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Crude oil is a poor analogy for business data services

Tom Wheeler, chairman of the Federal Communications Commission, in a remarks delivered to INCOMPAS recently likened special access or business data services to crude oil given crude oil’s impact on energy prices. As a barrel of crude grudgingly inches higher (now up almost seven dollars from last week and hovering around $42.), prices at the pump have increased as well (although still $.34 a gallon less than last year).

Mr. Wheeler’s comparison struck me at first as a weak attempt to tie special access prices to the prices consumers pay for broadband. I can see that argument for being made for mobile broadband prices given that the costs for ordering special access services are built into the price consumers pay for accessing broadband services.  For other industries such as banking and large grocery chains, the cost for procuring special access is probably built into bank fees or the price per pound of potatoes.

But the reason crude oil is a poor analogy is because its price is not regulated by a government agency although some of its supply may be controlled by the output decisions of a cartel. The prices for special access services, especially those provided by so called dominant carriers, are regulated by the Commission. Rather than hint at letting regulation go if competition is identified, Mr. Wheeler should just go all out and deregulate the industry, period. Mr. Wheeler’s technology-neutral principle is on point and in line with that of INCOMPAS and Verizon, two entities that, by their own admission, don’t agree on much when it comes to special access. Mr Wheeler, INCOMPAS, and Verizon also see eye-to-eye on promoting the movement from legacy TDM services to IP services, arguing that enterprise clients want digital services versus legacy services.

But saying we’ll promote competition after we see competition doesn’t incentivize more private capital to enter the business data services markets to fund additional deployment. That’s the type of uncertainty that scares capital away. Demand for special access services and the price set when providers and business enterprises decide to enter an agreement for such services should be the framework for regulating the market. Private capital is always prepared for high risk with the flip side providing high reward, but not with a regulator ready to erode those rewards.

 

http://www.verizon.com/about/news/compromise-enables-networks-future

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How Congress and the FCC can avoid future Section 257 proceedings

On 25 March 2016, the Federal Communications Commission circulated an item regarding a Section 257 market entry barriers proceeding. The purpose of the proceeding is to prepare and distribute a report to Congress detailing regulatory barriers to entry faced by telecommunications and information service providers. The Commission is also expected to promote policies that favor diversity of media voices, vigorous economic competition, and technological advancement.

I think the biggest barrier to information services providers is not a bunch of rules or the Communications Act itself. It is the philosophy behind describing information services; a philosophy that is still silo-based; that separates broadband access providers from websites, information portals, and search engines. All these platforms have the exchange, gathering, repackaging, and sale of data or information in common and it is time that the Commission recognize this basic characteristic of the digital jungle.

The anti-ISP posse will argue that firms like Verizon and AT&T should not be viewed as mere information service providers because they also sell access services; that content providers and consumers rely on these gateways to access information. The anti-ISP posse have a very limited point when they distinguish Verizon or AT&T from other information services based on their access services. The New York Times, an online digital content provider, may be able to hire delivery boys but it won’t shell out billions for deploying networks just to deliver one publication to their subscribers. Paying last mile, mid-mile, or content delivery networks is more economically feasible for them to get their content out. But if we treated the information markets as an exchange, I believe there is an opportunity to create a model that increases opportunities for smaller content providers while getting the Commission and probably Congress out of the business of trying to make the information markets efficient.

Congress and the Commission should explore a blended exchange/independent system operator model for internet service providers. ISPs trade on information. The information markets in this blended model would be coordinated by a “central ISP”, similar to the regional transmission or independent system operators found in the electricity markets. Carriers, such as AT&T or Verizon, would voluntarily turn over functional control of their networks to this central ISP. In order to trade on this central ISP platform, information service providers such as Facebook, Hulu, Amazon, Google, etc., would buy seats on the central ISP’s exchange, similar to a stock market exchange. As a member, the information service provider would have a say in how the exchange is managed. As long as the information service provider has the annual fee to get a seat or membership, they must be allowed to join.

Yes, I hear your next question. “But what about the lone blogger who wants to get his content out there or the start-up information service provider who can’t afford a seat?” My first response would be “value.”  My second response would be, “tough nookies.”

ISPs are looking for content of great value. Smaller content providers will have to step up their game and demonstrate to ISPs that their content should be added to the ISPs portfolio of video and text goodies. And if a content provider cannot demonstrate this value, then tough. The content provider will have to either find another way to distribute content digitally or accept that the digital content world isn’t ready for her…yet.

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On March 31st, the FCC will immerse itself further into information markets

Posted March 28th, 2016 in Broadband, edge providers, Federal Communications Commission, privacy and tagged , , by Alton Drew

