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Pai challenges the notion of government providing a free, open internet

Federal Communications Commission chairman Ajit Pai today laid out his vision for removing broadband access from under Title II regulations imposed in 2015 by a 3-2 Democratic majority on the Commission.  Two decades prior to the Commission’s net neutrality order that imposed Title II regulations, the internet was already free and open. Companies such as Google, Facebook, and Netflix came into being under a non-Title II regime. Title II was an archaic regulation designed in the 1930s for plain old telephone services.

Title II boiled down to a solution in search of a problem, Mr Pai further argued. Rather than energizing a demoralized Democratic Party base licking its wounds from the butt hurt of the 2014 mid term elections, Former president Barack Obama and the rest of his Title II proponents wound up disincentiving $5.1 billion in capital investment and dissuaded companies to not hire or lay off 75,000 to 100,000 laborers.

What particularly caught my attention in Mr Pai’s remarks was his highlighting the belief that Title II proponents have about government and freedom, namely that government was going to guarantee freedom on the internet. A close read of the American Constitution tells you that its framers were concerned about the natural propensity of government to squash freedom. This is why the document put in place checks and balances against attempts to usurp power over individuals. Net neutrality opponents and members in Congress who support continued imposition of the rules confuse “rights” with “freedom.” The rights issued by government are permission slips that say “a person can be, but only up to the limits we allow them to be” versus freedom which is innate.

This is not to say that freedom doesn’t have its limits. You can’t just violate another person’s spectrum without facing the consequences that result from moving into another person’s space. But how those consequences are managed should be left up to the individuals or in the case of broadband, the broadband access providers and their customers. Allow customers and access providers to define the limits, terms, and consequences of their relationship, including price and type of service. In the 21st century, this type of strategic partnership between customer and access provider is very possible.

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Paid prioritization would get the GOP bill closer to ideal

Today the hashtags, #openinternet and #netneutrality were used extensively as the Senate Committee on Commerce, Science and Transportation and the House Sub-committee on Communications and Technology listened to testimony that they hope will help refine draft legislation designed to rein in the Federal Communications Commission while bringing clarity on paid prioritization, unreasonable network management, discrimination against network traffic, and access to legal websites.

The bill expressly prohibits paid prioritization, which allows content providers to enter agreements with broadband providers that allow traffic higher priority for certain traffic to end-users.  The argument against paid prioritization has been that smaller content providers would not be able to compete with the big dogs who have deeper pockets and can afford to pay to get their traffic placed before the rest of the dog pile.  But what this view fails to consider is that firms willing to pay for priority treatment of their traffic recognize the value to their subscribers that their traffic has and paying to get that traffic to content subscribers is a cost that will generate benefits.

Content providers are not shy about the how failure to get traffic to subscribers in a timely fashion might impact their business models.  Take for eample the investment information firm, Morningstar.

Morningstar is in the information and services delivery industry.  The Chicago-based firm provides independent investment research to subscribers around the globe.  It relies on internet technology to deliver its services, thus an ability to upgrade to the newest technology is necessary if content providers like Morningstar are to remain competitive.  Outages of their network data centers can result in lost customers and lost revenues.  According to Morningstar:

“Many of our client contracts contain service-level agreements that require us to meet certain obligations for delivering time-sensitive, up-to-date data and information. We may not be able to meet these obligations in the event of failure or downtime in our information systems. Our operations and those of our suppliers and customers are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures or disruptions, computer viruses, and other events beyond our control. Our database and network facilities may also be vulnerable to external attacks that misappropriate our data, corrupt our databases, or limit access to our information systems.

Most of our products and services depend heavily on our electronic delivery systems and the Internet. Our ability to deliver information using the Internet may be impaired because of infrastructure failures, service outages at third-party Internet providers, malicious attacks, or other factors. If disruptions, failures, or slowdowns of our electronic delivery systems or the Internet occur, our ability to distribute our products and services effectively and to serve our customers may be impaired.”

Question is, would a statutory ban on paid prioritization benefit Morningstar or other firms in the information delivery services industry where, again, timeliness ois of the essence?  If contracts with their clients call for liabilities where data is not delivered in a timely manner or where quality is eroded, can Morningstar afford prohibition from entering priority contracts?

While the bill is a good start toward bringing clarity and closure to the net neutrality debate, Congress needs to focus on the commercial aspects of the internet and keep in mind that speed and capacity are the characteristics that make the exchange of information over the internet far more superior, productive, and profitable than any other medium.  Paid prioritization is about meeting customer needs and recognizing the value certain content brings not only to the subscribing end users but to the economy as a whole.


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What I wanted to ask the commissioners ….

It was pretty cool seeing Federal Communications Commission members Mignon Clyburn, Jessica Rosenworcel, Ajit Pai, and Michael O’Rielly at the Minority Media Telecommunications Council Access to Capital breakfast earlier this morning.  For the MMTC it was historic having four commissioners on the same panel.

Chairman Wheeler piped in later in the morning via a video.

