Should app developers be more wary of CALEA

Posted November 18th, 2015 in CALEA, communications act of 1934 and tagged , by Alton Drew

ISIS’ recent attacks in Paris was allegedly facilitated via encrypted communications conducted over the internet. One of the apps allegedly used was Telegram. According to CNN:

“ISIS is also using Telegram to broadcast big messages on the app’s “channels,” which are devoted to a variety of topics. It was on the official ISIS channel that the group said the Paris attacks would be the ‘first of the storm.’”

Telegram has been flying under the radar having only been developed in 2013. Commercial applications like Telegram are hard to break allegedly because of the quality of their encryption. This quality of encrypted communications are providing law enforcement with its share of headaches. Again, according to CNN:

“Encryption is one of many ways that an adversary, whether that’s a criminal, a terrorist, a rogue nation, one of the many ways that they might use to hide their activities,” former NSA Deputy Director Chris Inglis, told CNNMoney. “I saw dozens of times — more than that, likely — across my career that, in fact, was an obstacle for us.”

Should app developers expect more scrutiny given not only the Paris attacks but threats by ISIS about striking targets in Washington, DC? Probably. And one agency that could add pressure is the Federal Communications Commission. Earlier this year the FCC issued rules that declared broadband services were no longer “information services” but “telecommunications services.” In a nutshell, the Communications Assistance for Law Enforcement Act (CALEA) requires telecommunications companies to enable the government, once a warrant has been obtained, to intercept all wire and electronic communications carried by the telecommunications company to and from equipment, facilities, and services of a subscriber. Carriers, however, are not responsible for decrypting any communications encrypted by a subscriber unless the encryption was provided by the carrier.

But while encryption can help hide the contents of a communication, it can’t hide that a communication happened. CALEA, as written, could be a tool to help law enforcement crack the actual devices (or what security experts call “the end point”)  used by a subscriber for receiving and sending messages. So if the subscriber is using a device with Telegram or some other enabling app loaded on it, data collected within the software could be subject for an investigation.


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Is there enough flexibility for innovation in the high frequency spectrum space?

I wouldn’t exactly say that a political battle is brewing per se around the Federal Communications Commission’s proposed rule making on opening spectrum use beyond 24 gigahertz but some interested parties would like to see the Commission open up this portion of the electromagnetic wave opened up to more technology than just mobile wireless.

For example, the Consumer Electronics Association wants the Commission not to focus solely on mobile broadband but on a wider range of services.  Harold Furchgott-Roth in apiece for Forbes argues that the Commission should allow for flexibility in spectrum use by not limiting the type of technology that can be developed and commercialized in the high frequency bands.  Like CEA, Mr. Furchgott-Roth believes just limiting the 24 GHz to 39 GHz to mobile broadband would be a waste of spectrum’s final frontier.

During the comment period on the Commission’s proposed rules we may get a better view as to how the private sector wants the spectrum real estate developed.  From an entrepreneurial and investor perspective, Mr. Furchgott-Roth and the CEA make good arguments.  Can the markets afford a restriction on innovation in the high-frequency space where the Commission for the most part limits use of this spectrum to mobile wireless?

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The FCC needs to change its mindset about capital and Title II

The politics of Washington is not commensurate with capital flow when it concerns broadband investment.  The Federal Communications Commission’s decision to apply Title II common carrier rules has resulted in a decrease in capital expenditures.

It has been reported that during the first half of 2015, AT&T saw a decrease in capital expenditures of 29% relative to 2014.  Charter Communications also saw a decline of 29% relative to 2014 while Cablevision saw capital expenditures fall off by 10% versus last year. CenturyLink was down nine percent while Verizon saw a fall in capex of four percent.

The politics pushing the FCC toward their anti-capital decision was driven by a grass roots group argument that freedom of expression was being challenged by the potential bottlenecks that broadband providers could create.  With narratives that included claims that consumers would not be able to create content on the internet or access the content of their choice, at least the three Democratic FCC members fell sway to it.

Edge providers, like Netflix, also played the “threat to democracy” card, arguing that broadband access providers , via paid prioritization, would discriminate among content providers and deny consumers access to their content.  Netflix, however, has been able to hedge its political bets by paying some of these broadband providers for fast lanes so that video traffic to its subscribers is not congested.

