Hopefully Verizon’s wireless video service won’t raise a net neutrality stink

The Wall Street Journal yesterday reported that Verizon could create and deploy a digital video service that could rival Netflix or Hulu. Quoting Verizon chief executive officer Lowell McAdam, the Journal reported “the carrier has much of the technology ready to launch the service and is nearing agreements with major content companies, which until recently were more skeptical of licensing content for delivery over the Internet.  The need to connect with millennials who want to view TV shows and movies over the Internet is changing the tone of the discussions.”

The Journal also reported that Verizon has been receiving an increasingly warm attitude from content providers to the idea of supplying content for over the Internet consumption.

Content would be delivered from major broadcasters and live sporting events to smartphones via a technology called “multicasting.”  Muticasting avoids congesting the network because it allows the carrier to broadcast content over a single stream of airwaves that consumers can tune into.

In addition, the Journal reports that Verizon is open to expanding FiOS into more markets.

Net neutrality advocates may decide to raise red flags and voice concerns about Verizon potentially throttling the speed of a Netflix or Hulu in order to better promote the mobile broadband provider’s own video service.

The view may be buttressed by allegations made earlier this summer that Verizon was throttling Netflix’s speed and that this throttling forced Netflix to enter an agreement with Verizon that ironically provide Netflix’s video service.

Even without rules in place, the Commission may attempt to use the authority it has under section 706 of the Telecommunications Act of 1996 to investigate claims that net neutrality principles were violated.

In the end investors should view this potential regulatory overhang as a speed bump down the road toward competition in the video-over-the-internet market.

What would a mid-term election loss by Democrats mean for the Open Internet

Based on the latest prognostication of election poll watchers, House congressional initiatives to rein in the Federal Communications Commission’s attempts to further regulate broadband access may be in for a small boost.  That boost may be tempered, however, by presidential veto power.

A post in The Economist blog, Democracy in America, cites a number of polls giving the Republican Party a chance in this November’s mid-term elections to win the U.S. Senate while keeping the U.S. House of Representatives.  That may provide initiatives promoted by House Republicans Marsha Blackburn of Tennessee and Robert Latta of Ohio some additional ammunition in their attempts to prevent the FCC from reclassifying broadband access providers as Title II common carriers.

Last July, Mrs. Blackburn secured an amendment to the fiscal year 2015 financial services appropriation bill designed to retard FCC attempts to preempt state laws that regulate municipal broadband.

Meanwhile, Mr. Latta introduced H.R. 4752, a bill that would limit the authority of the FCC over providers of broadband access.  Specifically, the bill would prevent the FCC from reclassifying broadband access providers as common carriers under Title II of the Communications Act of 1934.

H.R. 4752 would amend the Act by clarifying that the term “common carrier” would not include a provider of information service or of advanced telecommunications capability.  The bill is currently in the House sub-committee on communications and technology but is not on the House agenda for hearing, markup, or vote.

There doesn’t appear to be any movement in the Democratic controlled U.S. Senate on legislation that would have the opposite effect of what Republicans in the House are proposing.  While Senate commerce, science, and transportation committee chairman John D. Rockefeller, Democrat of West Virginia, has been an ardent proponent of the Open Internet and Senator Al Franken, Democrat of Minnesota, an equally strident advocate for reclassifying broadband access providers as Title II common carriers, there are no bills scheduled for hearing, vote, or markup, that would implement the Title II regulatory framework.

If the prognosticators are correct, the Republicans maybe biding time until after this November’s mid-term elections.  A number of forecasts are giving the GOP anywhere from a 51% to 60% chance of winning the U.S.Senate while keeping the U.S. House.

But even if the Republicans were to take both chambers and pass legislation similar to H.R. 4752, they would face the stiff challenge of a presidential veto.  They would need at least 290 votes in the House and 67 votes in the Senate to override a veto by President Obama and even with the chance of winning both chambers, I don’t see those numbers materializing.

Without statutory authority, open Internet rules are dead.  Adherence to open Internet principles, as evidenced by past broadband access provider behavior, will continue, however.

