February 20, 2014 2:38 PM
I was hoping that the Chairman would resist the temptation to open a new net neutrality rulemaking after last month's D.C. Circuit decision
overturning most of the FCC's 2010 Open Internet Rules--but he didn't
. The Open Internet Rules
were unnecessary when they were adopted, but more importantly, they were a waste of a significant part of Chairman Genachowski's tenure.
The FCC already has to deal with the devilishly-complex, two stage spectrum incentive auction/reverse-auction
. Similarly, the Commission is already lagging the market in considering what regulatory modifications may be appropriate for consumers in an "all-IP
" world. The Commission is also likely to spend considerable time and resources reviewing the proposed Comcast-Time Warner Cable merger
If the FCC really thought about whether net neutrality rules are even useful, much less necessary, it would quickly conclude that the "terminating access" theory (underpinning the arguments of net neutrality advocates) should probably be left back in the MFJ--where it came from. Making rules to thwart hypothetical problems is--at best--a distracting waste of time. But, when the putative rules will affect services that don't presently exist, the danger of real harm becomes much more likely.
Why are net neutrality rules unnecessary, and even potentially harmful to the productivity of the Internet?
. The Internet did not become "open" by accident. With the possible exception of P2P traffic
, almost every form of traffic carried on the Internet is delivered pursuant to a contract that specifies a guaranteed level of carriage.
Think about it. Websites use a type of "ISP" called a web host, usually a data center connected to multiple backbone providers. If the website will be serving up a lot of traffic to its customers, the website will frequently use a "content delivery network" (CDN
) to ensure that it's traffic is delivered in the fastest manner possible. Many large Internet backbones (like AT&T
, Level 3
, and Verizon
) also provide CDN services.
In fact, most large ISPs also provide significant services (hosting, Internet backbone, CDN, and "cloud services" for large enterprise customers) which depend on the assumption that the consumer's ISP will carry the tendered traffic in a non-discriminatory manner. Any act of website-specific discrimination by an ISP could easily be detected, will likely put that ISP in violation of its peering contracts, and will invite an avalanche of against the offending ISP.
The bottom line is that--even if an ISP had the ability and the short-term economic incentive to discriminate against another carrier's Internet traffic--the consequences of the discrimination are neither predictable nor quantifiable. If economics is to be believed, the ISPs are extracting all the revenue the market will bear--further price increases would only reduce profits.
2) The Success of the Internet of Things Might Depend On Discrimination
. Many were surprised when Google paid $3.2 billion last month to acquire
smart thermostat company Nest Labs, but this type of service is a critical part of the "Internet of Things." An energy utility could realize significant benefits by receiving real-time consumption data from households. If the energy company could anticipate, and alleviate, peak period demand spikes--perhaps by remotely adjusting appliance demand for those customers willing to participate--the company could reduce its costs for expensive peak capacity.
The value of telemetry depends on the utility getting timely information from a significant number of households, but no one wants to pay for their air conditioner's bandwidth. However, your appliances--and the energy provider--can tolerate data service that is too slow or jittery to support a latency-sensitive application (like VoIP). So, if the bandwidth for appliances was cheap enough, there are probably many "win-win" applications that someone other than the Internet subscriber would be willing to subsidize.
Likewise, those big software updates
and gaming patches
could be delivered in a way that is cheaper for both the ISP and the consumer, if the provider or the consumer were offered a time of day/de-prioritization option. Discrimination isn't bad if it's just an option. But it's an option that "rules" tend to discourage, if not foreclose.
3) The Consumer Can Always Evade Discrimination
. According to Sandvine's data for both the first
half of 2013, one of the most significant Internet traffic trends over the last year (for fixed and mobile North American networks) has been the growth of "tunneling" traffic. Tunneling
refers to customers using VPNs
to obscure their content when accessing the Internet.
The VPN encrypts the customer's traffic and routes it to a server which assigns a random, or sometimes shared, IP address. Thus, all of the customer's Internet traffic originates/terminates through an "anonymous" IP address at a server remote from the customer's home computer. To the ISP, it simply looks like the customer is sending and receiving a lot of non-destination-specific traffic to a smaller number of IP addresses.
Prior to concerns over privacy, tunneling was most frequently used by consumers for online banking, and employees working from home to access their company's networks. Whether tunneling will protect your information from the government is unclear, but the existence (and forecasted) growth in tunneling traffic will serve to protect you from hypothetical fears of discrimination by your ISP--even if P2P is your thing. So Why Are New Rules Needed?
