Thursday, December 2, 2010

Pick Your Poison: FCC Chairman Genachowski’s New Network Neutrality Strategy

FCC chairman Julius Genachowski appears set to abandon a strategy applying selective portions of Title II regulatory safeguards in lieu of general Title I ancillary jurisdiction. Either strategy appears likely to fail upon review by a court or Congress.
What makes this matter so difficult is that while an appellate court might try to consider the issue narrowly in terms of whether sufficient statutory authority exists, broader business and political factors matter as well.  Recall that the FCC was able to justify substantial deregulation of DSL, replacing Title II with Title I oversight, based on changed circumstances, largely concerns about "regulatory parity" with largely unregulated cable modem service.  In this politicized and super-charged environment, coupled with the Comcast court decision, the FCC cannot readily reassert Title II based on changed circumstances supporting light-handed government oversight and the public interest, e.g., evidence that Internet access has become an essential public need coupled with proof of discriminatory conduct.
There is much speculation that Chairman Genachowski has abandoned his Third Way link to streamlined Title II authority, replacing it with Title I ancillary jurisdiction based on language contained in Sec. 706 of the Telecommunications Act of 1996.  This section requires the FCC and states to encourage ubiquitous access to "advanced telecommunications capability."  The Commission probably will face judicial skepticism whether and how Sec. 706 confers statutory authority to encourage Internet access through selective regulation.
I can appreciate that Chairman Genachowski would want to apply a streamlined version of Title II.  It provides the direct statutory authority a reviewing court requires and before changed circumstances provided the basis for its abandonment, Title II required nondiscrimination, transparency and the other Internet Freedoms.  But the political impracticality of re-regulation and the Supreme Court's Brand X affirming the FCC's functional abandonment of Title II, by classifying cable modem Internet access as an information service, makes reliance on Title II a sure loser on appeal.
Chairman Genachowski appears to have acknowledged this, but returning to Title I ancillary jurisdiction.  There is case precedent for judicial deference to the FCC's expertise to fashion public interest serving remedies under Title I, e.g., the Commission imposition of cable television regulations in advance of having received explicit statutory authority.  But as emphasized by the D.C. Circuit in the Comcast case, the link to some sort of statutory authority must exist.  The D.C. Circuit likely will remain quite skeptical about an FCC claim of ancillary jurisdiction, simply because Title I confers some general oversight duty over "wire and radio" communications, or the advanced telecommunications capability promotion elements of Section 706.
From my vantage point, it looks like the Commission loses either way, should some aggrieved party appeal.  Since Congress has a near zero likelihood of passing explicit statutory authority, the status quo remains.  This means that companies, such as Comcast, which can't help but push the envelope, will exploit the absence of rules to its financial advantage.  The demand for video carriage surcharge from Level 3, provides an example how an ISP can raise the cost of doing business of a rival.  Expect Comcast and others to raise the cost of doing business for both content delivery networks, which generate traffic for Comcast to deliver, as well as content producers, like Netflix, that compete with Comcast's video products.

Monday, November 29, 2010

Comcast’s Demand for a Video Surcharge From its Level 3 “Peer”

According to Level 3, a major long haul Internet Service Provider, Comcast has demanded a “recurring fee” when Level 3 hands off movie and other high capacity video traffic for delivery by Comcast to one of the cable company’s subscribers.  See  This demand warrants scrutiny, perhaps less in the context of Network Neutrality and more in terms of further diversification (unraveling) of the peering process.

I will leave to others the advocacy for and against another Comcast innovation in non-neutrality.  The company must consider its merger with NBC a done deal as it continues to maintain a high profile for provocative actions that raise rates to rivals and subscribers alike.

My interest lies in the evolution of peering, a process that used to be symmetrical and largely uniform between similarly sized ISPs.  Under the old school model, Level 3 would have similar peering agreements with Comcast as with other national cable operators.  Likewise Level 3 would have symmetrical terms for the carriage of its traffic downstream via a “peering partner,” such as Comcast, and for Level 3’s carriage upstream of traffic originated or passed onto Level 3 by Comcast.  So under the old model, if Comcast wants to single out a particular type of traffic for a surcharge payment from Level 3, then all things being equal at least in terms of traffic volume, Level 3 could require a similar payment from Comcast. 
Under the traditional peering model, if traffic volumes are roughly equal, the surcharge Level 3 would have to credit for payment to Comcast would be offset by a roughly equivalent credit to Level 3 for video traffic originated over the Comcast network, or transiting through it. If Comcast unilaterally has demanded and received the right to a video delivery surcharge without a reciprocal payment to Level 3, then Comcast either has eliminated the conventional symmetry in peering, or much more traffic originates or transits through Level 3 networks destined for Comcast subscribers than Comcast hands off to Level 3.  The fact that Level 3 has capitulated to Comcast’s surcharge demand points to a significant imbalance in traffic flow and commensurate negotiating clout.
Much of the Network Neutrality debate has focused on end user access, while peering changes are negotiated agreements about access upstream from end users.  The peering process is obscured by Nondisclosure Agreements and the lack of readily available data on traffic flows.  Comcast may be engaging in a shakedown designed to handicap competitive alternatives to Video on Demand, but the possibility exists that the company is responding to unequal traffic volumes.  We may never know which.