The Wall Street Journal today reported that FCC Chairman Kevin Martin wants to reject a Petition for Declaratory Ruling filed by Skype that would establish a wireless Carterfone policy, i.e., that wireless carriers must allow subscribers to use any compatible handset to aceess any application, content or software.
Chairman Martin has confidence that the marketplace solutions obviate any necessary FCC intervention. Such optimism must derive in part from the apparently newfound willingness of one major wireless carrier, Verizon, to support aspects of open access. Perhaps Chairman Martin has confidence in the marketplace based on the magnanimous offer of most wireless carriers to pro-rate their early termination penalties by $5 a month.
But here’s the rub: there is a big difference between a carrier making the decision of what constitutes compatibility and network harmlessness and the neutral criteria driven decisions of a third party. The variety of handset options that attached to wired networks attests to a robust marketplace structured by a rule that simply requires a third party lab certification that the handset will not cause technical harm to the any wired network. But for wireless handset access the carrier—and not a third party--can serve as judge, jury and executioner.
I recognize that wireless carriers have invested greatly in networks that they own and operate. But these network operators have agreed to take on the responsibilities of common carriers in exchange for major, financially quantifiable benefits. It works both ways, but the wireless carriers never seem to have to acknowledge the benefits for which they qualify including access to government owned rights of ways at bargain rates. Wireless carriers may not have gotten free access to land, which their wired carrier counterparts got, but the right to install towers adjoining the interstate highways and on other public lands does not cost anything near the price of access to private land.
Sponsored researchers, including economists who ought to know better, have attempted to make the concept of market failure an oxymoron. Call it what you will, but with a market as concentrated at wireless is in the United States with generally the same terms and conditions available to subscribers, does not appear to be a market upon which we can rely on the carriers to self-regulate.
I surely do not see the wireless carriers busting a gut to offer a discount to subscribers who do not trigger a handset subsidy, or to encourage more network use with generally open access policies. If the market were so robust, would not at least one carrier consider an alternative to bundling a subsidized handset with higher monthly rates to recoup the handset subsidy? For subscribers content to continuing using an existing handset, no carrier offers a lower rate reflecting the fact that they do not have to subsidize a handset.
The carriers might want to have every subscriber equipped with the latest handset containing the latest average return per user (“ARPU”) enhancing options, but I do not see the carriers aggressively offering new third generation features.
I guess one can infer that Chairman Martin seems to think a wireless Carterfone policy imposes more unnecessary regulations. But that simply is not the case. Carterfone establishes game rules about what constitutes fair play in terms of what subscribers can do with the handsets that they own. Carterfone established the consumer right to own and attach telephones to the wireline network. Chairman Martin has endorse applying Carterfone principles to the cable industry by requiring operators to support the CableCard option in lieu of allowing carriers to tie cable television service with a compulsory lease of a set top box.
But when it comes to wireless handsets—even one that you think you own—Chairman Martin thinks it just fine for those market-driven wireless carriers to limit subscribers’ freedoms well beyond any legitimate concerns about network harm.
Wednesday, April 2, 2008
Tuesday, March 25, 2008
What Consultants Generally Do
You may have heard the rather lame joke about the definition of a consultant: someone who borrows your watch and tells you the time. Consultants sometimes have the liberty to tell clients what is not obvious, or what does not serve the clients’ interests—“tough love.” But in many instances consultants—including some of my academic sisters and brothers-- tell clients what they want to hear even if it’s neither obvious nor true. By way of full disclosure I serve as a consultant, but have the luxury of never having to have my name associated with the former type of “research.”
In researching updates for a loose leaf treatise on cable television, All About Cable (Law Journal Press) I came across one of those clear, “smoking gun” instances where a consultant tells the client what it wants to hear. In turn the client, an industry association, files the “research” with the FCC which then relies heavily on the work to justify a pre-ordained outcome, i.e., what the FCC wants to conclude. In 2004 the FCC wanted to say that ala carte access to cable television channels would cost consumers money.
Two years later the FCC—or at least Chairman Martin—wanted the opposite outcome. Why the change? Perhaps a heightened concern for accommodating families and pro-family advocates. Maybe a Chairman considering a run for elective office in a few years. With ala carte access cable television consumers can opt only for those channels that do not offend them. But the FCC had concluded that mandating such access would harm consumers.
The solution: discredit a consultant’s report, despite an extensive history of hook, line and sinker buying consultants’ vision of reality, because they jibe with the Commission’s objectives. In a relatively short period of time the FCC’s goals changed, so it had to discredit that pesky “research” that it had relied upon in a Report to Congress. Compare FCC, Report on the Packaging & Sale of Video Programming Servs. to the Pub. (2004), http://www.ncta.com/ContentView.aspx?hiddenavlink=true&type=reltyp1&contentid=401 with FCC, Further Report on the Packaging & Sale of Video Programming Servs. to the Pub. (2006), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-263740A1.pdf.
There are times when I think I am living in a dual world: my isolated world where I deal with facts, policies and the law on its face versus DC World where things are not as they appear to be.
In researching updates for a loose leaf treatise on cable television, All About Cable (Law Journal Press) I came across one of those clear, “smoking gun” instances where a consultant tells the client what it wants to hear. In turn the client, an industry association, files the “research” with the FCC which then relies heavily on the work to justify a pre-ordained outcome, i.e., what the FCC wants to conclude. In 2004 the FCC wanted to say that ala carte access to cable television channels would cost consumers money.
Two years later the FCC—or at least Chairman Martin—wanted the opposite outcome. Why the change? Perhaps a heightened concern for accommodating families and pro-family advocates. Maybe a Chairman considering a run for elective office in a few years. With ala carte access cable television consumers can opt only for those channels that do not offend them. But the FCC had concluded that mandating such access would harm consumers.
The solution: discredit a consultant’s report, despite an extensive history of hook, line and sinker buying consultants’ vision of reality, because they jibe with the Commission’s objectives. In a relatively short period of time the FCC’s goals changed, so it had to discredit that pesky “research” that it had relied upon in a Report to Congress. Compare FCC, Report on the Packaging & Sale of Video Programming Servs. to the Pub. (2004), http://www.ncta.com/ContentView.aspx?hiddenavlink=true&type=reltyp1&contentid=401 with FCC, Further Report on the Packaging & Sale of Video Programming Servs. to the Pub. (2006), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-263740A1.pdf.
There are times when I think I am living in a dual world: my isolated world where I deal with facts, policies and the law on its face versus DC World where things are not as they appear to be.
Friday, March 21, 2008
Game, Set and Match: How AT&T and Verizon Will Largely Lock Down the Third Screen
The results of the 700 MHz spectrum auction solidify the market dominance of AT&T and Verizon by locking up the best additional spectrum a competitor could access for the foreseeable future. In light of shroud of secrecy surrounding the mechanics of the auction—no doubt to maximize the one time windfall for the national treasury—we will never know what sort of premium these two carriers paid to force out even such a deep pocketed player as Google.
AT&T and Verizon now have plenty of warehoused bandwidth to add to their considerable market share. The top four cellular telephone carriers in the United States have a combined market share of 88.1 percent . See Leslie Cauley, AT&T eager to wield its iWeapon, USA TODAY May 21, 2007)(displaying statistics compiled by Forrester Research); available at: http://www.usatoday.com/tech/wireless/2007-05-21-at&t-iphone_N.htm. With Sprint/Nextel a likely acquisition target, look for the next generation network of choice to become almost as tightly controlled as when benevolent Ma Bell dominated.
Once upon a time the United States demonstrated best practices in market performance and government oversight of the ICT sector. That cannot be said now. Instead we have an acutely political FCC which panders to economic doctrine and deep pocketed advocacy of stakeholders such as AT&T and Verizon. How can this nation not suffer in the global information economy when two incumbent carrier types (telco and cable television) share a 96+ percent duopoly over broadband terrestrial networks while one of the two incumbents (telco) dominate the wireless alternative. Susan Crawford notes that AT&T and Verizon have every incentive not to make wireless a robust competitor of wireline broadband; see http://scrawford.net/blog/.
Verizon can tell us how close to a open network they will operate, but absent a third party certification process—which is what a wireless Carterfone policy would require—carriers can invoke network and “systemic” integrity to preserve walled gardens and a mutual non aggression pact with their wireline brethren.
Former FCC Chairman Reed Hundt says it succinctly:
“[The U.S.] is the last market in the world that people choose to bring a new wireless product to. Not second or third--the absolute last. Right now the policy of the FCC has been to encourage AT&T and Verizon to become the twin Bells that dominate the wireless business. They’re allowed to buy all the spectrum they can find. The antitrust laws are waived and ignored every time they appear to be a problem. The FCC is the only spectrum auction entity in the world that does not carve out spectrum for new entrants. They do it in Mexico, Canada, the U.K., China and Japan. Only here does the new entrant not get much of a chance. This is the only country in the world where the rule is the big guys can buy all of it. When you consolidate service providers, just like in the old days, when there was not two Bells like today but one, everybody knows what happens. It’s very hard for innovators to get into the market, in terms of content or software or hardware.” Reed Hundt, Interview with Ed Gubbins, Telephony Online, Feb 28, 2008; available at: http://telephonyonline.com/broadband/news/reed-hundt-auction-0228/.
AT&T and Verizon now have plenty of warehoused bandwidth to add to their considerable market share. The top four cellular telephone carriers in the United States have a combined market share of 88.1 percent . See Leslie Cauley, AT&T eager to wield its iWeapon, USA TODAY May 21, 2007)(displaying statistics compiled by Forrester Research); available at: http://www.usatoday.com/tech/wireless/2007-05-21-at&t-iphone_N.htm. With Sprint/Nextel a likely acquisition target, look for the next generation network of choice to become almost as tightly controlled as when benevolent Ma Bell dominated.
Once upon a time the United States demonstrated best practices in market performance and government oversight of the ICT sector. That cannot be said now. Instead we have an acutely political FCC which panders to economic doctrine and deep pocketed advocacy of stakeholders such as AT&T and Verizon. How can this nation not suffer in the global information economy when two incumbent carrier types (telco and cable television) share a 96+ percent duopoly over broadband terrestrial networks while one of the two incumbents (telco) dominate the wireless alternative. Susan Crawford notes that AT&T and Verizon have every incentive not to make wireless a robust competitor of wireline broadband; see http://scrawford.net/blog/.
Verizon can tell us how close to a open network they will operate, but absent a third party certification process—which is what a wireless Carterfone policy would require—carriers can invoke network and “systemic” integrity to preserve walled gardens and a mutual non aggression pact with their wireline brethren.
Former FCC Chairman Reed Hundt says it succinctly:
“[The U.S.] is the last market in the world that people choose to bring a new wireless product to. Not second or third--the absolute last. Right now the policy of the FCC has been to encourage AT&T and Verizon to become the twin Bells that dominate the wireless business. They’re allowed to buy all the spectrum they can find. The antitrust laws are waived and ignored every time they appear to be a problem. The FCC is the only spectrum auction entity in the world that does not carve out spectrum for new entrants. They do it in Mexico, Canada, the U.K., China and Japan. Only here does the new entrant not get much of a chance. This is the only country in the world where the rule is the big guys can buy all of it. When you consolidate service providers, just like in the old days, when there was not two Bells like today but one, everybody knows what happens. It’s very hard for innovators to get into the market, in terms of content or software or hardware.” Reed Hundt, Interview with Ed Gubbins, Telephony Online, Feb 28, 2008; available at: http://telephonyonline.com/broadband/news/reed-hundt-auction-0228/.
Slightly Less Deceptive FCC Broadband Statistics Forthcoming
Recognizing the need for better calibrated broadband statistics, which more closely tracks actual choices available to consumers, the FCC has made improvements designed to increase the precision and quality of broadband subscribership data collected. Rather than generally report on market penetration by any broadband service that offers 200 kilobits per second in one direction, the FCC has expanded the number of broadband reporting speed tiers to capture more precise information about upload and download broadband speeds. The Commission also will require broadband providers to report numbers of broadband subscribers by census tract, broken down by speed tier and technology type, instead of the much geographical region represented by a zip code. Additionally the Commission expects to improve the accuracy of information it gathers about mobile wireless broadband deployment.
Now the not so good news: achieving better broadband penetration in the United States increasingly is a matter of cost, not availability. One would think that with all the in-house and sponsored researcher economic help available the FCC would happen across the concept of CROSS-ELASTICITY, i.e., apples to apples comparison of similarly priced options. Put simply in the current broadband marketplace there are some options that offer comparatively slower bit rates at higher prices, e.g., wireless satellite and terrestrial options. Consumers opt for these services when they so value mobility that they are willing to make bitrate and price tradeoffs, or when they have no better options.
The FCC will still count broadband options regardless of price, so the bad news remains that the Commission’s statistics will overstate what options exist within the same price points.
Now the not so good news: achieving better broadband penetration in the United States increasingly is a matter of cost, not availability. One would think that with all the in-house and sponsored researcher economic help available the FCC would happen across the concept of CROSS-ELASTICITY, i.e., apples to apples comparison of similarly priced options. Put simply in the current broadband marketplace there are some options that offer comparatively slower bit rates at higher prices, e.g., wireless satellite and terrestrial options. Consumers opt for these services when they so value mobility that they are willing to make bitrate and price tradeoffs, or when they have no better options.
The FCC will still count broadband options regardless of price, so the bad news remains that the Commission’s statistics will overstate what options exist within the same price points.
Tuesday, March 4, 2008
Usage-Based Pricing and a Potential Unanticipated Consequence
Some Internet Service Providers have begun to experiment with usage-based pricing in lieu of a one-size fits all pricing model. This makes sense and few, if any, network neutrality advocates would take issue. Price discrimination based on usage has plenty of efficiency and fairness justifications. As a moderate user I do not particularly want to subsidize the gluttonous throughput consumption of gamers, P2P file sharers and full motion video consumers.
But I can anticipate a problem if Web browsers begin to pay closer attention to the meter. Much of the content Web browsers access comes with a heretofore minor burden—the obligation to download more throughput than the desired content. In a throughput capped pricing environment, consumers will have to estimate the impact of unsolicited and possibly unblockable advertising downloads that accompany desired content. There are plenty of scenarios where a quite small uploaded request for content triggers a substantial cascade of both desired content and possibly substantial bandwidth and throughput consuming advertising content, e.g., the 30 section full motion video advertising that precedes the streaming of desired content.
Advertiser largely support much of the desired content web browsers can access. This bargain made absolute sense when all we had to give was possibly our attention. In the future we may to part with a portion of our monthly throughput quota, a possibly harder deal to accept, unless advertisers agree to subsidize both the content and the conduit that delivers it.
