July 21, 2017 8:14 AM

Net Narcissism: Internet Giants Reflect Danger for an Open Internet

The Internet giants, and their lobbying groups, organized a "Day of Action" last week.  Internet users were urged to feel outrage, because, the tech giants threatened, unless the FCC steps in to micromanage your Internet service (which the FCC gave itself  authority to do 2 years ago), then the websites you love will be blocked/throttled/discriminated against unless you pay your Internet Service Provider ("ISP") more money.  

Of course, if your ISP wanted more money from you, it would be easier to just raise your rates; but they can't, because if they did, they know you would cancel your service.  The fact is that none of these dystopian threats make any sense, from the standpoint of your ISP; which is why net neutrality advocates offer threats instead of actual examples of harm.

So where do these scary, remote--yet strangely-not-impossible-sounding--stories come from?  To better understand, let's consider Oscar Wilde's uniquely wry twist on another, much older, myth.

Wilde's Narcissus

Most of us are familiar with the story of Narcissus, the beautiful youth so taken with his own beauty that he fell in love with the image of his reflection in a clear pool and stared at it until he died. Oscar Wilde's version comes from his poem, "The Disciple." 

When Narcissus died the pool of his pleasure changed from a cup of sweet waters into a cup of salt tears, and the Oreads came weeping through the woodland that they might sing to the pool and give it comfort.

And when they saw that the pool had changed from a cup of sweet waters into a cup of salt tears, they loosened the green tresses of their hair and cried to the pool and said, 'We do not wonder that you should mourn in this manner for Narcissus, so beautiful was he.'

'But was Narcissus beautiful?' said the pool.

'Who should know that better than you?' answered the Oreads. 'Us did he ever pass by, but you he sought for, and would lie on your banks and look down at you, and in the mirror of your waters he would mirror his own beauty.'

And the pool answered, 'But I loved Narcissus because, as he lay on my banks and looked down at me, in the mirror of his eyes I saw ever my own beauty mirrored.'
Tell Us About Yourself

Like both the pool and Narcissus, when the tech giants gaze into the Internet access market, they don't see the competition that is giving consumers ever higher speeds of bandwidth per dollar spent.  Instead, the tech giants see only their reflection, which is downright scary.  Thus, the dystopic "without net neutrality" scenarios offered by the tech giants' special interest groups don't sound totally crazy because every one of them is based on something that at least one of their sponsors has already done. Let's look at a classic.

The Classic "Fast Lane/Slow Lane" Nightmare

This one has been around since the FCC's first net neutrality rulemaking and is one of the tech activist/lobbyist favorites and was prominently promoted by last week's "Day of Action."  The story goes that without [net neutrality rules and/or Title II classification], the ISPs will favor their own (or affiliated) content, and everyone else (i.e., all the websites you like) will be confined to the "slow lane."

Fast Lane_Slow Lane2.jpg

Where Does It Come From?

Every single Internet platform giant prioritizes "its" content--meaning that of its advertisers. Google, of course, is the best known of these.  Last month, the EU antitrust authority hit the company with a $2.7 billion fine last month for using its dominant search platform (over 90% market share in Europe) to discriminate in favor of its own Google Shopping, and disadvantage those of unaffiliated, rival sellers.

Google's practice of "promoting" its customers over others essentially leaves businesses--web-based or not--with the false choice of paying to be a customer, or taking themselves off the Internet.  This false choice is made more evident in the context of the large and growing mobile Internet.  The New York Times, in a recent article describing Yelp's struggle to compete with Google, notes the observation of an analyst (who recommends buying Google stock, but not Yelp's),

[a]s the internet has migrated to mobile phones, Google has compensated for the smaller screen space by filling it with so many ads that users can have a hard time finding a result that hasn't been paid for.
Facebook, too, does the same thing--though it uses the word "advertiser" quite liberally.  In a recent Wall Street Journal essay, describing a number of market power abuses by the tech giants, Jonathan Taplin notes the controversy involving media buyers and Facebook over its ad billing.  Facebook advertisers are paying a handsome price to be in the fast lane because, as Taplin notes, "the 'viewability scores' for Facebook video ads are as low as 2% when compared with the standard used for TV ads." 

