Top Ten Irreverent Predictions for 2019 (Part Two)

6) Tough love and interventions won’t cure our 

         social network addictions.

Just now, Facebook has experienced yet another disclosure of unsavory business practices that contradict its preferred persona as a trustworthy steward of valuable and private data.  Yet again, the company did exactly what it stated it would not do.  In response to the disclosure, Facebook senior management uses a “no harm, no foul” defense.

Despite ample evidence that the company willfully breaks things like the truth and transparency, the vast majority of subscribers will not abandon Facebook.  This company appears invincible and not subject to creative destruction of their business plan by new ventures.  Facebook has the financial resources to buy insurgent firms and has so exploited scale and networking externalities apparently making it irreplaceable.  

Don’t buy the argument that dominant firms are one click away from obscurity. 

Do not expect the companies like Facebook to turn over a new leaf, because their existing business plan works incredibly well: extract maximum value about of consumer data and mouth words about self-regulation and respect for the subscriber.

7) Consumer surplus from two-sided markets 

declines further.

Social networks and other broadband intermediaries can offer lots of desirable “free” services.  These platform operators can decide which market side to demand compensation and regularly calibrate who gets subsidized access.  This process can benefit consumers.  For example, credit card users like cash rebates and “free” airline miles.  It appears that consumers get something for nothing.

Think again.  Even in the credit card, bricks and mortar world, vendors have to recoup the 1-5% swipe fees they pay for processing credit card purchases.  In the Internet ecosystem, platform subscribers surely pay to subscribe to services.  Big data has value and intermediaries have mastered the ability to collect, collate, and sell consumer data.

Data mining does more than make sure dog owners do not receive cat food commercials.  The process makes it ever more likely that vendors can “size up” a prospective buyer and know the price a specific customer will agree to pay.  So-called surge pricing calculates, with great precision, the current state of supply and demand.  Uber customers like having the opportunity to pay less than the fixed tariffs of taxi companies.  Not so much when dynamic pricing far exceeds the cab fare.

8) Fresh water economics trumps the salt water version.

Antitrust economists increasingly adhere to vastly different philosophies and market assumptions based on which academic “school” of thought they embrace.  Curiously, coastal universities have a majority of scholars inclined to support some degree of judicial and regulatory intervention to remedy marketplace flaws and to pursue equity goals.  Scholars located in interior locales appear more inclined to trust an unfettered marketplace to serve consumers.

For several decades, antitrust courts have embraced the interior, fresh water school of thought originally championed by academics at the University of Chicago.  This Chicago School orientation supports a libertarian view that government and courts should not intervene if near term consumer benefits accrue.  

Several of the assumptions made by Chicago School economists appear questionable in the Internet ecosystem.  For example, Amazon continues to forgo profits in the quest for expanded shelf-space of products and services.  Chicago School adherents would not expect any venture to eschew profit maximization based on the view that it might not have future opportunities to recoup predatory, or long term promotional prices.

It has become increasingly clear that a short-term emphasis on downstream benefits to consumers from platforms ignore both near term and future harms upstream.  Platform operators like Uber can change prices quickly and extract maximum returns, despite having made negligible investment in physical assets like cars. Social networks like Facebook accrue billions in advertising without having to make any significant investment in self-generated content. 

I question the value proposition touted by many platform operators, but not many others apparently agree with me.  I suspect that consumer welfare actually suffers from judicial adoption of Chicago School doctrine, but a new policy and philosophical regime does not appear likely in the near term.

9) Information, Communications and Entertainment 

markets further concentrate.

While the occasional article notes a vast increase in market concentration, few legislators or antitrust courts seem bothered.  I think they should be, particularly when a sober, clear thinking publication like The Economist detects considerable harm to both consumers and competition.

It appears that sponsored researchers, spin doctors and lobbyists collectively remain effective in their pitch that mergers accrue ample public service dividends.  The merged company—like TMobile-Sprint__will become a “more effective competitor.  What does that mean?   Will consumers benefit from lower prices, more options and greater innovation? How are three 5G wireless networks better than 4 networks?

Consider the recent consolidations in pharmaceuticals and commercial aviation.  I do not see less as more.  Big Pharma, acquires insurgent firms, exploits patent loopholes to prevent market entry of generic options and raises prices by thousands of percentage points.  Big Aviation devotes sleepless afternoon improving their business class seats while imposing ever more draconian rules and fees on economy customers.

How can companies reduce the value position of their goods and services while simultaneously raising prices?  

10) Restoring Internet Freedom translates into lots of costly 

“free” enhancements.