But I can anticipate a problem if Web browsers begin to pay closer attention to the meter. Much of the content Web browsers access comes with a heretofore minor burden—the obligation to download more throughput than the desired content. In a throughput capped pricing environment, consumers will have to estimate the impact of unsolicited and possibly unblockable advertising downloads that accompany desired content. There are plenty of scenarios where a quite small uploaded request for content triggers a substantial cascade of both desired content and possibly substantial bandwidth and throughput consuming advertising content, e.g., the 30 section full motion video advertising that precedes the streaming of desired content.
Advertiser largely support much of the desired content web browsers can access. This bargain made absolute sense when all we had to give was possibly our attention. In the future we may to part with a portion of our monthly throughput quota, a possibly harder deal to accept, unless advertisers agree to subsidize both the content and the conduit that delivers it.
Wednesday, February 27, 2008
Information Service Telecommunications Service Mutual Exclusivity
The FCC surely has a hard time dealing with convergence and in particular a firm that offers both telecommunications services and information services, e.g., wireline and wireless telephone companies. The Commission perceives the statutory duty to establish bright line, mutual exclusivity between the two categories:
The FCC interprets the Telecommunications Act of 1996 to create mutually exclusivity between telecommunications services, subject to Title II common carrier regulation, and information services, subject to limited regulation available under Title I. “Congress intended the categories of ‘telecommunications service’ and ‘information service’ to be mutually exclusive.” Federal-State Joint Board On Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd. 11501, 13 FCC Rcd. 11830, n. 79 (1998). “Based on our analysis of the statutory definitions, we conclude that an approach in which “telecommunications” and “information service” are mutually exclusive categories is most faithful to both the 1996 Act and the policy goals of competition, deregulation, and universal service.” Id. 13FCC Rcd. at 11530 (1998).
So does this mean that the FCC has no statutorily appropriate means to subject a single firm to two different regulatory regimes?
The FCC interprets the Telecommunications Act of 1996 to create mutually exclusivity between telecommunications services, subject to Title II common carrier regulation, and information services, subject to limited regulation available under Title I. “Congress intended the categories of ‘telecommunications service’ and ‘information service’ to be mutually exclusive.” Federal-State Joint Board On Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd. 11501, 13 FCC Rcd. 11830, n. 79 (1998). “Based on our analysis of the statutory definitions, we conclude that an approach in which “telecommunications” and “information service” are mutually exclusive categories is most faithful to both the 1996 Act and the policy goals of competition, deregulation, and universal service.” Id. 13FCC Rcd. at 11530 (1998).
So does this mean that the FCC has no statutorily appropriate means to subject a single firm to two different regulatory regimes?
Monday, February 25, 2008
Network Neutrality Unneeded in a Competitive Broadband Marketplace
In the Feb 25th edition of the Wall Street Journal former hedge fund manager Andy Kessler strongly suggests that competition would solve any calamity that network neutrality rules would (hamhandedly) attempt to remedy. See http://online.wsj.com/article/SB120390160543089503.html?mod=todays_us_opinion.
Mr. Kessler suggests the need for legislation to promote broadband competition, a Bandwidth Competition Act of 2008. Regretably, he offers few specific recommendations.
I heartily agree that in a perfect world facilities-based competition would enable consumers to “vote with their dollars” and punish any ISP foolish enough to handicap, delay, drop or otherwise meddle with their traffic. If I had a number of competitors from which to choose perhaps I could find a rate plans that provides a better fit than the current “one size fits all” model that motivates Comcast and other ISPs to rein in heavy users.
If only we had such competition. If only we had a legislature that would pay enough attention to the problem to direct the FCC and a Federal-State Joint Board to revamp efforts to jump start broadband deployment through a variety of strategies, including financial cross-subsidies.
Sponsored researchers will tell you that sufficient competition already exists thereby obviating both the need for network neutrality rules and legislation, unless of course the legislation steers money their clients’ way. According to the FCC’s latest statistics my rural zip code now has 11 broadband options, up from 9 last time. Accepting this number for the sake of discussion I still can conclude that robust facilities-based competition does not exist in my neck of the woods. Put another way access to $100 a month satellite semi-broadband and $60 a month cable broadband will not jump start broadband adoption. Nor will it create the critical mass we both agree would—if it existed—that would provide consumers and suppliers to come to terms on price and quality of service tiers.
Legislators and the FCC have to consider network neutrality rules in the absence of competition and diverging price points for broadband access.
Mr. Kessler suggests the need for legislation to promote broadband competition, a Bandwidth Competition Act of 2008. Regretably, he offers few specific recommendations.
I heartily agree that in a perfect world facilities-based competition would enable consumers to “vote with their dollars” and punish any ISP foolish enough to handicap, delay, drop or otherwise meddle with their traffic. If I had a number of competitors from which to choose perhaps I could find a rate plans that provides a better fit than the current “one size fits all” model that motivates Comcast and other ISPs to rein in heavy users.
If only we had such competition. If only we had a legislature that would pay enough attention to the problem to direct the FCC and a Federal-State Joint Board to revamp efforts to jump start broadband deployment through a variety of strategies, including financial cross-subsidies.
Sponsored researchers will tell you that sufficient competition already exists thereby obviating both the need for network neutrality rules and legislation, unless of course the legislation steers money their clients’ way. According to the FCC’s latest statistics my rural zip code now has 11 broadband options, up from 9 last time. Accepting this number for the sake of discussion I still can conclude that robust facilities-based competition does not exist in my neck of the woods. Put another way access to $100 a month satellite semi-broadband and $60 a month cable broadband will not jump start broadband adoption. Nor will it create the critical mass we both agree would—if it existed—that would provide consumers and suppliers to come to terms on price and quality of service tiers.
Legislators and the FCC have to consider network neutrality rules in the absence of competition and diverging price points for broadband access.
Thursday, February 21, 2008
Bulls, Bears and Greed
As a regular telecommunications conference attendee I marvel at the ability of the hospitality industry to calibrate prices right to the brink of “what the market will bear.” Economists, such as Ramsey, have come up with supporting rationale for linking price with elasticity of demand, so of course what occurs couldn’t be deemed gouging. Or could it?
I wonder how my economist friends would react, when a “just say no” consumer revolt occurs. Outlandish greed on the part of the Geneva, Switzerland hospitality industry resulted in a one time relocation of the International Telecommunication Union’s major trade show and policy conference that occurs once every four years. An apparent miscalculated attempt to extract (extort?) more sponsorship and meeting fees for the Global Traffic Meeting by Intelsat has triggered major attendees, such as AT&T, British Telecom, Tata Group and Deutsche Telekom, to support a separate event scheduled for the same time at a hotel conveniently located two kilometers from the GTM conference hotel.
Conference attendance triggers a difficult cost/benefit analysis, because of high and increasing costs—regardless of the greed factor—with benefits sometimes not easily quantifiable. Some conference stimulate interest simply because a firm might be “conspicuous in its absence” suggesting all sorts of questions about financial or creative wellbeing.
On the other hand conference organizers need to find ways to extract income from hosting a must attend forum, particularly from attendees who find ways to exploit access to existing and prospective customers and partners without registering for the conference. For example, the annual conference of the Pacific Telecommunications Council, which occurs in January, attracts far more “free riders” than conference attendees. But if PTC were to overplay its hand—as Intelsat apparently has—thousands of visitors to Honolulu would change their travel plans perhaps irrevocably.
I wonder how my economist friends would react, when a “just say no” consumer revolt occurs. Outlandish greed on the part of the Geneva, Switzerland hospitality industry resulted in a one time relocation of the International Telecommunication Union’s major trade show and policy conference that occurs once every four years. An apparent miscalculated attempt to extract (extort?) more sponsorship and meeting fees for the Global Traffic Meeting by Intelsat has triggered major attendees, such as AT&T, British Telecom, Tata Group and Deutsche Telekom, to support a separate event scheduled for the same time at a hotel conveniently located two kilometers from the GTM conference hotel.
Conference attendance triggers a difficult cost/benefit analysis, because of high and increasing costs—regardless of the greed factor—with benefits sometimes not easily quantifiable. Some conference stimulate interest simply because a firm might be “conspicuous in its absence” suggesting all sorts of questions about financial or creative wellbeing.
On the other hand conference organizers need to find ways to extract income from hosting a must attend forum, particularly from attendees who find ways to exploit access to existing and prospective customers and partners without registering for the conference. For example, the annual conference of the Pacific Telecommunications Council, which occurs in January, attracts far more “free riders” than conference attendees. But if PTC were to overplay its hand—as Intelsat apparently has—thousands of visitors to Honolulu would change their travel plans perhaps irrevocably.
Monday, February 11, 2008
When the Web Is Not Faster, Better, Smarter …
It never fails to amaze me that print media subscriptions take three to five weeks to get “processed.” The Internet apparently provides no means to short cut the time, and I have seen no difference between instances where I dead directly with the publisher in lieu of a subscription broker.
What do newspaper and magazine companies do during these several weeks? You would think that the Web could live up to its credo of “faster, better, smarter, cheaper and more convenient.
Not in this case. My credit card get duly debited in an matter of hours, but the product does not arrive until well after you think some bogus company has absconded with both credit card account number of cash.
My latest challenge: convincing the Wall Street Journal to follow through on a reactivated print and online subscription . Repeated telephone calls and online messages generate unhelpful, wrong “canned responses.” They know how to process payment, but apparently take weeks to deliver the quo to my quid.
So much for living in Internet time.
What do newspaper and magazine companies do during these several weeks? You would think that the Web could live up to its credo of “faster, better, smarter, cheaper and more convenient.
Not in this case. My credit card get duly debited in an matter of hours, but the product does not arrive until well after you think some bogus company has absconded with both credit card account number of cash.
My latest challenge: convincing the Wall Street Journal to follow through on a reactivated print and online subscription . Repeated telephone calls and online messages generate unhelpful, wrong “canned responses.” They know how to process payment, but apparently take weeks to deliver the quo to my quid.
So much for living in Internet time.
Friday, February 1, 2008
The Internet’s Weakest Link—Submarine Cableheads
This week two major transoceanic cables experienced outages that may last several days. See http://www.lightreading.com/document.asp?doc_id=144672. The outages provide a reminder that several Internet bottlenecks exist where these cables make landfall.
When one thinks of bottlenecks in telecommunications the first and last mile come to mind. Yet equally vulnerable are the last few 1000 feet of submarine cable links. While most cables have “armor” to guard against breaks, a misplaced anchor still can cut the cord as apparently occurred in Egyptian waters.
On a global basis redundancy and alternate routes do exist, as well as the typically more expensive satellite option. But contrary to the conventional wisdom the Internet did not appear to route around the breaks with sufficient speed to prevent service outages. Two nearly simultaneous cable breaks provide a reminder of the Internet’s vulnerability.
When one thinks of bottlenecks in telecommunications the first and last mile come to mind. Yet equally vulnerable are the last few 1000 feet of submarine cable links. While most cables have “armor” to guard against breaks, a misplaced anchor still can cut the cord as apparently occurred in Egyptian waters.
On a global basis redundancy and alternate routes do exist, as well as the typically more expensive satellite option. But contrary to the conventional wisdom the Internet did not appear to route around the breaks with sufficient speed to prevent service outages. Two nearly simultaneous cable breaks provide a reminder of the Internet’s vulnerability.
Wednesday, January 23, 2008
Boring into Broadband Penetration Statistics
In preparation for a conference on network neutrality, I am taking a closer look at broadband penetration statistics in the U.S. and in other countries. I conclude that broadband policy should address both accessibility and affordability.
The U.S. has achieved a mixed record in broadband penetration not accessibility. In other words while some potential subscribers can access broadband at "best practices" rates, others have quite high charges to consider. Normalizing rates on a per 100 kilobit rate provides a good measure of affordability.
Promoting broadband in the U.S. going forward will have less to do with achieving geographic penetration and more with promoting lower rates. Devising a workable plan for subsidizing access is a daunting task. U.S. long distance telephone service callers contributed over $7 billion for promoting mostly narrowband, basic voice service affordability last year. The current universal service funding mechanism is expensive, flawed, prone to abuse and lacking a broadband component outside schools, libraries, and medical facilities.
Here's a link to my presentation entitled " Internet Access as Essential Infrastructure: Public Utility, Private Utility or Neither?":http://www.personal.psu.edu/faculty/r/m/rmf5/USF%20Network%20Neutrality%20Conference.ppt.
The U.S. has achieved a mixed record in broadband penetration not accessibility. In other words while some potential subscribers can access broadband at "best practices" rates, others have quite high charges to consider. Normalizing rates on a per 100 kilobit rate provides a good measure of affordability.
Promoting broadband in the U.S. going forward will have less to do with achieving geographic penetration and more with promoting lower rates. Devising a workable plan for subsidizing access is a daunting task. U.S. long distance telephone service callers contributed over $7 billion for promoting mostly narrowband, basic voice service affordability last year. The current universal service funding mechanism is expensive, flawed, prone to abuse and lacking a broadband component outside schools, libraries, and medical facilities.
Here's a link to my presentation entitled " Internet Access as Essential Infrastructure: Public Utility, Private Utility or Neither?":http://www.personal.psu.edu/faculty/r/m/rmf5/USF%20Network%20Neutrality%20Conference.ppt.
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.
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.
Monday, December 10, 2007
What to Do With Heavy Internet Users?
Comcast’s heavy handed treatment of its peer-to-peer networking customers made me wonder if these customers deserve to expulsion or a fruit basket. In other words do heavy users present an opportunity or a threat to network managers?
ISPs, like airlines, only make money when customers use their services. Airlines and many other businesses typically reward heavy users with rewards. Other ventures can use data mining to determine the profitability of any particular heavy user. So I readily agree that that not all heavy users are desirable.
The problem with Comcast’s approach appears to be that the company assumed any peer-to-peer user is a problem customer deserving degraded service, rather than a candidate for upselling. Comcast should offer more expensive service to the power user who needs better than best efforts traffic routing. I do not consider this a violation of network neutrality. My beef with Comcast or any ISP lies in instances where the carrier without disclosure or reasonable explanation drops packets and otherwise degrades service, or vice versa.
For me network neutrality is primarily about transparency in a transaction that increasingly presents opportunities for mischief. At the WIK conference I recently attended on the European approach to Network Neutrality, there was much discussion on how parties frame the issue. The most common U.S. frame involves a referendum on the virtues of marketplace competition, assumed to exist, versus marketplace failure assumed to exist.
Other alternative frame considers technical standardization of the Internet and whether TCP/IP promotes or retards innovation, i.e., a variation on the dumb versus smart pipe argument. Others in Europe involve consumer protection, contract law and ex ante versus ex post facto regulation.
ISPs, like airlines, only make money when customers use their services. Airlines and many other businesses typically reward heavy users with rewards. Other ventures can use data mining to determine the profitability of any particular heavy user. So I readily agree that that not all heavy users are desirable.
