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In space, one can do fast lanes

A great piece in The Economist discussing increasing the deployment of #broadband infrastructure in lesser developed countries.with the use of lower flying satellites, hot air balloons, and drones. These lower cost options relative to those provided by legacy satellite firms are hoped to provide the “backbone infrastructure that connects wireless telephone companies to each other and to the backbone provider making access to high-speed broadband increasingly feasible for consumers in poor countries.

The article discusses briefly the regulatory hurdles that companies like #Facebook may face when attempting to deploy drones. In addition the article notes that transmission speeds may be higher in space where traffic travels 40% faster via dark matter versus through a piece of cable.

I wonder if the FCC would try to extend net neutrality rules in space should Facebook decide that it’s hot air balloon program could work for underserved rural areas in the United States? Probably not. It’s #netneutrality rules apply primarily to the behavior of broadband internet access providers.

According to Section 8.9(a) of the FCC’s net neutrality rules, a person engaged in the provision of broadband internet access service … shall not engage in paid prioritization. This sentence right here would get Facebook or #Google off the hook for being subject to the rule.

What’s also interesting is the definition of “paid prioritization.” Let’s say that Google or Facebook is successful in launching their “where no man has gone before” initiative to connect the globe via low flying satellites or drones. Let’s also suppose that they decide to go head-to-head with Netflix and provide over-the-top streaming content. Given their size and capital, Facebook or Google could afford to enter a “bill and keep” arrangement with broadband access providers to move their traffic to the last-mile on a priority basis without paying for prioritization. The Facebook or Google brand would give them some traction with consumers given Google’s search prowess and Facebook’s growing bankbook of connections worldwide.

Since the Federal Communications Commission​ allegedly has no intention of regulating rates and would have less incentive to deny a traffic exchange agreement that involves no compensation or advantage for a third-party affiliate, The broadband access provider could increase rates to recover the costs of its clogging network.

Now this scenario assumes that Facebook and Google’s global initiatives are a success, but should their drone and hot air balloon programs work, their will be incentives to connect the dots here at home by making these initiatives available to rural America where demand is great.

I hope they try it….. .

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A little political uncertainty around net neutrality

The Wall Street Journal today reported on how Amazon, Google, Facebook, and other edge service providers are a bit concerned about net neutrality rules Federal Communications Commission chairman Tom Wheeler is set to release next Thursday at the FCC’s open meeting.  That open meeting may be the only open thing about net neutrality as far as edge providers are concerned.  The Journal reported the following excerpt:

“If these reports are correct, this represents a grave threat to the Internet,” saidAmazon.com Inc., AMZN -1.50% Google Inc., eBay Inc., EBAY -0.61% Yahoo Inc.YHOO -0.44% and Facebook Inc., FB -1.10% among others, on Wednesday in a letter to Mr. Wheeler.

“Instead of permitting individualized bargaining and discrimination, the Commission’s rules should protect users and Internet companies on both fixed and mobile platforms against blocking, discrimination, and paid prioritization, and should make the market for Internet services more transparent,” the companies said in the letter. “The rules should provide certainty to all market participants and keep the costs of regulation low.”

Not only are these prominent edge providers up in arms but a couple of Mr. Wheeler’s fellow commissioners are urging caution if not outright delay on issuing rules.  For example, earlier today FCC member Ajit Pai issued the following terse statement:

“I have grave concerns about the Chairman’s proposal on Internet regulation and do not believe that it should be considered at the Commission’s May meeting.  Instead, I believe that the Commission should focus for the next week on getting the rules for the incentive auction right.”

FCC member Mignon Clyburn made clear yesterday in a blog post her preference for no paid preferential treatment for any edge providers while fellow FCC member Michael O’Rielly in an op-ed for The Hill cautioned against writing net neutrality rules that would extend section 706 jurisdiction to edge providers.

The letter from Facebook, Google, et al., may be more of an attempt to head off being dragged into section 706 jurisdiction.  Facebook and Google may simply not want any inevitable interconnection agreements coming under any scrutiny by the FCC.  I have not observed any preference on their parts to see the Internet regulated as a utility.  Utility regulation would mean scrutiny of interconnection agreements since such agreements would fall under the network management transparency credo that net neutrality advocates enjoy touting.  Facebook and Google may not mind learning about subscribers to their platforms but may be hesitant about broadband users learning about them.

Some in the venture capital community are concerned about how net neutrality rules may impact start-up investment.  For example, an article in MIT Technology Review said the following:

“Some venture capitalists at the cutting edge of Internet innovation say they will shun startups requiring fast connections for video, audio, or other services, mindful that the U.S. Federal Communications Commission may let ISPs charge extra fees to major content providers.”