FCC Chairman Pai’s Internet deregulatory bandwagon continues its merry way, most recently declaring wireless messaging as an information service even when the service travels via conventional telephone networks and appears as letters and numbers.  On the other hand, Chairman Pai’s beneficiaries correctly note that the world has not stopped spinning on its axis and that consumers definitely like services that appear to cost zero, as in zero rated video that does not debit a still limited data plan.

The possibility exists that Chairman Pai has not restored Internet freedom, but merely facilitated the opportunity for carriers to operate biased networks that harm individuals and society. Beneficiaries of better than best efforts routing and service subsidies welcome such flexibility.  However, First Amendment freedoms decline when a wireless carrier can refuse to carry content, or throttle it when in its sole judgment the content is deemed inappropriate, or competitively harmful.

The court of public opinion likes subsidizes and zero-rated access to content. Consumers may not like it when more and more anecdotal evidence shows how biased carriage distorts the truth in much the same way as bots and fake news contaminate social networks.

Top Ten Irreverent Predictions for 2019 (Part One)

1)         TMobile CEO John Legere opts for a shorter hair style and 

             develops an aversion to pink.

           

            At age 60, Mr. Legere never convinced me with his “maverick”

hair and clothing style.

            In 2019, he will cut his hair and ditch the biker garb, because a combined TMobile-Sprint venture will not be the disruptive competitor that TMobile truly was when it had no alternative.  The merger enhances the ability of U.S. wireless companies to charge some of the highest rates in the world.

            Expect even higher rates, bolstered profits and lots of “free” and “unlimited” services that are neither.

2)         4-1 is less than 4.

            A reality check folks: does anyone honestly think reducing the number of major U.S. wireless competitors to three will benefit consumers?  Competitive necessity and the burden of devoting sleepless afternoon innovating declines when it becomes easier to match prices set by AT&T and Verizon.  A combined Sprint-TMobile means fewer 5G towers and less pencil sharpening.

            Unfake news flash: four viable competitors are better than three.  The combined company has no greater incentives to make capital expenditures and no greater access to capital than the efforts of two separate companies.

3)         It will get even more difficult to talk to a human 

             “customer service” representative.

            Recently, a series of remarkably bad corporate screw ups have sucked massive amounts of time and spirit from yours truly.  Vanguard Investments mishandled a major roll over of a retirement account and compounded the error by having a customer service procedure designed to prevent access to someone with authority to correct mistakes. 

            There’s a right way, a wrong way and the fill in the blank company way.  Vanguard cannot convert the registration of a retirement account while maintaining the identical number of shares.  To add insult to injury, the company generated a scripted letter that blames  unspecified government regulations requiring a two-step over process that imposed a sizeable financial risk when account one gets cashed out and account two cannot get funded for days.

            At least in the Vanguard screwup, I got to talk to a human.  Experian, one of the three major credit reporting companies, makes it just about IMPOSSIBLE to talk to, or correspond with, a human.

            At the tender age of 63, I would think that Experian could have reached the conclusion that I am credit worthy.  I have a multi-decade record of timely bill payments, have hefty lines of credit, handled six figure mortgages and have an excellent current credit score. 

            Imagine my surprise and embarrassment when, at point of purchase with other purchasers in line behind me, I was denied opportunity to apply for a BestBuy credit card and receive a 10% discount for my first purchase. The reason: Experian’s incomplete report convinced a Citibank algorithm that I lacked “sufficient credit experience.”

            I think insufficient credit experience means I do not pay 24% interest rates on credit card debts and lack other kinds of debt, such as a mortgage.  In other words, I do not deserve a high end credit card, because Experian does not have enough evidence that I can manage debt, or perhaps the algorithm projected insufficient fee and interest revenues.  Apparently, being debt-free is bad, but of course Citibank would allow me to get an inferior card if I agreed to pay it a $59 annual fee.

            Does this make sense to you?  Might human intervention and common sense have remedied these problems?  Ask the algorithm.

4)         If you can “handle the truth,” listen to buy side Wall Street 

             telecom analysts.

            Being an academic, telecommunications policy researcher and writer, I consider it a worthwhile duty to seek out all points of view and even alternative facts/statistics.  I am inundated with obviously bogus assertions how a specific regulation helps or hurts Americans.  This Blog attempts to refute unbelievable assertions such as the canard that network neutrality regulation singularly caused U.S. companies to invest billions less in infrastructure.

            Listen to financial analysts, if want to know the truth about the current state of play in 5^th generation wireless, the health of the broadband ecosystem and true marketplace conditions.  In a recent teleconference, an analyst advising what stocks to buy in the Internet/telecom sector, made several matter of fact statements that clearly dispute what Chairman Ajit Pai and others want us to believe:

1)         Network neutrality, or the lack of it, has limited—if any-- impact on carrier capital expenditures.  Capex ebbs and flows with the need to invest in next generation plant and that necessity trumps regulatory uncertainty, the potential for future disruptive litigation and whether carriers have duties to make their networks accessible, or not.

