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My response to Keith Ellison’s Huffington Post op-ed

Posted October 9th, 2014 in Broadband, Internet, net neutrality, Network Compact, open internet and tagged , , by Alton Drew

Yesterday, U.S. Representative Keith Ellison, Democrat of Minnesota, voiced his support for net neutrality and asked the Federal Communications Commission to implement rules that would protect Internet openness while ensuring that communities of color have a place at the digital table.

Mr. Ellison expressed concern that Internet service providers were in a position, by choosing to not treat traffic equally, to squelch the voices of minority communities on issues of particular importance such as the shooting this past summer in Ferguson, Missouri of Michael Brown, an unarmed teenager.

Mr. Ellison is wrong on the issue.  There has never been equal treatment of traffic. From the early days of the Internet treatment of traffic has always depended on the type of traffic coming across the pipes.

As noted Internet pioneer Nicholas Negroponte recently noted, the idea of equal treatment of bits is “crazy.” A book is about one megabyte of data, yet one second of video represents more than one megabyte.

E-mail came to your computer a lot faster than video back in the early to late 1990s.  Remember buffering? Today that problem is resolved in part by providing the bandwidth necessary for moving video from the producer to the ISP and eventually to the consumer.
Mr. Ellison raises the big “if” when it comes to potential blocking or discrimination on the part of ISPs. The reality is that ISPs did not block the content provided by people on the ground in Ferguson. ISPs do not want to risk the value of their last-mile networks by sending competitors the signal that their networks are unreliable.

Ironically, that very video traffic that Mr. Ellison refers to would never get through to end-users unless backbone providers and ISPs agreed to the provision of greater bandwidth for video.

Mr. Ellison has simply made the anti-net neutrality argument.

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Losing the Internet global market for the broadband access trees

The New York Stock Exchange Tech-Media-Telecom Index fell 101.46 points or 1.35%, partly on news that the European economy was worse for wear.  Equity investors ran for the debt-income hills choosing to move their stash into government bonds.

I don’t think the fall in the tech, media, telecom sector had much to do with comments made today by panelists participating in a Federal Communications Commission forum on the law and economics of net neutrality.  The takeaway from that panel for most was that no matter what net neutrality rules the FCC comes up with, whether based on Title II, section 706, or some ungodly pairing of the two, there will be blood in the form of litigation.

The other takeaway in my opinion is how so far the FCC has completely ignored the opportunity to describe how regulation, especially under a Title II regime, is supposed to help maintain optimum performance of a globally competitive interconnection of 67,000 networks when a significant portion of the globe is experiencing an inept economic performance.

If economic performance stays this sluggish worldwide, information services companies will have to really emphasize to consumers the value of their content and information products if they are to stay afloat.  But when the FCC is seriously contemplating codifying a policy that would give equal treatment of a video of a dancing cat with life-saving online medical services, it is difficult to see capital and investment moving freely to activity that brings the most value.

Morningstar notes that the FCC’s tough stand on competition and net neutrality has deflated the value of wireless Internet access platform providers, casts doubt on pending acquisitions of DirecTV and Time Warner Cable, and lessens the chances of Sprint and T-Mobile walking hand-in-hand down the mergers and acquisitions aisle.  According to Morningstar, the inability to consolidate may make Sprint and T-Mobile’s ability to garner additional spectrum or eek out a profit all the more difficult.

If the FCC wants to maintain its economic regulation focus on the providers of broadband access platforms while positively impacting the end-to-end global nature of the Internet, it may want to ease up on the “consolidation is bad” mantra and either stick to a broadband policy based on section 706 or better yet abandon rulemaking on the Open Internet altogether.

 

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Google says “We love net neutrality. Why don’t you?”

Google is no longer silent on its position on net neutrality.  It wants to see strong net neutrality, as this blog post in The Washington Post points out.  In fairness to the company, however, it came out of the net neutrality closet to investors a few months earlier based on language in its February 2014 10-K, its annual financial report to the U.S. Securities and Exchange Commission.