On the other hand, others VCs are not being scared off by Mr. Wheeler’s proposed rules.  According to an article in Ars Technica:

“It may well be true that startups will have a tougher time competing against the Netflixes, YouTubes, and Hulus of the world if and when those companies purchase a faster path from ISP data centers to consumers’ homes. (Netflix is already paying for direct connections to the edges of the Comcast and Verizon networks.)

But it’s hard to believe that venture capitalists will suddenly ignore Internet start-ups in any great numbers.”

If rules are supposed to bring about certainty, then these proposed rules have failed the sniff test before they have even seen the light of day.   This may be good for broadband providers, however.  If Mr. Wheeler fails to get support for the rules, the FCC is back to square one and the broadband industry is left with some principles to abide by while large edge providers like Netflix can continue pursuing the option of purchasing fast lane access to broadband providers.

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Consumer behavior makes net neutrality a none issue

A lot of content on the Internet is straight up “ratchet”.  For those who do not spend too much time in the inner city, the term ratchet refers to poor, ignorant, nonsensical.  This is one of the advantages of having a twelve year old.  You get to keep up with the latest urban lingo.  With all the talk coming from net neutrality advocates about the impact a lack of net neutrality rules will have on consumer choice of broadband providers and media diversity, I’ve become curious as to who Americans are visiting online, ratchet or otherwise.

The first thought we may have is that people are primarily visiting social media websites; that these sites are getting the most visits.  Actually these sites are the second most visited.  Using data from Alexa.com, I determined that 17% of the top 100 websites visited in the United States were social media/network websites.  Facebook and YouTube came in at number 2 and number three, respectively, while Linkedin and Twitter came in at number eight and number nine, respectively.

Taking the number one spot in websites visited in the U.S. are retail oriented sites.  Twenty-one percent of websites in the top 100 visited sites were in the retail category.  Coming in third are the entertainment oriented sites with 16% of the top-100 sites falling into this category.

What I found disappointing was what I refer to as the encyclopedia/research websites.  Five percent of the top-100 websites fell in this category.  I would hope that as we move further into a knowledge and information economy that these sites would get more visitors, but it appears that shopping and socializing receive higher amounts of value perception from people online.

For the record, coming in at number four were news and media sites.  Fifteen percent of the top 100 sites fell into this category.

Consumers are apparently placing a higher value on Internet traffic from retail, social media, and entertainment and quite frankly this is no different from how consumers parceled their time before the Internet came along.  We have always preferred to shop, hang out with friends (albeit real), and be entertained.  As long as potential providers of these services saw some profit opportunity they would enter the market to provide them.  That was the case before the Internet and that is the case in the two plus decades we have been going online.

Broadband providers realize this, which is why blocking access to and discriminating against providers of these services does not serve a broadband provider’s self-interest, whether a consumer’s taste is ratchet or not.

Only Congress can get rid of the FCC’s social policy of coddling

The Federal Communications Commission is being inundated by calls from advocates that want the consumer protection regulations, typically applied to circuit switched services, to also be applied to services that traverse packet switched networks, networks that are themselves connected by transmission controlled protocol/internet protocol (TCP/IP).  To formulate any type of regulatory policy regarding the Internet, the FCC needs to remember two things.

One, the creation and deployment of the Internet has been taking place without any significant direct involvement from the FCC.  The Internet is the offshoot of the ARPANET, a federally subsidized computer inter-networking project designed to develop technology that enabled computers and the research communities  around them to talk to other computers and their research communities.  The increase in privatizing and commercializing the Internet has led to billions spent on backbone networks.

For example, Google, a newcomer to backbone investment in Internet terms, has spent years putting together its fiber optic networks and now has 100,000 miles of backbone infrastructure, greater even than number three mobile broadband provider Sprint.  Both Google and Facebook have recently invested in Asian submarine cables.

According to research done by Dr. Anna Maria Kovacs, the broadband industry has spent $73 billion between 2006 and 2011 on broadband infrastructure necessary to tie information end-users to the Internet.  In its 2013 annual report, Verizon reported an average of $16 billion in capital expenditures over the last three years with a significant amount going to broadband deployment.

Second, consumer access to the Internet has always been secondary to the Internet’s primary mission which is the exchange of information, data, and knowledge between producers of the same. Expanding the network by privatization and commercialization was merely a free market approach to providing additional revenue streams and funding to support the Internet’s original mission.