The problem with Comcast’s approach appears to be that the company assumed any peer-to-peer user is a problem customer deserving degraded service, rather than a candidate for upselling. Comcast should offer more expensive service to the power user who needs better than best efforts traffic routing. I do not consider this a violation of network neutrality. My beef with Comcast or any ISP lies in instances where the carrier without disclosure or reasonable explanation drops packets and otherwise degrades service, or vice versa.
For me network neutrality is primarily about transparency in a transaction that increasingly presents opportunities for mischief. At the WIK conference I recently attended on the European approach to Network Neutrality, there was much discussion on how parties frame the issue. The most common U.S. frame involves a referendum on the virtues of marketplace competition, assumed to exist, versus marketplace failure assumed to exist.
Other alternative frame considers technical standardization of the Internet and whether TCP/IP promotes or retards innovation, i.e., a variation on the dumb versus smart pipe argument. Others in Europe involve consumer protection, contract law and ex ante versus ex post facto regulation.
European Assessment of Network Neutrality
I had the good fortune to participate in a conference on Network Neutrality from a European perspective organized by WIK-Consult GmbH in Bonn Germany; see http://www.wik.org/content/netneutrality_main.htm. I got the distinct impression that European stakeholders and regulators take the matter quite seriously and refrain from what one participant deemed “policy entrepreneurship,” i.e., the bombast, hyperbole, partisanship and mean spiritedness that permeates the policy making process. I also sensed that for better or worse the European approach creates both the ability and incentive for regulators to act in ways the FCC would never consider, e.g., determining that wireless call terminations are too expensive and setting lower rates. On the other hand carriers would never consider engaging in the kind of stealth traffic “management” and “shaping” designed to discipline heavy users.
The thoughtfulness of European viewpoints juxtaposes with what has become a food fight in the U.S. Advocates all too readily assume that it would be “curtains for the free world” should their policy prescriptions get ignored.
Consider Verizon Wireless’s 180 degree turnabout. While one can applaud a now sensible pronouncement, how can one ignore the most vituperative and down right arrogant positions taken by Verizon’s sponsored advocates and the slightly more civilized statements made by Verizon executives? Verizon Wireless gets great public relations dividends for its enlightened new stance, but it suffered no disgrace for supporting “curtains for the free world” advocacy if any wireless Carterfone initiative took root.
Are we to conclude that the marketplace, or the court of public opinion has persuaded Verizon Wireless to rethink its policies? Or is there less than meets the eye here?
The thoughtfulness of European viewpoints juxtaposes with what has become a food fight in the U.S. Advocates all too readily assume that it would be “curtains for the free world” should their policy prescriptions get ignored.
Consider Verizon Wireless’s 180 degree turnabout. While one can applaud a now sensible pronouncement, how can one ignore the most vituperative and down right arrogant positions taken by Verizon’s sponsored advocates and the slightly more civilized statements made by Verizon executives? Verizon Wireless gets great public relations dividends for its enlightened new stance, but it suffered no disgrace for supporting “curtains for the free world” advocacy if any wireless Carterfone initiative took root.
Are we to conclude that the marketplace, or the court of public opinion has persuaded Verizon Wireless to rethink its policies? Or is there less than meets the eye here?
Thursday, November 29, 2007
Who's Behind That Blog?
An assignment in a Media and Democracy course I teach at Penn State invites students to select a telecommunications advocacy web site for analysis. I want my students to decode the message and attempt to identify whether a bias exists and who financially supports the site. The exercise typically fails miserably.
Too many students accept at face value a web site's pledge or representation of independent analysis. Most students cannot infer that a site that advertises books by Ann Coulter trends to the right and one that talks about social justice trends to the left.
However, I cannot blame my students entirely. How are they to know that a noble sounding site seeking truth, justice and the American way is an "astroturf" (fake grass roots) organization fronting for a particular set of stakeholders? As a researcher in the network neutrality debate I risk personal attack, misrepresentation of my work, and assorted snarky debating tactics befitting a food fight. It would be an understatement to say it chills my desire to engage in the dialogue. Indeed it's not always a dialogue, or debate as the conference session or blog discussion gets nasty.
I should reiterate that I receive no funding from stakeholders in the network neutrality debate and that my view expressed in this blog are entirely my own.
No wonder telecommunications and information policy accrues suboptimal results in the United States. The process has become so partisan, political and doctrinal. There may come a time--not too distant--where people will recognize that the U.S. lost its best practices leadership in telecommunications infrastruture, because the stakeholders spent more time funding web sites and blogs as well as foolish litigation in lieu of doing what's needed to install and operate next generation networks.
Too many students accept at face value a web site's pledge or representation of independent analysis. Most students cannot infer that a site that advertises books by Ann Coulter trends to the right and one that talks about social justice trends to the left.
However, I cannot blame my students entirely. How are they to know that a noble sounding site seeking truth, justice and the American way is an "astroturf" (fake grass roots) organization fronting for a particular set of stakeholders? As a researcher in the network neutrality debate I risk personal attack, misrepresentation of my work, and assorted snarky debating tactics befitting a food fight. It would be an understatement to say it chills my desire to engage in the dialogue. Indeed it's not always a dialogue, or debate as the conference session or blog discussion gets nasty.
I should reiterate that I receive no funding from stakeholders in the network neutrality debate and that my view expressed in this blog are entirely my own.
No wonder telecommunications and information policy accrues suboptimal results in the United States. The process has become so partisan, political and doctrinal. There may come a time--not too distant--where people will recognize that the U.S. lost its best practices leadership in telecommunications infrastruture, because the stakeholders spent more time funding web sites and blogs as well as foolish litigation in lieu of doing what's needed to install and operate next generation networks.
Wednesday, November 28, 2007
FCC Chairman Martin A Tireless Consumer Advocate--Who Knew?
In a counter-intuitive move for a Republican free marketeer, FCC Chairman Kevin Martin has sought to impose substantial additional regulations on cable television. Chairman Martin ostensibly can retain his credentials by claiming that a 1984 law requires the FCC to act when cable television systems serve 70% or more of the U.S. population and 70% who can subscribe do so.
A dispute about whether the cable has reached the so-called 70/70 benchmark temporarily has preempted the Chairman's campaign. However the notion of adding regulation to help the consumer intrigues me, particularly in light of countless instances where Chairman Martin all too willingly relies on assumptions about the market and/or questionable statistics to refrain from regulation.
So what is it about cable television that triggers the Chairman's regulatory urges? If cable has such a lock on markets where was the FCC all these many years, particularly now that true facilities-based competition from satellites and telephone companies will help solve the problems belated regulation is supposed to remedy?
I also wonder why Chairman Martin has no interest in regulating other instances where market power and pricing control appears more clearcut, e.g., special access wireline services outside of central business districts and residential broadband Internet access. There is no applicable 70/70 rule and neither service comes close to 70% penetration. Still the regulatory urge does not exist for wireline telecommunications.
Maybe it's "I want my MTV" and I want it cheaper!
A dispute about whether the cable has reached the so-called 70/70 benchmark temporarily has preempted the Chairman's campaign. However the notion of adding regulation to help the consumer intrigues me, particularly in light of countless instances where Chairman Martin all too willingly relies on assumptions about the market and/or questionable statistics to refrain from regulation.
So what is it about cable television that triggers the Chairman's regulatory urges? If cable has such a lock on markets where was the FCC all these many years, particularly now that true facilities-based competition from satellites and telephone companies will help solve the problems belated regulation is supposed to remedy?
I also wonder why Chairman Martin has no interest in regulating other instances where market power and pricing control appears more clearcut, e.g., special access wireline services outside of central business districts and residential broadband Internet access. There is no applicable 70/70 rule and neither service comes close to 70% penetration. Still the regulatory urge does not exist for wireline telecommunications.
Maybe it's "I want my MTV" and I want it cheaper!
Tuesday, November 27, 2007
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.
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.
Sunday, November 11, 2007
The Missing Human Link in an Internet Transaction
Over two years ago I had an automobile to sell. I opted for a combination of the conventional--print newspaper--and the relatively new--the Internet. My local newsaper provided the link for both outlets, a convenience that failed.
The newspaper interface offered interaction with a live person, who cheerfully took my ad and credit card number. I had no interaction whatsoever with Cars.com, the Internet sales channel. My newspaper ad terminated on schedule, but the Cars.com ad persists to this day. Worse yet after asking Cars.com via email to discontinue the ad, I received notification that I the car seller had no authority to terminate the ad, only the newspaper. Repeated efforts to contact my local paper have failed. So if you are in the market for an inexpensive 1999 Camry in State College on Cars.com disregard my ad.
The lesson: regardless of the wonderful reach provided via the Internet, a human interface probably remains essential. Should that interface fail, be prepared for more hassle than you might have expected. In my case I have to disappoint callers and emailers that they missed the chance to buy a cheap Camry by about 30 months!
The newspaper interface offered interaction with a live person, who cheerfully took my ad and credit card number. I had no interaction whatsoever with Cars.com, the Internet sales channel. My newspaper ad terminated on schedule, but the Cars.com ad persists to this day. Worse yet after asking Cars.com via email to discontinue the ad, I received notification that I the car seller had no authority to terminate the ad, only the newspaper. Repeated efforts to contact my local paper have failed. So if you are in the market for an inexpensive 1999 Camry in State College on Cars.com disregard my ad.
The lesson: regardless of the wonderful reach provided via the Internet, a human interface probably remains essential. Should that interface fail, be prepared for more hassle than you might have expected. In my case I have to disappoint callers and emailers that they missed the chance to buy a cheap Camry by about 30 months!
Friday, November 9, 2007
Response to Two Columns on Comcast’s Traffic Management Tactics
Two columnists have offered their perspective on the Comcast peer-to-peer traffic management issue. See Larry Seltzer, eWeek.com, Network Policies Should Be Open, Not Neutral (Nov. 6, 2007) available at: http://www.eweek.com/article2/0,1895,2213092,00.asp and George Ou, ZDNet Blog, A Rational Debate on Comcast Traffic Management (Nov. 6, 2007); available at: http://blogs.zdnet.com/Ou/?p=852,
I agree with much of what they wrote, particularly the view that an ISP has a duty to disclose to subscribers what traffic management tactics the ISP can elect to use. Apparently Comcast and others do not want to commit to disclosing what traffic management tactics it might use ostensibly to preclude the onset of actual congestion. No one has disputed that Comcast forged TCP reset packets even though it appears that Comcast could have handled the actually occurring traffic volume without having to degrade anyone’s traffic.
On the other hand I endorse traffic management tactics that respond to actual congestion. I probably part company with some network neutrality advocates by endorsing an ISP offering premium services at a higher rate to power users, provided the ISP does not deliberately degrade service to standard service subscribers.
Neither of the authors addressed whether the current language, or the likely replacement language in subscription agreements, constitutes full disclosure that is fair. From my perspective ISPs cannot have it both ways by marketing “All You Can Eat” unlimited service and “blazing fast” bit rates only to establish, but not disclose quotas and bit rate throttle scenarios. That comes across as a classic “bait and switch” maneuver. ISPs should not be able to insert binding, “take it leave it” terms and conditions that include reserving the option of using “traffic management, “traffic shaping” and “rate-limiting” without defining the terms. ISPs should have to specify what these terms mean specifically as relates to monthly throughput quotas and bit rate throttling, and when such service degradation kicks in.
As the Internet matures and diversifies ISPs should have the option of targeting different consumer segments. As a light to moderate user of Internet access, I do not want to subsidize heavy users, nor do I want them bogging down the network and adversely impacting my service. But I also do not want a trigger happy ISP ready to punish power users regardless of whether these users have made it impossible or even difficult for the ISP to provide an adequate level of service.
I appreciate that ISPs need to recoup their sizeable network investments that seem to grow as more subscribers access bandwidth intensive services. But forging TCP resend packets comes across as a sneaky way to delay having to upgrade networks, or to establish the need for surcharges or rate increases.
I agree with much of what they wrote, particularly the view that an ISP has a duty to disclose to subscribers what traffic management tactics the ISP can elect to use. Apparently Comcast and others do not want to commit to disclosing what traffic management tactics it might use ostensibly to preclude the onset of actual congestion. No one has disputed that Comcast forged TCP reset packets even though it appears that Comcast could have handled the actually occurring traffic volume without having to degrade anyone’s traffic.
On the other hand I endorse traffic management tactics that respond to actual congestion. I probably part company with some network neutrality advocates by endorsing an ISP offering premium services at a higher rate to power users, provided the ISP does not deliberately degrade service to standard service subscribers.
Neither of the authors addressed whether the current language, or the likely replacement language in subscription agreements, constitutes full disclosure that is fair. From my perspective ISPs cannot have it both ways by marketing “All You Can Eat” unlimited service and “blazing fast” bit rates only to establish, but not disclose quotas and bit rate throttle scenarios. That comes across as a classic “bait and switch” maneuver. ISPs should not be able to insert binding, “take it leave it” terms and conditions that include reserving the option of using “traffic management, “traffic shaping” and “rate-limiting” without defining the terms. ISPs should have to specify what these terms mean specifically as relates to monthly throughput quotas and bit rate throttling, and when such service degradation kicks in.
As the Internet matures and diversifies ISPs should have the option of targeting different consumer segments. As a light to moderate user of Internet access, I do not want to subsidize heavy users, nor do I want them bogging down the network and adversely impacting my service. But I also do not want a trigger happy ISP ready to punish power users regardless of whether these users have made it impossible or even difficult for the ISP to provide an adequate level of service.
I appreciate that ISPs need to recoup their sizeable network investments that seem to grow as more subscribers access bandwidth intensive services. But forging TCP resend packets comes across as a sneaky way to delay having to upgrade networks, or to establish the need for surcharges or rate increases.
Tuesday, November 6, 2007
In Praise of Relatively Dumb Pipes
Comcast's furtive and undisclosed traffic manipulation reminds me of a curious, red herring asserted by some incumbent carriers and their sponsored researchers: that without complete freedom to vertically and horizontally integrate the carriers would lose synergies, efficiencies and be relegated to operating "dumb pipes." For example, see Adam Thierer, Are "Dumb Pipe" Mandates Smart Public Policy? Vertical Integration, Net Neutrality, and the Network Layers Model, 3 Journal on Telecommunications & High Technology Law 275 (2005)
Constructing and operating the pipes instead of creating the stuff that traverses them gets a bad rap. It may not be sexy, but it probably has less risk. But of course with less risk comes less reward, and suddenly no one in the telecommunications business is content with that. So incumbent carriers assert that convergence and competitive necessity requires them to add "value" to the pipes.
Put another way, they would assert that any limitation on a carrier's "right" to add value is an unconstitutional taking. Of course we used to have common carriers that operated as neutral conduits carrying the content produced by someone else, but apparently that is an anachronism now.
The dumb pipe argument comes across to me as disingenuous. Would anyone buy an argument from an electricity carrier that it should not have to provide a neutral conduit for the carriage of electricity? It would seem that everyone makes more money and has more fun using the electricity to make something more valuable than just carrying electrons.
