WSJ’s Misinformation Agenda

Year after year I read Wall Street Journal editorials and op eds on telecommunications with wonder. How can seemingly intelligent people—who generally write with great confidence bordering on arrogance—make such bold and wrong assertions nearly every time? Is there a News Corp./Murdoch agenda? Do these writers reflectively rail against any governmental intrusion? Are they leading the blocking for major advertisers?

The latest investment in telecom snark, The Coming Mobile Meltdown, Oct. 14, 2009 at A21, tries to blame network neutrality advocacy as cause for anticipated bandwidth shortages. Author Holman W. Jenkins, Jr. warns of upcoming usage sensitive pricing, and suggests that the FCC abandon wireless network neutrality policies in favor of allocating more bandwidth for wireless companies whose numbers should drop through mergers.

Let’s get this straight allow the Big 4, which already control 90% of the national market, to become the Biger 3 with 95% of the market. Abandon common carrier regulation of their telecommunications services and refrain from applying network neutrality principles or rules to their information services, including Internet access. Allow the Big 3 to consolidate control further by acquiring most of any new spectrum allocations. Sounds like a recipe for a powerful oligopoly with the incentive and power to operate non neutral networks in discriminatory and anticompetitive ways.

Mr. Jenkins is correct on one issue: wireless carriers will abandon “All You Can Eat” unmetered service and impose incrementally higher rates based on baskets of throughput downloads. But get this Mr. Jenkins and friends: no credible advocate of network neutrality has contended that carriers cannot lawfully do this. Usage based pricing forces more rational consumption of a resources without favoring one content source or application. Network neutrality addresses tactics where a carrier deliberately drops packets of a disfavored and unaffiliated content source ostensibly to achieve network management objectives, but in reality aiming to discipline competitors, including content creators that offer alternatives to what the carrier offers.

Comcast can claim network management objectives, if not obligations, “forced” it to obstruct peer-to-peer traffic (“P2P”), but an ulterior motive cannot be ignored. Might Comcast want to prevent P2P traffic that offers high quality video via Comcast lines, but creates incentives for consumers to abandon cable television subscriptions?

I thought the Wall Street Journal stood for competitive markets, not for cronyism and accommodative government policies that favor less competition and reduced consumer welfare.

Regulatory Status of Wireless Information Appliances

News of a slimmed down Amazon Kindle electronic book has triggered this question: what regulatory status applies to devices that use wireless capacity purchased by the appliance vendor and bundled into the cost of both the appliance and downloads? In the United States the FCC has exempted bundlers of telecommunications capacity on grounds that they do not retail a telecommunications service.

But in light of the willingness of the FCC and other national regulatory agencies to oversee some times of information services, might network neutrality and other concepts of nondiscrimination apply? Bear in mind that Kindle buyers apparently do not receive a subsidy that reduces the cost of the information appliance in exchange for locking out competing content and applications. Still the FCC has shown no interest in forcing wireless carriers or manufacturers to comply with the so-called Carterfone nondiscrimination requirements applicable to wireline handsets and carriers. Carterfone requires carriers to interconnect with other carriers and to accept subscriber chosen and loaded applications.

Apple makes great self-congratulatory statements about the wide and open applications available for downloading, but note that the FCC does not require at&t to accept any non-Apple approved and marketed applications, nor does the Commission prohibit Apple from blocking and disabling applications that it unilaterally decides subscribers should not use. So if the FCC could not be bothered with wireless common carriers operating in a discriminatory manner then the Commission probably will have no concerns about a "locked down" Kindle. In light of the Supreme Court's deference to the FCC's "expertise" in the Brand X decision, it appears that the FCC could ignore information appliance discrimination entirely.

Apple iPhone Apps Store—Refreshing Openness or Walled Garden?

Apple Computer has received high praise for the diversity of applications available for the iPhone. The company shows great willingness to accept third party software innovations. But Apple also solely decides whether to accept and make available any application. Rejected software vendors for the most part do not exist if they do not have shelf space at the Apple store. The possibility exists that iPhone users can download and install non-Apple endorsed software, but more likely Apple could reject any third party application when users download next generation Apple operating system software.