If the content providers are protected by contracts, consumers can protect their traffic from ISP inspection through encrypted VPN tunnels, and new consumer benefits can be realized from efficient, permissive discrimination, then it wouldn't seem that there's a whole lot to be gained from a proceeding to add to the remaining disclosure rule. Given the immense opportunity costs of diluting agency focus at this moment, let's hope the chimerical fears of a few do not capture the public's scarce regulatory resources. The FCC can best protect the Internet by focusing on the IP transition and bringing more wireless spectrum to market.
January 15, 2010 1:08 AM
I couldn't come up with a catchy title, but, before we get totally fixated on Net Neutrality for a big news cycle, I really wanted to draw attention to a very thoughtful, very comprehensive, broadband policy post, entitled "A Sensible Broadband Policy
" written by the CEO of a competitive fiber provider--Dave Rusin
, CEO of American Fiber Systems
("AFS"). Dave writes the blog TelecomStraightShooter
that is linked to on the right hand side of my home page. Obviously, if you read this post--and you should--you'll see that I'm mentioning it because parts of it sound a lot like some of the things I've said.
While the post is titled "a sensible broadband policy", that's a little misleading, because the description "broadband policy" is a lot broader than it sounds. If you want to face the facts--as Dave does--"broadband policy" means the FCC's telecom agenda; and that is not an understatement.
I don't agree with all of Dave's policy prescriptions, and some would probably need the law to change in order to be implemented, even if they are good ideas. On the other hand, other ideas probably seem like good regulations for "other guys." But, hey, show me a market participant in an FCC policy proceeding that hasn't advocated regulating someone else's rates to lower their own costs, or stimulate demand for their own product, and I'll show you my untouched Yeti/Loch Ness Monster/UFO photo collection. Self-interest is not a sin, among FCC commenters, which is why I sincerely believe Dave Rusin's ideas should get as much "air time" as any inside-the-beltway "policy wonk", or "academic expert" (is that an oxymoron?). Why?
Well, for starters, AFS is based in Rochester, NY--that's where the whole competitive telecom experiment started. Another factor in Dave's favor is that he's obviously seen both sides of the various telecom skirmishes over the years, but, as a wholesale transmission guy, he doesn't have a dog in a lot of the fights, but he does understand the issues really well. Finally, he's got to live under his own rules, sleep in his own bed, eat what he cooks . . . the metaphors just don't stop.
But, before I canonize Dave, keep in mind that--as I said before--like an executive with any other carrier, they sometimes equate (conflate?) their self-interest
with the public interest
. On the other hand, the self-interest of a wholesale carrier on the subject of broadband is interesting, because of their overriding incentive to stimulate output and fill the pipes. That said, the reader must also keep in mind that these insights are not from a telecom regulatory attorney, so they are a little "raw" (e.g
., the FCC had four
, not five, original net neutrality principles), and some of the USF reform ideas need a little work, but, this is being too picky.
It isn't often that a carrier without attorneys and/or lobbyists on staff (or on retainer) even bothers to offer thoughtful, comprehensive policy ideas, and we don't listen enough to these parties. This post, "raw" as it is, is also--from a policy perspective--broader, and more thoughtful, than most that I've seen from telecom executives on the operating side. To be clear, I don't endorse all parts of it, but I don't think it should be ignored either.
November 24, 2009 5:17 PM
Here, we continue to explore the flawed premises, faulty reasoning (resulting from those premises), and the unintended (and frequently ironic) consequences of the proposed rules that result from this combination of either no "data", or unsupported assumptions disguised as facts. Regardless of how unsupported, though, the Commission clearly believes. Indeed, the Commission's certainty about these "facts" can be established by the lack of questions that go to central pieces of the Commission's theory. One can only hope that, at least, Commissioner Copps will stick with the principle he so eloquently articulated a little over 5 years ago, "[w]ith the international economy increasingly dependent on broadband facilities, faith-based approaches to advanced telecommunications are insufficient."
NPRM: Unsupported assertions regarding the incentives and ability of broadband service providers to use alleged market power in the broadband Internet access market to extract supracompetitive prices in less competitive retail markets. Alternatively, the Commission makes equally unsupported speculations regarding the incentives for vertically integrated broadband service providers to unfairly disadvantage firms in adjacent markets, such as the market for content delivery networks. See ¶¶ 7-9, 104-106.
