Seven Questions About Wireless Carrier Throttling of All Video Streams

            Verizon has joined the ranks of wireless carriers in the U.S. that degrade video screen resolution even if nearby tower congestion has not occurred.  See https://gizmodo.com/verizon-will-totally-start-throttling-customers-video-t-1798302947.  Here are some questions that come to mind:

1)         If ISPs have a lawful claim to First Amendment speaker status, do content providers have a similar, or stronger freedom of expression link when ISPs purposefully distort and degrade the high definition video feed they receive and deliver in standard definition or worse to broadband subscribers?

2)         When, if ever, can an ISP invoke reasonable network management as justification for continuous and deliberate throttling of video traffic even when congestion has not occurred?

3)         Should the FCC impose the same no meddling/no degradation of “must carry” content Congress mandated the Commission establish for cable television operators?

4)         While arguably consumers may not see perceive much video presentation degradation on their smartphone screens, will many wireless broadband subscribers in the future try to “sling” video content from handsets to television sets where the degradation would appear significant?

5)         Is service pricing on the basis of video screen resolution much the same as tiering on the basis of bit transmission speed, or monthly data allowances?

6)         Do wireless carriers give with one hand and take with the other when offering conditionally “unlimited” service subject to standardized throttling of video traffic?  Is this reasonable marketing and puffery, or a deceptive business practice?

7)         Do wireless carriers intentionally, or inadvertently bolster the video on demand market share held by cable television operators when offering inferior screen resolution?

            In a future post, I will provide answers, but for now I would appreciate your thoughts.

Latest Law Review Publication

The Fordham Intellectual Property, Media & Entertainment Law Journal recently published an article of mine entitled: Network Neutrality and Consumer Demand for "Better Than Best Efforts" Traffic Management.  It's available for free at: Better Than Best Efforts Routing.

I examine the cross-currents of neutrality concerns with consumers' demand for high quality, full motion streaming of “mission critical,” “must see” television.  Of course gigabit networks offer a rising tide for all traffic.  I consider instances where tradeoff have to occur.

New Video Streaming Options and Network Neutrality

           Over the last few weeks, several video streaming options have arrived.  See, e.g., http://www.nytimes.com/interactive/2015/business/media/streaming-tv-cord-cutting-guide.html?_r=0.  These new services raise two key pocketbook issues:

            1)         Can consumers reduce their total out of pocket costs by cutting, or shaving the cable television cord? and

            2)         Can incumbent broadband access providers retaliate by raising the costs of both content providers’ and end users, despite the FCC’s 2015 Open Internet Order?

            Cord Cutter/Shaver Empowerment?

            Many press accounts suggest that consumers can save money by terminating their cable subscription, or migrating to cheaper programming tiers.  If one can tolerate the loss of access to some live sporting events, from networks such as ESPN, then a significant savings accrues even factoring in a Netflix and Hulu subscription.  Cord cutting/shaving works best for consumers who can receive broadcast networks off air without having to install rooftop antennas.

            However, the cost savings equation also has to factor the cost of broadband access and the near certainty that last mile providers, like Comcast, will increase rates for “naked” broadband services, i.e., subscriptions that do not bundle video and/or telephone service with broadband access.  Despite the theoretical argument that platform operators/intermediaries controlling a doubled-sided market cannot gouge, the possibility exists that cable modem service providers can simultaneously raise broadband rates for downstream retail subscribers and extract higher prices and surcharges from upstream content distributors.

            The Specialized Network Exemption from Neutrality

            Another more ambiguous, but potentially harmful issue arises with the proliferation of streaming options: what flexibility and exemption from absolute neutrality can Internet Service Providers (“ISPs”) can achieve?

            This issue will start the process for the many ad hoc FCC "interpretations" that will occur going forward.  Predictably the Commission will have two conflicting issues in play.  On one hand, the 2015 Open Internet Order recognizes a specialized network option for traffic such as VoIP.  I believe the Commission will recognize that the low latency requirements of IPTV also qualifies for a conditional exemption from absolute neutrality.  But on the other hand, the Order explicitly states that the specialized network exemption shall not provide a loop hole for evading the overarching requirement for neutrality.

            The 2015 Open Internet Order generally prohibits paid prioritization and establishes a “no-unreasonable interference/disadvantage” standard for ISP treatment of upstream traffic, like that flowing from content sources.  This probably means that the FCC will want to make sure that specialized routing arrangements are technically necessary on quality of service grounds and not simply a construct to favor traffic of affiliates, or surcharge payers.  Sponsored data arrangements also fit into this category.

            Does an ISP simply partition generic bandwidth and call it a specialized network, or does the ISPs really and truly do something by way of dedicated, management?  Bear in mind that some way, somehow the FCC has avoided having to examine the functions and services performed by proxy server/CDN companies like Akamai.  Does an ISP simply have to show it operates like Akamai, but extends the value added, specialized features for the link downstream to end users?

            Stay tuned.

Can the FCC Turn a Network Neutrality Triple Play?

        Despite the remarkably large amount of coverage and analysis of the network neutrality debate, not everyone appreciates the wants, needs and desires of the major stakeholders.  Let’s step back and consider their motivations and incentives of the three primary stakeholders: consumers, retail ISPs and upstream carriers and sources of content.

            Consumers

 

            Consumers expect their monthly broadband subscription payments to guarantee a predictable level of service in terms of bit transmission speed and amount of downloadable (and uploadable) content allowed per month.  This expectation is not contingent on their service provider’s ability to demand and receive surcharge payments from upstream carriers and content providers.