Without using the terms, “net neutrality” or “Open Internet”, here is how Google described how the risk stemming from a lack of an open Internet would impact the company:

“business depends on continued and unimpeded access to the internet by us and our users. Internet access providers may be able to block, degrade, or charge for access to certain of our products and services, which could lead to additional expenses and the loss of users and advertisers.
 
Our products and services depend on the ability of our users to access the internet, and certain of our products require significant bandwidth to work effectively. Currently, this access is provided by companies that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies, and government-owned service providers.
Some of these providers have taken, or have stated that they may take measures, including legal actions, that could degrade, disrupt, or increase the cost of user access to certain of our products by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by charging increased fees to us or our users to provide our offerings.
Such interference could result in a loss of existing users and advertisers, and increased costs, and could impair our ability to attract new users and advertisers, thereby harming our revenues and growth.”
Google has actually shown it prefers taking action when it comes to net neutrality versus engaging in esoteric debates over an open Internet, as preferred by numerous grassroots advocates.  Back in February 2010 when Google announced its intent to deploy one Gigabit Internet access service, it made clear its intention was “to incorporate the policies we’ve been advocating for in areas like network neutrality and privacy protection.”
If Google Fiber is to have any impact on incumbent broadband operators such as AT&T, Comcast, or Verizon, it may only be in forcing them to upgrade the speeds at which the incumbents provide high-speed access.  By incorporating net neutrality principles in its high-speed service, Google is merely following AT&T, Comcast, and Verizon’s model for complying with net neutrality; they’ve been following net neutrality principles without Google’s help.
I don’t see why the Federal Communications Commission would be moved by Google’s announcement of its position on net neutrality.  If anything the Commission should be asking Google what took you so long to verbalize your support.

 

 

 

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Broadband, capital, and the politics of the ignorant

Broadband is capital that is used by information service providers to produce an information service.  It is the copper, fiber, cable, electronics, and software created, deployed, and used as capital inputs in the production of information services that end-users eventually consume.  By extension the Internet is also an input in the production of information services.  The cables, routers, and servers on the Internet connect over 67,000 global networks making it possible to create and sell information.

By information services, I refer to services that either generate, store, or provide end-user access to content.  This would include broadband access operators such as Verizon or Comcast; router and server providers such as Cisco; back haul providers such as L-1; Internet search engines such as Yahoo or Google; and content providers such as Netflix or Hulu. They all use broadband capacity and the Internet as inputs for the production of information services.

End users or consumers buy information services for final consumption.  They are not using fiber, cable, copper, software, or network electronics to create anything.  They have no property claim or property interest in these components.  Many end-users have no clue as to how these inputs are used much less could define them.  All they know is that they point and click on a link to get their information on current events, gossip, or the recipe for making holiday season rum cakes.

Unfortunately the noise from net neutrality proponents, specifically those pushing Title II regulation of the subset of information services providers known as broadband operators, has obscured this view of broadband as a capital input.  In addition claiming that broadband is a civil right or platform for promoting social justice is also misleading and clouds the discussion.

And the Federal Communications Commission is doing nothing to clear the air on the issue, choosing instead to fan the flames of ignorance surrounding what broadband truly is, a mere input in the production of a service.

The Commission and net neutrality/Title II proponents make this mistake easily because they fail to identify the appropriate market for analysis; the information market.  We develop, deploy, and maintain our communications networks for that sole purpose, to facilitate information exchange.  Because information is a prime component in our knowledge economy, public policy’s main focus should be on how best to promote the deployment of capital so that the exchange of information becomes easier and faster.

Net neutrality/Title II proponents may rebut this line of reasoning by saying that putting into code the principles of transparency of network management, non-discriminatory treatment of content traffic, and no blocking of access to websites of choice based on Title II is the best way to ensure information flows across 67,000 globally interconnected networks.  I beg to differ.

