And if you say to me tomorrow Oh, what fun it all would be then what's to stop us, pretty baby but what is and what should never be -Led Zeppelin, "What Is And What Should Never Be"
With profuse apologies to Led Zeppelin for blaspheming their iconic song title to do a telecom policy blog, this is essentially what Google announced to DC policy makers, via its corporate/policy blog, on Wednesday--except that the policymakers and the press didn't hear the last line. But, boy, did they eat up the first few . . . you can tell that Valentine's is in the air.
I say the "announcement" was targeted toward policy makers, because absolutely no relevant business information was provided in the announcement--you know . . . costs, prices, projected revenues, technology to be used, etc. No vendors, competitors, or even Google's Clearwire partners (a venture from which--according to news reports--Google has been backing away) were interviewed or consulted. No, but that's OK, because this wasn't a business "announcement."
What the "announcement" really says is how much political clout Google carries in Washington. On a day when the Gub'ment is closed for a fourth consecutive day, some of the most important Government officials involved in technology policy were intrigued enough to very quickly issue "statements" in reaction to Google's blog post.
For example, the New York Times story actually contains a "statement" from Chairman Genachowski reacting to the Google blog post, and the statement reacts to Google's announcement like it were an "official" announcement--like a firm commitment to enter a market in a specific way, explaining product terms and prices, entry timing, costs, and projected revenues. The Hill even contains a statement from Senator John Kerry, Chairman of the Senate Commerce Committee's Subcommittee on Communications, Technology, and the Internet. Moreover, just about every story you'll read really "drank the Kool-Aid." From the articles I saw on line, only Computerworld got it right.
But what gives me the right to question Google's ambitiously-admirable, but vaguely-defined, "experiment", the belief of the bulk of the press, and some of the most important officials in Washington? Well . . . there's this small problem of the facts and the logic. First, Google's blog never says exactly how they plan to offer this 1 gigabit/sec (1,000 megabit/sec) broadband service at a "competitive price." Second, the whole theory seems to contain a pretty glaring logical flaw: wouldn't Google deciding to become a broadband ISP allow other Broadand ISPs into Google's monopoly business?
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.
[Note: Yesterday, the Department of Justice, Antitrust Division ("DoJ") filed an ex parte presentation in the National Broadband Plan proceeding, which focused on ways to increase the number of broadband service offerings and broadband competitors. Most public attention has been focused on the DoJ's spectrum recommendations, which are largely designed to promote further spectrum availability. One controversial recommendation, which was heavily caveated by the Department, was that there may be situations where the highest bidder for spectrum may not provide the most valuable use for the spectrum. In other words, in an auction model for scarce, but essential, inputs, the hypothetical monopolist is always willing to pay the highest price in order to keep supply off the market. The facts that would support such a theory as a basis for foreclosing carriers from spectrum auctions are not present now, or even imminent. For example, the largest spectrum holder in the country is a new entrant, Clearwire, and the biggest "winner" in the 700 MHz auction--Verizon--spent almost $10 billion on spectrum that it knew would be subject to an "open access" requirement. Therefore, given the attention that this one aspect of the DoJ filing has attracted, this post will not discuss the Department's spectrum recommendations.]
For a long time, opponents of "Net Neutrality" (however they chose to interpret the concept at the time) have argued that, conceptually, Net Neutrality was at odds with the national policy goal of increasing broadband deployment and penetration. The typical argument against Net Neutrality was as general, and loosely-defined, as the concept of Net Neutrality. A good example of the Net-Neutrality-Broadband Policy tradeoff is this 2004 paper by Professor Christopher Yoo for the Progress and Freedom Foundation. This is old news, and not surprising coming from a pro-business group like PFF. So, why bring up an old argument?
Well, because "Net Neutrality" is no longer an amorphous, generalized, mean-what-you-want-it-to-mean, concept. No, the FCC has now given Net Neutrality a very specific meaning in its NPRM and proposed rules. This is what makes yesterday's ex parte filing by the Antitrust Division of the Department of Justice ("the DoJ") in the FCC's Broadband Plan proceeding so interesting. The DoJ's ex parte is interesting for several reasons, but the main one is that it highlights the tension between the goals of the Broadband Plan (as seen through the "consumer welfare" eyes of the DoJ) and the policy and proposed rules set forth in the Net Neutrality NPRM.
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.
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." ¶¶ 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.
As I mentioned in my last post--my "relapse" post--I have never been comfortable with the term/concept/policy of "net neutrality", and here's why: as a term, a concept, or proposed policy, it had no definition. There was nothing to discuss, because if you asked 10 people what it meant, you might get 10 different answers; "net neutrality" was a religion without a dogma. This is no longer the case. On October 22nd, the FCC defined "Net Neutrality" and it truly is neither "fish nor fowl" in that the Commission's proposed rules, and their explanation for them, create a sui generis regulatory framework. Given a tangible form, Net Neutrality can now be discussed on its own merits as a public policy, rather than fought over on religious terms. Because this subject has been defined, and articulated as a proposed set of rules, let's first consider this definition: what is "Net Neutrality?"
The Net Neutrality NPRM is complex, partly because the Commission misapprehends what it is regulating, how it works, and how the proposed rules will achieve the purported outcome. So it is not possible to cover the NPRM in just one or two posts. Instead, we'll look at Net Neutrality, as proposed, over a series of posts, starting with the definition. In the next few posts we'll look at some of the unintended, paradoxical results that would obtain if the proposed rules, produced by the incomplete understanding of how the Internet works, as explained in the NPRM, were adopted. Then, we'll consider whether the proposed rules are written in a manner that makes them likely to be enforced by the Commission in a timely manner. Finally, we'll look at whether there might be some other, more reasonable rules to ensure that the Internet remains accessible to all users on fair terms, which is supposedly the goal of the "Net Neutrality" advocates.
Indeed, the Commission states its own characterization of the proposed rules as purportedly consistent with prior policies, "government action, where needed, should support a "predictable, minimalist, consistent and simple legal environment" for online activity. Nothing we have done over the past several years or that we propose today alters that commitment." NPRM, at para. 47. There is no reason to doubt the Commission's sincerity, or good intentions. However, in order to believe that the proposed rules are necessary, one has to believe that the Internet, which can act as an economic, social, and political "equalizer", cannot perform this role unless the Internet, itself, becomes subject to some "equalization." Yet, this notion itself is a paradox; if the virtue of the Internet is its dynamic, evolving nature, then rules that cement the status quo, are only good for the largest firms that benefit from the status quo. Thus, the Commission's perception of the Internet--and the need for the "cure" of the proposed rules, even the very term "Net Neutrality"--should invite some healthy skepticism.
The first thing that stands out is that this NPRM does not propose rules that would reinstate some form of "common carrier" regulation on some portion of broadband Internet access. In fact, the Commission supports the decision of previous Commissions to treat high speed Internet access as one integrated service. So, while the NPRM does not seek a return to "Title II" or "common carrier" regulation--which requires service providers to offer services to the public on terms that are just, reasonable, and not unreasonably discriminatory--the NPRM curiously seeks to impose stricter burdens on access providers [than are imposed by Congress under Title II of the Communications Act ("the Act"]. The Commission seems to believe that the broad, plenary grant of regulatory authority over communications by wire or radio that Congress grants in Title I of the Act supersedes the more specific, limited authority that Congress grants the Commission in the subsequent sections of the Act. A regulatory framework built on this premise is almost certainly illegal, and it is definitely irrational to believe that such rules would end up having any practical relevance.