            When common carrier phone companies provided dial up Internet access, consumers typically paid for unmetered service.  With the conversion to broadband, service terms increasingly have bitrate delivery commitments and generous, but metered caps on data downloading.  Retail ISPs complained about having to increase bandwidth without sharing in the windfall generated by their carriage of increasingly valuable and plentiful content.  Nevertheless these carriers upgraded their networks with only minor rate increases and without major episodes of congestion.

            Now consumers face rate increases, tiering of bit transmission speeds and efforts by their ISPs to make reliable service contingent on surcharge payments and/or bit prioritization offers.  Consumers now confront the prospect of greater cost of service and increased risk of degraded service, particularly for bandwidth intensive service like Netflix.  Consumers are not happy about this and may become more vocal advocates for network neutrality simply on grounds that the status quo of best efforts routing used to work fine, until ISPs got greedy.

            But aren’t some consumers becoming greedy themselves?  With the onset of full motion video services like Netflix and YouTube, Internet demand increases significantly.  Consumers want a medium capable of handling “mission critical” video bits representing “must see” television.  Real congestion can occur, not because retail ISPs play games with how many ports and bandwidth they allocate for Netflix traffic, but perhaps primarily because Netflix releases an entire season of must see programming and bandwidth hogs gorge themselves with possibly hundreds of gigabytes.

 

            Consumers want their Netflix video streams to arrive on time and seamless at the same time as they long for the kinder, gentler and less bandwidth intensive days when best efforts routing always worked fine. 

            Retail ISPs

            Retail ISPs provide the essential last mile delivery of content to relatively captive eyeballs.  While retail broadband subscribers can choose between various wireline and wireless providers, one and only one carrier typically provides all carriage.  Churning from one carrier to another can occur, but not without some consumer inconvenience and motivation.

            Having regularly upgraded their networks and enhanced the value proposition of service, retail ISPs predictably seek to recoup this sizeable investment and earn a generous return.  They have evidenced a growing interest in increasing revenues and profits not just by raising retail subscription rates, but also by demanding new or increased compensation from upstream carriers and even content providers directly.

            Retail ISPs like to frame their compensation rights in terms of a two-sided market: 1) downstream to end users paying monthly broadband subscriptions and 2) upstream to other carriers who either barter transmission capacity through peering agreements, or pay transiting fees when downstream and upstream traffic is not equal.

            Retail ISPs do not have a legal or guaranteed right to a double source of revenue.  In a possibly analogous situation, cable television operators benefit from some instances of a double-sided market, but not always.  Cable operators combine end user subscriptions with a share of the premium subscriptions paid for access to premium content such as HBO.  But cable operators also pay upstream sources of content, e.g., in copyright fees for the privilege of delivering content to subscribers. 

            Arguably retail ISP subscription rates should cover both the network cost of content delivery plus at least some of the value represented by the upstream content the Internet cloud access subscription provides.  In this scenario, retail ISPs do not operate like a credit card company that can capture payments from both credit card users and vendors, but instead have to rely solely on subscriptions and advertising.

            Of course retail ISPs do not see any need to compensate content providers for the value of what broadband subscribers seek.  Retail ISPs do not share in the advertising revenues flowing to upstream content providers and readily embrace a telephone company view that terminating carriers deserve payments from upstream carriers or content sources, particularly when traffic balances become disproportionately one sided.

            Retail ISPs cannot press the telephone service model too far, because of the concept of “cost causation” favors upstream payments.  Arguably ISPs and their subscribers trigger the cost of content carriage: a demand pull, instead of supply push rationale.

            Content Providers

            Content providers want downstream carriers to deliver increasingly robust volumes of content using the existing interconnection and compensation models that primarily rely on end user subscription payments.  When facing pushback primary content sources note that consumers agree to pay fees that have generated triple digit rates of return for carriers.  Alternatively content sources design ways to distribute their product at possibly lower costs by co-locating equipment on ISP premises.  In what they would consider the worst case scenario, content providers agree to new, more generous compensation agreements with retail ISPs as occurred in the Netflix-Comcast paid peering arrangement.

            Content providers do not share their subscription fees with downstream carriers, as HBO does.  On the other hand, retail broadband subscribers expect their Internet cloud access to include access to any source of content without regard to how much of the total bandwidth any single source requires.  Certainly the Netflix business model assumes low and unmetered broadband delivery charges ironically not like the physical delivery of disks model that has both higher total costs and is metered.

 

The FCC’s Dilemma

 

            The FCC faces an extraordinary quandary in trying to forge a compromises that satisfices these three constituencies.  No one can achieve total satisfaction here. Consumers will have to pay more for broadband.  Retail ISPs will not have unlimited opportunities to raise rates, particularly for content sources that can get by without prioritization of traffic absent deliberate strategies by retail ISPs to degrade basic service.  Content providers—particularly the major causes for ever increasing bandwidth demand—will have to pay more as well.

            The FCC has to forge a compromise where consumers can secure “better than best efforts” delivery of video at a price, but without making it possible for retail ISPs to demand a surcharge from every source of content.  I continue to believe that the FCC does not have to reclassify broadband access to achieve this compromise. 

 

            In large part marketplace negotiations can resolve the most pressing problems.  However network neutrality advocates make a convincing argument that non-charities like Comcast will have little self-restraint in their quest for new profit centers.  The FCC has to stand ready to discipline and sanction ISPs when they resort to strategies and tactics that degrade service as a nudge or a push to force the payment of unnecessary surcharges.