Identifying Areas in the U.S. Lacking Any Broadband Options

Despite previous proclamations of near ubiquitous broadband access in the United States, using smaller and more numerous counties instead of zip codes and considering broadband to require far greater than the previous 200 kilo bits per second floor, the FCC now acknowledges that significant numbers of Americans residing in many largely rural areas with low incomes lack any access at all. [1] The Commission now acknowledges “that broadband deployment to all Americans is not reasonable and timely. This conclusion departs from previous broadband deployment reports, which held that even though certain groups of Americans were not receiving timely access to broadband, broadband deployment ‘overall’ was reasonable and timely.” [2]


The Sixth Broadband Deployment Report confirms that a sizeable number of Americans have no broadband access whatsoever, or have access that do not meet the National Broadband Plan goal of affordable service with download speeds of at least 4 megabits per second (“Mbps”) and upload speeds of at least 1 Mbps. [3] The FCC recognized the prior 200 kilobit per second rate, in either direction, “simply is not enough bandwidth to enable a user, using current technology, ‘to originate and receive high-quality voice, data, graphics, and video telecommunications,’ as section 706 [of the Telecommunication Act of 1996] requires of such services.” [4]

Using the higher bit rate threshold the FCC estimates that 1,024 out of 3,230 counties in the United States and its territories are unserved by broadband, [5] and between approximately 14 to 24 million Americans do not have access to broadband today. [6] The Commission makes a number of candid acknowledgements:

The . . . [unserved] group appears to be disproportionately lower-income Americans and Americans who live in rural areas. The goal of the statute, and the standard against which we measure our progress, is universal broadband availability. We have not achieved this goal today, nor does it appear that we will achieve success without changes to present policies. The evidence further indicates that market forces alone are unlikely to ensure that the unserved minority of Americans will be able to obtain the benefits of broadband anytime in the near future. Therefore, if we remain on our current course, a large number of Americans likely will remain excluded from the significant benefits of broadband that most other Americans can access today. Given the ever-growing importance of broadband to our society, we are unable to conclude that broadband is being reasonably and timely deployed to all Americans in this situation. [7]

As evidenced by the ambitious goals in the National Broadband Plan, the Commission aspires to do a better job of promoting affordable and ubiquitous access going forward.

[1] Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, GN Docket No. 09-137, Sixth Broadband Deployment Report, (rel. July 20, 2010); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-10-129A1.pdf[hereinafter cited as Sixth Broadband Deployment Report].


[2] Id. at ¶2.

[3] See FCC, OMNIBUS BROADBAND INITIATIVE (OBI), CONNECTING AMERICA: THE NATIONAL BROADBAND PLAN, GN Docket No. 09-51 (2010) (NATIONAL BROADBAND PLAN); Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act; A National Broadband Plan for Our Future, GN Docket Nos. 09-51, 09-137, 2010 W.L. 972375 (rel. March 16, 2010). See also, National Broadband Plan, World Wide Web Site, http://www.broadband.gov/plan/.

[4] Sixth Broadband Deployment Report at ¶10.

[5] Id. at ¶22.

[6] Id. at ¶28. The Commission previously reported that about 80 million Americans either do not have access, or do not subscriber to an available broadband service.

[7] Id.

Comcast Violates an Unwritten Law

When a venture has petitioned the FCC to approve an acquisition, or to provide greater regulatory relief an unwritten law requires the petitioner to lay low. Comcast has violated this law by imposing, for the second time this year in Pennsylvania, a significant rate hike well in excess of the rate of inflation at the very same time it wants the FCC to approve the company’s acquition of NBC. Not smart.


Comcast surely must know that the optics of buying NBC do not look great no matter how much Comcast says such a transaction will promote competition. Raising both cable and Internet access rates reinforces the notion that the company has market power and faces limited competitive constraints. Of course this is the very company that does not want to pay anything for retransmission consent to carry broadcast television stations even as it charges subscribers $14.50 for the privilege. This company has fought a decade long battle to stymie alternatives to lucrative set top box rentals and now wants the FCC to abandon any efforts to promote CableCards and other alternatives.

It seems as though Comcast cannot lay low even during a time it wants a big gift from the FCC. The least the company could do is throw a gold-plated crumb to subscribers.

Content Deregulation and the Second Circuit Court Opinion on Fleeting Expletives

Acting on a remand from the Supreme Court, which had upheld on procedural grounds the FCC’s increasingly stringent rules limiting broadcast indecency, [1] the Second Circuit Court of Appeals considered First Amendment arguments and concluded that the FCC’s new rules are unconstitutionally vague. [2] Unlike the Supreme Court, which had deferred to the FCC’s decision to tighten its rules, including sanctioning broadcast stations for failing to bleep out spontaneously uttered, “fleeting” expletives, the Second Circuit held that the FCC created a chilling effect [3] that goes far beyond whether broadcasters can let slip the occasional profane word.


The Second Circuit held that the FCC owes broadcasters the same degree of clarity about the Commission’s rules regardless of whether content regulations trigger a lower level of scrutiny by courts [4] as the Supreme Court had deemed appropriate in F.C.C. v Pacifica Foundation, 438 U.S. 726 (1978), where the Court approved an FCC fine for the 2 p.m broadcast of a George

Carlin monologue containing several expletives based on the uniquely pervasiveness of broadcasting and its accessibility by children.

The Second Circuit documented how the FCC shifted its enforcement without clear guidance and with inconsistent application. With an emphasis on context, the FCC found no violation when profane words were used in the film Saving Private Ryan yet the very same words were considered actionable when uttered in a documentary about the Blues music genre. Such inconsistency “raises grave concerns under the First Amendment” [5]  because “nothing would prevent the FCC from applying its indecency policy in a discriminatory manner in the future.” [6]

With such a clear endorsement of media First Amendment freedom, some observers have speculated or hoped that the judiciary, including the Supreme Court, will be inclined to reject more limitations on expression and medium-based analysis of the First Amendment. [7] While acknowledging that it must apply Supreme Court precedent, the Second Circuit strongly implied that “today’s realities” [8] do not support a dichotomy in the degree of permissible government regulation and nature of judicial scrutiny between broadcasting and other media such as the Internet and cable television. [9] Asserting that broadcast television no longer has a uniquely pervasive presence, the court emphasized the substantial changes in the media landscape since the Supreme Court decided the Pacifica case:

The past thirty years has seen an explosion of media sources, and broadcast television has become only one voice in the chorus. Cable television is almost as pervasive as broadcast-almost 87 percent of households subscribe to a cable or satellite service-and most viewers can alternate between broadcast and non-broadcast channels with a click of their remote control. . . . The internet, too, has become omnipresent, offering access to everything from viral videos to feature films and, yes, even broadcast television programs.. . . As the FCC itself acknowledges, “[c]hildren today live in a media environment that is dramatically different from the one in which their parents and grandparents grew up decades ago.” [10]

The Second Circuit argues that broadcasters should qualify for the same insulation from government content regulation as other media in light of enhanced consumer choice and the ability of parents to program their televisions, using the V-Chip, to block children’s’ access to harmful content. [11]

Notwithstanding the Second Circuit’s determination of changed circumstances and the diminution of broadcasters’ market power and influence, [12] the Supreme Court may not follow through with decisions resulting in diminished continuing government oversight and regulation of content potentially harmful to children. The FCC may not appeal the case and the Court may not grant certiorari on appeal. Despite significant changes in the media marketplace, the Court did not grant certiorari in Cablevision Systems Corp. v. F.C.C. [13] where a lower court affirmed the FCC’s must-carry rules that resulted in the carriage of an upstate New York television station by cable systems serving cities on Long Island.

Bear in mind that when the Supreme Court first considered the fleeting expletives case, a majority of the Court endorsed the FCC’s actions, albeit on administrative law grounds. Justice Scalia, the author of the majority decision, made it clear that he believes broadcasters continue to have the ability to harm children. Justice Scalia believes that potential harm in subjecting this assumption to scientific inquiry obviates the need for the FCC to acquire empirical evidence:

There are some propositions for which scant empirical evidence can be marshaled, and the harmful effect of broadcast profanity on children is one of them. One cannot demand a multiyear controlled study, in which some children are intentionally exposed to indecent broadcasts (and insulated from all other indecency), and others are shielded from all indecency. . . . Here it suffices to know that children mimic the behavior they observe-or at least the behavior that is presented to them as normal and appropriate. Programming replete with one-word indecent expletives will tend to produce children who use (at least) one-word indecent expletives. Congress has made the determination that indecent material is harmful to children, and has left enforcement of the ban to the Commission. If enforcement had to be supported by empirical data, the ban would effectively be a nullity. [14]

Justice’s Scalia’s concern for children may have constituted one of the reasons the Court has agreed to consider whether states can restrict minors’ access to potentially harmful video games.

