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Any regulation of zero rating is unnecessary market interference

Members of the wireless industry got together yesterday in Washington, D.C. to debate what the Federal Communications Commission’s next move on zero rating ought not to be. Inside Sources reported that the wireless confab included T-Mobile, Verizon, Facebook, and other parties. Zero rating allows wireless services subscribers to access certain content providers without that access being charged against the consumer’s data plan. T-Mobile’s “Binge-On” service is a recently deployed example of this type of service.

Pro-net neutrality groups like Free Press, Public Knowledge, and the Electronic Frontier Foundation believe that zero rating violates the Commission’s open internet order by throttling data streams while favoring certain content providers over other providers.  For example, under 47 CFR 8.7, a person engaged in the provision of broadband internet access service shall not impair or degrade lawful internet traffic on the basis of internet content, application or service, or use of a non-harmful device, subject to reasonable network management.

One issue will be whether a service like “Binge-On” actually throttles traffic pursuant to this rule. The Commission so far has opted to a light touch approach to zero rating-type services, which wireless carriers have likened to 800-number services where the 800-number customer or its telephone service provider ate the cost of a long distance call from a customer. The Commission should find that there is no throttling because treatment of data traffic will be the same for all content providers, whether access to their content is done via “Binge-On” or not. The Commission’s political constraints go beyond the letter of their rules.

The Commission has been fervent about its clear and fair “rules of the road”; that all traffic be treated equally, that it may not want to rock the boat with the pro-net neutrality posse or their alleged four million post-card writing supporters. There is a chance that the Commission may opt for the safety of saying no to “Binge-On” with the claim that its best to err on the side of caution and avoid having its net neutrality rules go sliding down a slippery slope.

A call against “Binge-On” and other zero rating services is a strike against investor interests especially for investors in smaller carriers like T-Mobile. If T-Mobile is to acquire more market share it will do so with bolder offerings like “Binge-On.” The service appears to be an effective way for promoting the company’s other offerings, so much so that T-Mobile is finding that some customers, having had free access to participating websites are opting for additional and more expensive service. If there is an opportunity for government to show how anti-investor some policies can be, treating zero rating as anti-net neutrality would be one of them.

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The pursuit of greater returns on capital resulted in the blurring of telecom, media, and entertainment

Part of the naivete of the net neutrality argument was how it ignored the realities of the broadband industry and the role of capital.  Broadband access to the internet has never been about the democratization of self-expression but about the commercialization of the exchange of information.  Information comes in various forms whether it is scholarly work, news, or entertainment.  As Ivan Seidenberg notes in this piece, the lines between media, telecommunications, and entertainment have been blurring for decades where the silos that once represented media, telecom, and entertainment have finally been broken down.

If investors who put their capital into these industries want to see higher returns, then acknowledging that these walls have broken down is the first step they should take.  Pushing back against government actions that fail to recognize that breaking down these walls is necessary for capital to continue flowing to and growing in these industries should be the second thing to acknowledge.

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The FCC’s IP transition order doesn’t slow down data markets, yet

The Federal Communications Commission approved an order yesterday that provides broadband operators with requirements for how they should approach the transition from analog-based networks to 21st century internet protocol networks.  The FCC’s focus was, as expected, on the impact the transition would have on consumers.  Broadband providers are to provide consumers with three months notice of any plans to replace copper with fiber.  Broadband providers are to give interconnecting carriers six months notice of a transition from plain old copper to fiber.

FCC member Ajit Pai raised the argument in a dissent to the order that the FCC’s notice requirement would have a negative impact on the deployment of fiber facilities and investment of capital.  He says:

“First, by dragging out the copper retirement process, the FCC is adopting regulations that ‘deter rather than promote fiber deployment.’”  Mr. Pai questions the logic of requiring capital be invested in maintaining old legacy networks when the deployment of fiber could remedy issues presented by an aging copper network.

FCC member Michael O’Rielly warned edge providers in his dissent that they would be negatively impacted by the requirement that broadband providers seek permission first from the FCC before discontinuing a legacy service.  ”Every communications and edge provider better think long and hard before introducing new services because you may be locked in to providing them for a very long time.”

The irony is that by forcing broadband providers to maintain legacy networks to end users, the FCC runs the risk of creating the degradation of service it hoped to avoid when it implemented its net neutrality rules.  Take for example the FCC’s findings in its 2010 Open Internet Order.   In the order the FCC describes the “virtuous cycle of innovation” that is spawned by the openness of the Internet.[1]

“This openness promotes competition.  It also enables a self-reinforcing cycle of investment and innovation in which new uses of the network lead to increased adoption of broadband, which drives investment and improvement in the network itself, which in turn lead to further innovative uses of the network and further investment in content, application, services, and devices.  A core goal of this Order is to foster and accelerate this cycle of investment and innovation.”