Apple serves as a bellwether for openness and innovation even as it appears to treats users’ screens as Apple property for a “walled garden” of its choosing. Consider this scenario: Apple cuts an exclusive deal with Exxon-Mobil for a GPS-based locator for nearby Exxon-Mobile gas stations. A new startup venture Cheapgas, Inc. has devised a GPS-based locators for all nearby gas stations, coupled with user reports on the per gallon rates for most of the listed stations. Exxon-Mobile invokes the exclusivity clause in its contract with Apple forcing Apple to reject the Cheapgas proposal for inclusion in the IPhone Apps Store. Cheapgas may try to find ways for iPhone owners to download the software, but even if this alternative is possible, far fewer downloads likely will result as users do not risk “bricking” their phone, or they simply take the path of least resistance and stick with the easy app download process offered by Apple.

Does Apple’s walled garden strategy violate a fair-minded concept of network neutrality? Does Apple rightly control what can appear on iPhone screens? Do exclusivity contracts, like that negotiated between DirecTV and Dish Network satellite operators, promote diversity and innovation?

Recent Presentation and Paper on Wireless Carterfone

Belatedly the network neutrality debate has begun to address the extent to which wireless subscribers can use their handsets to access any content, including software. In 1968 the Federal Communications Commission's Carterfone policy required wireline telephone companies to decouple telecommunications service from the installation and maintenance of inside wiring and the lease or sale of telephones.

Decades later the FCC may consider what rights wireless subscribers have to attach devices and access content of their choosing. I have written a paper supporting wireless Carterfone for the New America Foundation; see http://www.newamerica.net/publications/policy/wireless_cartefone.

Some slides outlining the paper are available at: http://www.personal.psu.edu/faculty/r/m/rmf5/New%20America%20Foundation%20Free%20My%20Phone.ppt.

Anyone interested in a longer, heavily footnoted piece can access it at: http://www.personal.psu.edu/faculty/r/m/rmf5/HoldthePhone.pdf.

Despite promising words from Verizon and other wireless carriers, wireless Carterfone policy does not currently exist. The fact that a significant percentage of Apple iPhone owners would risk "bricking" their phone (rendering the device inoperable) attests to the growing desire to be free of handset restrictions.

At a Congressional briefing hosted by the New America foundation Wall Street Journal opinion columnist Walt Mossberg reiterated his view that wireless carriers operate as "Soviet Ministries." Whether these carriers embrace wireless Carterfone will depend on future initiatives that offer discounts for service to subscribers with unsubsidized handsets, speedy access to subscribers by third party (unaffiliated) software, applications and content providers and a whether a level competitive playing field exists between carrier affiliated handset and content providers and unaffiliated ventures.

Why Thwart Network Usage When the Meter's On?

One of the many disconnects in the network neutrality debate---at least the wireless one-lies in the simple fact that carriers make money primarily when subscribers use the network. Of course ISPs do not want subscribers to use too much of the network, despite having encouraged consumption with so called, but not actual "All You Can Eat" pricing.

So with that in mind why on earth would an ISP drop packets, misrepresent their subscribers or engage in tactics that create disincentives for subscribers to consume? Well it may be a little like the mutual fund that wants to ration customer service representative access as a function of how much a particular customer has invested in the fund. The million dollar investor could have access to a special telephone number that gets answered by a real--and qualified--person while others are left to navigate through a gauntlet designed to migrate them to automated responses. But at least one mutual fund told particularly heavy calling customers with small financial stakes to take their business elsewhere. In practice ISPs are saying the same thing to heavy users and ones that may contribute to network congestion and the possible need for the carrier to upgrade facilities.

Nevertheless ISPs do not want too many subscribers to get frustrated or infer that they ought to take their business elsewhere. Perhaps that explains the announcement by Verizon that it seemingly embraces network neutrality; see Verizon Wireless To Introduce ‘Any Apps, Any Device’ Option For Customers In 2008 New Open Development Initiative Will Accelerate Innovation and Growth, available at:http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/11-27-2007/0004711790&EDATE=

So never mind about all the righteous indignation about how network neutrality would stifle investment, innovation, competition and freedom.

Regardless of the motivation, I am truly pleased to read that a major wireless carrier wants my business.

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/