The Four Horsemen talked about E-rate, spectrum auction, the spectrum auction participation waiver for Grain Management, and net neutrality as well as on diversity in media overall.  I expected the commissioners to take questions from the audience but time allegedly did not permit.  I was ticked, for I had two-part question that I wanted them each to answer.  Here is the question:

“Capital abhors a vacuum.  It moves to activities that provide the greatest returns and in technology that means activities that disrupt the current business model.  The FCC regulates broadband and media markets.  Do you have any insights on trends and innovation that may attract new capital to the broadband and media markets?  Also, what should be the FCC’s role in market disruption?”

I did have a second question which Commissioner Pai answered when I caught up with him at the elevator as he was heading back to the FCC.  I asked the Commissioner how he thought the Chiefs were going to do this year and with a smile he said we’d have to wait and see.”

Anyway, if the commissioners read this blog hopefully the’ll take a few moments and answer….

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Netflix, Comcast agreement exposes a house of cards flaw in net neutrality

Posted February 24th, 2014 in Comcast, FCC, Government, Government Regulation, net neutrality and tagged , , by Alton Drew

On 23 February 2014, Netflix (Nasdaq: NFLX) announced that the over-the-top video distributor has entered an interconnection agreement with Comcast (Nasdaq: CMCSA).  According to Netflix:

“Working collaboratively over many months, the companies have established a more direct connection between Netflix and Comcast, similar to other networks, that’s already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic. Netflix receives no preferential network treatment under the multi-year agreement, terms of which are not being disclosed.”

The Federal Communications Commission has not, at the time of this writing, issued a statement yet on the interconnection agreement.  Interconnection agreements between backbone providers and internet access providers are unregulated, although the FCC has authority to regulate the internet eco-system as affirmed by a recent appellate court ruling last month.

How does this agreement impact net neutrality in general?  First, it exposes a flaw in the approach that net neutrality advocates pursued on the issue of non-discrimination among various providers of traffic.  As The Washington Post‘s Timothy Lee pointed out in an article this morning, advocates have looked at traffic flow from websites, big and small, as coming through one pipe with the fear that an internet access provider could determine which content provider’s packetized data could flow through at one level of speed versus other providers.

Yesterday’s announcement presents what could be a trend where larger providers of content, such as Netflix, a company that accounts for 30% of video traffic over the internet, could go the backbone provider arbitrage route, choosing to go directly deliver traffic to residential ISPs versus going through a backbone provider.

Mr. Lee raises concern that there may be some negative impact on competition in the backbone provider sector especially where content providers can connect directly to ISPs and ISPs themselves are backbone providers.  The way I see it, backbone providers would have to reduce their interconnection rates to stay competitive with ISPs like Verizon or Comcast who have the resources to provide their own backbone services.  As content providers pay lower charges to interconnect and as more over-the-top providers enter the market, consumer welfare may increase because the rates they pay for over-the-top services may remain flat or even decrease.

Going back to the appellate court’s ruling in January, the agreement forces the FCC to apply extra caution in interpreting and using section 706 of the Communications Act to reboot net neutrality rules.  Here it is that a content provider has entered into an agreement to increase the quality of services to its clients without any prodding from regulators.  Should regulators now subject content providers and ISPs to case-by-case reviews of interconnection agreements?  That policy approach would run counter to enhancing consumer welfare in that subscribers to video services such as Netflix would have to see delays in the implementation of increased quality of customer service.

If the FCC wants to promote the deployment of a high-speed universal broadband network, allowing content providers and ISPs the autonomy to enter and enforce their interconnection agreements is the best approach.

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Why is DeKalb County making access to wireline broadband harder?

DeKalb County, Georgia is facing a lawsuit from T-Mobile over the county’s revocation of a land development permit months after the permit was apparently approved.  T-Mobile’s intent was to build a stand alone telecommunications tower for use in providing mobile service.

T-Mobile alleges that DeKalb County’s primary reason for doing a 180-degree turn on the permit was based on a policy by DeKalb’s interim chief executive officer and that the County’s actions were a violation of the Communications Act of 1934.

The complaint is filed in the United States District Court-District of Northern Georgia, Atlanta Division.  The case number is 1:13-cv-03447-TWT.

The county’s response to T-Mobile’s complaint was not what I would call responsive.  Spending 24 pages basically saying that we have no information upon which to base a response was disconcerting to say the least.  More important is what appears to be a total disregard for the impact the County’s revocation of a land development permit would mean for delivery of wireless voice and broadband services.

While acknowledging T-Mobile’s statutory authority under the Communications Act for filing the complaint, DeKalb County didn’t take the opportunity to rebut T-Mobile’s assertions that deploying this tower was part of the overall statutory mandate under Section 151 of the Act to provide a nationwide communications network providing universal access by all Americans.

As T-Mobile rightfully points out in its complaint, the penetration by wireless subscribers to our nationwide, private sector provided network is over 312 million subscribers, basically every man woman, and child in America.  These subscribers are accessing knowledge and information markets for a myriad of reasons including accessing basic news, learning about current events, purchasing educational services, , conducting commercial transactions, engaging in financial transactions, and transmitting health related data.

DeKalb County’s revocation of the land development permit means less access to increasingly scarce spectrum necessary for accessing and using broadband technology.