Do ISPs Favor Content? 

No.  As an initial matter, it's worth noting that the majority of web "content" is delivered over private networks and not the public Internet. However, even in situations where the ISP's broadband customers were using their Internet access to avoid purchasing high-margin pay-per-view video services from their cable ISPs (like adult video and WWE events), the ISPs did nothing to interfere with their Internet subscribers' choice of content. Of course, the web incumbents know this very well, as they invested in and built their businesses well before the FCC had any formal net neutrality rules.

*    *    *

Thomas Hazlett noted, 11 years ago, the paradox between the new public policy Google had started floating in 2005, and the actions that Google was taking in the market as it acquired YouTube, "[t]he internet really is not open - if, as Google hopes, it is doing it right."  Hazlett also wonders if Google's public policy might not have a lot to do with the fact that--at a time when it was only the 3rd ranked search engine on the Internet--Google itself benefited from an exclusive distribution agreement with an ISP (AOL).  

Perhaps the "close-the-door-behind-itself" aspect of Google's net neutrality policy is as good an explanation as any for the observation, in a recent Vox article that, "we haven't had a major new technology company in 10 years." Rules that prevent ISP's from offering innovative services to all customers--edge providers and retail end-users--don't just prevent the Internet from responding to consumer demand, they also ensure that the access network will continue to simply reflect and reinforce the images projected upon it by the tech giants.
June 19, 2017 12:48 PM

Rep. Marsha Blackburn Exposes Hypocrisy on Broadband Privacy

marsha blackburn.jpg
                                                     photo credit: Gage Skidmore Marsha Blackburn via photopin (license)

As noted previously, the FCC's "broadband privacy" rulemaking was really a shadow war, fought by third party advocacy groups funded by the Internet giants, like Google, Facebook, and others.  The recent legislative battle to repeal the FCC Privacy rules was no different.  Yet, within the past month, Rep. Marsha Blackburn (R-TN) "introduced the Balancing the Rights of Web Surfers Equally and Responsibly ("BROWSER") Act of 2017 to protect the online privacy of Americans."  In doing so, Blackburn has revealed what these previous "privacy" battles have been about: protecting the Internet giants' commercial advantage in the online advertising market. 

"Broadband Privacy" Is Not Online Privacy

Remember the flood of news stories fueled by interest-group-manufactured outrage about how Congress didn't care about your privacy online?   The ostensible basis for this outrage was that Congress used its authority under the 1996 Congressional Review Act to eliminate the Wheeler FCC's efforts to further advantage the biggest online advertisers (i.e., Google and Facebook) under the guise of "protecting" the privacy of ISP customers.  

Commonly omitted from those stories--and the legislative debate as well--was the fact that the FCC's "privacy" rules did not apply to consumers' information online, but only regulated the ISPs' use of this information (on a non-user-specific basis) to compete with Google/Facebook for online advertising revenue. Yet, at the first mention of using the CRA to repeal the FCC's ISP-specific rules, Rep. Frank Pallone (D-NJ) stated, "[c]onsumers should not have to worry about their financial, medical and other personal information begin shared without their permission." 

Likewise, after the Senate voted to repeal the Wheeler Commission's privacy rules (on March 23), Sen. Edward Markey (D-MA) issued this statement:

The American public wants us to strengthen privacy protections, not weaken them. We should not have to forgo our fundamental right to privacy just because our homes and phones are connected to the internet.

Reading these statements, one might reasonably assume that Congressman Pallone and Senator Markey care, generally, about protecting your personal information--regardless of who is collecting and selling that information.