2)         The likely approval of the TMobile-Sprint merger will help carriers raise prices and increase Average Revenue Per User, no if, ands, or buts about it.

5)         In these uncertain times, don’t expect “unlimited” to have 

             a simple, singular meaning.

            Sadly, no court or regulatory agency (included the much touted reliance on the Federal Trade Commission) will insist that unlimited has a singular and commonly understood meaning.  Once upon a time it did: unlimited meant without limits, and no caps on usage, or throttling of bit transmission speeds. We live in a more sophisticated and complicated world now where unlimited has a new meaning: conditional and qualified use of a service.

            I readily admit that the court of public opinion likes to think that some service is unlimited and free.  There’s a suspension of disbelief and common sense when unlimited actually means that caps on usage will result in service so slow that it cannot provide reliable carriage of data.

Neutrality Regulatory Uncertainty and Wireless Carrier Capital Expenditures

            FCC Chairman Ajit Pai, a host of “coin operated” researchers and their sponsors relentlessly claim network neutrality rule created substantial and measurable disincentives for wireless carriers to invest in infrastructure.  According to these stakeholders, regulatory uncertainty caused by the rules and judicial appeals to reverse them trump even the technology investment cycle.

            I never could understand how regulatory uncertainty occasioned by the appeal of the Restoring Internet Freedom has not had the same effect. Chairman Pai claims that investment has returned to pre-network neutrality levels thanks solely to his deregulatory efforts.  Never mind that these efforts have triggered the same kind of appellate litigation as when a prior Chairman sought to regulate broadband access.

            Wouldn’t it stand to reason that judicial appeals of deregulatory or regulatory initiatives would have the same disincentives?  Of course, it would, if one could creditably determine that network neutrality rules and litigation over them have a significant—or worst yet—a single and direct effect on network plant investment. 

            In several blog posts, I have stated the view that the cycle of next generation network investment matters regardless whether litigation exists.  Lo and behold here’s an article that confirms the obvious: carriers make substantial investments in next generation plant, such as 4G, then there is a lower investment burden as the new technology gets deployed and turned on. 

            Right now, after making a sizeable investment in 5G, Verizon can throttle down as it turns on its new network.  See Fierce Wireless, Amid 5G rollout, Verizon reduces spending on network (Oct. 23, 2018), available at: https://goo.gl/tgDreK.

            Someday, I hope stakeholders will realize that blatantly wrong assertions do not support their cause, nor does it convert skeptics.

The Wisdom of the Marketplace Challenged

            Consider the word unlimited.  What comes to mind?  OK. Hold that thought.

            Now, let’s precede unlimited with the following word options: Go; Beyond; Above.

            I think one would “get” the concept of go in terms of wireless cellphone service.  Go means qualify for unlimited, unmetered, unthrottled service.

            But in the wireless world, unlimited does not mean un-anything. If it did, we would not have more expensive rate plans that offer: Beyond Unlimited, or better yet, Above the threshold of unlimited.  See this web site for an explanation of Verizon wireless plans and prices: https://www.digitaltrends.com/mobile/verizon-plans-explained/?utm_source=twitter&utm_medium=social&utm_campaign=dlvr.it.

            So how will the marketplace and the related court of public opinion respond to this pricing and service provision strategy?

            For my part, I find it insulting and an over-estimate of consumers’ chump factor.  On the other hand, P.T. Barnum had a different opinion about suckers.

           

Regulatory Uncertainty and Investment Incentives

            According to sponsored researchers, FCC Chairman Ajit Pai and some incumbent telecommunications carriers, uncertainty about the future nature and scope of government regulation has a BIG TIME toxic affect.  Recently, the list has grown to include threats to national security and global leadership in wireless technology and ecommerce.  Earlier, we heard the relentless, but empirically unproveable claim that the regulatory uncertainty has a direct and negative affect on incentives to make new capital expenditures.

            Let’s consider the regulatory uncertainty created by the FCC’s on-again, off again embrace of network neutrality as well as the constant stream of court appeals and different holdings.  When the Democrats had an FCC majority, the minority railed against the network neutrality as triggering a certain, severe and immediate disincentive for carriers to invest in plant subject to open access requirements.  With a Republican majority, regulatory uncertainty apparent has become a non-issue as capex allegedly has increased thanks to a restoration of Internet freedom.

            Here’s my bottom line: stakeholders accept regulatory uncertainty as relatively minor, ongoing factor in doing business.  Regulatory theories, economic philosophies and political party majorities come and go.  What drives capital expenditure is business necessity and the real, or perceived opportunity to acquire greater market share and profits. 