So it appears with Comcast. Hellbent to cash in on convergence, or at least generate greater returns for its pipe investment, Comcast wants to operate a non-neutral network with all sorts of intelligent packet sniffers ready to prioritize or degrade traffic. And I thought consumers would beat a path to Comcast instead of Verizon, because Comcast offered faster and better service. Who would want that when they can have a smart pipeline whose genius owners stand ready to delay and drop packets according to some secret and real smart plan?
Constructing and operating the pipes instead of creating the stuff that traverses them gets a bad rap. It may not be sexy, but it probably has less risk. But of course with less risk comes less reward, and suddenly no one in the telecommunications business is content with that. So incumbent carriers assert that convergence and competitive necessity requires them to add "value" to the pipes.
Put another way, they would assert that any limitation on a carrier's "right" to add value is an unconstitutional taking. Of course we used to have common carriers that operated as neutral conduits carrying the content produced by someone else, but apparently that is an anachronism now.
The dumb pipe argument comes across to me as disingenuous. Would anyone buy an argument from an electricity carrier that it should not have to provide a neutral conduit for the carriage of electricity? It would seem that everyone makes more money and has more fun using the electricity to make something more valuable than just carrying electrons.
So it appears with Comcast. Hellbent to cash in on convergence, or at least generate greater returns for its pipe investment, Comcast wants to operate a non-neutral network with all sorts of intelligent packet sniffers ready to prioritize or degrade traffic. And I thought consumers would beat a path to Comcast instead of Verizon, because Comcast offered faster and better service. Who would want that when they can have a smart pipeline whose genius owners stand ready to delay and drop packets according to some secret and real smart plan?
Friday, November 2, 2007
What Can the FCC Do When ISPs Block or Degrade Certain Types of Traffic?
A group of pro network neutrality advocates have filed a Petition for Declaratory Ruling and Formal Complaint in response to Comcast’s furtive traffic “shaping” and “management” tactics that have the effect of blocking or degrading peer-to-peer traffic. See http://www.freepress.net/docs/fp_et_al_nn_declaratory_ruling.pdf; and http://www.freepress.net/docs/fp_pk_comcast_complaint.pdf.
The group asks the FCC to issue preliminary and permanent injunctions prohibiting Comcast from engaging in such tactics, to fine Comcast and to declare that such tactics violate the Commission’s Policy Statement that establishe network neutrality “principles” (see http://www.publicknowledge.org/pdf/FCC-05-151A1.pdf).
While I endorse the groups’ efforts, I believe the petition and complaint would achieve greater impact had the authors addressed the issue of whether and how the FCC can act in the ways the group proposes. Specifically both the group and the FCC have to examine the breadth of jurisdiction and regulatory options available to the Commission under Title I of the Communications Act.
Both the petitioners and the FCC assume that the Commission can act to enforce the network neutrality principles articulated in a three page Policy Statement that devotes two sentences to the issue:
While acknowledging that it cannot assert conventional, Title II common carrier regulation, because ISPs provide information services and not telecommunications services, the FCC stated summarily that it “has jurisdiction to impose additional regulatory obligations under its Title I ancillary jurisdiction to regulate interstate and foreign communications.” According to the Commission that translates into having “the jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner.
Also noted by the petitions was a sentence in the FCC’s its order assigning the information service classification to cable modem Internet access where the Commission stated its intent “to take action to address . . . conduct” that violates network neutrality.
I fully expect opponents of the petition and complaint to state that the FCC has neither the jurisdiction nor the intent to impose on ISPs such as Comcast what opponents will frame as common carrier obligations. So the Internet Policy statement has to be interpreted as lawfully imposing responsibilities that serve the public interest without imposing common carrier responsibilities, but which cannot constitute the kind of unlawful expansion of jurisdiction Justice Scalia predicted would occur in his dissent in the Brand X case. I examine the risk of overstating the scope of Title I “ancillary jurisdiction” in What Do Pizza Delivery and Information Services Have in Common? Lessons From Recent Judicial and Regulatory Struggles with Convergence, 32 RUTGERS COMPUTER AND TECHNOLOGY LAW JOURNAL, No. 2, 247-296 (2006).
The FCC has taken great pains to create a deregulatory “safe harbor” for information services providers. The Commission has managed to shoe horn DSL, cable modems, BPL and wireless Internet access into the information services classification which the Commission considers completely separate from regulated telecommunications services. To underscore the absoluteness of this dichotomy the Commission has come up with a tenuous differential based on whether a carrier “offers” telecommunications versus “provides” telecommunications. The former falls into the common carriage telecommunications service category, while the latter qualifies for private carriage of an information service, because the Commission chooses to subordinate the telecommunications component into a minor and integrated activity.
The FCC already has invoked its Title I ancillary authority to impose a number of traditional common carrier duties on Voice over the Internet Protocol (“VoIP”) providers and courts have deferred to the agency’s expertise absent a clear statutory mandate.
But at some point the FCC may go to the Title I well too often. I suspect the FCC will have to flesh out its authority to abrogate contracts between landlords and cable operators, particularly in light of the traction gained over the years by incumbent telephone companies that interconnection regulation, such as unbundling and line sharing, “confiscates” their property. Perhaps also the FCC will have to explain why it and not the Federal Trade Commission should act on what can be deemed a consumer protection matter.
At the very least the FCC will have to do more than unilaterally and summarily state that it has jurisdiction under Title I to impose network neutrality principles. The petitioners could have helped the Commission come up with a compelling rationale.
The group asks the FCC to issue preliminary and permanent injunctions prohibiting Comcast from engaging in such tactics, to fine Comcast and to declare that such tactics violate the Commission’s Policy Statement that establishe network neutrality “principles” (see http://www.publicknowledge.org/pdf/FCC-05-151A1.pdf).
While I endorse the groups’ efforts, I believe the petition and complaint would achieve greater impact had the authors addressed the issue of whether and how the FCC can act in the ways the group proposes. Specifically both the group and the FCC have to examine the breadth of jurisdiction and regulatory options available to the Commission under Title I of the Communications Act.
Both the petitioners and the FCC assume that the Commission can act to enforce the network neutrality principles articulated in a three page Policy Statement that devotes two sentences to the issue:
While acknowledging that it cannot assert conventional, Title II common carrier regulation, because ISPs provide information services and not telecommunications services, the FCC stated summarily that it “has jurisdiction to impose additional regulatory obligations under its Title I ancillary jurisdiction to regulate interstate and foreign communications.” According to the Commission that translates into having “the jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner.
Also noted by the petitions was a sentence in the FCC’s its order assigning the information service classification to cable modem Internet access where the Commission stated its intent “to take action to address . . . conduct” that violates network neutrality.
I fully expect opponents of the petition and complaint to state that the FCC has neither the jurisdiction nor the intent to impose on ISPs such as Comcast what opponents will frame as common carrier obligations. So the Internet Policy statement has to be interpreted as lawfully imposing responsibilities that serve the public interest without imposing common carrier responsibilities, but which cannot constitute the kind of unlawful expansion of jurisdiction Justice Scalia predicted would occur in his dissent in the Brand X case. I examine the risk of overstating the scope of Title I “ancillary jurisdiction” in What Do Pizza Delivery and Information Services Have in Common? Lessons From Recent Judicial and Regulatory Struggles with Convergence, 32 RUTGERS COMPUTER AND TECHNOLOGY LAW JOURNAL, No. 2, 247-296 (2006).
The FCC has taken great pains to create a deregulatory “safe harbor” for information services providers. The Commission has managed to shoe horn DSL, cable modems, BPL and wireless Internet access into the information services classification which the Commission considers completely separate from regulated telecommunications services. To underscore the absoluteness of this dichotomy the Commission has come up with a tenuous differential based on whether a carrier “offers” telecommunications versus “provides” telecommunications. The former falls into the common carriage telecommunications service category, while the latter qualifies for private carriage of an information service, because the Commission chooses to subordinate the telecommunications component into a minor and integrated activity.
The FCC already has invoked its Title I ancillary authority to impose a number of traditional common carrier duties on Voice over the Internet Protocol (“VoIP”) providers and courts have deferred to the agency’s expertise absent a clear statutory mandate.
But at some point the FCC may go to the Title I well too often. I suspect the FCC will have to flesh out its authority to abrogate contracts between landlords and cable operators, particularly in light of the traction gained over the years by incumbent telephone companies that interconnection regulation, such as unbundling and line sharing, “confiscates” their property. Perhaps also the FCC will have to explain why it and not the Federal Trade Commission should act on what can be deemed a consumer protection matter.
At the very least the FCC will have to do more than unilaterally and summarily state that it has jurisdiction under Title I to impose network neutrality principles. The petitioners could have helped the Commission come up with a compelling rationale.
Thursday, November 1, 2007
DSL and Cable Modem Lose Over 24% Market Share in One Year??!!
In the lies, damn lies and statistics department the FCC has made another contribution. The Commisison's most current compilation of broadband market share shows wireless (satellite and cellular) acquiring over 24% from wireline cable television and telco options. See http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277784A1.pdf and compare with the prior calculation: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-270128A1.pdf.
How could this be? Well in reality I doubt whether many consumers would gladly pay more than double for a fraction of the bit rate available from wired options. But (and here's the snarky part) if one calculated broadband using an unrealistically low bar--say 200 kilobits per second--and if one ignores cost, then suddenly wireless options have become a major--here's the pay off--FACILITIES-BASED COMPETITOR of the cable/telco duopoly.
If only I could think and grow rich just as the FCC thinks competition exists and its statistics make it so.
In reality wireless options have their niche role wven though they offer no more than 500 or so kilobits per second. If you are on the road and have no wi-fi or wired option, then 500 kbps is better than nothing. But the FCC wants the statistics to evidence that robust competition exists in the real broadband arena (1 megabit or faster). The cable/telco duopoly is alive and well.
How could this be? Well in reality I doubt whether many consumers would gladly pay more than double for a fraction of the bit rate available from wired options. But (and here's the snarky part) if one calculated broadband using an unrealistically low bar--say 200 kilobits per second--and if one ignores cost, then suddenly wireless options have become a major--here's the pay off--FACILITIES-BASED COMPETITOR of the cable/telco duopoly.
If only I could think and grow rich just as the FCC thinks competition exists and its statistics make it so.
In reality wireless options have their niche role wven though they offer no more than 500 or so kilobits per second. If you are on the road and have no wi-fi or wired option, then 500 kbps is better than nothing. But the FCC wants the statistics to evidence that robust competition exists in the real broadband arena (1 megabit or faster). The cable/telco duopoly is alive and well.
Tuesday, October 30, 2007
Property Confiscation is in the Eye of the Beholder
The issue of FCC confiscation of private property has a long and checkered history in academic literature, sponsored research and litigation. In many instances incumbent telephone companies have argued that FCC regulation, which requires the carriers to do something they do not want to do, constitutes a confiscation or "taking" of property. So when the FCC orders an incumbent carrier to interconnect with a competitor--something common carriers have to do--incumbent carriers are quick to play the confiscation card if they do not like the terms and conditions under which they have to provide interconnection.
The incumbent carriers tried the confiscation argument before the Supreme Court claiming that unbundling and other affirmative obligations under the Telecommunications Act of 1996 constitued a taking of property. In Verizon Communications, Inc. v. FCC, 121 S.Ct. 877 (2001)the Court wisely rejected incumbent local exchange carrier arguments that using a theoretical, most efficient cost model, instead of actual historical costs, constituted a taking that violated the Fifth Amendment. See http://telefrieden.blogspot.com/2007/04/revisionism.html.
Nothwithstanding the Court's determination the FCC has methodically dismantled just about all of the line sharing, unbundling and interconnection obligations incumbent carriers must endure. The Commission rationalizes such deregulation on bogus determinations that marketplace self-regulation will suffice because of robust competition.
With this in mind I have some mixed feeling about the Commission's ostensibly procompetitive, pro consumer decision to abrogate exclusive service contracts between apartment owners and cabel television operators. See http://www.nytimes.com/2007/10/29/business/media/29cable.html?_r=1&oref=slogin
While I can appreciate that the initiative should trigger rate reductions for previously captive apartment dwellers, I wonder why similarly captive broadband subscribers do not warrant such aggressive and conscientious regulatory intervention. The FCC no longer requires incumbent local exchange carriers to share bandwidth available in their local loops at fair compensation rates. Bear in mind that these carriers installed such infrastructure and recouped their investment at a time when ratepayers were equally captive.
So once again the FCC can explain an inconsistent and assymetrical regulatory state of play on grounds that robust competition exists in one market and it does not exists in another market.
I cannot help but think that an alternative explanation exists: political expediency warrant accommodating Verizon, AT&T and other incumbent carriers in both instances. Eliminate unbundling, line sharing and now even most aspects of interconection (special access) regulation because the incumbent carriers want it and the FCC can make a claim that competition exists. Abrogate apartment owner-cable television operator contracts because Verizon and AT&T want the FCC to do so and because the Commission can make a claim that competition does not exist.
Well at least on the south facing side of many apartment tenants with access to private outside space, such as a balcony, can and do access Direct Broadcast Satellite television options. But more fundamentally the FCC can play the competition card in whatever way it chooses with impunity.
The incumbent carriers tried the confiscation argument before the Supreme Court claiming that unbundling and other affirmative obligations under the Telecommunications Act of 1996 constitued a taking of property. In Verizon Communications, Inc. v. FCC, 121 S.Ct. 877 (2001)the Court wisely rejected incumbent local exchange carrier arguments that using a theoretical, most efficient cost model, instead of actual historical costs, constituted a taking that violated the Fifth Amendment. See http://telefrieden.blogspot.com/2007/04/revisionism.html.
Nothwithstanding the Court's determination the FCC has methodically dismantled just about all of the line sharing, unbundling and interconnection obligations incumbent carriers must endure. The Commission rationalizes such deregulation on bogus determinations that marketplace self-regulation will suffice because of robust competition.
With this in mind I have some mixed feeling about the Commission's ostensibly procompetitive, pro consumer decision to abrogate exclusive service contracts between apartment owners and cabel television operators. See http://www.nytimes.com/2007/10/29/business/media/29cable.html?_r=1&oref=slogin
While I can appreciate that the initiative should trigger rate reductions for previously captive apartment dwellers, I wonder why similarly captive broadband subscribers do not warrant such aggressive and conscientious regulatory intervention. The FCC no longer requires incumbent local exchange carriers to share bandwidth available in their local loops at fair compensation rates. Bear in mind that these carriers installed such infrastructure and recouped their investment at a time when ratepayers were equally captive.
So once again the FCC can explain an inconsistent and assymetrical regulatory state of play on grounds that robust competition exists in one market and it does not exists in another market.