Title II regulation does not address the basic market components of demand and supply for information.  Demand for news, entertainment, and advice drives the supply of information.  A priori, this demand never recedes.  It continually increases.  The economy, in particular the information markets, have created a way to supply increasing demand for information by funding the development and deployment of capital inputs that make accessing and delivering information easier and more efficient.

Title II’s focus is on price regulation and transparency of agreements between network operators.  Title II’s language says nothing about the demand for information services.  Title II does not say anything about encouraging the supply of information services nor does it speak to leveraging of capital inputs to supply services.

Title II’s primary objective is to ensure that in a monopoly market for voice telecommunications that the consumer of voice communications gets a fair and reasonable rate for her voice service and the Commission is aware of all network operators involved in delivering voice services.

Title II is not a public policy tool for the 21st century.  It’s time for the Commission to diffuse the narrative that end users have the right to tell private parties how to leverage capital inputs used for providing a commercial service in a free market.  Diffusing this narrative is easier if the Commission properly describes what broadband and the Internet really are and focus on the true market for analysis: the information markets.

Once the Commission realizes that this is the market that should be promoted and that the private sector has been doing a great job in building the networks necessary for information to flow, maybe then we’ll start moving in the right policy direction.

 

 

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What I heard Tom Wheeler say yesterday

Yesterday, Federal Communications Commission chairman Tom Wheeler delivered remarks to the organization, 1776, on the future of broadband competition.  What I took away from Mr. Wheeler’s remarks was an attempt by the Chairman to flesh out the role of Title II in a regulatory framework for broadband access.

In its notice of proposed rulemaking addressing the protection of Internet openness, the Commission states that:

“The goal of this proceeding is to find the best approach to protecting and promoting Internet openness.  Per the blueprint offered by the D.C. Circuit in its decision in Verizon v. FCC, the Commission proposes to rely on section 706 of the Telecommunications Act of 1996.  At the same time, the Commission will seriously consider the use of Title II of the Communications Act as the basis for legal authority.”

I believe, based on Mr. Wheeler’s comments, that he would like the Commission to apply Title II primarily to consumer protection issues hence creating a competitive environment for broadband access.  While Mr. Wheeler appears uncertain as to whether a competitive broadband access industry exists for consumers that are choosing broadband for the first time, he is less convinced that there are competitive alternatives available for consumers who want to switch carriers.

A truly competitive broadband market will see consumers being able to switch between broadband access providers with the relative ease that consumers changed long distance carriers during the 1990s long distance carrier price wars, according to Mr. Wheeler.  Mr. Wheeler argues that consumers may be foreclosed from pursuing competitive alternatives when deciding to switch carriers due to high switching costs in the form of terminating fees and equipment rental fees.

While section 706 speaks primarily to encouraging advanced services deployment, interpreted as broadband deployment, it doesn’t expressly discuss consumer protection mechanisms.  Title II doesn’t expressly claim to be a consumer protection portion of statute but given its heavy emphasis on pricing and contractual relationship disclosure and its call for the application of just and reasonable rates, a Commission order that emphasizes using Title II to protect consumers would not be surprising.

A hybrid system would create regulatory uncertainty because of the potential clash between what section 706 provides in options to pursue increased innovation and deployment versus Title II’s restrictions on common carriers.

For example, it may be a challenge to forbear from certain pricing methodologies pursuant to section 706 while requiring a broadband access provider who has been reclassified as a common carrier to file tariffs and while making showings on a frequent, case-by-case basis why its rates are just and reasonable.

In order to reduce uncertainty, what investors and broadband access providers should continue arguing for and what the Commission should seriously consider is a regulatory scheme based solely on section 706.  Again, section 706 focuses on broadband deployment by encouraging modifying regulatory action in order to incentivize investment and deployment.

To address consumer protection issues, the Commission should take an ex-ante approach to consumer complaints of discrimination or blocking, taking each complaint on a case-by-case basis.

 

http://apps.fcc.gov/ecfs/comment/view?id=6017642393