November 19, 2009 2:31 PM

Net Neutrality NPRM--Through the Looking Glass (Pt. 1)

"Contrariwise," continued Tweedledee, "if it was so, it might be; and if it were so, it
would be; but as it isn't, it ain't. That's logic."

As I mentioned in the first Net Neutrality post, I'm going to discuss some faulty premises in the NPRM and the contradictory results we can anticipate from the proposed rules, before we get to the suggestions on how the FCC could actually make their supposed premise work.  The first few will be a little hard on the Commission.  

Why?  Because I have to be . . . the Chairman ignored my first "rule" for living up to his potential!  He "got played" and went for the "next big thing" right out of the box, rather than prioritizing policies that have slid to dangerous levels of neglect--in other words, going to the place that smart, Ivy-league guys go to find out they're not that special.  I'm sorry, Mr. Chairman, but sometimes you've got to be cruel to be kind.  Here's a little more in-depth discussion of an internal contradiction in the NPRM that was discussed in the previous post.  

NPRM:  The NPRM "builds" on the FCC's 2005 Internet Policy Statement, but the proposed rules are only intended to "address user's ability to access the Internet."  ΒΆΒΆ 14, 5-6 (emphasis in original)

Fact:  The Commission's 2005 Internet Policy Statement asserts "that the Commission has
jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner." [emphasis added]                                                                                                       

Unintended Consequence:  As mentioned in the last post, the Commission has moved from the original, consumer-oriented, principles it established in 2005.  Instead, the new rules, by distinguishing between providers of IP-enabled services on the Internet, have created a set of obligations from one group of businesses to another group of businesses, and, in doing so, placed the Commission's judgment above the choices of consumers.  

Among the companies newly "off the hook" from the 2005 Internet Policy Statement are firms like Google, that own plenty of network--just not last mile broadband--and that can offer "free" applications to "manage" and generate telecommunications.  These services are not regulated, but yet are inserted between PSTN to PSTN calls, allowing their CLEC partner(s) to collect access charges where none would otherwise be due.  Other companies newly freed from the obligation to enhance consumer welfare simply provide "free" telecommunications-centric applications as pervasive as VoIP.  How providers of free IP-enabled services pay for these services is a subject that is not explained in the NPRM, but we can guess, for at least some of the companies.
Let's take the "call management in the middle" service, to see who pays for "free" (hint: it's the same party that pays for "free" conference calls).  In a "typical" call that is generated from a landline phone and ultimately terminated to a distant wireless phone, the calling party's IXC would normally pay some tandem switching fees to the LEC with which the wireless firm uses for interconnection, but would pay no "access" to the wireless carrier to terminate the wireless call.

On the other hand, for a call to a number used by a "free" "call manager", the calling party dials a special 1+ number to the call management "platform" served by the CLEC partner of the applications provider, who then charges the calling party's IXC for terminating access--this is the "first leg" of the call.  The second leg generates phone calls to several other phone numbers of the called party's choosing.  Whether the telecommunications "partner" of the IP-enabled services provider pays access, or how much access, depends on which phone is answered.  As long as the amount of terminating access the telecommunications partner (of the applications provider) pays to terminate the second leg of the call is less than the access collected from receiving the first leg of the call, the telecommunications partner of the applications provider is guaranteed to make a profit.  As long as the applications provider (the call manager) is free to block calls to unprofitable, or otherwise undesirable, call destinations, then profitability is ensured.  

Absurd Result:  

USF Reform:  The "call manager" service is "free", and so contributes nothing to the universal service fund.  The contribution factor floats higher every quarter--reportedly rising to 14% of an estimated annualized $8 billion for next year.  On an annualized basis, this is $1.1 billion, or about 30% more than the total amount of the Low Income Fund.  Who pays this increased contribution factor?  Consumers of switched interstate telecommunications services pay for the universal service fund.  Ironically, the people who pay are not the people that have corporate chefs to cook "free" gourmet meals for them every day.  No, the people who pay are the poor, the rural, and the technologically illiterate--the very people who don't have, can't afford, or don't know how to use broadband today.  Moreover, in an extreme turn of irony, the very customers Congress has tasked the FCC to develop a plan to serve with broadband, are the very customers who will continue to pay more and more every quarter to ensure that existing broadband customers continue to avail themselves of more and more innovative, "free" apps instead of traditional telecom services--increasing the gulf between broadband "haves" and "have nots" every quarter.

Intercarrier Compensation Reform:  As we noted, the leading "call manager" and its CLEC partner are able to charge access where none would exist, and to actually block calls to providers they don't like.  Fortunately, for now, despite this awesome power, Google is bound to only block calls to "evil" called party numbers.  Eventually, though, less ethically governed companies will enter this market, and these companies will only seek profits and will block calls, or simply pay--if anything--a lower access rate to terminate the second leg of the call than it charges to terminate the first leg of the call.

In contrast, the disfavored users of telecommunications on the Internet--the broadband access providers--cannot "block" calls from their subscribers to any point on the PSTN.  Broadband Internet access providers and the lesser "telecommunications service providers" have to connect all calls, and then dispute, and perhaps settle, billing disagreements.   Adding insult to injury, until the Commission classifies VoIP for regulatory purposes, these carriers will not even know what they will owe on disputed calls.

So, to be clear, the Commission--by treating some companies that use telecommunications to provide IP-enabled services differently than other companies that use telecommunications to provide Internet access--has relinquished its responsibility to reform intercarrier compensation and ceded that authority to the "pure" apps providers, who can unilaterally effect the intercarrier compensation reform that the FCC has been so reluctant to undertake, simply by maintaining their own secret "blacklists" of numbers they don't want to serve.  

The Irony of Ironies:  The Commission likes to boast that it quickly prevented a small ILEC from "blocking" VoIP traffic, which is easy enough to do when the regulator remains the regulator of the offending firm.  How else can Google Voice imperiously dictate to the Commission who on the PSTN it will block calls to through its "call manager" application?  Google has no fear of the FCC ordering interconnection (as it can order common carriers to interconnect), because it is sure that the FCC either will not or cannot regulate its applications any more than the Commission can regulate "cloud computing" applications.  In short, providing regulatory benefits to competitors on the Internet cedes the role of regulator to the unregulated firms with the most market power.

If only Beehive had had the foresight to obtain a business method patent. It could be "Google Voice - Powered by Beehive".

Franklin Zappa | November 20, 2009 12:13 PM | Reply

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