology; it’s all too easy to evade a web block which means the demand for cheap and effective redress hasn’t gone away.

Mechanisms and agreements must be created to stop the rip-off of creators ranging from you, dear reader, and the wedding photographer bloke down the road to Sony Pictures – and it must scale to encompass all these examples. These agreements don’t have to be legislation if enlightened self-interest prevails. But ISPs remain in a game theory-like trap; the first to move is judged to lose, so nobody budges an inch.

All this leaves the internet looking shabbier than it should be. Britain has a long historical legacy of enlightened private agreements and its citizens pay for movies and music. It should be a testbed for radical market experiments for the world to observe. But can you think of a decent service that’s launched over an IP network since Spotify? The action takes place off the net.

The paradox is that we have technical inertia evident in the adoption of highly advanced, intelligent high speed networks, the kind of technology that the next speaker’s employer [Lord Carter] will gladly show you. Certainly long term improvements such as IPv6 have been very slow coming to digital networks, too.  At the same time we have a very stubborn percentage of the British population, I believe it’s around 17 million households who refuse to go online. 

Now earlier this year there was a very captivating book by Jaron Lanier entitled ‘You are not a Gadget’ who pointed out that when technologists tend to blame people for their tools failing to meet our needs and desires. Technology utopians present a rather desiccated view of human individuality, we make choices for rational reasons, but if these don’t fit the plan, the master plan, we are either ignorant or perhaps stupid. Last year Martha Lane Fox suggested that more coercion might be needed to get more people online.  Perhaps there are better ways of approaching this. 

Today we are faced with a rather fading utopianism that was evident in Japan in 1980, and which has been there from the birth of the internet, and today it’s manifest in a couple of deep kind of intellectual prejudices. One is that it’s rather grubby to make money from selling bits – which is what ISPs do, and secondly, it’s rather grubby to place a value on those bits that flow over the network – which is what copyright businesses tend to do.  So we are at a stage now where online content markets are immature or non-existent and ISPs face some very difficult questions, in some ways they’re are on a hiding to nothing. 
 

Exclusive

The regulator is sounding out opinion from ISPs and consumer groups on traffic management, which it sees as the only aspect of the US "Net Neutrality" debates applicable to the UK.

In the US, the debate was politicized and emotive; pressure from left-wing activists attempted to push both Congress and the FTC into passing pre-emptive technical regulations. At the loonier end of the debate, some called for compulsory nationalisation of the private assets, without compensation.

Here the debate is more rational; Ofcom doesn’t agree that pre-emptive rules must be made, and favours a hands-off approach.

A consultation was launched in June.

"Ofcom stressed that they are open-minded about how they achieve consumer transparency, eg self-, co-, or proper regulation but they also pointed to Commissioner Kroes’ statement that ‘transparency is non-negotiable’," we learn from the notes.

But Ofcom won’t push the ISPs to present the traffic management techniques in a standardised format. And ISPs present reflected their unease that shopping comparison sites might be tempted to weigh in.

"Several ISPs expressed their wariness in relation to third party websites who often lack independence," according to the notes.

BT has circulated a draft set of principles to ISPs – which we’ve also seen – with a number of commitments. These include open access: "We will not block any legal service or seek to charge content or applications providers for basic service."

An individual user’s experience will depend on the access level/technology purchased and any relevant contractual conditions" – and a commitment to freedom of expression. BT would also provide "an indication of the minimum and general level of experience our customers can expect".

It leaves ISPs "free to deploy techniques to manage congestion and optimise the performance of the various applications using their networks", including prioritising time-critical applications and limiting the throughput of non time-critical applications.

ISPs haven’t been impressed by the evidence Ofcom offered.

"Ofcom’s evidence for negative effects of traffic management mainly consisted of statements from bloggers and forum users, eg ‘my provider’ is degrading my peer2peer speed 24/7," ISPs note.

"It may be necessary to highlight that this ‘evidence’ does not constitute evidence but rather consists of assumptions that may as well be explained by general network congestion or other factors that affect the user experience."

The phenomenon of users thinking they’re being throttled when they’re not has popped up before – see our story on the man who discovered his net wasn’t neutered for an example of the persecution complex. What made that story unusual is that the persecuted blogger has several RFCs to his name: demonstrating that hysteria can affect even veteran internet experts.

But that’s over there.

Interestingly, Google will be entirely absent from a day-long net neutrality seminar hosted by the Broadband Stakeholder Group next week. Attendees include Ofcom and EU reps, CDNs and network vendors, ITV and Canvas, and all the biggest ISPs. It’ll be left to Skype to argue the case for a Free Lunch.