The Federal Communications Commission will issue a notice of proposed rulemaking on 31 March 2016 providing requirements that internet service providers should follow in order to protect personal information of consumers. Commission chairman, Tom Wheeler, describes the proposed rules as an initiative that gives consumers the “tools they need to make informed choices about how and whether their data is used and shared by broadband providers. Mr. Wheeler has constructed his rules within a framework of three principles: 1. Consumer choice, where consumers exercise meaningful choice over what data an ISP can use and how it can be shared; 2. Transparency, where consumers are made aware of what types of information an ISP is collecting and how that information is being used; and 3. Security, where ISPs have an obligation to protect information where ever it is carried over a network and stored. While consumers can “opt-out” from having their personal information used by ISPs in order to market additional services to the consumer, the consumer must opt-in to the use of their information for any other purposes. Anyone following the Commission since Mr. Wheeler’s ascent to the chairmanship acknowledges that this is a partisan commission and leading the opposition on this notice of proposed ruling is Commissioner Mike O’Rielly. Mr. O’Rielly refers to the proposed rules as “troubling and conflicting” given that these rules may not apply to other internet companies like Google and Facebook.  Mr. O’Rielly also takes issue with the Commission flirting with issues such as data security and data breach, issues, he argues, that are not covered by the Communications Act. And Mr. O’Rielly is correct. Data breach and security are not covered by the Communications Act. Nor does the Communications Act describe broadband access providers as telecommunications companies. In addition, ISP access to consumer proprietary information is limited, according to research conducted by Peter Swire, Justin Hemmings, and Alana Kirkland. Also, other companies have access to more information and a wider use of personal information than ISPs. Mr. Wheeler is playing with judicial uncertainty betting that the U.S. Court of Appeals-District of Columbia will uphold the Commission’s reclassification of broadband services as telecommunications services thus extending the 20th century protections of Section 222 of the Act for telephone customer personal information to consumers subscribing to 21st century broadband access services as well. Will Mr. Wheeler’s rules lead to an increase in deployment of broadband facilities? I don’t see it. Ironically, Mr. Wheeler’s rules may cause a conflict between sections 1302 and 222 of the Communications Act.  Why would ISPs, pursuant to the Commission’s directive under section 1302 of the Act, want to increase deployment of broadband access platforms if their ability to gather, package, and sell consumer information is going to be heavily regulated by rules, supported by section 202 of the Act, that don’t apply to social media networks that are increasingly gathering more consumer data than ISPs?

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Verizon makes it clear. They are a media company

Verizon’s Craig Silliman published a blog post discussing the appropriate regulatory framework for the application of net neutrality principles. He reiterated the broadband provider’s support for no blocking, no throttling, no paid prioritization, and a general conduct standard for protecting consumers and competition. What I found interesting was Mr. Silliman’s description of Verizon’s media efforts. In Mr. Silliman’s words:

“We have invested billions in businesses that depend on the ability to reach customers over the networks and platforms of others. We invested in digital ad technology through our $4.4 billion purchase of AOL and own content through properties like the Huffington Post, MapQuest, and TechCrunch. We have an expanding presence in the digital media and entertainment space; Verizon Digital Media Services helps content companies deliver their services in digital form to any screen or device, anywhere in the world.”

To me, Verizon sounds more like a content delivery network. A content delivery network is a large distributive system of servers deployed in multiple data centers across the internet. The goal of a CDN is to serve content to end users with high availability and high performance.

Akamai, a company that touts itself as the global leader in content delivery services, might vehemently disagree with me about Verizon being a content delivery network given Verizon’s position as a gatekeeper to end-user customers. End-users don’t use Akamai to get on to the internet. Access is that functionality that pulls Verizon into the Federal Communications Commission’s sandbox.

As Verizon continues to evolve in the media space, however, it increasingly distinguishes itself from T-Mobile and Sprint whose claim to broadband fame is strictly as a mobile broadband access platform.

Although Verizon has expressed its willingness and the importance of complying with net neutrality principles, should those principles intrude into its content delivery operations? If yes, then should content delivery services provided by edge providers like Akamai also fall under the Commission’s transparency principles? Why should Verizon’s content delivery components be treated differently from Akamai’s content delivery services? Verizon’s evolution will force the Commission to address these questions.

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Regulating special access services means confused market signals

Posted March 21st, 2016 in Federal Communications Commission, special access and tagged by Alton Drew

The Federal Communications Commission is adding to uncertainty in the market for special access services first with its long dragged out special access data process and second with a philosophy that says it needs a triggering mechanism for declaring competition in the first place.

For the past decade and a half the Commission has been having second thoughts about its scheme for regulating special access. It has concluded that it lacks the appropriate amount of data upon which to create an adequate framework for rate regulation. The Commission is using a “consumer harm” argument to justify intrusion into a market that has seen alternative providers competing for market share since the mid to late 1990s. That argument distracts the Commission from where the real focus should be, namely on capital flow, investment, and deployment. Regulation never optimizes the valuation of a company’s investment into providing a service. This failure on the part of regulation makes capital think twice about investing which means reduced special access deployment and ironically the very increases in special access pricing the Commission seeks to avoid.

Parties such as Free Press and Public Knowledge have been making the argument that incumbent local exchange carriers such as AT&T and Verizon have market power as expressed in unreasonable rates and onerous terms and that the current regime limits investment by competitive carriers and wireless companies. They also support the suspension by the Commission of competitive market triggers that would relax price regulation of special access services where market proxies demonstrate that competition exists.

The Phoenix Center, a think tank, counters the Free Press and Public Knowledge arguments by pointing out that forcing special access prices down via regulation would discourage alternative providers from entering the special access market. Monopoly pricing is necessary for the recovery of fixed costs and higher prices attracts competitive providers and their investors.

And it’s not like investors should be concerned about the financial health of alternative providers since, according to the Internet Innovation Alliance, competitive providers based, on their stock valuations, have a positive outlook on their future.

I’ve argued before that competitive local exchange carriers and cable companies started carving out their niches in the telecommunications space by offering special access or “by-pass” services. It is hard to imagine that after over two decades of performance and growth that now these very same competitive providers need help.

What the Commission must do is avoid a “one size fits all” approach to special access. The Commission, to its credit, wanted to avoid a one size fits all with its competition triggers. The Commission should go one step further and presume a special access market that is already competitive; that prices are signaling a market ready for entry by alternative providers. The Commission should put the burden on providers to demonstrate that actions on the part of incumbents are working to keep alternative providers out of the special access market. The criteria upon which a conclusion is based should be developed by the Commission, providers of special access, and their enterprise customers.