Fact: First, neither theory is supported by facts, or even theoretical citations that fit the facts in a way that would support the rules the Commission wishes to impose on the broadband service providers. The reason is not that there is no set of facts upon which a firm would have the incentive and ability to act in an anticompetitive manner. To the contrary, these are well-established single-firm theories of competitive harm; the logic underpinning the theories breaks down when you have multiple firms or the inability to practice location-specific price discrimination.
The facts aren't here, because there is no evidence that any particular broadband Internet access providers: 1) have widespread market power vis-à-vis their retail customers, or potential wholesale competitors, 2) can use that market power, if it does exist, to practice price discrimination on a geographic market basis (for example, if one broadband provider faces no competition in a few small towns but offers and prices its service throughout a much larger territory, consumers of broadband Internet access services are not disadvantaged), 3) will maintain market power in the face of continued 4G expansion by incumbent wireless carriers and the new national wireless broadband provider, Clearwire, or 4) will unfairly disadvantage competitors in adjacent business or wholesale markets, because, to do so, a firm must have market power in both vertical markets--the input market and the retail market.
Continue reading Net Neutrality: Through the Looking Glass Pt.2
October 13, 2009 3:41 PM
Well . . . not really, at least not quite yet, but this is where the Commission is heading--whether they know it, or like it, or not. If the FCC does know where they're heading (and I don't think they do), they can't be too thrilled, because they also don't know how to make it stop. Wait, what am I talking about?
Last Friday, October 9th, on the Friday afternoon before the Columbus Day weekend, the Commission's Wireline Competition Bureau sent a letter to Google, asking some questions about the Google Voice service. The questions aren't that tough for Google to "slip", in the sense that the questions won't get the "real" story out--the most we could probably learn is that Google itself just might receive ultra-low priced, even "free", inputs from its carrier partner(s), and Google might have some deniability about knowing how their "free" service is paid for. But the answers should give the Commission some clues to pursue the whole story--which they won't get until they send out questions to Google's carrier partner(s), and the FCC does ask Google to identify its carrier partner(s) in the last question.
Notably, the Google letter is found on the Wireline Competition Bureau's home page, and not the FCC's main home page. However, with no apparent sense of awareness, or irony, the entire FCC voted an Order and Notice of Proposed Rulemaking on the very same date (that was on the main home page) designed to agree with a coalition of smaller LECs seeking to "amend [the Commission's] rules to permit an incumbent LEC ETC with declining numbers of access lines to use a higher DEM weighting factor in performing jurisdictional separations and calculating LSS. We believe that public policy supports doing so." (See paragraph 13, citations omitted). Effectively, the FCC has recognized that the number of companies actually paying access is declining, and decided that the best solution is to raise rates for the few companies that actually own up to providing a telecommunications service. Why does this matter?
In August when the FCC sent its original letters to Apple, AT&T, and Google, I really didn't think the letters could possibly turn out well for Google. I also noted that I preferred to think the purpose of the letters were for the FCC to "declare Google Voice to be a wireless information service, and then apply this definition to the wired broadband network in solving the classification of VoIP to eliminate this nasty obstacle to the creation of the national broadband plan." I've since become skeptical that this Commission has any appetite--or understanding of the necessity--for reforming intercarrier compensation (and universal service) before undertaking any discretionary projects. I don't think the FCC wants to classify VoIP service at all, but at this point, it just seems that circumstances won't allow this luxury.
I recently noted, that Traffic Pumping and "Magic-Jacking"© cannot continue to exist, while the number of "access paying" telecommunications carriers dwindles. Yeah, that's right, I'm copyrighting the term "magic-jacking" to refer to the practice of an "over-the-top" VoIP provider (i.e., no LEC facilities) "stimulating" terminating and originating 8YY "access" revenues (for which the switchless VoIP provider appears to have no right to charge) by offering a "free" two-legged calling service in which the first "leg" goes to a mechanical relay point--usually in a higher-than-RBOC interstate location. Meanwhile, the "magic-jacker" blocks termination to locations where termination costs are greater than the "terminating" access being charged to the IXC for "completing" the call to the relay point. Google Voice, Magic Jack, and Skype are all prominent examples of alleged "magic-jackers." SpeakEasy has recently declared that it is joining their ranks.
Continue reading FCC Last Friday: "Someone's $0.00 Has Got to Go(?)!"