However, after the CRA was adopted by the House, and the FCC's ISP-specific rules were repealed, Sen. Markey pivoted away from consumers, and their general online privacy, and toward his most important constituents--the Internet giants.  Rather than work toward legislation that would create online privacy rights for consumers, Markey instead declares his intention "to introduce legislation that directs the FCC to reinstate strong broadband privacy rules." (Emphasis added)  On April 6th, Sen. Markey did exactly what he promised, and introduced legislation that would merely direct the FCC to impose its prior regulations on ISPs. 

Markey_bband privacy4.jpg

The PR Campaign: Chicken-Little Meets Michael Corleone

As FCC Chairman Pai noted, the FCC's 2015 rules were driven by "hypothetical harms and hysterical prophecies of doom."  This was fueled by the Internet giants that fought the CRA legislation by using their surrogate groups to successfully plant similarly-exaggerated, chicken-little stories through friendly media outlets, such as Motherboard and DSL Reports.   

The media frenzy they created essentially promoted hysterical speculation without regard for facts.  My personal favorite is "Internet Activists Plot 2018 Electoral Revenge Against Republican Sellouts," from Motherboard.  The article, cites the "usual" sources (the tech giants' third party advocacy groups), and prominently features a picture of House Communications & Technology Subcommittee Chair Marsha Blackburn (R-TN) as the putative target for this "electoral revenge" (which subsequently occurred when Silicon Valley-funded Fight for the Future put up a misleading billboard in Rep. Blackburn's district).

Like the Silicon Valley advocacy groups he loves to cite, Motherboard tech policy contributor, Sam Gustin really doesn't like Rep. Blackburn.  Whether through a subconscious desire to appeal to the sexist bias of its Silicon Valley idols, or purely unintentional, Motherboard's privacy articles provide a good illustration of what the NY Times calls "sexist political criticism" that uniquely plagues strong female politicians, through its practice of always introducing Blackburn by immediately putting her character/competency in question.

For example, in this article the Senate sponsor of the CRA repeal of the FCC broadband privacy rules, Sen. Jeff Flake (R-AZ) is introduced simply as "the Arizona Republican."  Rep. Blackburn, however, is introduced as "the Tennessee Republican who has received colossal sums of campaign cash from the telecom industry."  The reader is left to imply that Rep. Blackburn--as opposed to Sen. Flake--is either corrupt, or only interested in furthering her personal ambition; though she and Sen. Flake are described as doing the exact same thing.

Haters Gonna Hate

When Rep. Marsha Blackburn introduced the BROWSER Act (that would re-apply the FCC's rules to ISPs as well as the Internet giants), one would have expected the self-proclaimed "consumer online privacy" groups to immediately declare victory.  None of the Internet giants' big 3rd party advocacy groups (EFF, Free Press, New America's OTI) has even commented on privacy since Blackburn introduced her bill--except for this press release by Google-supported Public Knowledge, to "clarify" that it "did not support" Blackburn's bill, as a Boston Globe article had reported.  If you hadn't noticed so far, this issue was never really about consumers.  

Rather, as the Washington Post's Brian Fung explains, the issue was always about politics and money.  Ironically, to improve consumers' privacy rights online would be for Democrats to cede the privacy issue for the election.  Worse still, it would put Democrats on the wrong side of their core "Silicon Valley" constituency; the tech giants. Thus, Rep. Frank Pallone seems to have moved past his concerns about consumers' personal information, given that Rep. Blackburn has exactly 0 Democratic co-sponsors of her Browser Act.

Consequently, the tech giants' media outlets--so aggressively pro-privacy when it was just an ISP/Republican issue--have been largely silent on Blackburn's bill.  Motherboard's Gustin has written nothing on privacy since his "plotting revenge" article.  DSL Reports' Karl Bode--with his characteristic tin-foil hat logic (see, e.g., "AT&T Fools Entire Media With Giant Gigabit Fiber Bluff" arguing that AT&T's ultra-fast "Gigapower" Internet service is a PR hoax)--faults Blackburn for introducing a bill that "she knows won't pass."   Advocate journalist Bode quickly concludes that Blackburn, of course, knows that her bill won't pass because--back to Gustin's only biographical point--she's in the pocket of ISPs, and they won't like the bill, because they...and her...are just, you know, evil.