[1] F.C.C. v. Fox Television Stations, Inc., 129 S.Ct. 1800, 1813 (2009)(the FCC’s shift in rules deeming single, non-literal use of an expletive not actionably indecent to one where it is subject to possible exceptions for bona fide news coverage and artistic necessity considered no arbitrary or capricious).


[2] Fox Television Stations, Inc., v. F.C.C., __F.3d __, 2010 W.L. 2736937 (2d Cir. July 13, 2010).

[3] “Under the current policy, broadcasters must choose between not airing or censoring controversial programs and risking massive fines or possibly even loss of their licenses, and it is not surprising which option they choose. Indeed, there is ample evidence in the record that the FCC's indecency policy has chilled protected speech.” Id. at *14 (Westlaw pagination).

[4] “Broadcasters are entitled to the same degree of clarity as other speakers, even if restrictions on their speech are subject to a lower level of scrutiny. It is the language of the rule, not the medium in which it is applied, that determines whether a law or regulation is impermissibly vague.” Id. at *10.

[5] Id. at *14.

[6] Id.

[7] “The Supreme Court, if it takes up the case, should end all government regulations on the content of broadcasts. Technological change has undermined any justification for limiting the First Amendment rights of broadcast media outlets but not others.” Free Speech for Broadcasters, Too, THE NEW YORK TIMES, editorial (July 16, 2010); available at: http://www.nytimes.com/2010/07/18/opinion/18sun1.html?_r=1&ref=todayspaper.

[8] Fox Television Stations, Inc. 2010 W.L. 2736937 at * 8.

[9] The court compared the assumptions made by courts when evaluating the degree of First Amendment protection applied to indecent speech transmitted by different media with Internet speakers entitled to full protection, citing Reno v. ACLU, 521 U.S. 844, 874-75 (1997), telephone companies not required to ban entirely “dial-a-porn” calling, citingSable Communications of California v. F.C.C., 492 U.S. 115, 131 (1989), and cable television companies free to transmit sexually oriented content at any hour. First Amendment infringing broadcast regulation is subject to a lower level of judicial scrutiny based on “the twin pillars of pervasiveness and accessibility to children.” Fox Television Stations, Inc. 2010 W.L. 2736937 at * 7 citing Pacifica, 438 U.S. at 748-49.

[10] Fox Television Stations, Inc. 2010 W.L. 2736937 at * 7 (citations omitted).

[11] We can think of no reason why this rationale for applying strict scrutiny in the case of cable television would not apply with equal force to broadcast television in light of the V-chip technology that is now available. Id. at *8.

[12] Other courts have undertaken a more nuanced assessment of media competition and market power. For example in Prometheus Radio Project v. FCC, 373 F. 3d 372 (3d Cir. 2004), the Third Circuit Court of Appeals, rejected the FCC’s methodology for determining media market competitiveness which counted the number of outlets regardless of size and impact. This court also noted that major incumbent media ventures had established a significant presence on the Internet thereby challenging the assumption that the Internet provides new content independent of other media.

[13] 570 F.3d 83 (2d Cir. 2009), cert. den. Cablevision Systems Corp. v. F.C.C., __ S.Ct.__, 2010 W.L. 322891, (U.S. May 17, 2010) (NO. 09-901).

[14] F.C.C. v. Fox Television Stations, Inc., 129 S.Ct. 1800, 1813 (2009).

[15] Video Software Dealers Ass’n v. Schwarzenegger, 556 F.3d 950 (9th Cir. 2009) , cert. granted sub nom., Schwarzenegger v. Entertainment Merchants Ass’n, 130 S.Ct. 2398, (U.S. Apr 26, 2010) (NO. 08-1448).

AYCE and the Third Screen

AT&T recently announced that it plans to abandon All You Can Eat (“AYCE”) unmetered data pricing substituting usage-based plans. One certainly can appreciate a strategy that eliminates cross-subsidies from light to heavy users. But consider what eliminating AYCE does to the overall conceptualization of wireless broadband.

Metering data consumption promotes efficient “non-wasteful” consumption, but that type of use is exactly what subscribers expect. Broadcast and cable television (“first screen”) consumption is not metered and the degree of financial support from advertisers is based on the amount of consumption. More consumption is better and the incremental cost to serve such additional demand is nil. Cable modem and DSL wired broadband carriers also offer AYCE to "second screen" computers, presumably because the incremental cost of an additional hour of consumption, while not zero, is either not worth metering, or the carriers appreciate the commercial and public relations benefits from providing AYCE access.

When consumers have to consider a ticking consumption meter, they likely will consume less of the Internet, so AT&T benefits by disciplining heavy users. But metering also reduces the overall utility most users will accrue. If I am mindful that video downloads will quickly exhaust my monthly downloading (throughput) allowance, I am not going to view or seek out full motion video advertisements that supplement carrier subscription revenues. What AT&T generates from additional Gigabyte downloading sales, it might lose from lower advertising revenues as subscribers use greater vigilance to conserve bandwidth.

We can applaud so-called efficient use of broadband, but “meter mindfulness” takes away some of the pleasure and serendipity the Web offers. Additionally AT&T strategy comes across as an acknowledgement that wireless Internet access cannot become the competitive and functional equivalent to wired options. Carriers cannot keep up with demand, cannot afford to accommodate heavy users’ demand, or wireless networks simply cannot scale up to accommodate heavy full motion video demand. If any one of these three conditions exists, then wireless devices do not fully operate as “third screens” in light of the carrier, bandwidth, and throughput limitations.

Handicapping the Viability of the Third Way Model for Internet Access Regulation

Like many I have grave doubts about the viability of the Third Way regulatory model proposed by FCC chaiman Genachowski and General Counsel Austin Schlick, see Federal Communications Commission, Chairman Julius Genachowski, The Third Way: A Narrowly Tailored Broadband Framework (May 6, 2010); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-297944A1.doc  (rejecting a renewed attempt to find a way to extend Title I ancillary jurisdiction or reclassifying Internet access as a telecommunications service); Austin Schlick, General Counsel, A Third-Way Legal Framework for Addressing the Comcast Dilemma (May 6, 2010); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-297945A1.doc (providing legal rationale for narrow application of selected sections of Title II regulatory authority over Internet access). The model comes across as after the fact scrambling to re-arrange the wingspan of Title II jurisdiction.

On further reflection, I am coming around to the possibility that the Chairman may be able to pull this off. In the absence of regulatory clarity provided by amendments to the Communications Act, the FCC might successfully apply Title II, subject to forbearance, to Internet access bitstreams using four rationales (only one of which Austin Schlick identified in his Third-Way Legal Framework paper of May 6, 2010):

1) Despite a preference for applying a single, least regulatory classification to convergent services, e.g., Internet access, the FCC has explicitly applied two different regulatory classifications to wireless telephony/Internet access provided by a single venture over a composite wireless carrier. When wireless carriers offer telephony (whether to other wireless subscribers or terminating to the wireline Public Switched Telephone Network (“PSTN”) the Commission applies Title II, subject to forbearance. This is the gist of the Third Way model and it unquestionably applies to wireless cellular carriers in light of their classification as providers of Commercial Mobile Radio Service (“CMRS”), a Title II service subject to forbearance.

When wireless carriers offer Internet access, or for that matter video services that increasingly look like Internet Protocol Television and Title VI cable communications, the FCC does not apply Title II. The Commission has stated that the information service (and Title I only) applies to wireless Internet access, but has tried to avoid having to make a call on wireless IPTV/video/cable service.

2) The Commission can explicitly state that it does not have to make an either/or determination about which single statutory classification applies to a convergent service such as Internet access which combines telecommunications and information services along with content. Why not declare that not all forms of Internet access always constitute an information service? The Commission has stated that it thought it needed to sustain and apply a telecommunications service/information service dichotomy, but nothing in the Communications Act explicitly requires it. The Commission has stated only that it thinks “[t]he language and legislative history of [the Communications Act of 1996] indicate[s] that the drafters . . . regarded telecommunications services and information services as mutually exclusive categories.” In re Federal-State Joint Board on Universal Service, 13 F.C.C.R. 11501, 11522-23 (1998); see also Vonage Holdings Corp. v. Minn. PUC, 290 F. Supp. 2d 993, 994, 1000 (D. Minn. 2003).

In essence the FCC would have to acknowledge that Justice Scalia was correct in his dissent in the Brand-X case where he chided the FCC for ignoring the inconvenient truth that ISPs combine telecommunication and information services. Justice Scalia used pizzerias and pizza delivery for his primary analogy and asserted that one could not ignore the fact that pizza baking and pizza delivery constitute two separate elements of the pizza business. He concluded, “[i]t is therefore inevitable that customers will regard the competing cable-modem service as giving them both computing functionality and the physical pipe by which that functionality comes to their computer—both the pizza and the delivery service.” National Cable & Telecommunications Association v. Brand X Internet Services, 125 S. Ct. 2688, 2715 (2005).

