My Thoughts on Wireless Carterfone and Network Neutrality

I recently completed a piece that examines the law and policy of applying Carterfone and broader net neutrality obligations to cellphone service.

Here's the abstract:

Wireless operators in most nations qualify for streamlined regulation when providing telecommunications services and even less government oversight when providing information services, entertainment and electronic publishing. In the United States, Congressional legislation, real or perceived competition and regulator discomfort with ventures that provide both regulated and largely unregulated services contribute to the view that the Federal Communications Commission ("FCC") has no significant regulatory mandate to safeguard the public interest. Such a hands off approach made sense when cellular radiotelephone carriers primarily offered voice and text messaging services in a marketplace with six or more facilities-based competitors in most metropolitan areas. However the wireless industry has become significantly more concentrated even as wireless networking increasingly serves as a key medium for accessing a broad array of information, communications and entertainment ("ICE") services. As wireless ventures plan and install next generation networks ("NGNs"), these carriers expect to offer a diverse array of ICE services, including Internet access, free from common carrier regulatory responsibilities that nominally still apply to telecommunications services. Wireless carrier managers reject the need for governments to ensure consumers safeguards such as nondiscriminatory access and separating the sale of radiotelephone handsets from carrier services. Indeed the carriers claim that any network neutrality responsibilities would create disincentives for NGN investment and have no place in a competitive marketplace.

This article will examine the costs and benefits of government-imposed wireless network neutrality rules with an eye toward examining the lawfulness and need for such safeguards. The paper will consider the difference between wireless network neutrality and an earlier debate about neutral Internet access via wired networks. For example, wireless network neutrality includes consideration of separating Internet access equipment from Internet services, an unbundling principle established for wired networks decades ago. Because wireless carriers package subsidized handset sales often with a blend of ICE services and consumers welcome the opportunity to use and replace increasingly sophisticated handsets, regulators have refrained from ordering handset unbundling. But for other services, such as cable television, the FCC has pursued public safeguards that attempt to allow consumers the opportunity to access only desired content using least cost equipment options.

The article also examines why wireless carriers could avoid becoming involved in a network neutrality debate for several years, despite the fact that their common carrier status, vis a vis voice services, provides a statutorily supported basis for imposing nondiscrimination responsibilities. The article concludes that the rising importance of wireless networking for most ICE services and growing consumer disenchantment with carrier-imposed restrictions on handset versatility and wireless network access will trigger closer regulatory scrutiny of the public interest benefits accruing from wireless network neutrality.

A draft of the paper is available at: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102928 and http://www.personal.psu.edu/faculty/r/m/rmf5/

Empirical Evidence of Net Bias—Now What? (part two)

ISPs now acknowledge that they may meddle with subscribers’ traffic streams, but only to “manage” and “shape” traffic. ISPs typically reserve the option for such meddling in their contract with subscribers. Should you ever take the time to read this document, and a second documents about “Acceptable Use” you will see language that does reserve to the ISP the right to manage their network, ostensibly to optimize it for the benefit of subscribers. The subscriber agreement also attempts to foreclose litigation as an option by stating that subscribers can only seek arbitration to settle any grievance.
In reality the subscriber contract constitutes a unilateral, non-negotiable contract of adhesion, i.e., a “take it or leave” it proposition. In a truly competitive world, disgruntled subscribers could “vote” with their feet and dollars by taking their business elsewhere. But contrary to the FCC’s fantasy statistical reports about double digit service alternatives in most zip codes, consumers have limited options. Taking ones business from DSL to cable modem would not solve the problem if all carriers—through collusion or “conscious parallelism” had the same network management contractual language.
Because the FCC considers ISPs information service providers, the Commission offers no traditional consumer safeguards applicable to telecommunications service providers under Title II of the Communications Act., ISPs must use contracts in lieu of filed tariffs. However, ISP contracts must pass muster with general law and equity principles regarding the fairness of the terms, consumer protection and fraud. In other words, ISPs cannot unilaterally set any terms and conditions and have them stick.
While the FCC may have limited jurisdiction to examine ISP contracts, state and federal courts can lawfully assess whether an ISP has lawfully interpreted the terms of the contract it created and more broadly whether the agreement violates the court’s sense of fairness. In light of the FCC’s deregulation of information service providers, the Commission cannot readily claim that it should preempt judicial review because it still has “primary” jurisdiction to resolve fairness and consumer protection issues.
We may soon see an onslaught of individual and class action law suits against ISPs on grounds that they have not complied with the clear language of their service agreements. For example ISPs have cut off or throttled service to customers for using too much network resources despite an agreement that offers unlimited and unmetered “all you can eat” service. Peer-to-peer customers experience artificial network congestion—a hard thing to prove—may claim that the ISP has violated the service agreement.
A court may serve as the forum for assessing whether an ISP’s reserve right to manage its network includes preemptive strategies that mimic network congestion even when actual traffic conditions do not necessitate network conservation tactics.

Empirical Evidence of Net Bias—Now What?

A widely distributed and unassailable study by the Associated Press (see http://www.forbes.com/feeds/ap/2007/10/19/ap4240786.html) confirms what many Internet Service Provider (“ISP”) industry observers had speculated: some ISPs exploit deliberately ambiguous subscriber contracts to reserve the option for blocking, dropping, and downgrading certain types of traffic even when network conditions do not necessitate such congestion abatement strategies. ISPs frame the issue in terms of their contractual right to “shape traffic.” However such traffic “management” tactics generate false congestion and trigger delayed or dropped packets.

For years ISPs representatives and their snarky, righteously indignant sponsored advocates stated unequivocally that ISPs would never deliberately degrade the Internet access experience for any paying subscriber. See http://www.filmfestivaltoday.com/article_item.asp?ID=853 quoting Verizon CEO Ivan Seidenberg: "We don't block anything…never have, never will." see also, http://commdocs.house.gov/committees/judiciary/hju27225.000/hju27225_0.HTM.

Later they shaped the debate in terms of fair and appropriate allocation of their costs among low and high volume users. Now they consider the issue one of how they manage their network to maximize service to their subscribers.

In fact ISPs have two very key reasons for creating congestion of packets, just like Enron created congestion of electrons:

1) blocking, delaying, and degrading certain types of expensive to handle traffic, such as peer-to-peer file sharing, delays or forecloses the need to invest in costly network upgrades; and

2) blocking, delaying, and degrading certain types of expensive to handle traffic, such as peer-to-peer file sharing, can enable an ISP to create a new customer service tier for unblocked peer-to-peer traffic at premium price.

Heretofore I have stood midway between the groups claiming “no problem”camp and the “curtains for the free world” alarmists. However I have consistent stated that an ISP violates a reasonable sense of network neutrality, appropriate even for private carriers, when an ISP deliberately creates artificial network congestion to achieve an ulterior motive. See http://www.personal.psu.edu/faculty/r/m/rmf5/.

I would support Comcast’s option to create a premium “power user” peer-to-peer network optimized service. But I would equally protest any ISP strategy to extort such payments, or simply to punish peer-to-peer networkers, when the ISP network can easily handle such traffic without degrading service to other subscribers.

In another post I will Comcast examine whether Comcast and other ISPs can lawfully use language in subscriber contracts to degrade peer-to-peer traffic streams regardless of network conditions.