            Just now, Verizon and other wireless carriers are accelerating their fifth-generation wireless network investments.  See, e.g., https://www.theverge.com/2018/9/11/17847640/verizon-5g-first-home-broadband-internet-service-installations-october-1.  We might even reach a point where wireless subscribers do not bother switching from their data plan to “free” Wi-Fi because the cost and technical performance have reached parity.  If that occurs true inter-modal competition between wired and wireless broadband will have occurred.

            Expediting the rollout of next generation networks has little—if anything—to do with the state of network neutrality regulation.  Carriers made 4G investments in the thick of more certain open Internet regulation.  If a downturn in capex actually occurred, we can largely attribute it to the fact that there are peaks and valleys in investment based on the life cycle of the technology.  After installation of 4G facilities, carriers can pull back on the investment throttle until the competitive need and business plans support ramping up and installing the next generation.  Whether network neutrality regulation exists has little impact, particularly in light of the fact that court appeals were filed after the onset of regulation and later the onset of deregulation.

            Uncertainty whether the regulatory status quo will persist is a recurring challenge to telecommunications ventures.  Lucky for us, they know how to deal with it, despite the breathless angst of certain government officials and sponsored researchers.

Results-Driven Federalism Part 2

            Consider the following assertion:

            “Our Constitution establishes a system of dual sovereignty between the States and the federal government, such that sovereignty rests concurrently with both the federal government and the States. Specifically, the Tenth Amendment reserves all powers not specifically delegated to the federal government by the Constitution to the States or to the people.  Thus, States are not creations of the central government. They are separate sovereigns. This distribution of sovereignty, otherwise known as federalism, is the defining feature of the relationship between the federal and state governments.

            In taking this step [preempting states from limiting the geographical reach of municipal broadband networks] the FCC usurps fundamental aspects of state sovereignty. And it disrupts the balance of power between the federal government and state governments that lies at the core of our constitutional system of government.”

            Now, compare it with the following:

“The broader problem is that California’s micromanagement poses a risk to the rest of the country.  After all, broadband is an interstate service; Internet traffic doesn’t recognize state lines.  It follows that only the federal government can set regulatory policy in this area.  For if individual states like California regulate the Internet, this will directly impact citizens in other states.

            Among other reasons, this is why efforts like California’s are illegal.” 

            Would you be surprised if I reported that the same person wrote both declarations?  Any dismay at the apparent inconsistency if I reported that the author is FCC Chairman Ajit Pai?  Compare file:///C:/Users/rmf5/Downloads/FCC-15-25A5.pdf with https://www.fcc.gov/document/chairman-pai-remarks-maine-policy-heritage-center.

            Chairman Pai is a quite knowledgeable and talented guy.  However, I believe his partisanship creates inconsistency on a fundamental principal—what he terms  “Constitutional Law 101.”

            Chairman Pai railed against the Democratic majority at the FCC which sought to preempt state governments from imposing geographical restrictions on municipal government broadband networks.  For this matter, the Chairman invoked federalism as sacrosanct: states are sovereign entities free to determine whether and how subordinate governmental units can pursue broadband service initiatives. 

            Chairman Pai had supporting case precedent including a Supreme Court case validating the right of states to prohibit any municipal telecommunications service.  See Nixon v. Missouri Mun. League, 541 U.S. 125 (2004).  The Sixth Circuit Court of Appeals validated his legal interpretation ruling that the Telecommunications Act of 1996 did not explicitly authorize the FCC to elevate the goal of ubiquitous and affordable broadband over state sovereignty, even the sovereign election to foreclose municipal efforts to rollout broadband where commercial ventures had refused to serve. See Tennessee v. FCC, 832 F.3d 597 (6^th Cir. 2016)available at: http://www.opn.ca6.uscourts.gov/opinions.pdf/16a0189p-06.pdf.

            With all this support for state’s rights, how does Chairman Pai reverse course and invoke much maligned federal preemption to thwart states like California from enacting network neutrality laws? 

            Results-driven rationales now support the view that anything and everything about broadband is interstate in nature, and fair game for FCC preemption, except of course legislated service limitations.  I cannot square this view with what Chairman Pai has previously stated. 

            California enacts a law, which I consider quite flawed, but clearly representative of a sovereign state keen on imposing consumer safeguards for the origination and termination of Internet traffic within the state.  Internet Service Providers may import content from other states, but the delivery medium surely lies within a single state.

            Note that in the case of California network neutrality legislation, a sovereign state has opted to impose safeguards that the FCC considers unnecessary and potentially harmful.  Can the FCC preempt states on grounds that they cannot lawfully act when the Commission determines that regulatory oversight is not needed?

            How did humility and respect for states’ rights evaporate?