I cannot help but think that an alternative explanation exists: political expediency warrant accommodating Verizon, AT&T and other incumbent carriers in both instances. Eliminate unbundling, line sharing and now even most aspects of interconection (special access) regulation because the incumbent carriers want it and the FCC can make a claim that competition exists. Abrogate apartment owner-cable television operator contracts because Verizon and AT&T want the FCC to do so and because the Commission can make a claim that competition does not exist.
Well at least on the south facing side of many apartment tenants with access to private outside space, such as a balcony, can and do access Direct Broadcast Satellite television options. But more fundamentally the FCC can play the competition card in whatever way it chooses with impunity.
Friday, October 26, 2007
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/
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/
Tuesday, October 23, 2007
Empirical Evidence of Net Bias—Now What? (part two)
ISPs now acknowledge that they may meddle with subscribers’ traffic streams, but only to “manage” and “shape” traffic. ISPs typically reserve the option for such meddling in their contract with subscribers. Should you ever take the time to read this document, and a second documents about “Acceptable Use” you will see language that does reserve to the ISP the right to manage their network, ostensibly to optimize it for the benefit of subscribers. The subscriber agreement also attempts to foreclose litigation as an option by stating that subscribers can only seek arbitration to settle any grievance.
In reality the subscriber contract constitutes a unilateral, non-negotiable contract of adhesion, i.e., a “take it or leave” it proposition. In a truly competitive world, disgruntled subscribers could “vote” with their feet and dollars by taking their business elsewhere. But contrary to the FCC’s fantasy statistical reports about double digit service alternatives in most zip codes, consumers have limited options. Taking ones business from DSL to cable modem would not solve the problem if all carriers—through collusion or “conscious parallelism” had the same network management contractual language.
Because the FCC considers ISPs information service providers, the Commission offers no traditional consumer safeguards applicable to telecommunications service providers under Title II of the Communications Act., ISPs must use contracts in lieu of filed tariffs. However, ISP contracts must pass muster with general law and equity principles regarding the fairness of the terms, consumer protection and fraud. In other words, ISPs cannot unilaterally set any terms and conditions and have them stick.
While the FCC may have limited jurisdiction to examine ISP contracts, state and federal courts can lawfully assess whether an ISP has lawfully interpreted the terms of the contract it created and more broadly whether the agreement violates the court’s sense of fairness. In light of the FCC’s deregulation of information service providers, the Commission cannot readily claim that it should preempt judicial review because it still has “primary” jurisdiction to resolve fairness and consumer protection issues.
We may soon see an onslaught of individual and class action law suits against ISPs on grounds that they have not complied with the clear language of their service agreements. For example ISPs have cut off or throttled service to customers for using too much network resources despite an agreement that offers unlimited and unmetered “all you can eat” service. Peer-to-peer customers experience artificial network congestion—a hard thing to prove—may claim that the ISP has violated the service agreement.
A court may serve as the forum for assessing whether an ISP’s reserve right to manage its network includes preemptive strategies that mimic network congestion even when actual traffic conditions do not necessitate network conservation tactics.
In reality the subscriber contract constitutes a unilateral, non-negotiable contract of adhesion, i.e., a “take it or leave” it proposition. In a truly competitive world, disgruntled subscribers could “vote” with their feet and dollars by taking their business elsewhere. But contrary to the FCC’s fantasy statistical reports about double digit service alternatives in most zip codes, consumers have limited options. Taking ones business from DSL to cable modem would not solve the problem if all carriers—through collusion or “conscious parallelism” had the same network management contractual language.
Because the FCC considers ISPs information service providers, the Commission offers no traditional consumer safeguards applicable to telecommunications service providers under Title II of the Communications Act., ISPs must use contracts in lieu of filed tariffs. However, ISP contracts must pass muster with general law and equity principles regarding the fairness of the terms, consumer protection and fraud. In other words, ISPs cannot unilaterally set any terms and conditions and have them stick.
While the FCC may have limited jurisdiction to examine ISP contracts, state and federal courts can lawfully assess whether an ISP has lawfully interpreted the terms of the contract it created and more broadly whether the agreement violates the court’s sense of fairness. In light of the FCC’s deregulation of information service providers, the Commission cannot readily claim that it should preempt judicial review because it still has “primary” jurisdiction to resolve fairness and consumer protection issues.
We may soon see an onslaught of individual and class action law suits against ISPs on grounds that they have not complied with the clear language of their service agreements. For example ISPs have cut off or throttled service to customers for using too much network resources despite an agreement that offers unlimited and unmetered “all you can eat” service. Peer-to-peer customers experience artificial network congestion—a hard thing to prove—may claim that the ISP has violated the service agreement.
A court may serve as the forum for assessing whether an ISP’s reserve right to manage its network includes preemptive strategies that mimic network congestion even when actual traffic conditions do not necessitate network conservation tactics.
Empirical Evidence of Net Bias—Now What?
A widely distributed and unassailable study by the Associated Press (see http://www.forbes.com/feeds/ap/2007/10/19/ap4240786.html) confirms what many Internet Service Provider (“ISP”) industry observers had speculated: some ISPs exploit deliberately ambiguous subscriber contracts to reserve the option for blocking, dropping, and downgrading certain types of traffic even when network conditions do not necessitate such congestion abatement strategies. ISPs frame the issue in terms of their contractual right to “shape traffic.” However such traffic “management” tactics generate false congestion and trigger delayed or dropped packets.
For years ISPs representatives and their snarky, righteously indignant sponsored advocates stated unequivocally that ISPs would never deliberately degrade the Internet access experience for any paying subscriber. See http://www.filmfestivaltoday.com/article_item.asp?ID=853 quoting Verizon CEO Ivan Seidenberg: "We don't block anything…never have, never will." see also, http://commdocs.house.gov/committees/judiciary/hju27225.000/hju27225_0.HTM.
Later they shaped the debate in terms of fair and appropriate allocation of their costs among low and high volume users. Now they consider the issue one of how they manage their network to maximize service to their subscribers.
In fact ISPs have two very key reasons for creating congestion of packets, just like Enron created congestion of electrons:
1) blocking, delaying, and degrading certain types of expensive to handle traffic, such as peer-to-peer file sharing, delays or forecloses the need to invest in costly network upgrades; and
2) blocking, delaying, and degrading certain types of expensive to handle traffic, such as peer-to-peer file sharing, can enable an ISP to create a new customer service tier for unblocked peer-to-peer traffic at premium price.
Heretofore I have stood midway between the groups claiming “no problem”camp and the “curtains for the free world” alarmists. However I have consistent stated that an ISP violates a reasonable sense of network neutrality, appropriate even for private carriers, when an ISP deliberately creates artificial network congestion to achieve an ulterior motive. See http://www.personal.psu.edu/faculty/r/m/rmf5/.
I would support Comcast’s option to create a premium “power user” peer-to-peer network optimized service. But I would equally protest any ISP strategy to extort such payments, or simply to punish peer-to-peer networkers, when the ISP network can easily handle such traffic without degrading service to other subscribers.
In another post I will Comcast examine whether Comcast and other ISPs can lawfully use language in subscriber contracts to degrade peer-to-peer traffic streams regardless of network conditions.
For years ISPs representatives and their snarky, righteously indignant sponsored advocates stated unequivocally that ISPs would never deliberately degrade the Internet access experience for any paying subscriber. See http://www.filmfestivaltoday.com/article_item.asp?ID=853 quoting Verizon CEO Ivan Seidenberg: "We don't block anything…never have, never will." see also, http://commdocs.house.gov/committees/judiciary/hju27225.000/hju27225_0.HTM.
Later they shaped the debate in terms of fair and appropriate allocation of their costs among low and high volume users. Now they consider the issue one of how they manage their network to maximize service to their subscribers.
In fact ISPs have two very key reasons for creating congestion of packets, just like Enron created congestion of electrons:
1) blocking, delaying, and degrading certain types of expensive to handle traffic, such as peer-to-peer file sharing, delays or forecloses the need to invest in costly network upgrades; and
2) blocking, delaying, and degrading certain types of expensive to handle traffic, such as peer-to-peer file sharing, can enable an ISP to create a new customer service tier for unblocked peer-to-peer traffic at premium price.
Heretofore I have stood midway between the groups claiming “no problem”camp and the “curtains for the free world” alarmists. However I have consistent stated that an ISP violates a reasonable sense of network neutrality, appropriate even for private carriers, when an ISP deliberately creates artificial network congestion to achieve an ulterior motive. See http://www.personal.psu.edu/faculty/r/m/rmf5/.
I would support Comcast’s option to create a premium “power user” peer-to-peer network optimized service. But I would equally protest any ISP strategy to extort such payments, or simply to punish peer-to-peer networkers, when the ISP network can easily handle such traffic without degrading service to other subscribers.
In another post I will Comcast examine whether Comcast and other ISPs can lawfully use language in subscriber contracts to degrade peer-to-peer traffic streams regardless of network conditions.
Thursday, October 11, 2007
Expanding Pedestals
Telephone and cable companies have expanded their service offerings into a triple- or quadruple play of their core service (telephony or video) plus Internet access, wireless and the other companies' core offering. To deliver this package of service the companies often have to expand bandwidth and install additional equipment at or near consumers' homes.
These companies used to install a small pedestal for the electronics and line splice needed to provide service. The right to install such equipment derived from the rights of way granted by property owners or municipal ordinanaces that convery such rights. Of course these companies qualified for free of charge rights of way based on their "public utility" characteristics. Additionally federal, state and municipal regulations existed to safeguard the public.
Telephone and cable companies have qualified for deregulation particularly based on the determination that they provide information and other non-telecommunications services. Yet these companies continue to use "legacy" rights of ways, based on their prior regulated status. Now these companies are expanding the size and footprint of the pedestals they install on private property.
My cable company attempted to install a small refrigerator-sized device on my property. These device would use electric power surely to provide services other than the core service for which the right of way was granted.
Query: can companies providing largely unregulated information services exploit rights of way granted under the pretext of a public interest need for basic telecommunications and video services? Regardless of the actual legality of doing so telephone and cable companies have expanded the size and footprint of their rights of way use and pedestal installation without having to compensate land owners.
If companies enjoy the benefits of an information services safe harbor from regulation shouldn't they lose free rights of way access? bear in mind these are the very companies that loudly claim "confiscation" when government regulates them.
These companies used to install a small pedestal for the electronics and line splice needed to provide service. The right to install such equipment derived from the rights of way granted by property owners or municipal ordinanaces that convery such rights. Of course these companies qualified for free of charge rights of way based on their "public utility" characteristics. Additionally federal, state and municipal regulations existed to safeguard the public.
Telephone and cable companies have qualified for deregulation particularly based on the determination that they provide information and other non-telecommunications services. Yet these companies continue to use "legacy" rights of ways, based on their prior regulated status. Now these companies are expanding the size and footprint of the pedestals they install on private property.
My cable company attempted to install a small refrigerator-sized device on my property. These device would use electric power surely to provide services other than the core service for which the right of way was granted.
Query: can companies providing largely unregulated information services exploit rights of way granted under the pretext of a public interest need for basic telecommunications and video services? Regardless of the actual legality of doing so telephone and cable companies have expanded the size and footprint of their rights of way use and pedestal installation without having to compensate land owners.
If companies enjoy the benefits of an information services safe harbor from regulation shouldn't they lose free rights of way access? bear in mind these are the very companies that loudly claim "confiscation" when government regulates them.
Tuesday, October 9, 2007
Consumer Protection for Cable Television But Not the Internet or Cellular Telephony
The FCC recently released an Order that extends until Oct. 2012 a prohibition on exclusive contracting by vertically integrated programmers who deliver video content via satellite. See Implementation of the Cable Television Consumer Protection and Competition Act of 1992, Development of Competition and Diversity in Video Programming Distribution: Section 628(c)(5) of the Communications Act: Sunset of Exclusive Contract Prohibition, MB Docket No. 07-29, Report and Order (rel. Oct. 1, 2007), available at: http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-169A1.doc.
Section 628(c)(2)(D) of the Communications Act requires the FCC to safeguard consumers and video programming competition from vertically integrated programmers who the Commission determines still have the ability and the incentive to favor the operators with whom they are affiliated over other competitive providers. In light of the FCC’s determination that vertically integrated ventures still control, “must see” content, for which no viable substitute exists, the Commission retained the prohibition against exclusive content distribution contracts from ventures that verticially integrate content production and distribution to consumers.
This order shows the FCC in a curiously pro-consumer, market interventionist mode, quite an opposite posture vis a vis network neutrality and the Commission's typically pro-marketplace mindset. Why is this?
First there is a statutory mandate to assess the market for content by multi-channel video programming distributors. The Commission sees an ongoing market failure even as it nearly always determines that robust competition and a well oiled marketplace exists everywhere else. So a statutory mandate to examine industry conditions typically does not trigger a pro-regulatory oversight outcome.
Second perhaps there is something about television--particularly "must see" television--and voters attitudes that forces the Commission to act. Exclusive access to via cable television of a much loved program surely will trigger consumer outrage particularly if the exclusive supplier charges what an inelastic market will bear.
Third this is an issue about vertical integration by companies consumers and apparently FCC Commissioners love to hate--cable.
So take away an explicit Congressional mandate, address content perhaps even "must see" video and substitute much beloved (or feared) telephone companies and the FCC has no problem with vertical integration, exclusive contracts for content and walled gardens. The market fails for "must see" video via cable television, but the FCC has no problem whatsoever for any exclusive content deal, including video, via the Internet and cellular telephones. IPTV and cellular telephone display of video is not cable television, but it increasingly will compete with it.
Section 628(c)(2)(D) of the Communications Act requires the FCC to safeguard consumers and video programming competition from vertically integrated programmers who the Commission determines still have the ability and the incentive to favor the operators with whom they are affiliated over other competitive providers. In light of the FCC’s determination that vertically integrated ventures still control, “must see” content, for which no viable substitute exists, the Commission retained the prohibition against exclusive content distribution contracts from ventures that verticially integrate content production and distribution to consumers.
This order shows the FCC in a curiously pro-consumer, market interventionist mode, quite an opposite posture vis a vis network neutrality and the Commission's typically pro-marketplace mindset. Why is this?
First there is a statutory mandate to assess the market for content by multi-channel video programming distributors. The Commission sees an ongoing market failure even as it nearly always determines that robust competition and a well oiled marketplace exists everywhere else. So a statutory mandate to examine industry conditions typically does not trigger a pro-regulatory oversight outcome.
Second perhaps there is something about television--particularly "must see" television--and voters attitudes that forces the Commission to act. Exclusive access to via cable television of a much loved program surely will trigger consumer outrage particularly if the exclusive supplier charges what an inelastic market will bear.
Third this is an issue about vertical integration by companies consumers and apparently FCC Commissioners love to hate--cable.
So take away an explicit Congressional mandate, address content perhaps even "must see" video and substitute much beloved (or feared) telephone companies and the FCC has no problem with vertical integration, exclusive contracts for content and walled gardens. The market fails for "must see" video via cable television, but the FCC has no problem whatsoever for any exclusive content deal, including video, via the Internet and cellular telephones. IPTV and cellular telephone display of video is not cable television, but it increasingly will compete with it.