August 28, 2009 11:45 AM
Meanwhile, . . . back at the ranch . . . given the potential for inter-governmental "enforcement competition", it is helpful to look at what the FCC's existing longitudinal data sets are showing regarding the performance of markets that, unlike the wireless applications market, are firmly under the jurisdiction of the Commission. Does the FCC have information that could lead a "fact-driven" agency competitor (like the Antitrust Division or the FTC) to believe that the Commission has any "infra-marginal" markets that might look like good "acquisition targets?"
The following slide was presented by the Media Bureau to the FCC at the Commission's first open meeting at the beginning of this year. This slide graphically illustrates the price performance of several different communications services from 1995 through 2008 vs. the Consumer Price Index ("CPI"). In the relevant time period, the CPI for all products and services (including food and energy) increased by about 38%. During this period, the price of most major communications services--including mobile wireless service--declined in absolute terms, not just relative to the CPI. Every service, that is, except cable television service--which increased by about three times the rate of inflation (122% vs. 38% for the CPI). The Commission attributed this poor performance to a lack of competition in the market for subscription TV services. Below is "Slide 5" of the Media Bureau's presentation on January 15th
, and was based on data presented in the Commission's Report on Cable Industry Prices ("Cable Price Report")
, which was released on the following day.
So, could the FTC and/or the Antitrust Division sense an opportunity to expand their own jurisdiction? Well, since the FCC's wireless focus seems to be on vertical integration between handset providers, wireless data applications providers (or at least one provider), and wireless service providers, does the Commission's cable data tell us anything about the effect that vertical integration (with set-top box providers and programmers) has had on the relative poor performance of cable prices? As a matter of fact, the Commission's data does shed some light on the degree to which vertical integration is responsible for the poor performance of the cable market.
Continue reading A Funny Thing Happened . . . Part 2
August 27, 2009 6:16 PM
Apropos of almost nothing, I always liked that old joke that "I was on my way to a fight and a hockey game broke out." After watching the FCC open meeting this morning, it struck me that as the FCC launches three Notices of Inquiry ("NOIs") into the "wireless [smart phone] universe"--investment and innovation [mainly spectrum management, availability, and interference issues], the Commission's annual wireless competition report to Congress, and consumer benefits [information available to consumers in choosing services]--competition might just break out between government agencies with overlapping jurisdiction. It is worth noting that at today's Commission meeting, with respect to the Innovation and Investment NOI, and the Competition Report NOI, both Commissioners McDowell and Baker--while supporting the effort to obtain more knowledge about the broader wireless market--were skeptical of the Commission's jurisdiction in some areas of the NOIs. They might be onto something; especially when looking at an expansive view of the entire industry that is responsible for bringing a smart phone, and its functionalities, to market.
A cynic (but not me), might even say that the Commission appears to be engaging in a little "competition" vis-à-vis other government competition enforcement agencies (like the Federal Trade Commission or the Antitrust Division of the Department of Justice), and attempting to expand its jurisdiction into the wireless applications market. Some might say this "focus" is significantly, but not entirely, rooted in on one recent episode involving some of the country's largest companies in their respective markets, whatever those markets are and however they are defined. But, as noted, the FCC is not the only agency--or even the traditionally primary agency--likely to take action against anticompetitive practices in the communications industries; the DoJ and the FTC can also take action, and have done so in the past.
Here's something else: in Chairman Genachowski's statement on the NOI regarding an expanded Wireless Competition Report, he says "[the] transition [from mobile voice to mobile Internet] promises to increase the pace of innovation and investment, but only if we have an open and competitive marketplace that gives every great idea a chance to make its way to consumers so that the best products or services win." This statement itself contains nothing to quarrel with, as this is the way competitive markets do work . . . eventually, anyway. Indeed, most companies get product/service ideas, inputs, and other components from a variety of wholesale sources and independent inventors/industrial designers. Whether the best ideas even get to market, much less win, is a riskier proposition because we can only really know in hindsight what those ideas are.
It might be persnickety, but the slight concern with this statement, is that in a competitive market, the competitors get to decide which ideas are "great", even if they are dead wrong on ones they back and the ones they fail to support. These great blunders by the "best and brightest" have become proverbs in the corporate world.
Xerox's Palo Alto Research Center ("PARC") is perhaps most known for letting great ideas walk out the door. These ideas, and the employees that left to pursue them, produced many successful companies, including 3Com, Adobe, and Apple. Hopefully, the Commission is not considering substituting its bad judgment for the bad judgment of the market participants. Bad judgments by companies breed opportunity for rivals and third parties, and punish bad managers, and the shareholders that employ them. This is good, and it is hard to see how inserting the regulator's bad judgment for that of a market participant--in a market that all agree is competitive--will lead to any consumer benefits.