Google and Verizon agreed a set of draft principles this month which if they find broader support, as looks likely, will probably kill the political issue Stateside.

By the mid 1990s it had become pointless to compete with Microsoft in operating systems and office software – and investment in potential competitors dried up. The best you could hope for as a software company was to carve out a niche as part of the Windows Office system; this was a very small niche indeed.

The same thing is happening today with web services. But what Google and other web giants are doing goes largely unnoticed, even by analysts, pundits and Presidential advisors. What they are able to do is use their scale, and clever and cynical politics to obscure how they’re solidifying their competitive advantage. In particular, they’re swearing allegiance to (and lobbying for) an idea which doesn’t apply to their operations, but which will keep smaller competitors out of the market. A Zoho, for example – or the next new YouTube.

To understand this, you have to keep in mind that there isn’t really such a thing as ‘The Internet’, which may sound strange. It might be even stranger to consider that the internet was never designed as a masterplan to be ‘The Internet’, thankfully, as it turned out.

Instead of one network, picture lots of private networks. The internetworking protocols (the clue’s in the name) provide guidelines for some lowest common denominators by which these private networks can cooperate.

The good thing is that the architects’ more modest ambition of "internetworking" succeeded where many grand plans had failed. It explains why the internet is so resilient, and why it’s so hard to regulate, or control. The downside is that it’s hard to improve upon today’s internet, either, since innovation chugs along at the pace of the slowest significant network.

But one way around the bottlenecks is permissible. Deliverers of content and services can climb off the public internet, and do deals directly with the customer-facing networks to which you or I subscribe. Instead of making a journey of two dozen hops around the world, the material need only take two or three.

This is what Google, Amazon and others do. They operate private internets of their own, and peer with the largest ISPs.

Read more at The Register…

The term long since ceased to mean anything – it now means anything you want it to mean. But as a rule of thumb, advocating Neutrality means giving your support to general Goodness on the internets, and opposing general Badness. Therefore, supporting Neutrality means you yourself are a Good Person, by reflection, and people who oppose Neutrality are Bad People.

This is a wonderful thing, and the beauty is, it’s all so simple. It’s like the Good Guys Wearing White – the Bad Guys oppose Neutrality. And because Neutrality is anything you want it to be, you have an all-purpose morality firehose at your disposal. Just point it and shoot at Baddies.

But best of all is that you get to define the Baddies, raise a lynch mob, catch them and hang them – before somebody has had a chance to ask "Where’s the harm, exactly?".

This time the accusation of Neutrality Violations is being turned on copyright holders, minority groups – and anyone who wants a network to run the way they want it to.

Rights for some, but not all

Now you may be thinking that it’s strange that in an age when we keep being told that thanks to technology "we’re all creators", creators’ rights must go out of the window. Surely these digital rights should be being strengthened – as new sources of money are available to the talented, and as old middlemen melt away? Has a technology ever been invented that when allied to copyright, makes creators less independent, or poorer? Not until now.

But not everybody sees it this way. Copyright messes up the smooth running of the networks, it’s a spanner in the machine-driven cybernetic utopia. It also costs network operators money – paying the pesky talent who create the stuff that generates the demand. And it’s impossible for a machine to do: an algorithm is unable to spot and nurture creative talent, in the way a studio boss or a publisher or a label could find and nurture acting writing or performing talent. The machine can’t compute that. And of course, the machine can’t create art: when algorithms are set to write a composition (or when, say, Cory Doctorow attempts to create readable prose) you can tell instantly something is missing.

So Google’s front groups such as Public Knowledge and FreePress – they fly under the flag of "citizens groups" or "consumer rights" groups, but are really two of Google’s most potent arrows in its lobbying quiver – are now deploying the morality firehose on copyright. Anyone policing the internets for copyright infringement will be violating neutrality, say the groups. Therefore it shouldn’t be permitted. Presumably the same logic can be applied to policing the internets for anything: a paedophile "neutrality" maybe being violated somewhere – which would be awful. It’s economically and technically illiterate of course, just as you’d expect. Nobody at Public Knowledge or FreePress has ever done a day’s honest toil at a business in their lives – their prejudices are evident. But the groups have also rolled out ethnic minorities, alarming them that without Neutrality, they’ll be erased. The National Hispanic Media Coalition, for example, is standing right behind the Neutrality firehose. But imagine these two examples.