3) No one disputed the FCC’s jurisdiction and authority, to sanction the Madison River telephone company when the company blocked DSL subscriber access to VoIP services. See http://www.fcc.gov/eb/Orders/2005/DA-05-543A2.html. The matter resulted in a voluntary forfeiture of $15,000 by the company instead of litigation without a complete examination of the jurisdictional basis for claiming jurisdiction over a DSL information service. However the Commission did reserve the option of reviewing any complaints against the company—presumably retroactively and prospectively—under its authority in Sec. 208 (Title II) of the Communications Act. Madison River provides some basis for FCC intervention to safeguard the public interest and assert jurisdiction over the telecommunications links used to provide DSL Internet access.

4) If the FCC can rely on changed circumstances to justify a re-classification from regulated telecommunications service (DSL) to unregulated information service, might further changed circumstances justify another re-classification? Bear in mind that the information service classification applies to competitively provided non-essential services. Arguably Internet access has become more essential even as it remains a monopoly or duopoly-provided service in many parts of the nation. Perhaps eventually terrestrial and satellite wireless will provide a competitive option, in terms of price, bit rate and monthly throughoput quotas, but that is not the case now.

New Publication: Case Studies in Abandoned Empiricism and the Lack of Peer Review at the Federal Communications Commission

The Journal on Telecommunications and High Technology Law at the University of Colorado law school has published my article that provides ample evidence to prove that the FCC rarely does an adequate job at fact finding when making decisions having substantial impact on our national economy; see http://jthtl.org/content/articles/V8I2/JTHTLv8i2_Frieden.PDF.

I examine six case studies where the Commission deregulates, approves a merger, and relaxes ownership and spectrum restrictions. In each instance the FCC makes expansive claims how the proposed transaction or shift in policy will promote competition, serve the public interest and enhance consumer welfare. The Commission makes these claims based often exclusively on the filings of stakeholders in lieu of internal fact finding and analysis. Often reviewing courts refrain from questioning the FCC’s findings and rejecting the Commission’s lack of empirical analysis subject to statutorily required peer review.

I offer recommendations for an improved process at the FCC. However, no one should expect progress unless and until reviewing courts do a better job of requiring a match between a policy outcome and the evidence supporting it.

Network Neutrality and the FCC’s Inability to Calibrate Regulation of Convergent Operators

That FCC Chairman Julius Genachowski is struggling to find a way to calibrate network neutrality and Title I ancillary jurisdiction confirms the difficulty in regulating operators that seamlessly blend carriage and content. See, THE THIRD WAY: A NARROWLY TAILORED BROADBAND FRAMEWORK; available at: http://voices.washingtonpost.com/posttech/genachowski.doc.


Internet Service Providers offer convergent services that blend telecommunications, as in bit transport, with telecommunications services, such as telephony and arguably first and last mile Internet access, with video services, such as Internet Protocol Television, and with information services that ride on top of the bit transmission link. For administrative convenience and not as required by law, the FCC likes to apply an either/or single regulatory classification to convergent operators. Having classified ISPs as information service providers, the Commission unsuccessfully sought to sanction Comcast’s meddling with subscribers’ peer-to-peer traffic. Now Chairman Genachowski wants to further narrow and nuance regulatory oversight without changing the organic information service classification.

Some network neutrality advocates have urged the FCC simply to abandon the information service classification and reclassify aspects of ISP Internet access as Title II, common carrier regulated telecommunications service. Why use tortured and legally suspect analysis to craft an absolute dichotomy?

What is wrong with the FCC acknowledging that providers of convergent services trigger different regulatory classifications as a function of what service they provide? Even thought the FCC largely emphasizes wireless carriers’ information services, the Commission occasionally reminds cellular radio service providers that they still operate as common carriers that for example have to interconnect with other wireless carriers to provide seamless roaming opportunities for users. So it’s possible for the FCC to recognize that in the case of wireless carriers, a single venture using the same conduit can configure both regulated telecommunications services and generally unregulated information services.

The FCC has to confront the messy reality that when ventures offer convergent services that combine conduit and content and when these ventures vertically and horizontally integrate throughout many market segments, the Commission cannot rely on absolute either/or service dichotomies to classify everything a venture provides. Even to this day the Commission cannot bring itself to confront this reality as evidenced by its utter silence on what regulatory regime should apply to Voice over the Internet Protocol and Internet Protocol Television.

It’s time to recognize that layered and convergent services defy compartmentalization into convenient, single regulatory classifications and regimes.

Determining Causality in Telecommunications

With the FCC and most government actors obsessed with incentive creation, it makes sense to determine whether and how a regulatory or deregulatory action causes some desired outcome. Consider the creation of incentives to invest in physical plant. Incumbent carriers have spent a lot of time, money and effort arguing that regulation creates investment disincentives and deregulation does the desired opposite. This simplistic and not always correct premise constitutes the prevailing wisdom in the U.S.

Using this mindset, sponsored researchers have argued that next generation network plant skyrocketed soon after the FCC abandoned local loop unbundling and other “sharing” requirements. Let’s probe this assertion. First, recall that local loop unbundling was not something incumbent Local Exchange Carriers (“ILECs”) gave away or shared. Resellers and repackagers of local switching and routing plant paid the incumbents, albeit at a rate below what the ILECs would like to have been paid. Second I have found—deep, deep, deep in the FCC’s obscure statistics and data collection process—that compulsory rentals from incumbents to newcomers peaked at 12%, a level never close to forcing incumbents to invest in plant that they would have to make available solely to competitors. See Trends in Telephone Service (Aug. 2008), at p. 8-8; available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284932A1.pdf.

The FCC stopped preparing this helpful source of information, but the percentage of resold ILEC lines has declined below the 8% reported in 2007 in light of the fact that rates to Competitive Local Exchange Carriers (“CLECs”) can exceed retail rates to end users, a price squeeze, but one the FCC and the Supreme Court in the Linkline case has no concerns.

Let’s assume that ILECs actually did increase their aggregate plant investment after the FCC abandoned local loop unbundling, bearing in mind that the Commission never required leasing of next generation plant such as dark or even lit fiber. Did deregulation cause all of the new investment? Of course not. Might the business cycle have had something to do with it? Might the cost of capital have had something to do with it? Might competitive necessity have had something to do with it? Oh and might declining market share and revenues in core business lines such as Plain Old Telephone Service have had something to do with it?

Whatever disincentive local loop unbundling imposed paled in comparison to incumbents’ need to find new revenues. Giving the ILECs due credit they have invested in next generation networks, mostly wireless and video plant for which no unbundling requirement ever applied. As to new found zeal in investing in Digital Subscriber Line services, might the ILECs want to make relatively small additional investment in already amortized copper plant, to secure some of the broadband growth market?

In a nutshell: do not buy the assertion that carriers make investment go/no decisions solely on the state of regulatory oversight. Carriers make sound business decisions, affected more by business conditions than the relatively minor impact of any FCC regulatory or deregulatory decision.

Publication of Winning the Silicon Sweepstakes

I am pleased to report that the Yale University Press has published my latest book entitled Winning the Silicon Sweepstakes: Can the United States Compete in Global Telecommunications. See Book Overview

With comprehensive documentation, I challenge the conventional wisdom and sponsored research that claims the U.S. has best in class telecommunications infrastructure and services produced by an optimal, competitive marketplace. I demonstrate that the glide path of deregulation has handicapped the nation’s competitive advantage, and has contributed to a comparatively mediocre standing of the U.S. in both broadband and wireless markets.

I assert the need for smarter, better calibrated, light-handed regulation coupled with efforts to promote greater consumer digital literacy. Rather than rely almost exclusively on marketplace self-regulation portions of the telecommunications marketplace need a government referee able to resolve disputes and safeguard consumers.

The book asks and answers such questions as:

• How can the United States demonstrate global best practices in some information and communications technology markets, such as software and computing, but woefully lag in others, such as in wireless and broadband services?

• If the information revolution was supposed to “change everything” how did over $1 trillion in investment largely evaporate in three years?

• How can incumbent telephone companies successfully argue the need for governments to create incentives for investment in next generation networks while at the same time claiming the existence of robust competition eliminates the need for any other sort of government involvement?

• Why has the U.S. largely failed to bridge the Digital Divide despite having created subsidy mechanisms that invest billions annually in never achieved solutions?

• If the telecommunications marketplace has become so robustly competitive, where are the usual consumer benefits of lower prices, diverse choices, and responsive customer service?