Monday, October 1, 2007
Nomination for the Worst in Sponsored Research
With so much unsponsored, under-read research in telecommunications policy, I marvel how sponsored research finds its way into hard copy journals. Having read so much solid, thoughful work generated for the Telecommunications Policy Research Conference (see tprc.org) I thought I would nominate the worst in sponsored research I recently discovered.
My nominee: Hal J. Singer's THE COMPETITIVE EFFECTS OF A CABLE TELEVISION OPERATOR'S REFUSAL TO CARRY DSL ADVERTISING, Journal of Competition Law and Economics 2006 2(2):301-33; available at: http://jcle.oxfordjournals.org/cgi/content/abstract/2/2/301?ck=nck.
First of all I know that Dr. Singer can and does generate solid work. However, this piece simply does not match what he can produce and I infer that he may not have come up with this topic on his own accord. In any event the piece suggests that notwithstanding nearly constant efforts by consulting economists to justify the largest possible relevant market to support mega-mergers in the telecom sphere, Dr. Singer concludes that refusals by cable operators to sell advertising space to competiting DSL providers impairs rivals' efficiency and harms consumers by raising the cost of Internet access.
Dr. Singer reaches this conclusion by defining the relevant market as an incredibly small sliver of the information, communications and entertainment marketplace: local television advertising on cable networks. Dr. Singer concludes that DSL providers cannot compete as effectively as they would in the absence of the "ban."
Even if Dr. Singer provided empirical evidence that DSL providers faced an actual boycott of cable television advertising, he could not prove foreclosure of advertising access by companies such as Verizon, AT&T and his benefactor Qwest. Cable television company advertising represents a tiny sliver of the total broadcast and cable television advertising for which no bar on DSL advertising exists. Surely Dr. Singer knows that cable television operators' must carry obligations require them to carry without blockage any and all advertising contained in broadcast television signals.
Practically speaking is there anyone who believes that Verizon, AT&T, and Qwest lack the ability and resources to advertise their DSL product? Does anyone buy Dr. Singer's assertion that "local television advertising on cable networks is the most efficient form of advertising for DSL providers." On my cable system the local advertising inserts made by Comcast--State College include car dealers, restaurants and furniture stores. Even if Dr. Singer were to claim that Comcast forecloses all of its franchise holders from accepting DSL advertising, does anyone think this makes DSL competitively disadvantaged vis a vis cable modem service?
My nomination for first runner up is: J. Gregory Sidak and Hal J. Singer, Überregulation Without Economics: The World Trade Organization’s Decision In The U.S.-Mexico Arbitration On Telecommunications Services, available at: http://law.indiana.edu/fclj/pubs/v57/no1/Sidak.pdf.
In this piece the authors attempt to prove that the World Trade Organization, a treaty-level multilateral organization, illegally regulates telecommunications carriers' rates and practices. Acting on a complaint filed by the United States, the WTO determined that TelMex, the dominant telecommunications service provider in Mexico, imposed impermissibly high interconnection charges. These rates bordered on extortionate and well exceeded benchmarks suggested by the International Telecommunication Union, another one of those runaway multilateral organizations.
My nominee: Hal J. Singer's THE COMPETITIVE EFFECTS OF A CABLE TELEVISION OPERATOR'S REFUSAL TO CARRY DSL ADVERTISING, Journal of Competition Law and Economics 2006 2(2):301-33; available at: http://jcle.oxfordjournals.org/cgi/content/abstract/2/2/301?ck=nck.
First of all I know that Dr. Singer can and does generate solid work. However, this piece simply does not match what he can produce and I infer that he may not have come up with this topic on his own accord. In any event the piece suggests that notwithstanding nearly constant efforts by consulting economists to justify the largest possible relevant market to support mega-mergers in the telecom sphere, Dr. Singer concludes that refusals by cable operators to sell advertising space to competiting DSL providers impairs rivals' efficiency and harms consumers by raising the cost of Internet access.
Dr. Singer reaches this conclusion by defining the relevant market as an incredibly small sliver of the information, communications and entertainment marketplace: local television advertising on cable networks. Dr. Singer concludes that DSL providers cannot compete as effectively as they would in the absence of the "ban."
Even if Dr. Singer provided empirical evidence that DSL providers faced an actual boycott of cable television advertising, he could not prove foreclosure of advertising access by companies such as Verizon, AT&T and his benefactor Qwest. Cable television company advertising represents a tiny sliver of the total broadcast and cable television advertising for which no bar on DSL advertising exists. Surely Dr. Singer knows that cable television operators' must carry obligations require them to carry without blockage any and all advertising contained in broadcast television signals.
Practically speaking is there anyone who believes that Verizon, AT&T, and Qwest lack the ability and resources to advertise their DSL product? Does anyone buy Dr. Singer's assertion that "local television advertising on cable networks is the most efficient form of advertising for DSL providers." On my cable system the local advertising inserts made by Comcast--State College include car dealers, restaurants and furniture stores. Even if Dr. Singer were to claim that Comcast forecloses all of its franchise holders from accepting DSL advertising, does anyone think this makes DSL competitively disadvantaged vis a vis cable modem service?
My nomination for first runner up is: J. Gregory Sidak and Hal J. Singer, Überregulation Without Economics: The World Trade Organization’s Decision In The U.S.-Mexico Arbitration On Telecommunications Services, available at: http://law.indiana.edu/fclj/pubs/v57/no1/Sidak.pdf.
In this piece the authors attempt to prove that the World Trade Organization, a treaty-level multilateral organization, illegally regulates telecommunications carriers' rates and practices. Acting on a complaint filed by the United States, the WTO determined that TelMex, the dominant telecommunications service provider in Mexico, imposed impermissibly high interconnection charges. These rates bordered on extortionate and well exceeded benchmarks suggested by the International Telecommunication Union, another one of those runaway multilateral organizations.
Global Best Practices in Telecom Policy
Papers presented at the 35th annual Telecommunications Policy Research Conference http://www.tprc.org/ held last weekend offered more evidence that the United States no longer offers other nations forward looking policy and regulatory models. I dare say the preoccupation with lobbying and litigation has generated an unanticipated extra liability: loss of best practices leadership.
My proof:
Rather than acknowledge that the U.S. lags many other nations in broadband penetration and affordability (see http://www.speedmatters.org/; http://www.benton.org/), representatives of the U.S. government quibble over the veracity of the statistics.
The dominant incumbent telecomms service provider in the U.K., Italy and Australia volunteered to create an access subsidiary to simplify and largely eliminate regulation of corporate activity at higher layers. U.S. carriers and the FCC summarily reject this approach as eliminating synergies, mandating "dumb" pipes and relegating any physical connection operator to perpetually regulated status.
Korea joins the EU in embracing layers/horizontal regulation in lieu of silo-based, media specific vertical regulation. U.SA. carrier reject this model for the same reasonas above.
Canada has largely solved its universal service challenge while U.S. consumers subsidize carriers with most of an annual $7 billion windfall.
Some day soon we in the United States will begin to recognize that expensive, lackluster broadband access and a highly politicized regulator and policy making process knocks off a few tenths of a percent in national productivity.
My proof:
Rather than acknowledge that the U.S. lags many other nations in broadband penetration and affordability (see http://www.speedmatters.org/; http://www.benton.org/), representatives of the U.S. government quibble over the veracity of the statistics.
The dominant incumbent telecomms service provider in the U.K., Italy and Australia volunteered to create an access subsidiary to simplify and largely eliminate regulation of corporate activity at higher layers. U.S. carriers and the FCC summarily reject this approach as eliminating synergies, mandating "dumb" pipes and relegating any physical connection operator to perpetually regulated status.
Korea joins the EU in embracing layers/horizontal regulation in lieu of silo-based, media specific vertical regulation. U.SA. carrier reject this model for the same reasonas above.
Canada has largely solved its universal service challenge while U.S. consumers subsidize carriers with most of an annual $7 billion windfall.
Some day soon we in the United States will begin to recognize that expensive, lackluster broadband access and a highly politicized regulator and policy making process knocks off a few tenths of a percent in national productivity.
Wednesday, September 26, 2007
I-Phone Restrictions Herald the Benefits on Non-Neutral Networks--Not!!
George Mason University Law and Economics Professor Thomas Hazlett has written a short piece in the Financial Times heralding the virtue of closed wireless handsets and the wisdom of markets in lieu of regulation. See http://www.msnbc.msn.com/id/20976213/
He's right that no one put a gun in the ribs of buyers more than willing to tolerate deliberate strategies to limit access to networks, software applications and services. Yes, there surely are instances where consumers face a "take it or leave it" value proposition. But in robustly competitive markets, consumers can vote with their dollars and find alternative service arrangements that offer fewer restrictions.
The increasingly concentrated cellular telephone marketplace in the U.S. offers consumers limited options. Bear in mind that most cellular advertisements claim that the network generally works. Now that's a high bar: we're the network with the fewest dropped calls!
I can agree with Professor Hazlett about the virtues of marketplace competition. But I surely disagree with him that I should ignore locked phones, walled garden access to content, two year subscription lock-ins, the absence of a market for used phones able to access cheaper service, etc. and conclude that the cellular business "is a competitive process in which independent developers, content owners, hardware vendors and networks vie to discover preferred packages and pricing."
Living in Pennsylvania I have one source for wine and spirits, the state Liquor Control Board. This government monopoly regularly hires experts to claim that its absolute monopoly accrues public benefits without any consumer harm. So I am to ignore the extortionate prices, limited customer service and a dearth of choices.
The I-Phone early adopters have to make a similar leap of faith, but I dare suggest no one likes the fact that they could do more more with their I-Phone had Apple embraced an open access environment. Successful market debut of a closed I-Phone parallels the years of marketplace success AOL achieved with its walled garden of content and features. But consumers grew weary of limits on their access and lucky for them had opportunities to find a better value proposition.
Consumers seeking to unlock the I-Phone risk voiding warranties and limited relief in any event. So much for a robustly innovative and competitive cellular marketplace.
He's right that no one put a gun in the ribs of buyers more than willing to tolerate deliberate strategies to limit access to networks, software applications and services. Yes, there surely are instances where consumers face a "take it or leave it" value proposition. But in robustly competitive markets, consumers can vote with their dollars and find alternative service arrangements that offer fewer restrictions.
The increasingly concentrated cellular telephone marketplace in the U.S. offers consumers limited options. Bear in mind that most cellular advertisements claim that the network generally works. Now that's a high bar: we're the network with the fewest dropped calls!
I can agree with Professor Hazlett about the virtues of marketplace competition. But I surely disagree with him that I should ignore locked phones, walled garden access to content, two year subscription lock-ins, the absence of a market for used phones able to access cheaper service, etc. and conclude that the cellular business "is a competitive process in which independent developers, content owners, hardware vendors and networks vie to discover preferred packages and pricing."
Living in Pennsylvania I have one source for wine and spirits, the state Liquor Control Board. This government monopoly regularly hires experts to claim that its absolute monopoly accrues public benefits without any consumer harm. So I am to ignore the extortionate prices, limited customer service and a dearth of choices.
The I-Phone early adopters have to make a similar leap of faith, but I dare suggest no one likes the fact that they could do more more with their I-Phone had Apple embraced an open access environment. Successful market debut of a closed I-Phone parallels the years of marketplace success AOL achieved with its walled garden of content and features. But consumers grew weary of limits on their access and lucky for them had opportunities to find a better value proposition.
Consumers seeking to unlock the I-Phone risk voiding warranties and limited relief in any event. So much for a robustly innovative and competitive cellular marketplace.
Thursday, September 13, 2007
The U.S. Justice Department Opposes Net Neutrality
The Justice Department has filed comments opposing network neutrality with FCC. See http://www.freepress.net/docs/doj225767.pdf. These comments do not respond to a formal request for comments as had occurred previously,
see http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-31A1.pdf.
Instead they are unsolicited ex parte comments which raises questions why the Justice Department saw the need to weigh just now.
The comments are incredibly simplistic and offer further proof of how sponsored research and questionable statistics become the basis for policy, regulations and law. In a nutshell the Justice Department buys the laissez faire view that the marketplace can resolve all potential problems and no real problem has arisen.
The Justice Department can make its case only by ignoring unsponsored research, that point to real potential for problems, statistical compilations that show the broadband marketplace in the U.S. as comparatively inferior to best practices both in terms of price and quality, and the practical consequence of a cable/telco duopoly in Internet access.
By the Justice Departments reasoning it should follow that because of deregulation and commensurate marketplace competition in the wheeling of electricity and packets there could be no potential market manipulation by any single player or group in either industry. We know that in the electricity marketplace Enron traders managed to create bottlenecks, run up the spot market price and generate false congestion.
I am willing to speculate that Enron-type tactics can occur in the wheeling of packets. The fact that a Title II regulated common carrier, telephone company (Madison River Communications, LLC) could not get away with absolute blocking of packets—without detection and punishment—says nothing about the ability of unregulated or lightly regulated Title I information service providers to engage in harmful and unlawful bit discrimination.
I have stood midway in the debate on network neutrality and have identified plenty of instances where price and QOS discrimination make economic sense and do not violate applicable laws. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=893649;
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962181. But I cannot buy the Justice Department’s preoccupation with the virtue of discrimination, having absolutely no regard for the real potential for undetected or unremediable discrimination.
I hate to think—as others have—that “the fix is in” and this nation’s Justice Department files paper on behalf of specific stakeholders such as AT&T. But as the Network Neutrality debate plays out I increasingly believe that “Bellhead” investment recovery, pricing and billing mindsets will reshape the Internet to become a hybrid of the Public Switched Telephone Network, an outcome I predicted in 2001; see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=29012.
see http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-31A1.pdf.
Instead they are unsolicited ex parte comments which raises questions why the Justice Department saw the need to weigh just now.
The comments are incredibly simplistic and offer further proof of how sponsored research and questionable statistics become the basis for policy, regulations and law. In a nutshell the Justice Department buys the laissez faire view that the marketplace can resolve all potential problems and no real problem has arisen.
The Justice Department can make its case only by ignoring unsponsored research, that point to real potential for problems, statistical compilations that show the broadband marketplace in the U.S. as comparatively inferior to best practices both in terms of price and quality, and the practical consequence of a cable/telco duopoly in Internet access.
By the Justice Departments reasoning it should follow that because of deregulation and commensurate marketplace competition in the wheeling of electricity and packets there could be no potential market manipulation by any single player or group in either industry. We know that in the electricity marketplace Enron traders managed to create bottlenecks, run up the spot market price and generate false congestion.