What Is Privacy Worth?

Google, and Facebook, et al., were mad enough, when Congress eliminated the regulatory barriers to entry that the Wheeler FCC had imposed on ISPs, but to give consumers any  control over the heretofore unfettered ability of the online ad giants to use and monetize personal consumer data was more than they could handle. So, the web giants now argue, according to the Business Insider, that if consumers are in control of their privacy, "Facebook won't be free."  

This statement calls to mind the laughably-superficial reasoning, by Public Knowledge President Gene Kimmelman, as to why the proposed AT&T/Time Warner combination should be regarded with greater suspicion than other firms also competing for consumers' leisure attention, like the Internet platform giants.  Kimmelman dismisses the Internet giants as "competitors" to traditional content, because "none of them charges me $200/month to access their online content." (See, 12/07/16 Senate Judiciary Committee Hearing  at 2:21:50-2:23:30)

Sen. Jeff Flake perceptively identifies the flaw in this logic, asking witness Mark Cuban if it matters who is actually "paying" when considering whether firms compete in the same market for consumers' attention.  Cuban succinctly observes that, "if you're not paying for content, you are the content." Hearing video at 2:23:44 (emphasis added).  Cuban's point is that online consumers are giving the platform giants something these companies can readily exchange for cash--their personal information. 

The Internet giants' argument (and that of their surrogate groups) rests on the notion that consumers' personal information is of little value, and therefore the content that the consumer receives from the platform giants is a great deal.  Yet, if the Internet giants' services are indeed valued more by consumers than the consumers value their own privacy, then what's the harm in letting consumers decide how they wish to pay--in terms of  cash or personal data--for these services?  

The beauty of Blackburn's bill is that it gives consumers the right to make that decision, and for this she deserves more credit than she's gotten.  Let's hope that at least some Democrats agree this is a choice that should be returned to consumers.


May 30, 2017 11:20 AM

Correcting the [Revisionist] History of Internet Regulation

The FCC's NPRM to re-examine its Net Neutrality rules was just adopted and, with it, the Internet giants' advocacy groups have launched a misinformation campaign.  Over the past couple weeks, a number of articles have appeared that float revisionist history in an attempt  to embarrass FCC Chairman Ajit Pai--who aims  to return Internet regulation to the "light touch" approach favored since the dawn of the commercial Internet (during the Clinton administration) until 2015.

First, the Washington Post (owned by web giant Amazon) offered an "analysis" entitled "The Trump administration gets the history of Internet regulations all wrong."  Then, the website Ars Technica took the Post's "analysis" as fact to deliver an article with the even-more-smugly-insulting title, "Ajit Pai accidentally supports utility rules and open access networks."   More recently, the website TechCrunch repeated many of the same mistaken facts, but divorced from the "gotcha" rhetoric in the first two articles. 

The contortions these writers have gone through to argue that Chairman Pai inaccurately described Clinton era Internet policy could have been avoided had they gone straight to the horse's mouth.  The Clinton FCC's Office of Plans and Policy conveniently published a "Working Paper," in July of 1999, which provides great detail on the agency's approach to Internet regulation.  The paper is entitled "The FCC and the Unregulation of the Internet." (emphasis added)   

Most of the inaccurate narratives in the advocacy referenced above essentially conflate Title II of the Communications Act of 1934, the Telecommunications Act of 1996 ("Telecom Act" or "the Act"), and pre-Telecom Act FCC service classifications.  Let's try to go through some examples in context.    

"Without government oversight, phone companies could have prevented dial-up Internet service providers from even connecting to customers." (Post)

"Those [Title II] rules kept phone companies from charging dial-up Internet providers extra or blocking their connections." (Post)

Not true. In 1980 the FCC commenced a series of rulemakings (the "Computer Inquiries")  in which it decided not to regulate--at all--the new "enhanced services" being created through the combination of computer and telephone services. Telephone services would continue to be subject to the existing web of FCC, DoJ, through the MFJ  (the settlement order resulting from the AT&T antitrust case), and state regulations that already applied to these services.