Result-Driven Federalism: How the FCC Rationalizes the Lawfulness of Preemption

          

            The current FCC pushes the federal preemption envelope, currently with an initiative to further constrain states and municipalities from regulating and requiring payment for wireless antenna installations on public property.  See https://docs.fcc.gov/public/attachments/DOC-353962A1.pdf.  Once upon a time, Republicans deeply respected the concept of federalism: deference to state rights and reticence to extend the wingspan of federal oversight and interference.  Such regulatory humility evaporates when preemption achieves countervailing goals.  

            For wireless antenna site policy, the FCC majority sees the need to preempt greedy non-federal governments who want to extort money from wireless carriers.  Apparently, the goal of preventing outrageous rent extraction and delays in authorizing national security enhancing 5^th Generation wireless justifies aggressive preemption, despite clear language in the Communications Act mandating shared jurisdiction.

            I can appreciate that some city councils, in particular, might look at wireless tower site authorization as a cash cow.  I can anticipate that some municipalities might try to extort outrageous payments and use the prospect of delay as negotiating leverage.  But I also can see wireless carriers using the FCC as lead blockers to beat municipalities and their citizens into submission.  What’s good for a wireless carrier must be good for society, right?  Tower siting decision making has nothing to do about aesthetics and respecting history and everything to do about ripping off big, bad corporations.

            Antenna siting has become a contentious issue, because of an ever increasing number of needed locations.  The migration to 5^th Generation wireless service will trigger a massive increase in antenna sites, because new technologies have smaller “footprints” requiring more antenna installations.  This matter is all about money, but conflicting interpretations of federalism partially obscure this reality.

            Money and serving different constituencies force FCC regulators to abandon any semblance of jurisprudential consistency.  In this strange time, a political party predisposed to support federalism and reliant on the Federalist Society to vet judicial candidates, has to turn its back on a baseline and fundamental philosophical construct.  Republican FCC Commissioners want largely to preempt states and municipalities from economic regulation of wireless tower sites, but they rallied around the state’s right flag when their Democratic counterparts wanted to preempt state laws prohibiting the installation or expansion of Wi-Fi and other broadband networks.  The Sixth Circuit Court of Appeals accepted the argument that Congress did not sufficiently articulate a federal mandate of supporting broadband technology deployment and preventing laws, regulations and policies that thwart this goal.  See http://www.opn.ca6.uscourts.gov/opinions.pdf/16a0189p-06.pdf.

            Reasonable people can disagree agreeably about the breadth, reach and scope of the FCC’s jurisdiction.  What I can’t tolerate is the sanctimony and righteous indignation of federalist advocates who readily ignore the principle when favored stakeholders knock on their door.

             

8th Circuit Rules VoIP an Information Service

            By a 2-1 vote, the 8^th Circuit Court of Appeals upheld a lower court’s determination that Voice over the Internet Protocol (“VoIP”) telephone service constitutes an information service subject to FCC preemption of state regulation. [1] The court decided to make an explicit determination considering the FCC’s decades long disinclination to do, because an explicit information service classification would jeopardize the Commission’s ability to regulate VoIP service and perhaps also the lawfulness of requiring subscribers to contribute to universal service funding.  On the other hand, the decision bolsters the FCC’s selective assertion of federal preemption to prevent inconsistent and “balkanized” policies when state establish their own regulations.

            The court determined that VoIP falls within the information service classification, because a protocol conversion occurs when calls originate, or terminate on the conventional public switched telephone network, but are transmitted via broadband networks:

            We conclude that the VoIP technology used by Charter Spectrum is an “information service” under the Act. As the district court put it, “the touchstone of the information services inquiry is whether Spectrum Voice acts on the consumer’s information—here a phone call—in such a way as to ‘transform’ that information.” 259 F.Supp.3d at 987; see 47 U.S.C. § 153(24). IP-TDM calls involve just such a transformation. For those calls, because information enters Charter’s network “in one format (either IP or TDM, depending on who originated the call) and leaves in another, its system offers ‘net’ protocol conversion, which the FCC has defined as occurring when ‘an end-user [can] send information into a network in one protocol and have it exit the network in a different protocol.’” [2]

            The court majority opted to consider the explicit language in the definitions of telecommunications service and information service rather than consider the functional equivalency of VoIP with earlier vintage circuit-switched telephony, even though they use different technical protocols.  The court considered the information service category as applicable because VoIP service providers must use software to convert the format of calls from and to legacy wired and wireless telephone networks even though both telecommunications services and information services use telecommunications networks to transmit and deliver traffic:

            Spectrum Voice’s service is an information service because it “mak[es] available information via telecommunications” by providing the capability to transform that information through net protocol conversion. Cf. Nat’l Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967, 988 (2005) (explaining that “all information-service providers . . . use ‘telecommunications’ to provide consumers with [their] service”). [3]

            The court did not consider VoIP protocol conversion as fitting within three categories where some processing takes place, but not in a significant way that fundamentally changes the nature and composition of the composite service. [4] This view parallels the analysis contained in the FCC’s Restoring Internet Freedom order which reclassified broadband access as an information service thereby removing common carrier regulatory oversight.