How ideology busts the citizens’ networks

In the first, a community of citizens in a small town – let’s call it HappyVille – decides to mutually own and operate their town’s network. In order to defray the cost of buying bandwidth, they grant the HappyVille Co-Op Network a video-on-demand service. Punters pay HCN their $3.50 a movie knowing that the profit generated maintains the pipes. In order to keep the HappyVille citizens who prefer to get their copyright content illegally, however, they create a fast lane that goes only to TVs, for delivering the movies. This keeps the Torrenters happy, too. The HCN serves one happy town.

But that could be illegal under Neutrality rules. It would only take one bitter or ignorant ideologue in HappyVille to complain to the FCC and remind regulators that the Neutrality rules were being broken. Asking "Where’s the harm?" would not be a valid question. The Co-Op has committed a crime against Neutrality: Go string them up.

In the second example, let’s imagine that a diaspora of Latin Americans decide to start their own ISP. They club together to buy cheap international traffic back to Central and South America. Subscribers to the ISP enjoy cut rate VoIP calls to family and loved ones. It offers a community alternative to the scalping rates of large telcos. But voice traffic on an IP network is highly susceptible to latency and jitter – and one relentless Torrent seeder can cause problems. And as above, that one Torrenter can complain to the FCC that Neutrality Crimes are being Commmitted. So let’s close the joint down. No more cheap calls for you. That’s how the advocates seem to like it. One guy with his trousers around his ankles can invoke a virtual national lynch mob.

Ask Whitey; he knows best

There’s something uniquely distasteful about the sock puppet "citizens" groups evoking citizens rights to deprive citizens of choices. Some Progressives have always viewed ethnic minorities as little more than an opportunity for a photo shoot, and then forget about them for the next four years. This is all that, but it’s worse, too: it’s patronising and misleading them. It insults their intelligence. Whitey still decides what kind of networks they are permitted to run. The internet was so much easier before the technology utopians (abetted by Google) decided to write the world’s first technical rulebook for the internet.

When there was no rulebook, you could do what you want technically – and your network either succeeded or failed, according to the laws of physics, or the laws of business. Now you have to pass some arbitrary political correctness test, adminsiered by Comic Book Star Guy. Ain’t life grand?

You have to admire "Neutrality" itself though, and more and more each day. This metaphysical, metaphorical firehose can be anything an authoritarian wants it to be. It allows people who want to be in politics but who can’t do politics (in terms of vision, persuasion, coalition building, honesty) to wield tremendous power. It may not last, since it’s almost certainly unconstitutional, and the consequences leave everyone (except you-know-who) worse off. But it’s a great example of net nerds flexing their muscle.

We all know what vapourware is. It’s a class of product that’s announced with great fanfare, typically in response to a competitor, or as simply The Next Big Thing. But betwixt the announcement and the launch, many months and years may pass, and sometimes the vapour never condenses into a product at all. Now meet its cousin – Carterware.

Carterware is vapourware that’s specifically announced in response to a Government directive. The Virgin-UMG deal announced certainly ticks the first box of the Carterware criteria.

The Government wants ISPs and the music business to sort out their differences themselves on music piracy. Last year’s MoU promised they’d do something: better services and some kind of attempt at “behaviour change”, ie. not menacing downloaders. But as yet, we’ve seen nothing that fulfils the consumer demand of sharing music, for which most of the public would apparently part with a fair bit of cash. So this is software or a service announced in response to a Government edict.

The Virgin-UMG deal looks like it may be the start of a compelling proposition – an all you can eat, no strings-attached bundle. But without wholehearted label support, the service is rather meaningless, and it’s such early days that no one else is on board. Incredibly, the most flexible licensee of all in the music business, the PRS, hasn’t granted Virgin a license yet.

he Virgin-UMG deal looks like it may be the start of a compelling proposition – an all you can eat, no strings-attached bundle. But without wholehearted label support, the service is rather meaningless, and it’s such early days that no one else is on board. Incredibly, the most flexible licensee of all in the music business, the PRS, hasn’t granted Virgin a license yet.

That ticks the second box for Carterware: announce something in a hurry. A cynic may be tempted to think that it’s all to do with Stephen Carter’s Digital Britain report, to be unveiled later today. Best to announce something – anything – that shows ISPs and music are making some progress.

Nevertheless, it looks like a long haul before the as-yet-unnamed service will get the support it needs. Having only UMG on board at this stage isn’t necessarily fatal: it’s the world’s biggest label and when Nokia announced its unlimited (albeit tethered) music program Comes With Music, it only had UMG too. But getting a critical mass took months, and it was a year before it finally launched.