This meant that a call to an "enhanced service provider," like an ISP, was treated like a call to any other end-user.  No additional charges applied because dial-up service was a call to an unregulated end-user.  Aside from having no commercial incentive to block ISP customers (in those days, customers often bought an extra line just to access the Internet), a telephone company who refused to route an end-user's call to an ISP would have been in violation of numerous federal and state laws/regulations.

"The FCC regulated phone companies under Title II of the Communications Act of 1934, which mandates that the agency ensure that services like telephone networks treat all customers equally."
 
Not exactly.  As noted, the FCC, the DoJ (through the MFJ), and state regulators all regulated some aspect of telephone companies' provision of local telephone services.  While Title II certainly applied to these services, Title II did not "require that . . . telephone networks treat all customers the same." It does, however, require that all services be available to similarly-situated customers on similar terms and conditions.  See 47 U.S.C. Sect 202(a)
 
"In 1999, the FCC used its authority under that section [Title 2] of the law to enact "line-sharing" rules that forced phone companies to let competitors offer DSL over their existing telephone networks. . . ."  (Post)  

Sort of, but needs clarification. This statement conflates the general common carrier obligations of Title II under the 1934 Act with the additional specific obligations Congress imposed on incumbent local exchange carriers ("ILECs") under the Telecommunications Act of 1996 ("the Act").  In exchange for the ability to provide long distance voice service, ILECs had to undertake additional obligations to open the local exchange market to competition.  See 47 USC Secs 251 (c) and (d).   

One of the specific, ILEC-only, obligations imposed by the Telecom Act was the duty to make available for lease, on an "unbundled" basis, certain network elements ("UNEs").  One of these UNEs, ordered by the FCC in its 1999 UNE Remand Order, was the high frequency portion of a local loop--which was already being used by another LEC to provide voice service to the customer--in order to facilitate the provision of ADSL service. This UNE was also referred to as "line-sharing," but is not synonymous with "unbundling."

"The line-sharing (or "unbundling") requirements remained in place throughout the four years of President George W. Bush's first term in the White House." Finally, in August 2005 . . .  the FCC voted to eliminate the line-sharing requirements on phone providers. Bush's FCC had previously decided not to impose line-sharing requirements on cable Internet service . . . ." (Ars Technica)

Needs clarification. This statement reflects confusion and a lack of understanding regarding two things: 1) the FCC's decision in 2002 not to classify cable modem service as a Title II service, and 2) the effect of the FCC's unanimous decision to apply that same classification to wireline broadband Internet access service in 2005. First, the Commission's 2002 cable modem classification was about whether to apply the general, 1934 Act, common carrier obligations to cable modem service. 

The FCC had no authority under the Telecom Act to impose line-sharing, or any other unbundling obligations, on cable companies.  Thus, it is incorrect to state that the FCC "had previously decided not to impose line-sharing requirements on cable Internet service."

Finally, when the FCC unanimously changed the classification of wireline broadband service in 2005 (consistent with its previous classification of cable modem service), the line-sharing UNE was no longer available by operation of law.  However, competitors providing a telecommunications service, such as voice, and DSL service could (and still can) lease the entire local loop as a UNE. 

"[the FCC's line sharing decision] gave customers a choice of broadband providers that today's users might find bizarre. A consumer guide that ran in The Washington Post's Sunday Business section in 2003 featured 18 DSL services available here."  (Post)

Misleading.  Readers will mistake the number of providers in the Post's guide with their competitive effect in the market.  If we look at the FCC's early "broadband" reports, which define "high speed" Internet access service as at least 200kbps downstream (less than 1% of the current FCC definition of broadband), we can see the relative significance of various technologies/competitors in the market.*   
 
Broadband technologies 2000-2005.jpg
The underlying data, which I didn't include in this chart, shows that the CLECs' share of ADSL services in RBOC markets was generally around 5% from December 2000 through December of 2005 (I was unable to find the FCC report with the December 1999 data).  See, e.g., Table 6 of the Report for the data as of 12/31/05.  