            The court quickly rejected as inapplicable each of the three carve-outs that the FCC uses to allow some degree of information processing without converting a basic telecommunications service into information service. The court rejected the first exception, because VoIP connects users of a service and not users with a network.  The second exception was considered inapplicable, because the court emphasized that protocol conversions are necessary for new equipment that VoIP subscribers must use even though more broadly the conversions also promote compatibility and interconnection between users of legacy voice telephone services and newer VoIP options.

            The third exception also was considered inapplicable, but some stakeholder may dispute the court’s rationale that emphasizes the need for protocol conversions to make the required new equipment function on customers’ premises.  The court briefly stated that the required customer premises equipment is not physically a part of the VoIP provider’s network, nor does its protocol conversion occur within a network. By emphasizing the location of the device performing the protocol conversion, the court could ignore that the device provides internetworking between two types of networks that consumers consider functionally equivalent.

            Judge Grasz, in dissent, rejected the majority’s rationale noting that the court overemphasized the location where protocol conversions take place and in so doing possibly provided a way for telecommunications service providers to evade most of the FCC’s regulatory oversight for any service where a device can be installed on consumer premises:

            If performing the conversion from TDM to IP inside a customer’s home is sufficient to convert a telecommunications service into an information service, then AT&T, or any similarly situated provider, could greatly reduce its regulatory burden simply by moving converter boxes inside customers’ homes. A simple change of physical location would transform what used to be telecommunications services to information services. This may explain why the FCC has yet to make categorical pronouncements on protocol conversions. An overarching category for all net protocol conversions would create a potential pathway for every company to escape the heavier telecommunications service regulations. [5]

            Judge Grasz also noted language in the definition of telecommunication service that deemphasizes the type and location of facilities used to provide a telecommunications service. [6] He even rejects the possibility that VoIP protocol conversions can trigger the information service classification, because the broadband service venture provides a telecommunication transmission link and the protocol conversion does not change the nature of voice communications between the caller and call recipient:

If we assume that interconnected VoIP services “provide” “telecommunications” as defined in statute, then we must presume that no “change” occurs between the two phone sets on either end of the interconnected VoIP line. . . . As a result, when addressing the question of whether Charter’s media gateway transforms information, in order to rule in favor of Charter, we would have to conclude that a device that does not change the form or content of information (because it is part of telecommunications) is also a device that transforms information (because it is an information service). See id. § 153(24), (50). The first conclusion forecloses the second one. In short, if Charter’s service provides telecommunications (as defined in statute), then its net protocol conversion cannot be part of an information service, but instead must be part of a telecommunications service. [7]

---

[1]           Charter Advanced Services(MN), LLC v. Lang, No. 17-2290, slip op. (8^th Cir. Sep. 7, 2018); available at: http://media.ca8.uscourts.gov/opndir/18/09/172290P.pdf.

[2]              Id. at 6.

[3]              Id. at 7.

[4]              “The definition of ‘information service’ excludes services that comprise a ‘capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.’ 47 U.S.C. § 153(24). The FCC has further defined this exception to include ‘(1) services ‘involving communications between an end user and the network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users;’ (2) protocol processing ‘in connection with the introduction of a new basic network technology (which requires protocol conversion to maintain compatibility with existing [CPE])’ and (3) services ‘involving internetworking (conversions taking place solely within the carrier’s network to facilitate provision of a basic network service, that result in no net conversion to the end user).’” Id. at 7-8.

[5]              Judge Grasz dissent at 11.

[6]           “The statute contemplates such transitions because it defines a telecommunications service as ‘offering [] telecommunications for a fee directly to the public . . . regardless of the facilities used.” Id. at 10 citing 47 U.S.C. § 153(53).

[7]              Id. at 12.

Network Neutrality and the Court of Public Opinion

            Ask most people a basic question about Internet neutrality and the clear majority support it.  Who likes biased networks, particularly if the bias appears to subordinate the views and interests of you and like-minded people?

            On the other hand, ask people about what they think Netflix and their broadband carriers ought to do should network congestion bogging down bandwidth intensive video streams.  The likely answer: fix it!  Okay, but what kind of fix constitutes “reasonable network management” vs. something akin to prioritization of traffic?  The former universally qualifies for exemption from mandatory neutrality, but the latter triggers disputes.  ISPs can tier service by bit rate delivery speeds and monthly allotment of data.  Should they also have additional market segmentation opportunities to exempt certain traffic from debiting a data plan, so-called zero rating, or to slow down (throttle) entire categories of content, e.g., video streaming?