There is no escaping from two awkward facts.

The first is that we’ve seen nothing since July last year that mutually benefits either business sector in any significant way. Spotify is a good example. It’s fantastic to use – but it’s grim for the suppliers, whichever way you look at it. Spotify ramps up traffic costs for the ISP, and for the labels it removes the need for us to purchase music to listen to at home, since it’s “always there”. Someone wondering about the long-term viability of Britain’s internet business may ask why the two parties are so enthusiastic about a circular firing squad.

Secondly, by failing to grasp the P2P challenge, it’s ignoring the most potent unmet demand for music yet created by digital technology.

When the music publishers and many independents first saw Napster in 2000, they concluded that nothing short of this would satisfy the public, and that something very like it should be licensed, legal and a revenue source. Yet here we are, unable to get the music suppliers and networks to agree. P2P also solves the repertoire problem – it’s much easier to ‘crowdsource’ the repertoire and use what we have on our hard disks already as back catalogue – as a starting point – than haul digital catalogues online, with all the gaps and omissions.

This year’s announcements show that the music and ISPs have one thing in common: they both share an anti-business, anti-revenue strategy. That sadly ignores what we actually want to do.

One strategy is to drive down the value of copyright material on the internet to zero. Google has a ruthless and calculating view of the real value of stuff. It reasons that if all we do on the net is talk to each other, then it’s merely fulfilling the role of a switchboard operator at a Soviet-era state monopoly telco – connecting us, while listening in. That’s a pretty unglamorous business, it doesn’t save the world… and hey, where’s the money?

The YouTube experience has taught Google that the value of “user generated content”, of the “new era of creativity” is as close to zero as a rounding error – while quite irrationally we continue to throw money at DVDs, CD box sets of stuff we already have, Susan Boyle, and even ringtones. That’s all copyright stuff. They are clever people, and this hasn’t escaped their notice.

The other strategy is to drive down the value of the “access networks” to zero. Unable to offer innovative value-add services of their own, the ISPs and mobile networks become interchangeble suppliers, merely undifferentiated suppliers of bits. Hence the “Net Neutrality” scare. Google didn’t invent “net neutrality”, but it lost little time in taking advantage of it, to its own ends. No company in the 25-year history of the net had ever dared propose a technical rulebook for what the net’s operators could and couldn’t do – until Google started to write legislation.

In both cases the entertainment and network “industries” have been the timid architects of their own demise. The networks well may be becoming commoditised bit pipes without Google’s assistance, and the content businesses – by refusing to take elementary steps such as synchronising releases across markets, and monetising P2P file sharing – may too see the value of their assets disappear. But it doesn’t harm Google to speed things along a bit.

Take the two together and you’ll start to see why Google is building those vast power-guzzling data centers. With copyright holders and last-mile service providers unable to realise value, those data centres aggregate all that’s left. Google becomes the internet company by default.

…Read more at The Register

So Apple now finds itself where everyone else in the mobile handset business wanted to be 15 years ago. Large companies full of clever people devoted years of planning and expenditure to fail to get here. If the iPhone continues to flourish (see below for the many obstacles en route) – then both rival manufacturers and the networks have to tear up some long established strategies.

For the established handset competition, if Apple takes the lucrative high end, that leaves them scrambling around for gimmicks in a cutthroat market that’s increasingly low margin. For the networks, they’ll need to find devices that people actually want – or pray that Apple drops its carrier exclusivity policy and partners with any network that wants to sell its gear.

So how did someone with no track record in a notoriously difficult business find itself walking away with the laurels? What can explain this paradox?

For Apple, coming late to the phone business has actually been a huge advantage. The success of the iPhone is down not just to great engineering, but profiting from several years of desperate and outright stupid behaviour by the mobile phone networks, who set the terms for the manufacturers. The received wisdom of the industry – that you had to know the wiles of the mobile networks to succeed – turned out to be completely mistaken. And to explain this we find another paradox, which looks like this.

The mobile phone business is actually the most “customer friendly” or “customer responsive” in the world. This might seem a strange thing to say. Have a read of Brendon McLean’s splendid rant from two years ago – Why we hate the modern mobile phone, for a summary of customer unfriendly business. But it’s true.

That’s because the customer isn’t you or me, or the billion and a half other phone users in the world. Phone manufacturers have only 800 customers, of which only around 200 really matter: these are the gentlemen from the networks.