Now the political center of gravity lies in the Congress, at least this week, as the House committee on energy and commerce takes a look at how Title II common carrier treatment of broadband will impact investment.  Given Republican control of the committee, it’s no surprise that the committee’s leadership sees Title II as a burden on investment.  For example, the committee’s majority takes issue with the FCC’s finding that the total annual cost on all broadband providers for complying with the application of the FCC’s Title II rules would be approximately $700,000.  The majority believes the annual cost of compliance could be as much as $52 million.

Having supervised a tariff shop for a state regulator and drafting and filing tariffs as a staff attorney for a law firm, I can assure you that the cost of complying with Title II rules will well exceed the $6.95 per hour that the FCC estimates.  We are not talking flipping burgers here.

Politically, reversing the impact Title II regulation will have on broadband investment is out of the hands of Congress, at least in the short term.  Should a Republican win the White House in 2016 and the GOP maintain control of both chambers of Congress, then investors should expect a new FCC Republican majority to repeal the rules.

A repeal by the Republicans could be moot should the United States Court of Appeals-District of Columbia find that the rules have no statutory basis or that the FCC has not shown why its earlier treatment of broadband as an information service should be abandoned.

The probabilities of a court decision or an election outcome in favor of broadband providers is difficult to calculate but the likelihood of the FCC or the Obama administration changing its mindset about Title II’s impact on capital flows to broadband is definitely zero.  Both the President and the FCC’s three Democrats have invested too much political capital in steering the wrong course.

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An offer Democrats shouldn’t refuse

Internet Innovation Alliance honorary chairman Rick Boucher recommended a compromise between Congressional Democrats that favor the transparency and non-discrimination that net neutrality rules is supposed to provide and Congressional Republicans who see net neutrality rules as onerous and intrusive while hampering the level of investment ion broadband deployment.  Mr. Boucher would like net neutrality principles codified in federal statute in return for internet service providers being returned to their prior information services classification.  From a market reality perspective, Mr. Boucher’s offer in compromise makes sense.  You can read Mr. Boucher’s persuasive argument here.

I’ve argued before that Comcast, AT&T, Verizon, and a host of other broadband access providers have gone or heading beyond their old classifications as broadband providers or even communications companies.  These companies sell ad space on their portals; provide news and information; collect data from their customers that may be used to enhance the quality of the ads consumers see or any other services the broadband entity provides.  Collecting and distributing information is an increasingly important part of their business model as they compete with Google, Facebook, and Netflix for consumer eyeballs.  Classifying them as information service providers is appropriate and would show that the Federal Communications Commission has some understanding of the information market that they are trying to regulate.

Of course I’d rather the rules not even exist thus eliminating the need for Congress to come up with another statute.  Market realities and the philosophy of openness that the internet has adhered to for a quarter of a century should be enough incentive for broadband providers not to discriminate against traffic from certain websites or block their subscribers access to websites of their choosing.  The internet has always been the geeks haven for information flow and its commercialization hasn’t changed that,  If anything, keeping the tap on information flow wide open only drives up the value of a provider’s network leaving the provider with the fun challenge of monetizing that flow.

Mr. Boucher’s offer is one that the Democrats shouldn’t refuse.

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Democrats plan to counter GOP attempts at defunding net neutrality

Senator Ed Markey, Democrat of Massachusetts, and Senator Al Franken, Democrat of Minnesota, will like to thwart their Republican colleagues attempts at reducing the amount of money the Federal Communications Commission will have to enforce net neutrality.  Mr. Markey wants to organize enough Democrats in the Senate to block a rider in the GOP appropriations bill that would make it harder for the FCC to enforce the new rules.

From a capital flow perspective, some investor advocates argue that the wrong net neutrality regulatory framework may disadvantage start-ups who do not have the deep pockets of incumbents.  For example, paid prioritization has been cited by the National Venture Capital Association as an example of how larger, well financed firms can leverage their advantages stemming from their greater access to capital.

But as Harold Furchtgott-Roth argues in a piece for Forbes Magazine, capital expenditure growth in the information sector has been sub-par when compared with capital expenditures in the rest of the economy.  Between 2010 and 2013, capital expenditures in the information sector grew at an annual rate of 8.2% while capital expenditures in the remainder of the economy grew at 10.7%.

But if paid prioritization is the primary concern of venture capitalists like Marc Andreesen, their fears could be partially allayed by Republican willing to meet Democrats half-way by codifying in legislation net neutrality principles of no paid prioritization, no throttling, and no favoring of particular websites over other sites.  If the paid prioritization concern can be put to rest by legislation, then maybe a budget fight (which the Democrats will lose) or the pending lawsuit against the FCC in the federal court of appeals can be terminated.