Congress should not fund a FCC with misplaced priorities

Free Press has been calling on its constituents to encourage the Republican-controlled Congress to vote against a House appropriations bill that would significantly reduce funding for the Federal Communications Commission.  For Fiscal Year 2016, the FCC asked Congress for $388,000,000 in offsetting collections. This represents a $48 million increase over the FCC’s request for Fiscal Year 2015, which ends tonight at midnight.

House Republicans have been blatant about their unwillingness to fund the FCC’s net neutrality regime.  So serious are they about taking the wind out of the so called open internet that they have a budget bill that would provide the FCC with only $314,844,000 for Fiscal Year 2016.  If federal budgets represent national priorities, it is clear that net neutrality is not a priority for the GOP, whose members have railed against how onerous the rules are.

While the rules are burdensome, what is more telling is the FCC’s unwillingness to get out of the narrow vision box.  The FCC is still stuck on the concept of encouraging competitive telecommunications networks.  In the 21st century why would the FCC be concerned about a concept calling for a multiple number of firms providing point-to-point voice communications services via wire or wireline?

What the FCC should be concerned about is promoting the development of the information and data markets that are being created and transacted in over internet infrastructure.   Information and data are the currency being exchanged on digital networks.  Also the returns on stock that investors are seeing should be an indication as to where the economy via the internet is going.

According to data from Morningstar, the telecom services industry saw one-year returns on stock at 8.42%.  Three-year returns were 9.82% while five-year returns were at 9.64%.

In the information technology services industry, one-year returns amounted to 10.93%; three-year returns came in at 10.41%; and five-year returns were 12.16%.

The internet content and information industry saw first-year returns of 17.04%; three-year returns of 23.90%; and five-year returns on 18.70%.

I don’t pretend to be a stock analyst but if the FCC really wants to encourage competition on the internet, shouldn’t the agency promote entry into the higher performing industries?  If the FCC wants to convince me that they are interested in economic growth, their analysis should be based on the current reality of the internet economy and the data and information markets.

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Google has answers and maybe we should pay for them

Posted February 10th, 2015 in Google, Internet search and tagged , , , by Alton Drew

According to this post in The Wall Street Journal, Google is upping the stakes in the market for data moving away from just providing links to providing answers to your search questions.  Critics like the European Union argues that Google is favoriting its own inventory of information and that this is a no-no because it puts other information providers at a disadvantage, particularly those deemed to be providing more relevant data.  Google, according to the Journal, is driven to move from just providing to links to providing answers in part as a result of consumers using smart phones with smaller screens seeking out facts.  In addition these consumers are speaking their searches versus typing them into a search.  Competitive information providers such as Yelp are providing apps that help consumers bypass Google’s search product.

So far U.S. are not as critical of Google’s move to providing answers versus just providing links, but the European view appears to favor a coordinated delivery of information from data generating websites through search engines to the end using data consumer.  What the Europeans appear to be saying is that Google should act akin to an electric grid independent system operator; identifying the electricity generator that can meet the consumers’ electricity needs on demand and at the best price and transmitting that electricity to the consumer. Consumers are free to bypass Google by using an app from Yelp or any other data provider or going directly to the site they desire.  Google is free to play both data provider and data broker.  There are no legal restrictions saying that Google cannot occupy both spaces.

As Andrew Keen shares in his latest book, “The Internet is Not the Answer”, Google could charge for its search services.  If the consumer values the data they are searching for, why not pay their data broker, Google, to find it for them.  This way Google has a financial incentive to submit the most relevant data sources to the consumer.

Regulators can’t force Google to charge a fee for its services but assessing a fee would address a number of concerns like putting a value on search activity including information.

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Broadband and Title II: It’s starting to feel like 1995

Federal Communications Commission chairman earlier today decided to take us back to 1995 and announced that he will issue new net neutrality rules that would bring wireline and wireless broadband providers under Title II regulation.  According to The Financial Times, investor fears were subdued when Mr. Wheeler assured the public that there would be no rate regulation on the part of the FCC.  Okay.  But that doesn’t mean that there will not be new rates implemented by broadband providers.  Mr. Wheeler in his opinion piece did not rule that possibility out.

Additional rates on the part of broadband providers wouldn’t be a bad thing either for investors, the operators, or consumers.  For investors and operators they can be assured that additional compliance costs under a new Title II regime are being recovered if operators charge additional fees.  For example, electric utilities charge different rates for different classes of ratepayer.  The typical ratepayer classes include residential, commercial, and industrial, with larger ratepayers paying a lower per unit rate because of the greater volume they consume and the decreasing marginal costs involved in generating electricity for larger consumers.  Residential consumers may pay less in total because they consume a smaller gross amounts of electricity but pay a larger per unit cost for their electricity.

Broadband providers may decide to dust off their regulatory playbooks from the period before the 1996 rewrite of the Communications Act and start charging tiered rates or even per minute rates for certain low-use packages.  Since broadband operators and content providers would be banned from entering paid prioritization agreements, what better way to manage congestion than to design packages where consumers in effect determine the speeds at which they get data based on the dollar value of the data.  It may also give wannabe broadband providers like Google and Facebook an excuse to charge for some of their services.

Yes, it’s starting to feel like 1995.

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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.

 

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.