• Why does it appear that incumbent ventures can belatedly embrace new technologies yet eventually extend their market power by acquiring or extinguishing most competitive threats through mergers and acquisitions?
and

• Why does it appear that the next generation Internet will become less open, neutral and accessible possibly tipping the competitive playing field in favor of “walled gardens” of content and services offered by incumbents keen on disadvantaging newcomers offering the “next best thing”?

Summary of Court Decision Reversing the FCC Sanctions of Comcast

The FCC’s attempt to sanction Comcast for interfering with subscribers’ peer-to-peer traffic absent legitimate network management requirements failed to pass muster with the D.C. Circuit Court of Appeals. [1] This decision severely sidetracks the Commission’s attempt to establish binding network neutrality policies, rules and regulations absent an explicit legislative mandate.
Noting that the Commission invoked no express statutory authority, the court considered whether “barring Comcast from interfering with its customers’ use of peer-to-peer networking applications is ‘reasonably ancillary to the . . . effective performance of its statutorily mandated responsibilities.’” [2] Notwithstanding the Supreme Court’s broad deference to the FCC’s assertion of ancillary jurisdiction in the Brand X case, [3] where the Court affirmed the FCC’s determination that cable modem provided Internet access constitutes a lightly regulated information service, the D.C. Circuit required evidence that the FCC’s regulatory action had a direct link to its statutorily mandated responsibilities. [4] The court vacated the FCC’s sanctioning order of Comcast based on the view that the FCC could only refer to congressional statements of policy which do not provide a precedent for creating such responsibilities and to various section of the Communications Act that the court deemed inapplicable for substantive and procedural reasons.

The D.C. Circuit vacated the Commission’s reprimand of Comcast based on the court’s refusal to accept the Commission’s claim of ancillary jurisdiction. The court referred to the three major cable television cases [5] where the Supreme Court had affirmed the FCC’s ancillary jurisdictional claim “at a time when, as with the Internet today, the Communications Act gave the Commission no express authority to regulate such systems.” [6] As it had done in the case rejecting the FCC’s attempt to require television set manufacturers to build units capable of processing digital right management, “broadcast flags,” the court distilled the precedent for ancillary jurisdiction established by these cases into a two part test whether: “(1) the Commission’s general jurisdictional grant under Title I [of the Communications Act] covers the regulated subject and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.” [7] The court determined that the FCC had not satisfied the second part of the test. [8]

The court flatly rejected the FCC’s attempt to infer congressional intent for the Commission to extend its regulatory wingspan to include Internet access. In a series of references to provisions of the Communications Act, [9] the Commission expansively read congressional policy as sufficient ground for undertaking regulatory policy:

Instead, the Commission maintains that congressional
policy by itself creates “statutorily mandated responsibilities”
sufficient to support the exercise of section 4(i) ancillary
authority. Not only is this argument flatly inconsistent with
Southwestern Cable, Midwest Video I, Midwest Video II, and
NARUC II, but if accepted it would virtually free the
Commission from its congressional tether. [10]

The court concluded that the FCC could invoke ancillary jurisdiction to apply any number of regulatory requirements to cable modem provided Internet access without explicit congressional authority to do so. [11]

NOTES

[1] Comcast Corp. v. F.C.C., __F.3d __, slip op. (D.C. Cir. April 6, 2010)(No. 08-1291); available at: http://pacer.cadc.uscourts.gov/common/opinions/201004/08-1291-1238302.pdf.

[2] Id. at 3 citing Am.Library Ass’n v. F.C.C., 406 F.3d 689, 692 (D.C. Cir. 2005).

[3] The court does not interpret the Brand X case as precedent for the imposition of plenary authority over any matter involving cable television company provided Internet access. “By leaping from Brand X’s observation that the Commission’s ancillary authority may allow it to impose some kinds of obligations on cable Internet providers to a claim of plenary authority over
such providers, the Commission runs afoul of Southwestern Cable and Midwest Video I.” Id. at 14. “The Commission’s exercise of ancillary authority over Comcast’s network management practices must, to repeat, ‘be independently justified.’” Id. at 16, citing National Ass’n of Regulatory Utility Commissioners v. FCC, 533 F.2d 601, 613 (D.C. Cir. 1976)(rejecting the FCC’s preemption of state and local regulation of two-way, intrastate, non-video cable transmissions).

[4] “The Commission therefore rests its assertion of authority over Comcast’s
network management practices on the broad language of section 4(i) of the Act: “The Commission may perform any and all acts, make such rules and regulations, and issue such
orders, not inconsistent with this chapter, as may be necessary in the execution of its functions,” Id. at 6, citing 47 U.S.C. § 154(i) and In re Formal Compl. of Free Press & Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, 23 F.C.C.R.
13,028, 13,036, (2008).

[5] United States v. Southwestern Cable Co., 392 U.S. 157 (1968), United States v. Midwest Video Corp., 406 U.S. 649 (1972) (Midwest Video I), and FCC v. Midwest Video Corp., 440 U.S. 689 (1979) (Midwest Video II).

[6] Id. at 6.

[7] Id. at 7.

[8] The court noted that Comcast had conceded “ that the Commission’s action here satisfies the first requirement because the company’s Internet service qualifies as “interstate and foreign communication by wire” within the meaning of Title I of the Communications Act.” Id. at 7-8 citing 47 U.S.C. § 152(a). The court also rejected the Commission’s claim that because Comcast had used the existence of FCC jurisdiction in another case the company should be judicially stopped from challenging the Commission’s jurisdiction now. The court interpreted Comcast’s position in the other case as simply acknowledging the FCC’s jurisdiction over wire and radio services, which includes what Comcast offers. “Because Comcast never clearly argued in the
California litigation that the Commission’s assertion of authority over the company’s network management practices would be ‘reasonably ancillary to the Commission’s effective
performance of its statutorily mandated responsibilities’ (American Library’s second requirement), 406 F.3d at 692,that question remains for us to answer.” Id. at 12.

[9] The Commission cited to Secs. 1, 230(b), 706, 257, 201 and 623 of the Communications Act.

[10] Id. at 23.

[11] “Were we to accept that theory of ancillary authority, we see no reason why the Commission would have to stop . . [at imposing regulation of Internet Service Providers’ rates] for we can think of few examples of regulations that apply to Title II common carrier services, Title III broadcast services, or Title VI cable services that the Commission, relying on the
broad policies articulated in section 230(b) and section 1,would be unable to impose upon Internet service providers.” Id. at 23-24.

Trust the Cloud?

By choice and necessity we increasingly use cloud computing to process and store information about us—from pictures to credit card numbers. The worst case scenarios of such reliance include identity theft and fraud. But there are lesser irritants, two of which affected me with no apparent reason or cause.

In the space of a few weeks my most frequent used car rental company “DNRed” me. They decided—or more likely a computer decided—that I was no longer credit worthy. So in one calculation I migrated from an “elite” frequent renter, to a deadbeat. After repeated calls to the company to identify who could correct the mistake, I was reinstated. But absolutely no one could explain how such a thing could have happened.

Cloud confusion event two occurred on a recent trip. A major German airline determined that my wife and I were blind. Okay I get the cosmic message in this, but a representative who unsuccessfully gave us back our sight noted that some human had to have inserted blindness into the record. The cloud would not relent: one each segment my wife and I were invited by name to “pre-board.” We may still be blind.

Trust but attempt to verify what the cloud knows about you.

The National Broadband Plan--A Work in Progress

The National Broadband Plan represents a thoughtful, albeit belated, recognition that the U.S. federal government can stimulate both the broadband supply and demand through stewardship and vision. However, the Plan does not signal a major shift in strategy, the infusion of billions more in subsidies, or a departure from reliance on marketplace forces to allocate most resources to broadband development. The Plan does make the case for many short and long term adjustments in policies, many of which the FCC cannot effectuate unilaterally in light of the need for a legislative mandate, or cooperation with other government agencies and stakeholders. The Plan offers hope that some leaders in the U.S. government now recognize the need to adopt global best practices, many of which require the national government to engage in sophisticated analysis of when to become more involved in broadband development, but also when to remove regulatory underbrush that retards timely and flexible adjustments to the mix of radio spectrum available.

The FCC officially recognizes that broadband means something much faster than 200 kbps. The Plan proposes an ambitious “100 squared” goal of having 100 million households with access to 100 Mbps download service by 2020 with a far less ambitious 4 mbps service of actual download speed available to nearly all residents as soon as possible.

The National Broadband Plan offers scores of thoughtful and probably positive policy changes, but many of them require coordination among federal agencies, newfound zeal in finding ways to use spectrum with greater efficiency, and the need to make changes quickly. Dislodging the status quo will prove daunting, because the Plan offers little new inducements for government agencies to refrain from inefficient spectrum use bordering on hoarding and for incumbent wireline carriers to welcome a shift in universal service funding from narrowband telephone service to broadband.