I am willing to speculate that Enron-type tactics can occur in the wheeling of packets. The fact that a Title II regulated common carrier, telephone company (Madison River Communications, LLC) could not get away with absolute blocking of packets—without detection and punishment—says nothing about the ability of unregulated or lightly regulated Title I information service providers to engage in harmful and unlawful bit discrimination.
I have stood midway in the debate on network neutrality and have identified plenty of instances where price and QOS discrimination make economic sense and do not violate applicable laws. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=893649;
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962181. But I cannot buy the Justice Department’s preoccupation with the virtue of discrimination, having absolutely no regard for the real potential for undetected or unremediable discrimination.
I hate to think—as others have—that “the fix is in” and this nation’s Justice Department files paper on behalf of specific stakeholders such as AT&T. But as the Network Neutrality debate plays out I increasingly believe that “Bellhead” investment recovery, pricing and billing mindsets will reshape the Internet to become a hybrid of the Public Switched Telephone Network, an outcome I predicted in 2001; see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=29012.
Sunday, September 9, 2007
Recommended Reading
I stongly recommend The radio and the Internet written by law Professor Susan Crawford:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1007221.
Professor Crawford skillfully examines how prevailing political motivations, including accommodating incumbent dominant wireless and Internet access carriers, largely dominate how the FCC will auction choice 700 MHz spectrum.
Professor Crawford concludes by stating if the FCC "get[s] this wrong, the consequences will be severe." Regretably I think your last sentence should read "The FCC got this wrong and we will suffer in the competitive global information marketplace."
I can't get over feeling that as usual the fix is in. Sponsored researchers seem to have greater credibility and reach than Professor Crawford and me. They appear to have gained traction in explaining why forcing wireless carriers to accomomdate any handset ("wireless Carterfone policy) is unnecessary, bad policy and illegal. For example, Robert Hahn, Rober Litan and Hal Singer claim that Carterfone made economic sense only in a vertically integrated uncompetitive wireline marketplace, and that it would be ill-advised if not illegal for government to receive auction revenues and impose confiscatory regulatory conditions. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983111.
After I recover from painful knee ligament reconstruction Monday 9/10 I hope to follow up with an explanation why vertical integration was not the primary reason for Carterfone and certainly does not constitute a condition precedent for applying the policy wirelessly. Besides even without strict vertical integration, the wireless oligopoly surely can leverage market power to foreclose a resale/secondary market for handsets by collectively blocking the benefits in refusing to offer lower rates for subscribers who "bring their own phones" and do not receive a handset subsidy.
Professor Crawford skillfully examines how prevailing political motivations, including accommodating incumbent dominant wireless and Internet access carriers, largely dominate how the FCC will auction choice 700 MHz spectrum.
Professor Crawford concludes by stating if the FCC "get[s] this wrong, the consequences will be severe." Regretably I think your last sentence should read "The FCC got this wrong and we will suffer in the competitive global information marketplace."
I can't get over feeling that as usual the fix is in. Sponsored researchers seem to have greater credibility and reach than Professor Crawford and me. They appear to have gained traction in explaining why forcing wireless carriers to accomomdate any handset ("wireless Carterfone policy) is unnecessary, bad policy and illegal. For example, Robert Hahn, Rober Litan and Hal Singer claim that Carterfone made economic sense only in a vertically integrated uncompetitive wireline marketplace, and that it would be ill-advised if not illegal for government to receive auction revenues and impose confiscatory regulatory conditions. See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983111.
After I recover from painful knee ligament reconstruction Monday 9/10 I hope to follow up with an explanation why vertical integration was not the primary reason for Carterfone and certainly does not constitute a condition precedent for applying the policy wirelessly. Besides even without strict vertical integration, the wireless oligopoly surely can leverage market power to foreclose a resale/secondary market for handsets by collectively blocking the benefits in refusing to offer lower rates for subscribers who "bring their own phones" and do not receive a handset subsidy.
Thursday, August 30, 2007
Limited Regulatory Relief When ISPs Misbehave
Consumers and the FCC have limited recourse when an Internet Service Provider acts in a fraudulent, discriminatory or abusive manner. ISPs are not common carriers. They are classified as information service providers and do not have to comply with the regulations deriving from Title II of the Communications Act that apply to telecommunications service providers.
The FCC has a back door way to regulate ISPs, something called "ancillary jurisdiction" based on the Commission's general public interest mandate contained in Title I of the Communications Act. The FCC invoked this authority to regulate cable television as potentially harmful to the availability of "free" broadcast television. Recently the FCC has stretched its Title I authority to
impose selective re-regulation of ISPs.
However, the FCC's limited regulation of ISPs will do nothing to prevent the cable modem/DSL duopoly for abusing collective market power. Even as the FCC plays games with broadband statistics to show how advanced we are compared to other nations, the data shows that nationwide over 96% of all broadband services are supplied by two types of ventures: cable television companies typically allocating 6MHz of bandwidth and telephone companies typically expanding the copper wire local loop by 1500 kHz.
By the FCC's self-fulfilling prophesy the broadband marketplace is robustly competitive and any extortionate or draconian ISP action would trigger a mass migration of subscribers. The FCC calculates that I have 9 broadband choices in my zip code, so I should be able to "vote with my dollars." In reality I have one and only one broadband option: $60 cable modem service. I can't get DSL, cellular broadband offers dialup 60-80 kilobits per second and satellite offers slow speed broadband at double the price.
So much for marketplace self-regulation.
The FCC has a back door way to regulate ISPs, something called "ancillary jurisdiction" based on the Commission's general public interest mandate contained in Title I of the Communications Act. The FCC invoked this authority to regulate cable television as potentially harmful to the availability of "free" broadcast television. Recently the FCC has stretched its Title I authority to
impose selective re-regulation of ISPs.
However, the FCC's limited regulation of ISPs will do nothing to prevent the cable modem/DSL duopoly for abusing collective market power. Even as the FCC plays games with broadband statistics to show how advanced we are compared to other nations, the data shows that nationwide over 96% of all broadband services are supplied by two types of ventures: cable television companies typically allocating 6MHz of bandwidth and telephone companies typically expanding the copper wire local loop by 1500 kHz.
By the FCC's self-fulfilling prophesy the broadband marketplace is robustly competitive and any extortionate or draconian ISP action would trigger a mass migration of subscribers. The FCC calculates that I have 9 broadband choices in my zip code, so I should be able to "vote with my dollars." In reality I have one and only one broadband option: $60 cable modem service. I can't get DSL, cellular broadband offers dialup 60-80 kilobits per second and satellite offers slow speed broadband at double the price.
So much for marketplace self-regulation.
Monday, August 20, 2007
The Power of a Slogan or Phrase
Mike Nelson, a former White House technology policy advisor in the Clinton administration now affiliated with IBM, offered the following advice on the Washington political process: distill your message into a slogan or phrase that can fit on a bumper sticker.
Officials in the AT&T Bell System knew this when they sought to prevent the separation of telephone handsets from telephone service. They argued that allowing consumers to own their own phone would violate "systemic integrity" and "harm" employees. In response to proposals to break up the Bell System, they argued "the system is the solution." Who would want to allow competition to harm networks and people?
Responding to consumer dissatisfaction at customer "service" and two year lock in contracts as well as the proposal to allow freer use of handsets, the wireless sloganeers again invoke technical harm as one good reason not to allow handset flexibility.
In the 1970s as now the risk of technical harm can easily be reduced or eliminated. Locking cellphones to one network, disabling handset features and preventing a seocndary market for cheap phones are anticompetitive plain and simple.
Officials in the AT&T Bell System knew this when they sought to prevent the separation of telephone handsets from telephone service. They argued that allowing consumers to own their own phone would violate "systemic integrity" and "harm" employees. In response to proposals to break up the Bell System, they argued "the system is the solution." Who would want to allow competition to harm networks and people?
Responding to consumer dissatisfaction at customer "service" and two year lock in contracts as well as the proposal to allow freer use of handsets, the wireless sloganeers again invoke technical harm as one good reason not to allow handset flexibility.
In the 1970s as now the risk of technical harm can easily be reduced or eliminated. Locking cellphones to one network, disabling handset features and preventing a seocndary market for cheap phones are anticompetitive plain and simple.
Sunday, August 19, 2007
Two Recent Powerpoint Presentations on Net Neutrality and DRM
If your interested in network neutrality my latest thoughts on the subject are available at: http://ijoc.org/ojs/index.php/ijoc/article/view/160/86
and as a powerpoint presentation at: http://www.personal.psu.edu/faculty/r/m/rmf5/AEJMC%202007.ppt.
I also examine net neutrality in the context of Digital Rights Management achieved through deep packet inspection: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=995273; powerpoint presentation at: http://www.personal.psu.edu/faculty/r/m/rmf5/IPSC%202007%20Frieden.ppt.
I always appreciate thoughtful questions and comments.
and as a powerpoint presentation at: http://www.personal.psu.edu/faculty/r/m/rmf5/AEJMC%202007.ppt.
I also examine net neutrality in the context of Digital Rights Management achieved through deep packet inspection: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=995273; powerpoint presentation at: http://www.personal.psu.edu/faculty/r/m/rmf5/IPSC%202007%20Frieden.ppt.
I always appreciate thoughtful questions and comments.
Monday, August 6, 2007
Protecting the Wireless Crown Jewel
The incumbent wireline telephone companies increasingly rely on wireless service revenues to generate growth and upward trajectory in their stock. Accordingly it should come as no surprise that they would gear up their formidable public policy/sponsored research machinery to oppose any initiative that would generate more competition, enhance consumer welfare and possibly reduce profit.
That explains the noisy, but largely bogus explanations why it makes no sense to allow consumers to access any cellular network with any cellular telephone. A high ranking official at Verizon opposes the applying Carterfone principles to wireless on three grounds: 1) separating handsets from service was necessary for a monopoly, but not a competitive market; 2) separation would involve “sweeping government intervention;” and 3) an any handset rule would risk harm to wireless networks. see Link Hoewing, The Hype in the Skype Petition; available at http://policyblog.verizon.com/PolicyBlog/Blogs/policyblog/LinkHoewing9/294/The-Hype-in-the-Skype-Petition.aspx.
Ouch. These rationales come across as rehashed Bell System doctrine that made no sense in the 1970s and surely makes no sense now. Separating handsets from service is a smart regulatory remedy regardless of the market structure of the wireless business. The FCC would unleash billions of dollars in savings to consumers simply by allowing them to extend the usable lives of existing handsets and allow cheapskakes like me to activate the $1 handset I can buy at garage sales. Indeed some of the savings would flow to cellular operators who would have fewer handsets to subsidize. Of course the operators are not balking at having to subsidize handset sales. They want to preserve the two year lock in that the subsidy supports, limit customer churn and reduce price competition.
If consumers could bring their own phone to a new service arrangement, cellular operators might have to offer lower service rates, because they would have no subsidy obligation. Cellphone operators claim to allow consumers to use a “compatible” phone, but consumers receive no benefit through lower rates. U.S. cellphone operators do not want you to know that in other places in the world consumers have access to both cheap prepaid service, using calling cards, as well as cheap almost “throwaway” handsets geared to the prepaid services. These arrangements have no lock in and offer a far better value proposition than what Virgin and other so call mobile virtual network operators offer in the U.S.
I do not see how government sweeps in and pervasively regulates the commercial mobile radio service simply by requiring the unbundling of service and handset sales. If anything government remedies a market failure. When over 60% of all handset sales occur at cellphone company stores and another 30+% from a handful of Big Box stores, such as Best Buy, Circuit City and Walmart, I believe that the carriers have blocked the development of a secondary and resale market for handsets. According to the MIT Dictionary of Modern Economics market failure occurs as a result of the “inability of a system of private markets to provide certain goods either at all or at the most desirable or ‘optima’ level.” Safeguarding 95% to a captive, single distribution chain strikes me as viciously anticompetitive.
The harm to the network argument reminds me of the Bell System claim that attaching a non-Western Electric handset would “violate systemic integrity.” Of course systemic integrity had nothing to do with potential or real technical harm. The FCC established a lab certification and common interface requirement and the rest is history. The same could be done for wireless handsets.
Mr. Hoewing claims unbundling has not generated any major innovations in telephone handsets, but that misses the point in two ways. First he ignores that separating handsets from the network forced the network to remain largely neutral and accessible by any device and for any services. This did not relegate underlying carriers to operating “dumb” networks in perpetuity, but it did allow end users to inject network management functions at the edge instead of having to pay for a finite set of centralized options available from the carrier. Second, Mr. Hoewing ignores the widespread proliferation of handset types available in a competitive marketplace.
On the other hand what great innovations have the U.S. cellphone carriers provided consumers? Ringtones, short messaging and slow speed Internet access comes to mind. Compare that level of progress with the scope of innovation in the Internet.
That explains the noisy, but largely bogus explanations why it makes no sense to allow consumers to access any cellular network with any cellular telephone. A high ranking official at Verizon opposes the applying Carterfone principles to wireless on three grounds: 1) separating handsets from service was necessary for a monopoly, but not a competitive market; 2) separation would involve “sweeping government intervention;” and 3) an any handset rule would risk harm to wireless networks. see Link Hoewing, The Hype in the Skype Petition; available at http://policyblog.verizon.com/PolicyBlog/Blogs/policyblog/LinkHoewing9/294/The-Hype-in-the-Skype-Petition.aspx.
Ouch. These rationales come across as rehashed Bell System doctrine that made no sense in the 1970s and surely makes no sense now. Separating handsets from service is a smart regulatory remedy regardless of the market structure of the wireless business. The FCC would unleash billions of dollars in savings to consumers simply by allowing them to extend the usable lives of existing handsets and allow cheapskakes like me to activate the $1 handset I can buy at garage sales. Indeed some of the savings would flow to cellular operators who would have fewer handsets to subsidize. Of course the operators are not balking at having to subsidize handset sales. They want to preserve the two year lock in that the subsidy supports, limit customer churn and reduce price competition.
If consumers could bring their own phone to a new service arrangement, cellular operators might have to offer lower service rates, because they would have no subsidy obligation. Cellphone operators claim to allow consumers to use a “compatible” phone, but consumers receive no benefit through lower rates. U.S. cellphone operators do not want you to know that in other places in the world consumers have access to both cheap prepaid service, using calling cards, as well as cheap almost “throwaway” handsets geared to the prepaid services. These arrangements have no lock in and offer a far better value proposition than what Virgin and other so call mobile virtual network operators offer in the U.S.
I do not see how government sweeps in and pervasively regulates the commercial mobile radio service simply by requiring the unbundling of service and handset sales. If anything government remedies a market failure. When over 60% of all handset sales occur at cellphone company stores and another 30+% from a handful of Big Box stores, such as Best Buy, Circuit City and Walmart, I believe that the carriers have blocked the development of a secondary and resale market for handsets. According to the MIT Dictionary of Modern Economics market failure occurs as a result of the “inability of a system of private markets to provide certain goods either at all or at the most desirable or ‘optima’ level.” Safeguarding 95% to a captive, single distribution chain strikes me as viciously anticompetitive.
