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The FCC does not owe Marriott an unencumbered revenue stream

According to a petition filed with the Federal Communications Commission by Marriott International and other hotels, Marriott would like to the FCC to declare that a hotel’s management of its wifi networks does not violate section 333 of the Communications Act if management of its wifi operations interfere with wifi hot spots authorized under the FCC’s rule 15.  Sounds more like the hotels would like to protect one of their revenue streams.

From a business standpoint I’m not surprised, but if the FCC allows Marriott’s petition, in my opinion they run the risk of contradicting themselves on the policy of an open Internet, specifically the policy of allowing consumers to attach any lawful devices to the #internet for use by the consumer.

In addition, Marriott would like the public and the FCC to believe that this is not a #netneutrality issue. Granted I’m no fan of net neutrality but if you want to promote consumer access to websites of their choice, shouldn’t the FCC ensure that the consumer can access those sites using the lawful devices of their choice?

Given the proliferation of hot spots, it makes better business sense for hotels to discontinue their wifi services. Over 80% of consumers have cell phones and hot spots are less expensive than phones. Simply put in your brochures that you do not offer wifi and that you better buy a hot spot from AT&T or Verizon or a hot spot enabling smart phone before making that business trip.

The FCC does not owe Marriott or any other hotel an unencumbered revenue stream.

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Internet commerce flourishes because of market demand not regulation

One peeve I have had with the Federal Communications Commission in past and today is its penchant to describe its role in the broadband market as a facilitator of growth and innovation.  It’s like having cousin Louie visit for a weekend, overstay his welcome, and claim that he helped to build your house.  I’ve had to ask myself if I missed something during my two decades in the regulatory game.  Where did the Commission facilitate growth in the online markets?

There are probably a number of different sources to look at.  I try to keep things simple, so I decided to take a look at what professional market watchers have seen over the past four years.  Not a formal analysis that wreaks of regression analysis and all that, but an albeit cursory review of the findings from three Morningstar reports that covered a broadband provider; an online bookseller; a media company; and an over-the-top video distributor.  Since the Commission continuously refers to the entire internet ecosystem as its unit of regulatory analysis, I figured looking at companies that play in different but connected boxes in the internet ecosystem was an allowable approach.  So here goes.

First, lets go back to a Morningstar analysis of Amazon conducted on 6 December 2010.  The analysis discusses the advantages that Amazon has over brick and mortar companies such as Barnes and Nobles and Borders.  Amazon has been able to leverage the internet to deliver books at the lowest cost point, a cost point achievable because of low overhead costs.  Amazon has also been able to leverage the internet to produce and distribute e-books which, according to Morningstar, has a compelling advantage over hardcover books.  The main reason e-books have been successful is that production and distribution costs are near, if not, zero.  This ability to keep production costs near scraping the bottom has translated into lower prices for consumers.

I read through that report looking for some acknowledgment of the Federal Communications Commission.  I saw none.  Based on this report it seems that the idea of storing books in warehouses and shipping them out to consumers as the result of receiving an order online was part of a business model developed by an engineer by the name of Jeff Bezos.  No mention of the Commission or the Communications Act.

In September 2011, Morningstar sounded kind of so-so on Netflix.  Morningstar made it clear that content owners held the upper hand with the ability to enter into shorter licensing agreements for content and repricing at a higher amount.  Morningstar also noted in 2011 that Netflix faced heightened competition from new entrants and the lack of access to higher quality content.

Fast forward three years.  Netflix has built its own house of cards where orange is the new black.  Just like the Amazon analysis, Morningstar makes no mention of how the Commission’s regulation of the internet contributed to Netflix’s business model or its decision to go outside the box and not just deliver DVDs but stream video as well.

Speaking of content, Morningstar’s July 2012 analysis of Time Warner proceeded from the premise that quality content is king and that Time Warner has been able to take a strong competitive position in content.  The quality of Time Warner’s content, according to Morningstar, increases in value because it can be consumed on multiple devices, including laptops, smartphones, and tablets in addition to televisions.

The decision to deliver it via multiple platforms via multiple devices appears to have been made by private actors with no input, appropriately, from the Commission.

And how about the broadband provider portion of the ecosystem.  The Commission, along with net neutrality advocates, has been harping on the need for robust competition in the broadband space, but according to Morningstar’s August 2012 analysis of broadband provider CenturyLink, for the company to stay competitive with cable companies it would have to invest in network enhancements that facilitate faster download and upload speeds.  Not only does CenturyLink have to compete with cable in providing broadband access, they also compete with cable to distribute video.  Their provision of fiber-to-the-tower finds them competing with not just cable companies but with other competitive local exchange carriers.  CenturyLink also competes with Amazon, Salesforce.com, and Verizon in the provision of cloud management services.