And one of these stroppy customers can demand changes that cost the manufacturer millions, or cause the cancellation of product lines in which tens of millions have been invested.

For example, it’s these gents who in their wisdom decided that we’re too stupid to use the “butterfly” design Nokia introduced with the 6800. Networks killed the third phone in this line, the E70, leaving Nokia probably just one iteration away from making a classic. The reason? The fold-out keyboard would confuse us. In their wisdom networks have done all kind of similar things over the years – disabling Wi-Fi, for example, or blocking ports. But most of all in their pricing policies for data.

Apple simply ignored all this. Such was its confidence in its own product, and its own steamroller marketing, that it was able to capitalise on the networks desperation. But being late to the party also had another advantage.

Large Tier 1 phone manufacturers such as Nokia and Samsung pursue a strategy of market segmentation, where differences between products are reduced to tickboxes on a spreadsheet. Analysts weight the relative strength of the “portfolio” on the play in a “segment”. This means that the care and attention paid to the final product (and remember who the customer really is) are minimal. It’s better to be mediocre in different areas than strong in one but weak in another. And it shows in the quality of the end user experience.

As soon as the iPhone arrived it was clearly different. While the original iPhone was slow, and lacking in features, it had clearly been nurtured with thought, care and attention. The hype didn’t initially enamour a sceptical British public (recall the tumbleweed that blew through empty stores when O2 and Carphone first launched the iPhone in the UK), but it deservedly became a word of mouth hit. You can’t keep a good product down.

As a indicator of the iPhone steamroller, today, you can now pick up an iPhone on pre-pay and for a tenner a month you’ll get 500 minutes, unlimited 3G data (the Comes With Asterisks version of “unlimited”) and unlimited Wi-Fi for a year. The catch is that you plunk down a large amount of money to get this deal. But unlike an investment in a regular smartphone, the iPhone keeps its value very well. So while the sticker price tops £400 for the 16GB version, in a year’s time you’ll probably be able to recoup $250 to £300 for it on eBay. It’s better than any deal on postpay.

Rivals would love this kind of deal for their smartphones, just as they’d love to have instant eBay, Facebook and PayPal apps available. (They’d love to have more than a handful of users downloading the inevitable bugfixes, too.) But they only have themselves to blame for years of neglecting the right customer – us – in favour of the networks.

So is Apple home and dry? Not quite by a long shot, as we’ll see.

A few phones short of a masterplan

Market segmentation still has enormous strength for a manufacturer. Traditional economies of scale also benefit the established players. Look how quickly Nokia could turn the innards of its premium flagship N96 into the budget 6220 classic.

Marketing one phone doesn’t satisfy all kinds of people. Old crusties like your reporter (alternating between a seven-year-old design and a five-year-old design as the main voice device) like simplicity, big buttons and a long-lasting battery. The iPhone only checks one of those boxes. The poor camera and lack of 30fps video are a bit embarrassing on a high end device. It also takes too long to switch between tasks – something Palm noticed, and designed around with its Pre.

So the classic technique for a successful manufacturer is to differentiate, so that it looks like you are the entire market. Apple should be thinking about an “iPhone Photo”, an iPhone Pro (with extended battery and a QWERTY, or at very least, a good alphanumeric keypad) and a budget iPhone Nano. It needs to ramp up speed and usability (particularly task-switching), and it should drop its hostility to run times such as Java, Flash and scripting engines. If you’re going to be the market, you can afford to tolerate development environments you don’t completely control.

This week shows Apple as a kind of mirror image to Nokia. The Finns still have arguably the best hardware engineers in the business, but are chained to a user interface that should have been canned a long time ago. It’s lost the mindshare of enthusiasts and developers. “Pretty much the only community around S60 is the community we pay to be there,” Nokia admitted last year. As the demise of EMCC and others shows, Symbian stalwarts have gone elsewhere. One former staffer describes it as more of “picosystem” than an ecosystem these days.

Maybe Nokia really should concentrate on its key strengths, and license the iPhone OS?

In the end the only thing standing between Apple and ruling the phone business may be not making enough phones people actually want.

The radical initiative, tentatively branded as “Virgin Music Unlimited”, represented a major investment for the ISP, and would have been the first such attempt to monetise P2P file sharing in an ISP partnership in either Europe or the USA. However, 11th hour “anti-piracy” demands by major record labels including Universal Music and Sony Music meant Virgin could no longer launch the service as it had envisaged. Labels demanded that Virgin block uploads and downloads of songs from subscribers’ PCs, sources suggest. Since the system is designed to encourage file sharing, the demand removed the service’s USP.