While end users contribute to the network effect by driving demand for more services and the increased capacity of the network to provide them with new services, the Internet was never designed as a telecommunications platform where Sally Sue calls up her mom for the recipe for making donuts.

Additionally since 1961, it was envisioned that networks connecting computers would be comprised of packet switching technology, not the circuit switched technology that open network advocates seem to want to keep Americans attached to.  Circuit switched networks have been deemed ill-equipped for exchanging data between computers and as the amount of data going over the Internet increases and end-user appetite for video traffic, the Internet’s biggest hog, grows, further expenditures on old legacy networks become increasingly uneconomical.

The Internet is data-producer centric.  Yes, consumers are important to its commercialization since they purchase the devices and access to broadband that makes the purchase of goods and services possible, but hamstringing further investment in infrastructure by considering the application of circuit switching rules to an Internet protocol environment will only serve to create market uncertainty,chill investment, and negatively impact knowledge market entrepreneurship.

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Somewhere along the information highway, we forgot about entrepreneurial freedom and value

About fifteen years ago I started writing for a publication that was transmitted to its subscribers via e-mail.  We published twice a day on regulatory events on the federal and state level.  The content we provided had great value and our clients paid us for it.  Not only did the staff get paid for the production work, but I’m sure the company had to pay an internet service vendor to transmit our content to the end user.  It’s called business.

I define business in the following way.  Business is the activity that you partake in to create, develop, market, and sell a product for income.  Business is dynamic and along your production line you are going to pay employees and contractors in order to get your product to market.  Business also requires you to look for opportunities to reduce your costs for getting your product to market and in so doing may require you to strategically partner with another entity to meet the objective of being better and faster.  That strategic partner may develop a method for helping you be better and faster and would rightfully expect to be compensated for the value their innovation bestowed on you.

The end user or consumer may observe three alternative developments resulting from the value provided by the strategic partner and all resulting in an increase in consumer welfare.  One, the consumer may see improvement in speed or quality of service with no change in the price she pays.  Two, the consumer may see an increase in price but faster service and better quality.  Although her costs have gone up, they are offset by the increase in value that she identifies in the increased quality of service.  Third, she might see her prices fall as the innovations brought by the strategic partner increase efficiencies in the way the product is delivered.

The business provider has to pay for the innovation but given the increase in consumer welfare realizes that his welfare also increases because the consumer is satisfied.

Notice in my example that the “F” word, “free”, is missing.  It’s that word that has confused content providers and consumers.  Over the past two decades, content providers and consumers have been misled by the notion that access to and delivery of information on the internet was supposed to be free.  This thought was spawned by the misinterpretation of the phrase, “open internet”, which referred not to consumption of and access to information but to the ability of application entrepreneurs to develop services that made the movement and placement of content online easier.

The edge providers, such as Google, Facebook, and Twitter, benefiting from the ability to interconnect their servers and applications with the world wide web were able to turn around and ironically compound the myth of free access by offering certain services to end users for free.  ”Free” had a network effect all on its own and open internet provocateurs such as Free Press and Public Knowledge have been milking it for years.  From free consumer access to ignoring intellectual property rights by promoting the Aaron Schwartz paradigm that all data online should be freely accessed by everyone, they have fanned the flames of contagion, creating such nausea that consumers overlook or ignore the market nature of the internet: the production and delivery of a product called information and knowledge, and like all products moving through a free market its value should be recognized and monetized and the creators of the information and knowledge should expect not only to be compensated but to pay the cost of its delivery.

Yesterday’s opinion in Verizon v. FCC failed to acknowledge the true, core market characteristic of the net neutrality debate.  Net neutrality, which has nothing to do with the open internet, denigrates the market signaling between content providers and internet service providers such as AT&T, Comcast, and Verizon.  Google, Facebook, and other edge providers have signaled the need for greater capacity and speed and internet service providers wanted to address this demand.  Rather than recognizing this demand, the Federal Communications Commission, egged on by the open internet provocateurs, preferred to disrupt the basic law of supply and demand and risk upsetting the flow of commerce.

The opinion is a mixed bag when it comes to freedom of the entrepreneurial spirit of the internet service provider.  It still leaves open the door to regulating broadband providers and, in my opinion, by leaving in place transparency rules, violates the freedom of speech of internet service providers by forcing them to communicate information for a reason that no longer exist, namely compliance with anti-blocking and anti-discrimination rules correctly vacated by the court.

Freedom got a boost yesterday, but the boost was not high enough.  Policy and the law need a change in mindset to recognize that it’s okay to allow markets to work.