Moreover, given the Commission's limited discretionary resources right now (the National Broadband Plan is due to Congress in six months), does it make sense to focus on a market that is, by all-Commissioner's account and the Commission's own data, a success story? Or are there areas within the Commission's jurisdiction that might offer a little more bang for the buck?
May 2, 2009 12:12 AM
Now there are two . . . FCC nominees by President Obama. Earlier this week, President Obama announced the most recent Democratic FCC Commissioner, South Carolina Public Service Commission veteran Mignon Clyburn. Commissioner Clyburn seems like another candidate with excellent experience--more than 10 years on the South Carolina PSC--and the practical knowledge of regulation [and its limits] to profoundly advance the public interest [if she's smart enough to help Chairman-to-be Genachowski stick with the "simple, but tough" regulatory priorities outlined by TeleComSense]. I wish her well, and I know she'll make the President look good, if she sticks to the hard work--the work that hasn't been done, but that needs to be done. I'm talking about the work that the FCC has been tasked with by the law for the last 13 years--because of a reluctance to take on politically-contentious issues by the Commission.
While I can't really vouch for Commissioner Clyburn, because I have mostly worked on federal (vs. state) issues, I am a little annoyed at the many stories that suggest she is just another beneficiary of nepotism. You can't read a story about Commissioner Clyburn that doesn't note that her father is the House Majority Whip, Congressman James Clyburn. [I don't recall as many critical stories about Michael Powell being appointed to FCC Chairman in 2001, with not nearly as much experience as a regulator, right after President Bush appointed his father to be Secretary of State.] I do have to ask, though, why do we know (as many critics seem to) that President Obama's choice of Ms. Clyburn is dangerous to the American public?
Continue reading TeleComSense Congratulates Mignon Clyburn On Her FCC Nomination!
March 19, 2009 7:26 PM
OK, in the previous post, I said I had an idea of some simple steps, and a simple agenda that could put FCC Chair Nominee Julius Genachowski on the path to being a great FCC Chairman. First, though, I noted that you have to go in knowing what you want to get out, and to resist the temptations to "go big or go home" on some issue that just arrives on your doorstep. In other words, minimize distractions and stay focused. So, if you want to be a Kodiak, here's the whole game plan: make your imprint on the agency with your management style and procedures, focus on a couple really hard things (this will also keep the dilettantes out of your hair), and either ignore the noise, or let it take care of itself.
Continue reading Julius Genachowski: Congratulations! If You're Going To Be A Bear, Be A Kodiak! (Pt. 2 of 2)
March 19, 2009 6:53 PM
OK, OK, I'm a little late on the bandwagon-jumping to congratulate Julius Genachowski. Business Week seemed to know in January that President Obama had selected Mr. Genechowski as the next FCC Chairman. The other FCC Commissioners issued their statements on the day Mr. Genachowski was nominated, March 3rd; but hey, it isn't official until the last person finds out--and that's usually me. So, Congratulations! Mr. Chairman-to-be (is that even a term?)!
For those who don't know, President Obama's nominee for FCC Chairman has an incredibly impressive resume. Future-Chairman Genachowski is clearly an expert on telecom law (Supreme Court clerk and high ranking legal advisor to former Chairman Reed Hundt), plus, he understands the business side of a lot of telecom-related companies (venture investor and senior advisor to Barry Diller of Interactive Corp), and he can walk the walk. Anyone that can demonstrate that they are capable enough to make an impression on a lot of really impressive people (former Chairman Hundt, media mogul Barry Diller, and, of course, President Obama) is obviously the real thing. Enough said.
Notwithstanding Mr. Genachowski's superlative credentials, I think having a blog compels me to act like kind of like my friend from Brooklyn, who whenever we were watching a James Bond movie on TV, would feel compelled to tell everyone what HE would do in James Bond's situation (e.g., "if dis was me heeya, and da helicoptas was shooting at me, I would just roll back the moon roof in my Monte and start whackin' guys"). So, Mr. Chairman-to-be, I'm gonna tell you what I would do if dis was me.
Continue reading Congratulations, Julius Genachowski! And now for some unsolicited advice . . . (Pt. 1 of 2)