The Plan operates under the flawed presumption that broadband competition exists, or soon will flourish, with particular emphasis on wireless broadband options that currently have failed to match the bitrate deliver speeds of wireline options. Additionally, the Commission appears content with finding new wireless broadband spectrum for incumbent carriers, without considering whether the scope of competition, as well as broadband access and affordability might be enhanced by reserving some newly available spectrum for market entrants. The Plan avoids addressing network interconnection, neutrality and sharing requirements that other nations have adopted with measureable success.

16 Page Summary of the National Broadband Plan and Mission Statement

Having completed the first of many readings of the FCC's National Broadband Plan, I have prepared a relatively short summary of the document. It is available at my web site: http://www.personal.psu.edu/faculty/r/m/rmf5/. Scroll down toward the bottom of the page and under Broadband and Next Generation Network Development, click on the link titled Summary of National Broadband Plan.

Podcast on a Variety of Network Neutrality Issues

You might have an interest in a thoughtful and wide ranging discussion on the legal, regulatory and policy issues raised by network neutrality hosted by Surprisingly Free, a project of the Mercatus Center at George Mason University Law School: http://surprisinglyfree.com/2010/03/01/rob-frieden-on-internet-applications-content-providers-and-net-neutrality/.

Jerry Brito and I prove that reasonable people can disagree on aspects of network neutrality yet have a civilized and informative discussion.

More Available Wireless Spectrum and Higher Market Entry Barriers

The tremendous demand for, and profitability of mobile telephony supports legislative and regulatory efforts to refarm spectrum with an eye toward reallocating as much as possible for wireless telephony and data services. But there is a downside that no one seems to acknowledge.

In light of past FCC practice and the behavior of incumbent wireless carriers I expect two anticompetitive outcomes to occur with the onset of any more spectrum. To maximize current contributions to the national treasury the FCC won’t likely encumber any spectrum with open access requirements much less reserve some of the new spectrum for new bidders. Years ago the FCC removed a spectrum cap on any single carrier ostensibly to enable to improve service and accrue scale economies. We can expect the Big Four incumbent wireless carriers, now sharing over 90% market share, to acquire most of the spectrum.

In the 700 MHz spectrum auction (reallocation of UHF television spectrum) AT&T and Verizon spent $16 billion of the $19.6 billion collected by the U.S. government:

“According to an analysis by The Associated Press, the two telecom companies bid more than $16 billion, constituting the vast majority of the overall $19.6 billion that was bid in the FCC auction. With Verizon Wireless and AT&T dominating the auction so completely, hopes that the auction would allow for the creation of a new nationwide wireless service provider were dashed.” W. David Gardner, Verizon, AT&T Big Winners in 700 MHz Auction, INFORMATIONWEEK (March 20, 2008) available at http://www.informationweek.com/news/mobility/showArticle.jhtml?articleID=206905000; see also, Saul Hansell, Verizon and AT&T Win Big in Auction of Spectrum, THE NEW YORK TIMES (March 21, 2008), available athttp://www.nytimes.com/2008/03/21/technology/21auction.html; FCC, Auction 73, 700 MHz Band, Fact Sheet, available at http://wireless.fcc.gov/auctions/default.htm?job=auction_factsheet&id=73.

Can anyone refute the conclusion that as incumbent carriers control more spectrum, the prospects for market entry and commensurately greater competition wanes? Regardless whether incumbent carriers warehouse the spectrum, or put it to immediate use, their opportunity to consolidate market control grows. Who would have the financial and management resources to take on the incumbents?

So 4 is the highest number of facilities-based carriers we can expect for most markets. If you think a regional carrier or pre-paid reseller can match the expanding service wingspan from the Big Four, think again.

Does Judicial Deference Cleve Along a Deregulation/Expanded Regulation Axis?

By all accounts it appeals that the D.C. Circuit Court of Appeals expressed great skepticism with the FCC’s claimed ancillary jurisdiction to sanction Comcast for meddling with peer-to-peer traffic of its subscribers. I share that concern for two reasons: 1) on administrative law grounds, the FCC should have initiated a notice and comment rulemaking before applying what sure looks like enforced rules; and 2) the FCC stretches the concept of ancillary jurisdiction in Title I of the Communications Act and then justifies the stretch primarily on Title II common carrier regulatory sections that offer a general sense that the FCC should promote access to the Internet and “advanced telecommunications capability.”

The D.C. Circuit surely has ample grounds to reverse the FCC, but if it were to do so what does such action mean in the broader context of judicial deference to the expertise of a regulatory agency and the scope of statutory interpretation accorded these agencies? Bear in mind that a majority of the Supreme Court in the Brand X case (affirming the FCC’s decision to treat cable modem Internet access as an information service) was quite willing to defer to the FCC in terms of its technical expertise and also on so-called Chevron grounds that the FCC reasonably interpreted ambiguous legislation.

So if the D.C. Circuit does not defer, does that mean that at least as to this fact pattern the FCC was unreasonable in its statutory interpretation and no degree of technical expertise can provide a cure? It also just so happens that the Supreme Court deferred to the FCC on a decision that appeared to generate a deregulatory outcome, while the D.C. Circuit’s likely non-deference applies to an expansion of the FCC’s regulatory wingspan.

Measuring Competitiveness in Wireless and Broadband

The FCC, plenty of sponsored researchers, and countless industry players spread the gospel “truth” that the wireless and broadband markets are robustly competitive. But what empirical data confirms this? The usual measures of competitiveness, such as number of operators and market share, do not corroborate the competitiveness conclusion unless you make unreasonable assumptions. I would agree that my local markets are competitive using the FCC’s measure of competitors, but these calculations are totally bogus thanks to creative counting, based on single presence in a zip code and the use of a 200 kilobit per second broadband floor.

So where is the competition? I see wireless competition in advertising, handset options, and claims of superior performance. Do wireless carriers compete on price? Perhaps one way to answer that is to assess just how often these carriers reduce their prices and how many different price points exist for roughly the same service. Using these two criteria, we see that wireless carriers do not change their prices often, don’t offer sales, typically offer the same service package for the same price, and take pains to mask costs by bundling handsets and service.

In broadband we see the same parallel pricing, with few price changes. A fairly well kept secret is the triple digit margins generated by broadband. At a recent national cable television annual conference I heard a Cox Cable Vice President crow about his company’s 100+% margins in offering broadband with no apparent need to drop prices as the market matures, or in light of competition. DSL offers one fourth the bit rate of cable modem service at about one fourth the price. Broadband rates do not typically drop, but in some instances the offered bit rate does rise for the same monthly rate.

So I guess competition, or its appearance depends on the assumptions made and the agenda, sponsor or employer of the analyst.

Something on the Op-Ed Page of the WSJ With Which I Agree

At long last an op-ed piece in the Wall Street Journal makes a statement I endorse: “In the Internet age, transparency is the foundation of trust.” You bet L. Gordon Crovitz (“Climate Change and Open Science,” WSJ 2/22/2010 at A17).

I wonder if Mr. Crovitz would expect the same sort of transparency in the network management disclosure requirements of Internet Service Providers. You see it’s easy for someone to claim that the specifics of network management constitute a trade secret, a “special sauce” for which disclosure would bring financial calamity, or at the very least rob a company of some kind of comparative advantage. Yet transparency is the very thing lacking in ISPs’ decisions whether and how to engage in price and quality of service discrimination.

I readily support many types of QOS and price discrimination provided it is offered on a transparent basis and made available to anyone on the same terms and conditions. I am okay with “better than best efforts” routing sought and paid for by end users and even by content, applications and software providers so long as this option does not guarantee congestion and unusable basic service, or provide the basis to favor ISPs’ corporate affiliates and preferred third parties.

Who would dispute that Comcast was not transparent in its claim that legitimate and lawful network management responsibilities necessitated disrupting peer-to-peer traffic, even in the absence of congestion? So if Comcast was not transparent, how am I and any other Comcast subscriber to trust that the company won’t engage in the wrong kinds of discrimination, i.e., discrimination to provide an boost for corporate affiliates, to favor certain third parties, to discipline subscribers having the temerity to take the company at its word that unmetered service is unmetered?

So Mr. Crovitz climate change advocates surely need to be transparent in their research and statistical compilations and so does the FCC, ISPs and your fellow network neutrality opponents.

Wireless VoIP: Loss Leader or Upselling Strategy?

Verizon Wireless’ decision to allow their subscribers to access Skype (see http://about.skype.com/press/2010/02/verizon.html) raises a question about strategy. Is Verizon leveraging Skype access as an inducement for subscribers to upgrade to smartphones and commit to $30 a month data plans, has the company acknowledged that its future marketplace success lies in data and not voice services, and how will the company prevent a substantial reduction in plain old voice subscriptions priced above the $30 data plan benchmark?