Again, nothing in Morningstar’s analysis that speaks to the Commission’s requirement or even suggestion that CenturyLink enter into these markets within the internet ecosystem.

Growth and innovation have been occurring within the internet without the Commission’s persuasion or regulation and so far the Commission has not demonstrated why applying Title II regulation could add any value to the market-driven actions taken by the firms I just discussed.

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The liberty to choose content based on value is what civil rights groups should rally on

The civil rights perspective regarding broadband access is severely misplaced.  The narrative in general has been that access to information exchanged over a medium based on internet protocol is a civil right; an enforceable right or privilege guaranteed by the U.S. Constitution which when interfered with by another gives rise to am action for an injury. Civil rights belong to an individual by virtue of citizenship, especially the fundamental freedoms and privileges guaranteed by the 13th and 14th amendments.

The last time I checked the U.S. Constitution, there was no language in there that expressly supports my access to a communications medium powered by internet protocol.  The Constitution didn’t even guarantee U.S. citizens access to communications networks powered by smoke signals, the telegraph, or even the telephone.  One could argue that in today’s modern telecommunications world that the Communications Act of 1934′s mandate that the Federal Communications Commission ensure the a nationwide communications network universally accessible by all Americans creates that right.  I would argue that it doesn’t and that the Act’s supporters in Congress got lucky in that the universal accessibility requirement of the Act was not challenged.

In some ways I’m surprised that Free Press or Public Knowledge have not turned the NAACP or the National Urban League’s “broadband is a civil right” argument into a “right to access a common carrier” argument thus buttressing their incorrect argument that broadband should be regulated as a Title II common carrier or public utility.  Ironically some civil rights groups like ColorofChange.org and the National Hispanic Media Coalition support public utility-like regulation of broadband and could likely add fuel to Free Press or Public Knowledge’s positions.  Unfortunately for Free Press and Public Knowledge their accusations that legacy civil rights groups are nothing but money-taking hacks for phone and cable companies has provided enough of a taint that most civil rights groups, no matter their position on net neutrality, would prefer stand closer to a spraying skunk that ally with Free Press or Public Knowledge.

Rather than risk getting to close to the edge of inadvertently pushing broadband into a common carrier box, civil rights should push a purer market-based consumer welfare argument when it comes to broadband in general and net neutrality in particular.  Their policy statement should be that federal and state government should not interfere with a consumer’s choice to have certain content delivered to their broadband-enabled devices and recognize that the consumer can enter agreements with internet access providers and content providers based on the value the consumer recognizes in particular content.

Rather than push a civil rights argument that has consumers asking for the government to define access rights, civil rights advocates should take the position that the liberty of consumer choice is a given and that public policy should recognize and respect that.

Ajit Pai asks Netflix what gives on net neutrality

Federal Communications Commission member Ajit Pai yesterday wrote a letter asking Netflix to explain why it is not participating in the development of open standards for video streaming and why, according to press reports, the largest generator of online traffic in North America is using its own proprietary software to cache its traffic.

Mr. Pai is curious about the reports that Netflix may be charting its own course for delivering video services including the development of of fast lanes for its own traffic, all while advocating for equal treatment by internet service providers of content provider traffic.

Open standards, as defined in a paper by Ken Krechner, represent common agreements that enable communications.  Open standards help provide interoperabilty on the internet and maximize access to resources.  I guess what drives Mr. Pai’s curiosity is if the concept of net neutrality is based on transparency of management practices and the equal treatment of data, why would Netflix want o use proprietary caching technology to speed up the transmission of its video services at the cost of competition with other content providers?

Mr. Pai has asked Netflix to respond to his letter by 16 December 2014.

 

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Michael Powell, Nick Gillespie, chime in on Obama and net neutrality

Posted November 19th, 2014 in Broadband, Federal Communications Commission, Internet, net neutrality by Alton Drew

President Barack Obama’s direct call for action on net neutrality has some in the broadband industry and political punditry asking if he has crossed the line with his unprecedented attempt to publicly influence the Federal Communications Commission.

On 17 November 2014, former FCC chairman Michael Powell opined at NARUC’s annual convention in San Francisco that he’d never seen a president make such an attempt given that the FCC is supposed to be an independent agency.

Mr.Powell also noted that since the FCC’s chair was appointed by Mr. Obama, this makes the President’s public policy recommendation even more interesting.

Meanwhile, Reason.com’s Nick Gillespie chides Mr. Obama for not properly considering the impact of regulating broadband access as a utility in this piece for Time.