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There is no such thing as a telecommunications provider

If the Federal Communications Commission assessed the Open Internet or net neutrality within the framework of the knowledge and information market, I think it would be easier for them to recognize that broadband operators, content delivery networks, and edge providers are all information service providers making reclassification of broadband operators as common carrier, telecommunications companies inappropriate.

Law established in two cases, National Cable & Telecommunications Association v. Brand X (2005) and Verizon v. Federal Communications Commission (2014) provide the FCC with the cover they need to make that leap.

In Brand X, the U.S. Supreme Court described characteristics that make broadband operators information service providers. A broadband provider offers its subscribers information services in the form of e-mail accounts and personal web pages.  I would even add any news content that the broadband provider aggregates on its website.  In addition, they may even provide links to other sources of online information that subscribers can access.

In Verizon v. FCC, the U.S. Court of Appeals for the District of Columbia describes YouTube as an information services provider.  In discussing edge providers, the court provided this example:

“When an edge provider such as YouTube transmits some sort of content — say, a video of a cat — to an end user, that content is broken down into packets of information, which, in turn, transmits the information to the end user, who then views and hopefully enjoys the cat.”

Can an end user be an information services provider?  Why not?  Individuals are writing applications for use in processing information everyday.  In Verizon, the court observed that:

“End users may often act as edge providers by creating and sharing content that is consumed by other end users, for instance by posting photos on Facebook.”

My question is, why should broadband operators be treated differently from other information service providers?  The standard answer from net neutrality or Open Internet proponents is that as the broadband pipe provider, a broadband operator could discriminate against certain traffic flowing to end users or block end user access to other information service providers.  End users should dismiss this fear of the unknown for three reasons.

First, end users have choices, whether wired or wireless, for access to information service providers.  In Atlanta, an end user can get wired broadband access through Comcast or AT&T.  They can also get wireless access via Verizon, AT&T, C-Beyond, T-Mobile, or Sprint.  I currently have access with two providers, one wired and one wireless.

Second, it’s bad business.  Comcast makes its money as an information services provider.  The value of its access platform increases where end users have confidence that they can access information via Comcast’s platform.  If end users don’t have this confidence, they will take their business to another provider.

Third, a broadband operator’s role as an access provider or gatekeeper doesn’t negate its primary role as an information services provider.  The court in Brand X made it clear that broadband operators do not provide a transparent ability to transmit information as a telecommunications carrier does.  From the end user’s perspective they receive an integrated service that gets them access to information online.

The FCC needs to understand that the telecommunications market of voice providers and voice subscribers is shrinking.  This is a new information market made up of information service providers and consumers of content with consumers enjoying the increasing ability via innovative technology to sit on both sides of the market.

The crafters of Title II never envisioned this convergence instead viewing the telecommunications market as a demilitarized zone sitting between voice providers and telephone subscribers.  That wall has crumbled and rebuilding it using Title II makes no sense.

 

 

 

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Google must not be worried about the possibility of Title II reclassification

An article in The Wall Street Journal posted last Friday talks about Google’s on-demand broadband deployment in a number of American cities.  Google is circumventing the traditional universal service approach forced upon cable carriers as part of their franchise agreements with an on-demand approach that has the world’s largest Internet search portal deploying fiber in neighborhoods that are willing and able to pay for the facilities.

Not that Google is cherry picking, according to the article, but the company’s pursuit of higher margins coupled by other broadband providers slowing down their high-speed roll-outs created an environment that gave some localities no choice but to allow Google to serve higher demand neighborhoods.

Question is, does the action by these localities help aid broadband deployment?  I don’t think so, especially where Google’s services will be prevalent, but not exclusive to, more affluent neighborhoods.  Broadband providers that are obligated under existing franchise agreements to build out their facilities may be at a competitive disadvantage to a cash cow like Google that deploys only where it sees demand.

On the other hand, Google’s approach is standard economics 101.  They are serving customers most responsive to their service’s price points and right now it’s those customers with the right amount of wealth.

So, how does this square with the Federal Communications Commission’s proposed Open Internet rules?  So far I see no conflict as long as the FCC stays on the section 706 path versus the common carrier/Title II route.  Google’s approach should send a signal to Free Press and Public Knowledge that the reality on the ground when it comes to broadband deployment is not in sync with their common carrier narrative.