Like many, I have bought the view that voice communications has become a software application that rides on top of any wireline or wireless link. As such, the downward trend line for telephony approaches zero, right? Yes, if subscribers abandon their voice minutes of use plans that start at about $45 for 450 minutes a month. But no if subscribers keep the voice plan and add the $30 or higher data plan.

There was a time when wireless carriers mandated the bundling of a voice plan for the privilege of adding a data plan. Absent such compulsory bundling, Verizon must have confidence that consumers will opt to keep the user friendly voice option. This assumption makes sense particularly if wireless carriers expect to replace unmetered, “all you can eat” data plans with several tiers of monthly throughput baskets.

Cable television operators did not have such confidence that their subscribers would add service tiers rather than cherry pick. By law cable operators must provide subscribers with some “buy through” opportunities.

With a future data dominant, but tiered service environment, users may consider it prudent to keep their voice minutes on a voice plan to conserve their available megabytes for nonvoice services. Under this scenario, efficient pricing plans trump visions of convergence and zero cost voice.

InfoDev (World Bank) Publication on Broadband Development

You might have an interest in the World Bank (InfoDev) study entitled: Building broadband: Strategies and policies for the developing world; available at: http://www.infodev.org/en/Document.756.pdf.

I prepared a comparative study of several developed countries that is woven into the document.

Google’s Broadband Projects

Chances are few U.S. readers have ever heard of something called a “test and demonstration project.” We don’t have a lot of public private partnerships here. Either the mighty marketplace stimulates private entrepreneurial juices, or the government provides subsidies often to the very carriers that did not see the payoff in using their own funds. Test and demonstration projects typically blend government and private venture participants in a project that can test the technological viability of a project and also measure the publics’ interest and willingness to pay for access to the technology.

Google’s broadband projects may provide a third model: a privately funded venture that has little expectation of profit, but which serves public and private goals. Perhaps Google’s ample retained earnings make it easier for the company to afford “lost leaders.” Likewise, Google surely gets ample free press and public relations dividends just by announcing its goodwill endeavor. Maybe Google sponsored projects will show other carriers the merits in enhancing the broadband value proposition by lowering monthly subscription rates, and/or raising delivery speeds. Surely Google does not have to prove that broadband networks can deliver 1 Gigabit per second. They exist, but not in the U.S. of course.

Google might not need to secure federal regulatory authority for any project, but the same cannot be said at the state level. In Pennsylvania, where I live, Verizon secured a right of first refusal by law. I don’t see Verizon objecting to any Google project in Pennsylvania, but I doubt whether Verizon would consider significant any “proof of concept” made by Google.

I believe incumbent carriers, such as Verizon and AT&T, do not yet consider it necessary and cost effective to enhance the value proposition in broadband. The margins are quite generous, but these carriers have more to gain and lose in wireless. Absent far greater competitive necessity --not something any Google project will generate—incumbent broadband providers can make do just fine with often duopolistic markets offering on a global comparative basis mediocre bitrates at relatively high cost.

The Greatest Free-riders of Our Time

Former Southwestern Bell CEO, now General Motors CEO Ed Whitacre famous accused Google of free-riding his network, despite the obvious truth that Google pays for traffic delivery to peering points and ISPs gladly enter into reciprocal peering agreements in lieu of cash transactions that would likely result in a near zero payment as roughly equivalent traffic balances out. Mr. Whiteacre did raise a legitimate question whether there are free riders and I’m see one darling and one unexpected group flying below the radar.

My list of supreme free riders: Apple and cellular radio carriers. Anytime an Apple customer and/or a wireless carrier customer pays for and downloads content via a wi-fi connection, Apple and the carriers avoid having to pay for transport, or providing transport respectively. So Apple can get paid for a book delivered to the iPad without incurring any delivery cost. Such a deal. I have not heard that Apple will pay a gratuity to Starbucks and all the other wi-fi hotspot operators whenever a book gets downloaded “off network.”

Similarly recognize that anytime a wireless carrier subscriber uses wi-fi, in lieu of the carrier’s network, the carrier has avoided having to provide service. Subscribers are not conserving monthly service minutes when they use wi-fi, particularly for data downloads by all you can eat data plan customers.

Some time ago, wireless carriers required cellphone manufacturers such as Nokia to disable wi-fi access in the mistaken perception that the carrier would not benefit when subscribers avoid having to use the carriers’ network. Given the sorry state of these networks in the face of vastly increasing demand, wireless carriers wised up.

Now Apple and the cellular carriers qualify as the greatest free-riders of our time.

Top Ten Insights from the 33rd Annual Conference of the Pacific Telecommunications Council

I have just returned from my annual trek to Honolulu and the PTC Conference; see http://www.ptc.org/ptc10/index.php. Living in a place with extraordinary cloudiness and chill, I look forward to a brief respite despite the frequent airline screw-ups that this time occurred both inbound and outbound (20+ hrs each way plus the unique opportunity to hang out on the tarmac of the Quad Cities airport located in Moline, Il.)

Here are my top ten insights from the conference:

1) Internet-mediated video (particularly 3D) will continue to pump up demand for bandwidth. Both satellite and submarine cable operators talked about offering capacity capable of delivering multiple Terabytes (1000 to the power of 4) capacity.

2) While voice may not offer much revenue prospects as a standalone retail service, consumers still need the application and service providers look to embed it everywhere. It’s possible that in the future we might key in a telephone number in an Internet browser to connect seamlessly. That makes the browser a “universal client.”

3) Ebay may have given up on Skype prematurely. Skype now carries 12% of all international calls, not all of which are free PC-to-PC traffic.

4) Look for further blurring of the line between web-mediated and real time communications with social network sites offering real time messaging coupled with the ability to tag voice to content.

5) The conference emphasis on cloud computing may have been overhyped, but I left convinced that software increasingly will become a service instead of something infrequently installed and updated on one’s hard drive.

6) There is cause for optimism that the “lost” continent of Africa will start to have true broadband access at least on the eastern side. As major markets reach some type of saturation the profit motive makes Africa more attractive even at vastly reduced margins. Bear in mind that wireless operators in Africa have offered service for pennies a minute while generating a respectable profit.

7) As smartphones proliferate look to wireless as the preferred convergence medium for many consumers. Dr. Robert Pepper of Cisco offered an estimate that two thirds of all mobile traffic will be video by 2013. Operators can expect vast demand, but will it come from 4 million customers downloading 50 YouTube videos per month or 2 high definition movies? The aggregate throughput demand is the same—18 petabytes. Speaking of YouTube, I heard that the company is spending up to $2 million a day in Internet capacity to offer its mostly free services.

8) Satellite carriers will have the capacity to offer 100 Gigabits per second service soon and some operators are thinking about installing router functionality on the bird instead of on the ground.

9) There was very little discussion about network neutrality, but a lot about offering differing quality of service performance guarantees.

10) Lastly, it was remarkable to see that most of the major conference sponsors are based outside the U.S. The intellectual, financial and entrepreneurial juice seems more widely distributed as never before. Thanks to financiers’ fees that helped bankrupt the home telephone company, Hawaiian Telcom, the conference had limited local color even as it provided shorter flying times for the dealmakers.

Disintermediation on Steroids?

Technological and marketplace convergence, leading to an IP-centric infrastructure, has the potential to eliminate the middleman--disintermediation in the vernacular. We have begun to see this outcome at the margin as some cable television subscribers terminate their video subscription while retaining their broadband access. My nomadic students have little use of "appointment television," i.e., scheduled broadcasts of content. But they increasingly see little value in having the subscriber right of access to particular content. They have every expectation that the content source will make it available for streaming access, e.g., vbia Hulu, or that someone will illegally make the content readily available.

So who needs cable when consumers have little use for schedules or certain access? Comcast and others recognize the need to accommodate consumers' expectation that if they pay for access it better be available just about any time, via any device. Content distributors and sources balk at accommodating via any format, because of the risk of piracy.

Recently television broadcasters' spectrum has been targeted as a potential source for more mobile wireless bandwidth. In light of the fact that only 9% of the television viewing public relies on the free to air source the spectrum may be in play. If so, would local broadcasters suffer disintermediation, because the networks would not need them to reach consumers, or would local broadcasters strike deals with ISPs and establish their own web sources of content?

One should never underestimate the power of incumbency and efforts by incumbents to safeguard their intermediary status. The National Association of Broadcasters has provided local broadcasters with a public service announcement that emphasizes "free" and "local." Never mind that 91% of the audience rely on a multinational intermediary.

