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.




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.

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Broadband: Why would an edge provider let FCC see its business model

Technocrat’s Anne L. Kim blogged on comments Consumer Electronics Association CEO and president Gary Shapiro made at a recent Brookings Institution event.  Here is an excerpt from her post:

On net neutrality, Shapiro wants more of a hands-off approach from the government. He wants to see government allow industry and nongovernmental organizations establish principals. “And if the principals are violated, then act,” he said.

“I personally am fearful of all of a sudden sending those companies into a new area of regulation like utilities,” referring to the FCC considering using Title II of the 1996 Communications Act to rewrite net neutrality rules.

He said he likes things the “way they are” and that he’s rather not see them changed, adding that “good intentions scare me.”

Take a look at Title II, something more edge providers need to do, and you can appreciate some of Mr. Shapiro’s fear.  For example, section 211 of the Communications Act requires that common carriers (a classification that net neutrality advocates want applied to broadband providers) file copies of all contracts that they have with other common carriers.  So, if Google, a broadband wannabe, has peering or transit contracts with Comcast, Google will have to file its contracts with the Federal Communications Commission, and probably with state public utility commissions as well.  If these contracts contain information regarding traffic from certain edge providers a la Netflix, Netflix wouldn’t be happy that some aspect of its business model may be on public display with the FCC.

This type of transparency may bring joy to net neutrality proponents but not to the edge providers they purportedly are so concerned about.  In my opinion, letting the government have a copy of a contract entered into autonomously is the same as the government regulating your free speech.  Unless there is a dispute to be resolved between two parties to a contract, I see no reason to let the government have access to its contents.  If edge providers want to see a slippery slope created that takes regulation right to their doorsteps, Title II will lay the bricks for that driveway.

My walk down the Yellow Brick Road of regulation gets scarier when I take a look at section 215.  Section 215 allows the FCC to examine transactions involving the furnishing of services, supplies, equipment, personnel, etc., to a carrier.  Also, the FCC, pursuant to this section, may examine transactions that impact charges a common carrier assesses for provision of wire or wireless services.  Section 215 also allows the FCC to determine how reasonable these charges are.  Also, the FCC may report its recommendations to Congress as to whether charges are invalid and should be modified and prohibited.

Now, not to knock on Google, but since they are the Internet flavor of the week given the disclosure of their perceived wretched diversity in hiring practices, disclosing matters regarding personnel much less on their services should make the company and its investors think twice about supporting net neutrality brought to you via Title II classification.

All of Title II should be scary to venture capitalists, private equity, and their investor clients, but section 218 should bring great pause. This section allows the FCC to inquire into the management of all common carriers.  The FCC may obtain management information not just from the carriers, but from entities that directly or indirectly control them.  That, in my mind, includes private equity firms or venture capitalists that may have a controlling interest in some little regional or rural broadband provider.  With the SEC stepping up its scrutiny of private equity via the Dodd Frank Act, does private equity want another alphabet soup agency knocking on its door?

Here is one more, especially for the app developers.  Section 231 speaks to app developers, or more definitively access software providers.  This section prohibits the use of the World Wide Web to transmit material harmful to minors.  I wonder how many apps fall under this category.

When you look behind the curtain of good open network intentions, you can find some scary stuff.

Genachowski’s moderate tone on net neutrality rules a good start

Posted December 1st, 2010 in FCC, indecency, Internet, net neutrality and tagged , , by Alton Drew

I found listening to Federal Communications Chairman Julius Genachowski’s moderate tone during today’s press conference encouraging. From what we know based on today’s press conference, a reclassification of broadband access as a Title II telecommunications service is off the table. By taking Title II off the table, the FCC increases the perception of its approach to net neutrality rules as middle of the road.

Proponents and opponents agree with the overall concept of an open network, and the Chairman acknowledged that the Internet is currently Open, which has enabled its success today. Openness, as I’ve argued time and time again, adds value to this digital engine of economic growth. The more consumers accessing the Internet and the World Wide Web for digital information, the better.

At the heart of this growth is an innovative, responsive, and daring private sector that relishes in bringing products to as many consumers as possible. Everyday this sector finds ways to make the Internet better and faster than it was before. Everyday, there is a network engineer or an application developer that is designing and building devices that can connect us to the Web and each other in both fun and productive ways. All this growth since that first web page in November 1990 without the burden of excessive regulation.

I hope Mr. Genachowski presents in December rules that effectively maintain the status quo. His rules should be more an acknowledgement and celebration of what the private sector has done in providing mankind an awesome tool for productivity, which he seemed to address in his speech today. His rules should be a reinforcement of existing consumer and privacy protections and not a recreation of the regulatory wheel.