January 4, 2010 8:17 PM

Net Neutrality: What's So Funny . . .

As I walk through
This wicked world
Searchin' for light in the darkness of insanity.

I ask myself
Is all hope lost?
Is there only pain and hatred, and misery?

And each time I feel like this inside,
There's one thing I wanna know:
What's so funny 'bout peace love & understanding?
  --Elvis Costello

It's a new year, and I wanted to start on a positive note.  While this (unfortunately) won't be my last post on Net Neutrality, it is the last in the series of posts about the Net Neutrality NPRM that I outlined in the first paragraph of my first Net Neutrality post back on November 19, 2009.  

If you read enough of the advocacy pieces from the opposing sides of the Net Neutrality debate, it's tempting to think that this is some kind of religious war that offers no hope for anything but "pain and hatred, and misery."  On the other hand, if you step back for a minute and just look at what the Commission claims it wants to achieve, as a policy matter in the NPRM (at ΒΆ 10), it doesn't seem that impossible:

we seek to . . . identify the best means to achieve our goal of preserving and promoting the open Internet. We seek to do so in a manner that will protect the legitimate needs of consumers, broadband service providers, entrepreneurs, investors, and businesses of all sizes that make use of the Internet.
If you want to take it a step further, you might just think, "what's so funny 'bout peace, love, and understanding?"  Although I've pointed out that the substantive part of the NPRM, and the proposed rules it's designed to justify, doesn't show a lot of understanding, I didn't go quite so far as to call it the "darkness of insanity."  But, so what if the NPRM wasn't perfectly on point?  Isn't a greater understanding by the Commission exactly what "Notice and Comment" proceedings are supposed to promote?  The same Commission that wrote the terribly uniformed NPRM, might be a significantly more educated Commission after Comments, Replies, presentations, hearings, and whatever else the FCC has in store for the development of this proceeding.

Let's stay optimistic, and keep on the "peace, love, and understanding" theme.  The FCC's stated goal of preserving and promoting the open Internet--that exists now--and accomplishing the goal with a minimum amount of artificial disruption in the way current and future Internet stakeholders use the Internet is laudable.  Fortunately, the Commission's goal can be accomplished with much more minor, and less complicated, rules than those it initially proposed.  Please note, though, that, in order to be effective, these rules would have to apply to every service provider that contributes to the customer's Internet experience.  Let's look at some alternatives.

1)  No Blocking of Any Lawful Content. This rule is as clear as it seems.  Wherever a firm is in the Internet ecosystem--Internet backbone transmission provider, applications service provider, or broadband ISP--no firm should be allowed to block traffic delivery to any requested point on the Net or the PSTN.  This rule ensures that unfair practices are not born unfairly by consumers, and the firms in the position to notice unfair practices can bring these to the Commission's attention for quick and discrete resolution.  Alternatively, if Commission fails to Act, firms have redress with the courts.  A "no blocking" rule limits the potential for exclusionary discrimination.

2)  No Tariffs.  This is the telecom equivalent of the first rule (which would be directed at "information service" providers).  The fact is that a lot of Internet services, including broadband Internet access services, are still provided as "telecommunications services" subject to Title II of the Act.  Telecom carriers are generally allowed to permissively file tariffs for certain services, such as termination.  A "tariff" is a regulatory vehicle that replaces individual contracts with a legal obligation to pay a regulated rate for a specific service.  To date, I'm not aware of any broadband Internet access provider that has attempted to file a tariff to charge backbone providers to terminate traffic to its customers.  On the other hand, I'm not aware that the Commission has definitively foreclosed this possibility.  

The downside of a tariff is that it, conceivably, could be used to facilitate the fear of "last mile extortion" that the Commission expresses--where a content provider is effectively "taxed" by the broadband ISP if it wants its content displayed correctly.  Tariffs can certainly create difficulties that might not otherwise exist.

Consider the Commission's regulation of termination by competitive local exchange carriers ("CLECs") vs. wireless carriers.  The Commission allowed CLECs to "permissively" tariff their terminating access services; and most chose to do so--at rates that were frequently well above the regulated incumbent LEC rate.  This arrangement continues to feed disputes between carriers.  Conversely, the Commission chose to forbid wireless carriers from filing tariffs, and only allowed wireless carriers to charge termination fees to carriers with which the wireless terminating carrier has a contractual relationship.  Wireless traffic continues to grow, unencumbered by disputes over termination to wireless devices, and does not seem to have suffered from the lack of tariffs.

Today, Internet traffic follows the "contract" model vs. the "tariff" model, and a single Internet data query might travel over the facilities of multiple providers before ultimate delivery to the broadband subscriber.  It seems unlikely that an Internet backbone provider would contract to offer transmission service to a broadband Internet access provider that would require it to collect tariff charges all the way up the chain--from either the content provider, or the content provider's Internet backbone provider.  Nonetheless, a rule preventing tariffs for broadband services would make exclusionary tactics illegal, as well as unlikely.  In short, this rule eliminates the broadband ISP's ability to translate the "terminating monopoly" problem that exists in the PSTN world into the Internet world.

3)  Full Disclosure.  Without tariffs, the Internet does (and must) rely on a very complex series of contract relationships, ultimately connecting all market participants.  Nonetheless, while contracts are the way of life on the Internet, it would be foolish to assume that they are always reached between purchasers and sellers with equal bargaining power.  Thus, to establish the proper conditions for consumers, applications innovators, and infrastructure providers to exploit the Internet's full potential to promote competition, entry, and innovation on every level, then purchasers--of all Internet services (not only broadband Internet access, but also content delivery, hosting, and peering, among others)--must be guaranteed full disclosure of the relevant terms for all services being purchased. 

Consumers cannot play the pivotal role they must, in order to ensure that markets function in a manner that promote competition and advance consumer choice, unless consumers have access to clear, understandable, and accurate information about the services they seek to purchase.  Similarly, competition cannot exist if consumers cannot comparison shop, and consumers cannot make informed comparisons between service providers without full disclosure.  

In short, general rules adapt better to changing supply technologies, services and consumer demands, and they allow the Internet to not only remain "open" but to evolve in order to continue to provide more and more value to consumers.  These limited, and relatively unobtrusive, rules present a solution that reconciles the concerns of consumers with the practical constraints within which all Internet firms must operate.  So, "what's so funny 'bout peace, love, and understanding?"

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