Agency Deference or Strict Statutory Construction—Conflicting Case Precedent

Many observers expect the D.C. Circuit Court of Appeals to vacate the FCC’s attempt at fashioning federal Internet policy when it reprimanded Comcast for the company’s violation of the 4 Internet Freedoms. The Commission did not use a notice and comment rulemaking confident that it has both direct and ancillary jurisdiction to impose a policy statement that it subsequently construes as establishing enforceable rules.

In many reviews of bold and creative interpretations of the Commission’s statutory authority, courts seem to go out of their way to defer to agency expertise. But in other cases reviewing courts are sticklers for explicit statutory authority. How can one predict which model applies?

A good example of the deference model is Justice Thomas’ majority opinion in National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005) where the Supreme Court affirmed the FCC’s classification of cable modem broadband access as an information service. A good example of the strict construction model are the several cases where the FCC sought to allow long distance carriers to withdraw tariffs even in the absence of legislative repeal of the explicit requirement that carriers file tariffs; see MCI Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985); American Tel. & Tel. Co. v. FCC, 978 F.2d 727 (D.C. Cir. 1992); MCI Telecommunications Corp. v. American Tel. & Tel. Co., 512 U.S. 218 (1994).

It’s easy for an uncertain court to defer to agency expertise: what better way to avoid claims that the court has legislated from the bench. But it’s also easy and enticing for a court to rebuke an agency’s bold attempt to expand its regulatory wingspan. The FCC will claim that the Communications Act requires flexibility in light of technological innovation. But it’s predictable that a regulator can perceive the need to protect the public by interpreting a public interest mandate and broad authority to regulate wire and radio services to include the Internet, which we know is an amalgam of networks, but also content, applications and software.

How can a court hold a line or draw one between regulated Internet subjects and unregulated ones? The Commission, with approval by Justice Thomas, creates a sometimes metaphysical difference between carrier offering of telecommunications capabilities as a subordinate aspect of an information service and providing telecommunications services. Justice Thomas got into a war of competing analogies with his usual soul mate Justice Scalia who offered this skeptical assessment of the FCC’s jurisdictional claim: an “experienced agency can (with some assistance from credulous courts) turn statutory constraints into bureaucratic discretions,” reserving, for example, the option of regulating Internet content based on statutes offering absolutely no basis for anything beyond promoting Internet access.

AT&T A Broadband Booster--Who Knew?

AT&T apparently has embraced broadband so much so that it wants out of the dial up, circuit switched telephone business. On it's face we could endorse this belated acknowledgement of a digital future. But no one seems to examine AT&T's motivations which surely lack altruism.

Let's remember that AT&T declined to submit applications for access to some of the $7.2 billion in broadband stimulus funds. To conserve capital, AT&T relies heavily on the copper twisted wire pair to support its current broadband U-Verse service. Now it wants to abandon the local loop---or mabe it's just wants Congress and the FCC to abandon regulation of the local loop.

I see AT&T's well publicized pitch as a gambit for deregulation, no longer based on easily disputed "statistics" about how competitive the telecommunications marketplace is, but now based on the need to expedite the migration from Plain Old Telephone Service ("POTS") to a completely digital broadband infrastructure. The company that won't seek broadband financial support--lest it have to commit to operating a neutral and open network--wants to rid itself of pesky government regulation which apparently has forced it by "regulatory takings," until now, to skim on broadband investment.

Let's briefly consider this deregulatory end game and the apparent lack of residual value in POTS. AT&T wants us to forget the current state of the marketplace, one that has both competitive and uncompetitive segments. But only with a forward looking, deregulatory approach can this nation acclerate the transition to our "digital destiny." How ironic that AT&T would prefer non monetary regulatory "reform" in lieu of direct subsidies.

Speaking of subsidies, recall that the U.S. government so worried about access to free to air broadcast television by 9% of the population that it offered two $40 vouchers for digital to analog converters and launched an aggressive and successful campaign to educate the masses on the DTV conversion. Dial up voice may have declined in both market penetration and revenues, but it won't drop to a 9% penetration any time soon.

So I'll reframe AT&T's ostensibly noble and futuristic campaign as nothing more than a new strand of a familiar gambit to remove government oversight while retaining government conferred benefits. If AT&T abandons its core public utility mission than it should relinquish all of the rights of way it got at below cost or zero expense. AT&T might also check with its tax counsel for advice on what it might lose when it exits the Title II common carrier safe harbor.

Having Its Cake and Eating it Too--Shirking Common Carriage While Retaining Rights of Way Access and Other Benefits

AT&T's new gambit to rid itself of pesky Title II common carrier responsibilities prompts me to ask (and tentatively answer) this question: when, if ever, do Title II carriers lose common carrier/public utility free or below market access to rights of way and other benefits designed to offset the costs of common carriage? Put another way: do information service providers have any rights to public utility upside opportunities.

Some time ago, Comcast decided it wanted to install a mini-refrigerator sized amplifier on my property, ostensibly to "improve" service. For the sake of discussion, let's assume the amplifier had nothing to do with its cable service and its installation would not raise questions about the scope of rights of way available to Title VI regulated cable operators. In other words, the amplifier enhances Title I lightly regulated information services, such as broadband. I took issue with the installation of the eyesore, mostly because Comcast did not see the need to inform me of its "need." I argued that Comcast did not have the legal right to bootstrap its existing cable service right of way to install a new pedestal having not connection to its limited purpose right of way.

Comcast refused to engage me in a dialog, but they did dismantle the mini-refrigerator apparently installing it elsewhere.

The Telecommunications Act of 1996 illogically and probably unintentionally toggles between the use of the term telecommunications provider and telecommunications service provider.when addressing access to rights of way issues. We now know the FCC--with approval by the Supreme Court in Brand X--differentiates the two terms. But for purposes of rights of way, the Commission very well may not differentiate. Bootstraping the same sections of the Act to justify its jurisdiction to make federal Internet policy, the Commission probably would claim that even information service providers need rights of way to promote universal access to advanced telecommunications capabilities (Sec. 706) which in practice includes Internet access and arguably some types of information services.

In a nutshell it seems to me AT&T and others can further shirk its common carrier/public utility obligations while continuing to exploit rights of way access and other benefits.

Such a deal.

New Book Galley Proof Edit Completed

My blogging absence has occurred largely because of teaching, consulting and book manuscript work. I am glad to report completion of the galley proof edits of my new Yale University Press book entitled: Winning the Silicon Sweepstakes--Can the U.S. Compete in Global Telecommunications?

The book asks and answers the following questions:

Why does the United States demonstrate global best practices in some information and communications technology markets, such as software and computing, but woefully lag in others, such as wireless and broadband services?

If the information revolution was supposed to “change everything,” how did more than one trillion dollars in investment largely evaporate in three years?5

How can incumbent telephone companies successfully argue the need for governments to create incentives for investment in next-generation networks and at the same time claim that the existence of robust competition eliminates the need for any other sort of government involvement?

Why have nations failed to bridge the “digital divide”6 despite having created subsidy mechanisms to invest billions annually in never-achieved solutions?7

If the ICE marketplace has become so robustly competitive, where are the usual consumer benefits of lower prices, diverse choices, and responsive customer service?

How can incumbent ventures regularly avoid the adverse consequences of failing to anticipate developing trends and serve new markets by belatedly acquiring or extinguishing most competitive threats through mergers and acquisitions?

Why have some nations, including the United States, lost their comparative and competitive advantage in ICE products and services?

Why does it look as though the next-generation Internet will be less open, less neutral, and less accessible, possibly turning the playing field into “walled gardens” of content and services offered by incumbents keen on disadvantaging newcomers offering “the next best thing”?

The book will be available in the spring.

Summary of FCC's Rulemaking on Net Neutrality and Preserving the Open Internet

Consistent with President Obama’s campaign promise to support network neutrality, the FCC has issued a broad sweeping Notice of Proposed Rulemaking proposing to codify the four Internet principles adopted by the Commission in 2005[1] along with two additional principles requiring nondiscrimination and transparency. [2] With the two Republican Commissioners dissenting in part and concurring in part,[3] the FCC has only started the controversial process for assessing what enforceable rules it should establish for regulating Internet Service Providers (“ISPs”), and possibly applications and content providers in certain instances, [4]independent of additional statutory authority. Because the FCC currently only had articulated a Policy Statement on the topic and because the scope of its jurisdiction conferred by statute remains uncertain, the FCC seeks to establish “rules to preserve an open Internet—the next step in an ongoing and longstanding effort at the Commission.” [5]

The FCC offers “draft rules, including a codification of the existing Internet policy principles, additional principles of nondiscrimination and transparency, [and] an acknowledgement that these principles apply to all forms of broadband Internet access . . .. [6] The Commission also proposes to exclude ‘managed’ or ‘specialized’ services” from network neutrality rules in light of the fact that that services such as IP-enabled ‘cable television, VoIP telephony, and specialized telemedicine [7] may not fit within the Commission’s definition of broadband Internet access [8] in light of the nature of these services and user requirements, i.e., the need for such “mission critical” bits to arrive without delay, possibly triggering prioritized processing which might otherwise constitute a violation of the Commission’s proposed nondiscrimination requirement.