However, even this number dramatically overstates the CLECs' importance in the broadband market, as it was evolving.  For example, as of the end of 2005, ADSL's total share (all ILECs + CLECs) of the market for services between 2.5mbps and 10mbps in one direction was only 16%.  See Report at Table 5. Aside from the fact that this "heyday" of "broadband" competition affected very few consumers back then, it's even harder to see how advocates could seriously argue that a return to this era would help any consumers now.
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Future net neutrality advocacy pieces will, no doubt, continue to offer their own versions of the Internet giants' revisionist regulatory history.  But, as they do, they would do well to sticking with subjective interpretations of the "inconvenient truth" instead of simply making up facts that better suit their contrived narratives.  As that great Democratic Senator from NY, Daniel Patrick Moynihan once said: "Everyone is entitled to his own opinion, but not his own facts."


*Comparing CLECs with RBOCs (vs. all ADSL, or all high-speed service providers) offers a more accurate depiction of CLECs' role in the market (than CLECs/ADSL or CLECs/ADSL + Cable Modem)  because: 1) CLECs were concentrated in the urban areas served by the RBOCs, and 2) the RBOCs had to demonstrably to comply w/the FCC's unbundling rules in order to be able to enter the long distance market. 

May 16, 2017 8:16 AM

Oliver's Army

On April 27th, FCC Chairman Ajit Pai delivered a speech, describing the Commission's plan to take another look at the agency's regulatory treatment of Internet service providers.  Pai explained that his concerns with the Commission's current Internet regulatory regime--that monopoly era regulations would stifle broadband growth and service innovations--were shared by every FCC Chairman (Democrat and Republican) since the Telecommunications Act of 1996 was signed into law by President Clinton.   

Furthermore, he noted, it was only after the application of political pressure from the White House that the previous Commission adopted the more draconian "common carrier" designation (under Title II of the Communications Act of 1934), 

And what was the problem that Title II was supposed to address? We were warned that without it, the Internet would suddenly devolve into a digital dystopia of fast lanes and slow lanes....Did these fast lanes and slow lanes exist? No. The truth of the matter is that we decided to abandon successful policies solely because of hypothetical harms and hysterical prophecies of doom. It's almost as if the special interests pushing Title II weren't trying to solve a real problem....

Pai speech, p. 2.

As if on cue, the special interest groups started cranking the hysteria immediately.  A week and a half later, comedian John Oliver from HBO couldn't wait to reprise the bit that made him famous...literally.

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If you missed John Oliver's segment a week ago, the gist of it was "if you disagree with me/the special interests/Internet giants, it's because you are either: 1) stupid, or  2) 'on the payroll' of the [evil] ISPs."  Chairman Pai was targeted, personally, as being both.  Predictably, the FCC's website was promptly shut down by DDOS attacks, the Commission received "comments" in the form of racial/xenophobic insults directed at Pai, and the Chairman/his family were personally threatened ...all courtesy of "Oliver's Army."

Oliver's style of argument--and that of the special interest groups he is aligned with--is known as the ad hominem fallacy, and it is used when a party is unable, or unwilling, to refute the facts, or reasoning of the opposing side.  Thus, those who question, or oppose, this view are referred to as "shills" in sympathetic publications.

The ad hominem argument is not intellectually persuasive, as it necessarily substitutes reason for venom.  However, it can be as invigorating to those who already "believe" in a cause as it is polarizing to society in general.  Perhaps Oliver thinks that since his sneering, "too-smart-for-you" condescension and contempt for anyone who thought differently worked out so well against President Trump, why not use it in every debate?  