The harm to the network argument reminds me of the Bell System claim that attaching a non-Western Electric handset would “violate systemic integrity.” Of course systemic integrity had nothing to do with potential or real technical harm. The FCC established a lab certification and common interface requirement and the rest is history. The same could be done for wireless handsets.
Mr. Hoewing claims unbundling has not generated any major innovations in telephone handsets, but that misses the point in two ways. First he ignores that separating handsets from the network forced the network to remain largely neutral and accessible by any device and for any services. This did not relegate underlying carriers to operating “dumb” networks in perpetuity, but it did allow end users to inject network management functions at the edge instead of having to pay for a finite set of centralized options available from the carrier. Second, Mr. Hoewing ignores the widespread proliferation of handset types available in a competitive marketplace.
On the other hand what great innovations have the U.S. cellphone carriers provided consumers? Ringtones, short messaging and slow speed Internet access comes to mind. Compare that level of progress with the scope of innovation in the Internet.
Monday, July 30, 2007
Wireless State of Play: When Good Enough is the Enemy of Greatness
I marvel at the creativeness in the opposition to policy initiatives that I believe would confer ample consumer benefits by imposing lawful interconnection and accessibility requirements. You should consider reading closely the rationales proposed by Robert Hahn, Robert Litan and Hal Singer, The Economics of 'Wireless Net Neutrality' http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983111
for objecting to rules that would force wireless carriers to comply with regulations long since applied to wireline carriers with great consumer benefits.
Professor Tim Wu proposed that wireless carriers comply with rules that would force them to decouple service from the sale of handsets and to comply with network neutrality principles. See Wireless Net Neutrality: Cellular Carterfone on Mobile Networks, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962027.
Opponents to the Wu proposal offer a glowing endorsement of how good the wireless infrastructure has become in the U.S. presumably because of light regulation and robust marketplace competition. Messrs Hahn, Litan and Singer would put the burden of proving market failure on Professor Wu in light of the wonderful output of self-regulation and competition. In other words regulatory safeguards, like the ones suggested by Professor Wu, are unnecessary and were applied when a vertically integrated monopolist operated.
First of all I marvel at how quickly opponents of wireless regulation ignore the still applicable common carrier requirements. Cellular carriers are subject to Title II of the Communications Act, including compulsory interconnection in a fair and nondiscriminatory manner. When 95% of all cellphones are sold at the time the cellular operator initiates service, I know there is an interconnection issue and a bundling problem. The cellular operator does not want anyone to buy a $2 phone at a garage sale, because a secondary market for handsets would prevent carriers from locking in consumers to 2 year service “commitments.” Additionally the carriers would lose any argument that they need two years of service to recoup the subsidy they paid to sell a $400 phone for much less. Yes the cellular carrier might reluctantly agree to interconnect and provide service to the used phone, but the consumer would have to pay rates as though the carrier supplied an expensive new phone.
So opponents to wireless net neutrality ignore the rents carriers capture when consumers can’t engage in a transaction that involves cellular service only. When wireline telephone service subscribers got the “right” to “own their own phone” telephone service rates dropped significantly because the carrier no longer could bundle the lease rate for the phone along with various maintenance fees.
Fair interconnection terms are needed for wireless carriers regardless of whether they are vertically integrated with a handset manufacturer and whether they operate as a monopoly. The integration allows any carrier to capture revenues well in excess of the handset subsidy. Indeed Iphone customers seem to be paying full price for the handset and cellular service rates as though a handset subsidy existed. Even in the absence of a monopoly the handful of cellphone service options available to consumers does not include lower cost bring your own handset rates.
I also take issue with the self-congratulatory assessment of the cellphone industry in the U.S. Contrary to what Messrs. Han, Litan and Singer would have you believe the U.S. does not come anywhere close to best practices in wireless in terms of throughout, cost, features, and even market penetration. The ITU ranks the U.S. at 63rd in wireless penetration. See http://www.itu.int/osg/spu/publications/digitalife/;
See also, http://www.itu.int/ITU-D/icteye/Reporting/ShowReportFrame.aspx?ReportName=/WTI/CellularSubscribersPublic&RP_intYear=2005&RP_intLanguageID=1;
High speed, broadband service is nothing like that available in Europe and Asia in terms of accessibility and price. The ITU reports that broadband access costs 49 cents per 100 kilobits per second in the U.S. versus 7 cents in Japan and 8 cents in Korea. See http://www.itu.int/osg/spu/publications/digitalife/statisticalhighlights.html.
Of course when statistics do not support the party line and display inconvenient truths, stakeholders shoot the messenger and challenge the veracity of the statistics. In the wireless arena mediocre to good performance provides the basis for rejecting initiatives that would force carriers to become better.
for objecting to rules that would force wireless carriers to comply with regulations long since applied to wireline carriers with great consumer benefits.
Professor Tim Wu proposed that wireless carriers comply with rules that would force them to decouple service from the sale of handsets and to comply with network neutrality principles. See Wireless Net Neutrality: Cellular Carterfone on Mobile Networks, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962027.
Opponents to the Wu proposal offer a glowing endorsement of how good the wireless infrastructure has become in the U.S. presumably because of light regulation and robust marketplace competition. Messrs Hahn, Litan and Singer would put the burden of proving market failure on Professor Wu in light of the wonderful output of self-regulation and competition. In other words regulatory safeguards, like the ones suggested by Professor Wu, are unnecessary and were applied when a vertically integrated monopolist operated.
First of all I marvel at how quickly opponents of wireless regulation ignore the still applicable common carrier requirements. Cellular carriers are subject to Title II of the Communications Act, including compulsory interconnection in a fair and nondiscriminatory manner. When 95% of all cellphones are sold at the time the cellular operator initiates service, I know there is an interconnection issue and a bundling problem. The cellular operator does not want anyone to buy a $2 phone at a garage sale, because a secondary market for handsets would prevent carriers from locking in consumers to 2 year service “commitments.” Additionally the carriers would lose any argument that they need two years of service to recoup the subsidy they paid to sell a $400 phone for much less. Yes the cellular carrier might reluctantly agree to interconnect and provide service to the used phone, but the consumer would have to pay rates as though the carrier supplied an expensive new phone.
So opponents to wireless net neutrality ignore the rents carriers capture when consumers can’t engage in a transaction that involves cellular service only. When wireline telephone service subscribers got the “right” to “own their own phone” telephone service rates dropped significantly because the carrier no longer could bundle the lease rate for the phone along with various maintenance fees.
Fair interconnection terms are needed for wireless carriers regardless of whether they are vertically integrated with a handset manufacturer and whether they operate as a monopoly. The integration allows any carrier to capture revenues well in excess of the handset subsidy. Indeed Iphone customers seem to be paying full price for the handset and cellular service rates as though a handset subsidy existed. Even in the absence of a monopoly the handful of cellphone service options available to consumers does not include lower cost bring your own handset rates.
I also take issue with the self-congratulatory assessment of the cellphone industry in the U.S. Contrary to what Messrs. Han, Litan and Singer would have you believe the U.S. does not come anywhere close to best practices in wireless in terms of throughout, cost, features, and even market penetration. The ITU ranks the U.S. at 63rd in wireless penetration. See http://www.itu.int/osg/spu/publications/digitalife/;
See also, http://www.itu.int/ITU-D/icteye/Reporting/ShowReportFrame.aspx?ReportName=/WTI/CellularSubscribersPublic&RP_intYear=2005&RP_intLanguageID=1;
High speed, broadband service is nothing like that available in Europe and Asia in terms of accessibility and price. The ITU reports that broadband access costs 49 cents per 100 kilobits per second in the U.S. versus 7 cents in Japan and 8 cents in Korea. See http://www.itu.int/osg/spu/publications/digitalife/statisticalhighlights.html.
Of course when statistics do not support the party line and display inconvenient truths, stakeholders shoot the messenger and challenge the veracity of the statistics. In the wireless arena mediocre to good performance provides the basis for rejecting initiatives that would force carriers to become better.
Friday, July 6, 2007
How Many Broadband Providers Does Your Zipcode Have?
For grins--or groans--I researched the FCC's broadband statistics to find out how many broadband providers my 16870 zip code has. Nine! See http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hzip0606.pdf
I live in a mostly suburban/rural area about six miles from Penn State University. Verizon cannot or will not offer DSL to me, but they apparently serve someone--perhaps a school or library. I can get cable modem service and the FCC must also have counted cellular even though the promised 60-80 kilobits per second does not meet the low bar of 200 kbps established by the FCC. Add satellite service so I guess it's possible that we can get to 9.
The problem with this figure is that one might infer a vigorous facilities-based competitive marketplace exists in my hinterland locale.
No way.
I live in a mostly suburban/rural area about six miles from Penn State University. Verizon cannot or will not offer DSL to me, but they apparently serve someone--perhaps a school or library. I can get cable modem service and the FCC must also have counted cellular even though the promised 60-80 kilobits per second does not meet the low bar of 200 kbps established by the FCC. Add satellite service so I guess it's possible that we can get to 9.
The problem with this figure is that one might infer a vigorous facilities-based competitive marketplace exists in my hinterland locale.
No way.
Confiscation of ILEC Property?
The Telecommunications Act of 1996 ordered incumbent local exchange carriers to unbundle their networks as one of their common carrier interconnection responsibilities. Specifically Section 251 establishes “the duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service.”
Incumbent carriers have claimed that the FCC’s implementation of this requirement resulted in a taking or confiscation of their property. In a previous post I reported that the Supreme Court validated the general implementation plan of the FCC even as lower courts rejected specific elements of the plan.
I’m trying to delve more deeply into whether and how an interconnection responsibility of a telecommunications common carrier might violate their property rights. An argument could be made if the interconnecting carrier ended up having to invest in more facilities to accommodate the aggregate demands of carriers requesting interconnection using unbundled network elements. Likewise an argument could be made that interconnection foreclosed other more profitable undertakings, a type of opportunity cost.
But neither worst case scenario ever occurred. Using the FCC’s statistics, at the high point of having to accommodate competitive local exchange carrier unbundling requirements the incumbent carriers had to release 13.5% of their lines to competitors. See http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-270133A1.pdf, Table 4. The most recent figure is 9.3%.
Bear in mind the incumbent carriers received compensation for leasing lines. They dispute the rate of compensation, because pricing using forward looking, replacement costs or the long run incremental cost falls below—possibly well below—what the incumbent carrier would demand in commercial negotiations or what it would file as a tariff rate at the FCC.
Accepting the argument that unbundled network elements were provided at less than fully compensatory rates, the incumbent carriers surely had ample capacity to satisfy a lawful mandate while also seeking higher profits from their own retail and wholesale customers.
How could allocating no more than 13.5% of inventory, available at compulsorily "promotional" rates, constitute a taking?
Incumbent carriers have claimed that the FCC’s implementation of this requirement resulted in a taking or confiscation of their property. In a previous post I reported that the Supreme Court validated the general implementation plan of the FCC even as lower courts rejected specific elements of the plan.
I’m trying to delve more deeply into whether and how an interconnection responsibility of a telecommunications common carrier might violate their property rights. An argument could be made if the interconnecting carrier ended up having to invest in more facilities to accommodate the aggregate demands of carriers requesting interconnection using unbundled network elements. Likewise an argument could be made that interconnection foreclosed other more profitable undertakings, a type of opportunity cost.
But neither worst case scenario ever occurred. Using the FCC’s statistics, at the high point of having to accommodate competitive local exchange carrier unbundling requirements the incumbent carriers had to release 13.5% of their lines to competitors. See http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-270133A1.pdf, Table 4. The most recent figure is 9.3%.
Bear in mind the incumbent carriers received compensation for leasing lines. They dispute the rate of compensation, because pricing using forward looking, replacement costs or the long run incremental cost falls below—possibly well below—what the incumbent carrier would demand in commercial negotiations or what it would file as a tariff rate at the FCC.
Accepting the argument that unbundled network elements were provided at less than fully compensatory rates, the incumbent carriers surely had ample capacity to satisfy a lawful mandate while also seeking higher profits from their own retail and wholesale customers.
How could allocating no more than 13.5% of inventory, available at compulsorily "promotional" rates, constitute a taking?
Friday, June 29, 2007
FCC Makes the Right Call
The FCC today issued a Declaratory Ruling stating that "that no carriers, including interexchange carriers, may block, choke, reduce or restrict traffic in any way."
available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-07-2863A1.doc. I trust that statement is clear enough for the wireline and wireless carriers who decided they could serve as judge, jury and executioner when one of their telecom brethren gamed the system.
Several major carriers decided not to complete calls to clever independent local exchange carriers who pump up call volume and access charge interconnection payments by offering "free" conference and international calling. Ample FCC and case law precedent conclusively states that telecommunications service providers operate as common carriers. Likewise the "Filed Rate Doctrine" binds both carriers and end users to pay tariffed rates. If the blocking carriers did not like the access charge rate of compensation--and they surely should not like 7 or cents per minute rates--then they can contest the tariff when filed.
Remarkably the FCC made the right call.
available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-07-2863A1.doc. I trust that statement is clear enough for the wireline and wireless carriers who decided they could serve as judge, jury and executioner when one of their telecom brethren gamed the system.
Several major carriers decided not to complete calls to clever independent local exchange carriers who pump up call volume and access charge interconnection payments by offering "free" conference and international calling. Ample FCC and case law precedent conclusively states that telecommunications service providers operate as common carriers. Likewise the "Filed Rate Doctrine" binds both carriers and end users to pay tariffed rates. If the blocking carriers did not like the access charge rate of compensation--and they surely should not like 7 or cents per minute rates--then they can contest the tariff when filed.
Remarkably the FCC made the right call.
Wednesday, June 20, 2007
Network Neutrality and Packet Sniffing
I have just completed the draft of a paper on the impact of deep packet inspection on the Network Neutrality debate and digital rights management. It's available on my web site: http://www.personal.psu.edu/faculty/r/m/rmf5/
and in a day or two in pdf. at: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102928.
In a nutshell I sugest that sniffing packet headers may disqualify ISPs from safe harbor copyright liability exemptions, because the ISP will have every opportunity to read (and comply with) DRM instructions. The potential disqualification raises some of the costs an ISP might have to incur in its quest to operate non-neutral networks, i.e., neterworks that use deep packet inspection to tier services by prices and QOS.
I would appreciate your thoughts on this paper.
and in a day or two in pdf. at: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102928.
In a nutshell I sugest that sniffing packet headers may disqualify ISPs from safe harbor copyright liability exemptions, because the ISP will have every opportunity to read (and comply with) DRM instructions. The potential disqualification raises some of the costs an ISP might have to incur in its quest to operate non-neutral networks, i.e., neterworks that use deep packet inspection to tier services by prices and QOS.
I would appreciate your thoughts on this paper.
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