            The Court of Public Opinion seems clearly in favor of service arrangements described by words like free and unlimited. Of course, in the wireless world, nothing is free and unlimited does not have the common meaning.  Free comes with upselling to a more expensive service tier, e.g., “free” and “unlimited” streaming of a Direct Broadcast Satellite operator’s content. 

            “Unlimited data” has several fine print exceptions.  Throttling typically reduces bit transmission rate to 2G speed incapable of delivering video streams when a subscriber exceeds a ceiling of 20 or more Gigabytes of data delivery.  Also, wireless subscribers have to make do with video streaming that reduces the video line resolution of all streaming content, presumably a trade-off for a much higher monthly data allowance.

            Does the Court of Public Opinion favor zero rating and even tolerance for less video line resolution?  We may soon find out how California broadband consumers react if such options become illegal.  The legislature there enacted legislation that restores the consumer safeguards created in the FCC’s 2015 Open Internet Order and in several instances reaches further into the Internet marketplace.

            SB-822 current rests on the desk of California Governor Jerry Brown.  Does the Governor sign the legislation that deems illegal zero rating, most types of throttling and possibly even the paid peering arrangement that Netflix and Comcast negotiated to resolve a traffic delivery dispute? If he does we will see just how ticked off California broadband consumers get when state law mandates strict neutrality that forecloses “better than best efforts routing” and other market enhancements available at a premium price.

            For my part, I part company with my network neutrality friends, because I believe elected officials should rarely stand in the way of allowing a maturing Internet ecosystem to delivery different tiers of service at varying price points.

           

Lessons in Incivility: Two Frequent and Frustrating Strategies

            My academic post makes it possible for countless hours of reading across the entire political, economic, philosophical and social spectrum.  I recommend you avoid the common practice of seeking only content that confirms preconceptions.  My eclectic pursuit of all sides to the story requires patience and tolerance for hyperbole and deliberate mistruths.

            Two frequently used strategies drive me crazy.  A pox on all houses—left, right and central--where authors personalize a dispute and perpetuate a mischaracterization of truth when they surely know better.

            I recently read an extensive analysis about the refusal of Verizon Wireless in California to waive its contractual right to throttle broadband bit transmission speeds of first responders, including fire fighters.  The author and I share many conclusions, including the confirmation that Verizon reserved the legal right to throttle subscribers who exceed a threshold of data usage, despite having purchased an “unlimited” data plan.  Additionally, the author and I agree that Verizon did not violate any specific prohibition in the now reversed FCC 2015 Open Internet Order.

            Not content to make a convincing and thorough case, the author (I will not identify, or vilify him) relied on two strategies I will not use.  He singled out and maligned an individual who had a major role in shaping the FCC’s 2015 document.  Rather than agree to disagree, the author deviated from substantive discourse and took several opportunities to criticize the person and not her work product.  How does vilifying a person enhance and bolster the critic’s case?

            The other uncivil strategy involves the misrepresentation of a regulatory policy as more intrusive, unnecessary, harmful and atavistic than what is true.  In this case, the author misrepresented the FCC’s common carrier, telecommunications service regulation applied to Internet Service Providers as something appropriate only for “public utilities.”  Surely this author knows wireless carriers, including Verizon Wireless, trigger Title II, common carrier regulatory oversight.  This regulatory status does not convert wireless carriers into public utilities, nor does it impose burdensome regulatory duties. 

            The Telecommunications Act of 1996 authorizes the FCC to streamline and forbear from imposing most common carrier regulatory burdens when a market becomes competitive.  The FCC has largely deregulated the wireless marketplace even as it continues to classify service providers as common carriers.  No one can credibly assert that U.S. wireless carriers bear a costly regulatory burden that has created major disincentives for these carriers to participate in billion dollar spectrum auctions, or to invest billions more in infrastructure.

           

            Characterizing Title II regulation as unnecessary and so “old school” misrepresents the nature, scope and burden of the flexibility the FCC has in applying this legislatively mandated classification.  The author appears to have used this frequent mischaracterization to bolster his argument that network neutrality regulation is unnecessary.  We could have civil and substantive discussion about whether and how the FCC should regulate ISPs, including whether such oversight has any impact on public safety and the broadband speed of first responders’ smartphones.  As well, we could speculate whether the FCC would have backed away from its initial streamlining of ISP regulatory oversight.  Instead, the author uses an inappropriate public utility frame for the nature of the FCC’s previous regulatory regime.  He appears to imply that any sort of common carrier regulation constitutes overreach, even as wireless carriers have thrived under such status, without operating as public utilities, or trying to characterize their regulatory burden as equal to that borne by true public utilities, like electric companies.