This unproductive, and uncivil, style of discourse has infected even normally pragmatic lawmakers in this debate.  For example, in a speech to a net neutrality advocacy group about the FCC's decision to re-examine ISP regulations, Rep. Frank Pallone (D-NJ) concluded,

[i]f you're truly American, and care about the country and its democracy and the Bill of Rights and capitalism and competition, you should be on the side of Net Neutrality.

Pallone Speech at Open Technology Institute of New America Foundation (where half (5/10) of the $1million+ donors are affiliated with Google or Microsoft), see video at 25:47.  Was Pallone--like Oliver--trying to appeal to the worst instincts of the masses, as some have suggested?  I'd like to think no, but when you attack the person and not the argument, there is always the chance that someone will take the attack . . . well, personally.

The Antidote to Sneering Condescension and Vitriol

If anyone took the venom of Oliver's Army personally, it wasn't Chairman Pai.  He has consistently taken all the invective hurled at him (and it's been prodigious) with a sense of humor, a good-natured attempt to diffuse the rancor, and a commitment to listen to any reasoned concerns about net neutrality rules.  A good example is this "Mean Tweets" video he put out on Saturday (5/13). 



Perhaps Pai's good humor and generosity of spirit had some effect.  For whatever reason (perhaps due to a return of some long-lest sense of shame?), this past Sunday John Oliver put out a second, Internet-only, video asking his followers to observe some decency, as well as respect for the law.  Oliver noted, in addition to asking viewers to omit racist/vulgar comments from their invective, that the FCC's "Sunshine Act" rules prohibit advocacy on a matter in the week preceding a Commission vote on that matter. 

*    *     *     *    *

In the second half of the 20th century, the city of Rio de Janeiro was home to a kind of self-described mystic, named José Datrino, but better known as the Prophet Gentileza (Kindness).  Gentileza was convinced that a return to human kindness was the only antidote for the chronic and widespread malaise/unhappiness afflicting modern society.  His most famous quote, which succinctly distilled his message, was "gentileza gera gentileza," meaning "kindness begets kindness."  Initially, of course, some people thought he was crazy, but over time he became a much-loved cultural icon. See, e.g., this video by Marisa Monte.   

Gentileza.jpg

 
The recent presidential election, and the exacerbated social polarization/incivility that have accompanied it, have only confirmed that vitriol and bile only lead to more of the same.  Perhaps there is hope that the tone set by Chairman Pai in the replay of this often-contentious economic debate will be enough to moderate the useless, angry rhetoric between Oliver's army (the Internet platform giants) and the nation's many ISP infrastructure providers.
 


April 3, 2017 12:21 PM

BDS Returns from the Looking-Glass

Last Thursday, the FCC released its Draft Report & Order ("Draft R&O") in the Business Data Services ("BDS") (formerly "Special Access") proceeding.  At first glance, the Commission's Draft R&O does a lot of things right; not least of which is finding the needle of rational, targeted rules in a gigantic 15 year old haystack of a public record.  

As we've explained previously, then-Commissioner Pai's characterization of the previous Commission's "analysis" in its Tariff Investigations Order/FNPRM in this proceeding as "a trip through the looking-glass" was not wrong.  In the Lewis Carroll story, Alice escapes from the looking-glass world by imposing rationality (she grabs and shakes the Red Queen--who she blames for all the chaos of the day--which then places the Red King in "checkmate," thus ending her dream by ending the metaphorical "game").  See Wikipedia summary

Similarly, Chairman Pai returns the FCC's BDS proceeding to reality by seizing control of a chaotic record and wringing some logic out of the multiplicity of data in the Commission's possession (compiled at great cost to both BDS providers and the Commission).  Pai, thereby, places the previous Commission's focus on the preferred outcomes of specific parties in "checkmate," and returns the proceeding to reality. But, what does this mean?