The FCC proposes the following language as establishing the foundation for Internet neutrality with an emphasis on the wireline or wireless [9] link providing end users with access to the Internet [10]:

1. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from sending or receiving the lawful content of the user’s choice over the Internet.

2. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from running the lawful applications or using the lawful services of the user’s choice.

3. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from connecting to and using on its network the user’s choice of lawful devices that do not harm the network.

4. Subject to reasonable network management, a provider of broadband Internet access service may not deprive any of its users of the user’s entitlement to competition among network providers, application providers, service providers, and content providers. [11]

5. Subject to reasonable network management, a provider of broadband Internet access service must treat lawful content, applications, and services in a nondiscriminatory manner. [12]

6. Subject to reasonable network management, a provider of broadband Internet access service must disclose such information concerning network management and other practices as is reasonably required for users and content, application, and service providers to enjoy the protections specified in this part.[13]

In addition to the exemption for managed and specialized services, the Commission proposes to exempt ISPs from having to comply with the six principles when reasonable network management, [14] law enforcement, [15] and public safety and homeland/national security factors [16] warrant.

The FCC concludes that it has jurisdiction to establish enforceable rules on Internet access notwithstanding the fact that ISPs provide information services explicitly exempt from common carrier regulation established in Title II of the Communications Act. [17] The Commission bases it lawful authority to regulate ISPs on the basis of “ancillary jurisdiction” conferred by Title I of the Communications Act [18]as well as Sections 201(b), 230(b) and 706(a) of the Communications Act.[19] The Commission expects to adjudicate violations on a case-by-case basis and solicits comments on what procedural rules to adopt that could lead to citations and financial penalties for noncompliance.




[1] Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Policy Statement, 20 F.C.C.R. 14986 (2005) (2005).

[2] Preserving the Open Internet, Notice of Proposed Rulemaking, GN Docket No. 09-191, FCC 09-93 (rel. Oct. 22, 2009); available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-09-93A1.doc.

[3] Commissioner McDowell stated that “I do not share the majority’s view that the Internet is showing breaks and cracks, nor do I believe that the government is the best tool to fix it. I also disagree with the premise that the Commission has the legal authority to regulate Internet network management as proposed.” Statement of Commissioner Robert M. McDowell Concurring in Part, Dissenting in Part, Id. at 96 (questioning the scope of the FCC’s Title I “ancillary jurisdiction” and whether Sections 230 and 706 of the Communications Act, as amended, provide “the ancillary hook.”

[4] “Although the question of Internet openness at the Commission has traditionally focused on providers of broadband Internet access service, we seek comment on the pros and cons of phrasing one or more of the Internet openness principles as obligations of other entities, in addition to providers of broadband Internet access service.” Id. at ¶101.

[5] Id. at ¶2.

[6] Id. at ¶11. The Commission identified a number of prior proceedings that it implies support the inference that the rulemaking constitutes a logical and lawful extension of previous work: “As this history illustrates, the Commission is not writing on a blank slate in this proceeding. Rather, we are proposing a next step—seeking public input on draft rules—that is based on a substantial record, which includes discussion of nondiscrimination, transparency, and application of Internet openness principles to wireless broadband Internet access service providers.” Id. at ¶46.

[7] See Id. at ¶108.

[8] The Commission proposes to define Broadband Internet access as “Internet Protocol data transmission between an end user and the Internet. For purposes of this definition, dial-up access requiring an end user to initiate a call across the public switched telephone network to establish a connection shall not constitute broadband Internet access.” Id. at p. 65, Appendix A, Draft Proposed Rules for Public Input, Part 8 of Title 47 of the Code of Federal Regulations, §8.3 Definitions.

[9] “As our choices for accessing the Internet continue to increase, and as users connect to the Internet through different technologies, the principles we propose today seek to safeguard its openness for all users. We affirm that the six principles that we propose to codify today would apply to all platforms for broadband Internet access.” Id. at ¶154.

[10] “The rules we propose today address users’ ability to access the Internet and are not intended to regulate the Internet itself or create a different Internet experience from the one that users have come to expect. Instead, our proposals attempt to build on existing policies (discussed below) that have contributed to the Internet’s openness without imposing conditions that might diminish innovation or network investment. We seek to create a balanced framework that gives consumers and providers of Internet access, content, services, and applications the predictability and clarity they need going forward while retaining our ability to respond flexibly to new challenges.” Id. at ¶14.

[11] Rules one through four are set out at Id. ¶92.

[12] Id. at ¶104.

[13] Id. at ¶119.

[14] The FCC proposes to define reasonable network management as: “(a) reasonable practices employed by a provider of broadband Internet access service to (i) reduce or mitigate the effects of congestion on its network or to address quality-of-service concerns; (ii) address traffic that is unwanted by users or harmful; (iii) prevent the transfer of unlawful content; or (iv) prevent the unlawful transfer of content; and (b) other reasonable network management practices.” Id. at ¶135, Appendix A.

[15] “Nothing in this part supersedes any obligation a provider of broadband Internet access service may have—or limits its ability—to address the needs of law enforcement, consistent with applicable law.” Id. at ¶143, Appendix A.

[16] “Nothing in this part supersedes any obligation a provider of broadband Internet access service may have—or limits its ability—to deliver emergency communications, or to address the needs of public safety or national or homeland security authorities, consistent with applicable law.” Id. at ¶146, Appendix A.

[17] “Beginning in 2002, the Commission has classified cable modem service, wireline broadband Internet access service, wireless-enabled broadband Internet access service, and broadband-over-powerline-enabled Internet access service as information services, removing them from potential regulation under Title II of the Communications Act.” Id. at ¶29 (citations omitted).

[18] “We have ancillary jurisdiction over matters not directly addressed in the Act when the subject matter falls within the agency’s general statutory grant of jurisdiction and the regulation is “reasonably ancillary to the effective performance of the Commission’s various responsibilities.” That test is met with respect to broadband Internet access service.”
citing United States v. Southwestern Cable Co., 392 U.S. 157, 172–73 (1968); United States v. Midwest Video Corp., 406 U.S. 649, 662 (1972); Comcast Network Management Practices Order, 23 FCC Rcd at 13033–44, paras. 12–28; and the Commission’s Brief in Comcast v. FCC, No. 08-1291, at 25–50 (filed Sept. 21, 2009), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293573A1.pdf.

[19] Section 201(b) authorizes the FCC “to prescribe such rules and regulations as may be necessary in the public interest to carry out the provision of th[e] Act.” 47 U.S.C. §201(b); Section 230(b)(1) states that “It is the policy of the United States-- (1) to promote the continued development of the Internet and other interactive computer services and other interactive media;” 47 U.S.C. §230(b)(1); 706(a) states that the Commission “shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.” 47 U.S.C. §706(a).

New Pub: Lock Down on the Third Screen: How Wireless Carriers Evade Regulation of Their Video Services

The latest Berkeley Technology Law Journal (Vol. 24, No. 2 819-849 Spring, 2009) has published my work on wireless video regulatory issues.

Here's the abstract:

Wireless handsets increasingly offer subscribers a new option for accessing the Internet and video programming. The converging technologies and markets that make this possible present a major regulatory quandary, because the Federal Communications Commission (“FCC” or “Commission”) seeks to maintain mutual exclusivity between regulated telecommunications services and largely unregulated information services.

Many existing and emerging services do not easily fit into one or the other regulatory classification, nor can the FCC determine the appropriate classification by extrapolating from the regulatory model applied to existing or discontinued services. By failing to specify what model applies to services appearing on cellphone screens, the FCC has failed to remove regulatory uncertainty. Cellular telephone service providers may infer from the Commission’s inaction that any convergent service eventually will qualify for the unregulated information service “safe harbor” despite plausible arguments that government oversight remains essential to achieve consumer protection, national security, fair trade practice, and other safeguards.

This article will examine the regulatory status of wireless carrier-delivered video content with an eye toward determining the necessary scope and nature of government oversight. The article reports on instances where the FCC deemed it necessary to promote video programming competition and subscriber access to wired cable television content, and concludes that wireless subscribers deserve similar efforts in light of wireless carriers’ incentives and abilities to blunt competition. The article concludes that the FCC must balance the carriers’ interests in finding new revenue centers to pay for next generation network upgrades with subscribers’ interests in maximizing their freedom to use handsets they own.

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.