The FCC went on to point out in the 2010 Order that a lack of transparency in terms of network management put edge providers at risk especially where a broadband provider’s activity led to blocking or degrading of content.  The irony is that while the FCC appears focused like a laser beam on promoting competition in the provision of broadband services by making legacy networks available for use by interconnecting and competitive carriers, it has taken its eye off of the real competition on the internet, namely between edge providers that aggregate, display, and distribute data.  These edge providers want their exchange of data to traverse high-speed networks from their location to the end-users.  While their business models may not be directly impacted in the very short run by the FCC’s IP Transition Order, in the immediate run they may find users unwilling or unable to subscribe to their services because deployment by broadband providers of last-mile high-speed facilities are being delayed by the FCC’s latest notice requirements.

1.Federal Communications Commission. Open Internet Order. 2010. https://apps.fcc.gov/edocs_public/attachmatch/FCC-10-201A1_Rcd.pdf

 

 

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Al Franken up in arms about the false concept of competition

Posted July 22nd, 2015 in Department of Justice, economy, edge providers, Facebook, Government Regulation and tagged , by Alton Drew

Multichannel News‘ John Eggleton today reported that Senator Al Franken, Democrat of Minnesota, is up-in-arms about Apple’s streaming service.  He believes that Apple is preventing competitors to its streaming service from communicating with consumers about similar streaming products.  According to the Multichannel News:

“Apple’s licensing agreements have prevented companies from using their apps to inform users that lower prices are available through their own websites, to advertise the availability of promotional discounts, or to complete a transaction directly with a consumer within their app,” he said. “These types of restrictions seem to offer no competitive benefit and may actually undermine the competitive process, to the detriment of consumers, who may end up paying substantially more than the current market price point.”

Subject to check, if the alleged snub is the result of a licensing agreement, then tough cookies for the app developers.  They didn’t have to sign the agreements. If terms agreed upon included a “no informing customers of your service because we are afraid of the competition clause, then the app developers are obligated to follow the agreement.

I’ve discussed before how unnerving the “it’s not fair. I can’t compete” argument is.  Unless you are admitting that consumers are pieces of capital just like land, labor, and air is, then competition for consumers needs to be a mantra that goes the way of the dodo bird.  Competing for the finite resources that go into making products for end-user consumption is a valid argument.  You need financial capital in order to purchase the labor and land resources necessary for creating and distributing a product so pushing against the bottlenecks to these resources is expected.

Applying the argument to end-users gets no points with me, however.  If your product is whacked and you can’t convince the consumer to buy it in an open market as we have here in the United States, then belly-aching how unfair it is that you can’t sell said product is noise wasted on closed ears.  America’s antitrust concept is weak for this reason.  No one is guaranteed success in our economic environment.

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No. More telecom mergers won’t adversely impact net neutrality

In an opinion piece written for Forbes.com by Professor Warren Grimes of Southwestern Law School argues that there is a link between mergers in the telecommunications industry and net neutrality regulation.  Specifically, Professor Grimes argues that:

“Large telecom providers usually favor mergers and oppose government regulation. Meanwhile, content providers and consumer groups typically hold opposite views: they oppose the mergers and favor the regulation. Sound policy requires more nuance. The public interest and the long term interests of industry participants are best served by limiting mergers and, as a direct result,  minimizing the need for government regulation. Competition, not government regulation, is the best way to ensure that consumers receive what they want at a fair price. But this result is possible only if mergers do not create powerful firms that suppress competition and undermine consumer sovereignty.”

The premise that an alleged lack of competition for broadband access or content provision has a negative impact on net neutrality is faulty because net neutrality has nothing to do with either. Net neutrality is about content providers’desire to pay zero for sending traffic across a broadband provider’s last-mile network. Just look at Commercial Network Services’ complaint against Time Warner Cable that it should be allowed to interconnect with the broadband provider for free.  To CNS, Time Warner Cable is “degrading its ability to exercise free expression.” And here we thought the “attack on democracy” argument was being used to advocate for consumer rights to internet traffic, not for corporations.

Do consumers really want a diverse amount of content? No, they don’t. Out of an average of 129 available cable channels, consumers watch an average of 17, according to an article in Arstechnica.com.  And of the 961,554 active websites today, consumers visit less than ten a day for their news, entertainment, shopping, and other information.  The British communications industry regulator, Ofcom, determined in 2012 that the average number of domains visited per month by an internet user was 82 in January 2012.

Mergers may be an appropriate way for less viewed sites to gain not only viewership but capital, especially if they have a niche brand that an acquiring firm wants to leverage for growth in market share. Writing off mergers on the false pretense that they stifle a competitive offering of content is the wrong approach. Instead, regulators should view mergers as strategic partnerships that help get little viewed content some more traction.

If net neutrality really has anything to do with treating all traffic equally then regulators should be interested in ensuring that content providers have an organizational structure that can best help a content provider get eyeballs to its traffic.  Just saying traffic should be treated equally does not make traffic worthy of equal treatment by the market.