Virgin is believed to be particularly disappointed at the collapse of the initiative. The ISP had been the first to co-operate with the music business-ISP Memorandum of Understanding (MoU) signed last July and send warning letters to file sharers. It had also made a significant investment in the Music Unlimited initiative, estimated at eight figures.

When Virgin’s boss recently announced a significant investment in deep packet inspection, he also hinted at “monetizing the intelligence” of the network, a statement that erroneous reports at the time claimed was a reference to Phorm. In fact, it referred to radical iniatives such as VMU. The withdrawal of major label support has serious strategic implications for Virgin: the ISP is left with a stick, but no carrot.

Why Virgin almost made history

While VMU had yet to be formally announced, it was being closely watched by both ISPs, the music business, and fans.

While they are reluctant to be seen to be monitoring their users, ISPs receive no incremental revenue from the vast quantities of infringing material that flow across their networks, which is a disincentive to invest in better network infrastructure. VMU was seen as a way to capture some incremental revenue voluntarily from users, increase customer loyalty, and decrease “churn”.

Similarly, many parts of the music business now express the view that prosecuting users and attempting to halt behaviour fails to bring in any revenue. Meanwhile, P2P remains a taboo: the one form of consumer behaviour that hasn’t been given a legitimate revenue opportunity. Millions have been spent over the past ten years in prosecuting users, and rather less on building legitimate services that capture revenue voluntarily from this behaviour.

For their part, consumers appeared to be keen on a service never previously legally available. In a survey last year 80 per cent of downloaders and 63 per cent of non-downloaders expressed an interest in a legal P2P service that allowed them to keep songs.

The reaction

Sony had not responded to a request for comment at press time. Speaking off the record, a source close to the recording industry stressed that ISPs must abide by the obligations in the MoU and that government regulation was likely if they didn’t. From that unprompted statement, it’s possible to infer that major labels still fear losing control, and have pinned their hopes on changing behaviour rather than creating services that generate new revenue streams.

A Virgin Media spokesman told us the company doesn’t comment on “rumour or speculation,” but Virgin’s technology partner PlayLouder MSP confirmed the deal was off but declined to elaborate. A source said that interest from UK and European ISPs in launching a legal P2P subscription service was higher than ever.

In what will be unwelcome news for ISPs, ecommerce providers, and the government, a survey of UK households suggests internet hold-outs are getting more stubborn.

The availability of cheap broadband has eroded the refusenik camp very slightly, with 3.6 per cent of non-net households signing up over six months. However, the increase in broadband is largely at the expense of dial-up, and isn’t winning net converts. The number of households with no access fell by 1.6 per cent year-on-year from the previous survey, while broadband uptake rose 7.1 per cent.

Overall, 44 per cent of UK households don’t have net access and views are becoming more entrenched.

44.8 per cent of those households don’t think the net is important at all (another 29.8 per cent think it’s not very important). And 70 per cent of those households thought it unlikely, or not very likely, that they’d get online.

“There are signs that as the number of non-access households shrinks, those left behind are increasingly resistant. This could prove a significant barrier to achieving much higher levels of internet access,” conclude the authors of the survey, conducted by broadband research outfit Point Topic.

Cost and technical skills are cited as reasons for not getting online, but a significant number simply aren’t interested.

Alas, the prospect of “free broadband” isn’t likely to tip the scales, either. Point Topic notes that the refuseniks are more likely to shun other technologies – 49 per cent use terrestial rather than digital TV, for example – so are less promising targets for “triple play” or other bundles.

In other areas, the survey dampens the hype between super, soaraway broadband Britain.

Two thirds of households surveyed don’t have a PC, and alternatives aren’t considered very attractive. Only 14 per cent of non-access households rated a TV or mobile phone as a good alternative to PC-based net access. Email-capable phones, games consoles, and PDAs rated even lower.

Cable and satellite providers are likely to take some comfort from the survey. 11 per cent of those surveyed suggest they are likely to change TV services, with 40 per cent opting for either Sky (or Sky+) or NTL:Telewest. BT is best placed to tap the refuseniks, says Point Topic, but only at the expense of its profit margins.

Refuseniks are most likely to be in the 45 to 54 age group, which, unfortunately for ISPs, is also the largest demographic slice by age, making up 27 per cent of UK households.

The survey interviewed over 2,000 respondents face to face in January and February this year.