Title II would bring back the slow old days of tariffs, price regulation, and inter-carrier compensation, a regulatory framework that would disincentivize Google from deploying broadband.  I expect that Google would eventually reduce prices and offer tiered offerings thus allowing broadband deployment into less affluent neighborhoods.

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Is Title II good for information content entrepreneurs? No

Later today I will participate in a Congressional Black Congress Foundation panel discussion on telecommunications and media.  I’ll be sharing my thoughts and insights on how a Title II classification of broadband access could impact information service providers in general and minority-owned information services providers in particular.

It should be no surprise, if you are one of the three or four people who follow this blog, that I see no social policy benefits in treating broadband access as a Title II common carrier.  Title II does not encourage broadband deployment or investment.  It does not even promote the neutral and open platform necessary for encouraging the development and deployment of the software applications that have provided us with familiar services like e-mail and video streaming.

The main reason that Title II is ineffective in a 21st century broadband world is that Title II was intended to regulate services and pricing for telecommunications services provided in an analog, point-to-point, switched circuit world with an emphasis on regulating prices and charges for services.  While the early days of the Internet were driven by a philosophy of openness intended to encourage application development and deployment necessary for exchanging information, Title II was intended to facilitate the universal access of American households to a legacy switched-circuit telephone infrastructure.

Title II says nothing about digital networks much less net neutrality.  Title II says nothing about democratizing access to or app development on the Internet.  In fact, the entire Communications Act of 1934 doesn’t speak to net neutrality.  Section 1302 (section 706 under the Telecommunications Act that amended the Communications Act) boils down to encouraging the deployment of advanced services, where advanced services have been determined to mean broadband.

Title II has become the backdoor approach used by net neutrality proponents to get to regulation of broadband services and the Internet as opposed to the old fashioned method of proposing legislation to Congress that would expressly authorize net neutrality as a policy tool and provide the Federal Communications Commission with the authority to create net neutrality rules.

But what proponents of net neutrality rarely discuss are the negative impacts Title II would have on information and content entrepreneurs.  Take for example section 203 of the Communications Act.  This section discusses schedule and charges assessed by common carriers.  To analyze what a Title II eco-system would look like for broadband operators, replace the term “common carriers” with the term “broadband operators.”

So, according to this section broadband operators would have to keep on file with the FCC a schedule of their rates and charges, whether for traffic sent solely on their networks or traffic exchanged with other broadband operators.  At first blush this may seem like just a mere compliance or administrative inconvenience.  What this requirement would do, however, is introduce more uncertainty for information and content entrepreneurs.

For the broadband operators it may mean calling out of retirement a few of their tariff experts.  (Don’t call me.  I hated drafting the damned things.)  The real inconvenience will fall on entrepreneurs.  For example, if the broadband operator has to change rates or charges to accommodate changes in his relationship with video distributors like Netflix, price changes, pursuant to section 203(b) of the Act, would take place after 120 days notice of the price change.

Would a broadband operator want to put off collecting additional revenues while waiting for the FCC to approve a rate change?

Can an information provider afford to have a broadband operator say no to its additional traffic because the broadband operator has not instituted the appropriate price points to compensate for additional traffic?

Another source of uncertainty for information and content entrepreneurs may come from section 204(a)(1) of the Act.  This section allows the FCC to hold hearings to challenge the lawfulness of new charges.  These challenges may come from the FCC or from a consumer.  Along with the challenge would be a suspension of the rate for up to five months.

Broadband operators may be walking on eggshells when a content or data entrepreneur wants to run a service that calls for a change in rate only to be turned down because the operator doesn’t want the headache  of a future refund headache down the road.

Information and content entrepreneurs should also be concerned about section 211(a) which would require a broadband operator file with the FCC other contracts that the operator has with other broadband operators.  Why should this concern information and data entrepreneurs?  Because if the terms and conditions of these contracts includes third-party, information and content entrepreneur information, it may expose these entrepreneurs to competitive risks.

Title II puts entrepreneurs at risk as collateral damage in attempts to regulate hypothetical broadband operator bad behavior.  Investors in online start ups should consider the impact of Title II on their investments.