            The author distracts his largely on point analysis with two uncivil tactics that have become both common and inappropriate.

Missing the Burning Forest for the Trees-Verizon Throttles California Fire Fighters at the Worst Possible Time, But Few Get the Lesson

            Verizon’s so-called customer care staff made a grievous mistake when they ignored pleas to override automated software that throttled California fire fighters’ broadband connections.  See https://www.sccgov.org/sites/opa/newsroom/Pages/netneutralitylitigation.aspx?utm_campaign=Newsletters&utm_source=sendgrid&utm_medium=email.  Understandably, network neutrality advocates jumped at the opportunity to provide another example of unintended bad consequences from the abandonment of open Internet regulatory safeguards.  Similarly, network neutrality opponents properly chided the company, but again championed a mostly unregulated Internet subject to the consumer protections available from the Federal Trade Commission.

            Both sides miss the main lesson from this unfortunate situation: broadband networks have become such important infrastructure that it makes absolutely no sense now to suggest that industry self-regulation will remedy anything and everything, except for the occasional privacy and data security issues which the FTC can handle.

            Broadband networks, particularly first and last mile access, are essential to effective firefighting as it is for so many other areas of commerce, self-fulfillment, democracy, governance, etc.  Common carriage status would recognize this importance.  Bear in mind that such a legal status does not require ventures to operate as monopolies, to have market power, or to operate essential facilities.  Landlords, hotel owners, competitive airlines and even wireless carriers, currently operate as common carriers.  Do not for a second buy the bogus assertion that such status disincentivizes investment and blunts profitability.  Also, no one can credibly claim that common carrier oversight is “legacy” “utility” regulation, unjustified in this currently competitive environment. Landlords, hotel owners, bus lines, car rental companies, airlines, cable television systems, wireless carriers and a host of other ventures currently comply with nondiscrimination and other common carrier requirements.

            On the other hand, even common carriers can engage in price discrimination.  Verizon most certainly did not violate common carriage law and policy, or the FCC’s 2015 network neutrality rules, by offering different tiers of service (bit rate, allowable monthly data consumption) at different price points.

            That Verizon could have dithered for even one hour on the matter of waiving data rates for fight fighters provides a clear example that too much is at stake to rely solely on the level of common sense and good business judgment of first responding customer service representatives.  The FCC and the California Public Service Commission should have had jurisdiction and the will to act immediately. 

            Who can dispute this outcome?

Publications Announcement

You might have an interest in the following new publications of mine:

Freedom to Discriminate: Assessing the Lawfulness and Utility of Biased Broadband Networks in the Vanderbilt Journal of Entertainment & Technology Law and

The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers in the Villanova Law Review.

I try to simplify complex topics and you can ignore the footnotes!

Greed by Algorithm

            The adage about the stock market applies to both human and machine greediness: Bulls make money and bears make money, but pigs get slaughtered.  I am not suggesting that corporations—or academic entrepreneurs—forego profit maximization, or charging what the market will bear.  But consider the following instances where algorithms overreach and in the process tick people off big time.

            In researching hotel accommodation for my daughter’s “White Coat” ceremony marking the start of her 4 year vet school adventure at Virginia Tech, I quickly identified peak demand conditions for Blacksburg and a 50 mile radius. OK I get this: high, inelastic demand equals high prices even for 2 star motels that usually fetch $50 off peak.  But does Marriott do anything but generate ill will with an algorithm triggering a $968-1069 nightly rate for a Residence Inn?

            Countless so-called behavioral economic experiments prove that we humans do not operate as utility maximizing, cost minimizing, rational actors.  We often forego gains so that cheaters do not share or exceed what rule compliant actors get.  I suspect that many people seeing this kind of price quote from Marriott think less of the company perhaps to the point of avoiding its offerings even when quoted rates are fair and competitive. 

            Way to go Marriott algorithm writers!

            Of course, Marriott does not have a monopoly on foolish algorithmic outcomes.  Amazon has an algorithm that occasionally prices an easily procured book at prices no one would pay.  See Amazon Algorithm Price War Leads to $23.6-Million-Dollar Book Listing, https://www.pcmag.com/article2/0,2817,2384102,00.asp.

            Most times, well-written algorithms manage to squeeze out every last dollar of consumer surplus in a transaction.  So-called surge pricing taught a student of mine how elasticity-based rates work far better than I ever could.  During Spring Break in Florida, an Uber ride to Miami Beach cost a quite reasonable $17.  At 2 a.m. the same ride was quoted in excess of $400       .  The student gutted it out until the rate dropped to $147.