Return to Procedural Integrity/Reliance on Public Record

While many are aware of Adam Smith's observation that, "[p]eople of the same trade seldom meet together . . . but the conversation ends in a conspiracy against the public," few are aware of how the paragraph ends:

But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
Wealth of Nations, Book I, Ch. 10, Para. 82 (emphasis added). Chairman Tom Wheeler's FCC was arrogantly dismissive of both Smith's initial concern--that competitors' collaborations might harm the public--as well as Smith's admonition that the "law" should not promote, much less condone, such assemblies between competitors.

Thus, Wheeler supported adopting a negotiated proposal between two self-interested parties that would have imposed across-the-board, nationwide price regulation on any service below 50Mbps.  Worse still, as we noted then, the Wheeler FCC was actively manipulating procedural rules in order to foreclose public comment (that the Commission's own evidence did not support this privately negotiated outcome).  By contrast, the current Commission's Draft R&O focuses entirely on the record evidence and getting its analysis correct.  

Eliminates Barriers to 5G Backhaul Investment

The FCC, on its 5G page, acknowledges that the many benefits of the projected speed/capacity advances (10X-100X LTE) of 5G are critically dependent on massive fiber investment to provide backhaul to the many more small cell sites that this technology requires.  Even former FCC Chairman, Tom Wheeler, acknowledged the necessity of increased fiber backhaul in this June 2016 speech. See p.6.

Wheeler, however, was prepared to disregard the consensus view of economists that governmental price controls generally have the paradoxical effect of reducing both the quality, and availability, of the product/service subject to price controls. See, e.g., experience w/rent control policies.  Instead, Wheeler embraced the idea (of interested parties) that the FCC should set price limits on all services below a certain threshold.  

This Multichannel News article from 9 months ago, notes that 50Mbps was considered "table stakes" and likely would have ultimately included even higher capacity services.  At this time, speculation about a radical change in regulatory policy was rampant, and it is almost certain that some plans for additional fiber investment were put on hold.

We can see further evidence of the chilling effect of previous threats of price regulation in the FCC's tentative decision (in its Draft R&O) to affirmatively classify certain new competitive services (Ethernet over legacy cable facilities) as "private carriage."  In doing so, the FCC rejects the previous Commission's desire to classify--as a predicate to expanded price regulation--all BDS services as common carrier telecommunications services.  See Draft R&O, paras 253-273. This classification allows these new entrants to participate in the provision of fiber transport/wireless backhaul without being subject to legacy common carrier regulations, like the obligation to serve all customers on similar terms.    

Rationally Protecting Consumers

The measure of good economic regulation is that it works to limit market power where competition does not yet exist.  In 2002, AT&T (the CLEC) filed its Petition for Rulemaking because, after only two years, the Commission's 1999 Pricing Flexibility Order allowed widespread deregulation (throughout the entire MSA) on the thinnest of theoretical evidence ("collocation" in a small number of ILEC central offices.)

In the Draft R&O, the FCC fixes this problem in two critical ways.  First, it reduces the size of the geographic market over which deregulation is granted.  On average, the Commission shows that an MSA is about 7X larger than the county-wide market that the FCC proposes.  

Second, the FCC demands real-world proof that effective competition exists in the county, before granting deregulation.  At least 50% of the locations in the county that use BDS must be within a half mile of a competitive network, or at least 75% of the census blocks in the county must be served by mass-market cable broadband service.  

The Commission estimates that, under present market conditions, most of the 3,100 counties in its initial market test computation (about 63%) will be considered "competitive," and deregulated entirely.  See Draft R&O, para 146.  Customers still in "non-competitive" counties, however, will now be even better protected by regulation, because the FCC re-imposed the dormant-since-2003 "productivity factor," which allows customers to benefit (in the form of lower rates) from expected ILEC cost declines. See Draft R&O, paras 190-248.

All Things Considered . . .

Chairman Pai deserves a lot of credit for coming close to the ideal of intelligent regulation: rules that are applied on a granular basis where needed, and eliminated entirely in those product/geographic markets where competition is sufficient to provide a superior result than regulation.  Not everyone will like the FCC's approach, but, it efficiently solves the problem identified by AT&T in 2002--and late is better than never.