Old school regulation of internet service providers raises the threat of less broadband competition and more consolidation

Yesterday’s vote in the U.S. Senate that upended the Federal Communications Commission’s repeal of its net neutrality rules was more political grandstanding than good policymaking. S.J. Res. 52 nullified the Commission’s “Restoring Internet Freedom” rules that would have gone into effect on 11 June 2018. The Restoring Internet Freedom rules reclassified broadband access service as an information service; reinstated private mobile service classification of mobile broadband internet access service; required internet access service providers to disclose information about their network management practices, commercial terms and conditions, and performance characteristics; and eliminated the internet conduct standards and bright-line rules.

By repealing the Commission’s Restoring Internet Freedom rules, the Senate signaled its preference for the Commission’s 2015 Open Internet order. The order, based on the premise that broadband access providers posed a threat to openness on the internet and could hinder the virtuous cycle of innovation being introduced by edge providers, the Commission created a regulatory framework that classified broadband access service as a telecommunications service. The 2015 order also established what it referred to as “bright-line” rules that prohibited paid prioritization; the throttling of traffic from websites; and the blocking of consumer access to the legal online content of their choice. In addition, broadband access providers were required to provide consumers with information as to their network management practices, network performance, and commercial terms and conditions. The rationale for this transparency was the need to ensure that consumers made choices based on accurate information.

With its declaration that broadband access is a telecommunications service, the 2015 order subjects broadband access providers to certain sections of the Communications Act of 1934, specifically sections 201, 202, and 208. Although the Commission expressed an intent to not regulate the rates that broadband access providers charge consumers, including edge providers, section 201 of the Communications Act allows broadband access providers to establish different classifications of service.

For example, services may be classified into day, night, repeated, unrepeated, letter, commercial, press, government, etc. So, while no content delivery service can pay a broadband access provider a little extra in order to have their traffic placed ahead of another content provider while in the same class of service, section 201 allows broadband access providers to establish different classes of service that content providers can explore and use.

Let us assume that for some reason the resolution is also approved in the U.S. House of Representatives and President Trump fails to issue a veto. Given the application of sections 201, 202, and 208, small broadband access providers may be faced with the opportunity of being acquired. If a large broadband access provider offers various classes of broadband access, it in essence is carving out smaller markets within which it will dominate. If a broadband access provider carves out a classification that competes with a smaller broadband access provider, that smaller provider will face existential choices. Either lower its rates to where it no longer sees a profit and eventually leaves the market or be acquired which means getting to non-existence a lot faster. The 2015 Open Internet order could well be an example of how regulation stifles competition.

Lastly, I would expect that states will want to get in on the action. I have made this argument before. Under a 2015 Open Internet order regime, states will reassert themselves as the frontline for consumer protection. State public utility commissions don’t see themselves as agencies that sit around and handle consumer complaints all day. They rather those annoying complaints be addressed by their states’ respective attorneys general. State public utilities would rather flex their muscles in the pricing arena and will probably tailor state rules that align with sections 201, 202, and 208 of the federal communications act. The rules and the accompanying administrative procedures that broadband access providers would have to comply with will become burdensome on smaller players.

The result: regulation creating a less competitive market.

Facebook the Common Carrier

A couple weeks after Mark Zuckerberg made his appearance before Congress to describe the privacy practices and overall business model of Facebook, two media personalities, Lynette Hardaway and Rochelle Richardson, appeared before the House judiciary committee to describe the discriminatory treatment they were allegedly receiving from Facebook. The two women, known as “Diamond and Silk” to their fans, argued that Facebook intentionally changed their algorithms to keep their conservative political viewpoints from appearing in the news feeds of their followers on the social media platform.

The hearing provided heated exchanges between the two Trump-adoring personalities and congressmen sitting on the left of the political spectrum. Engagement between Diamond and Silk and two congressmen in particular, Barbara Jordan Lee, Democrat of Texas, and Hank Johnson, Democrat of Georgia, caught my attention for the heat it generated in the hearing room.

Mr Johnson took issue at first with the subject matter of the entire hearing, driving home his point that the committee would best spend its time focusing on the investigation into alleged Russian meddling in the November 2016 elections or Mr Trump’s purported attempts to remove Robert Mueller from the election tampering investigation.  He then proceeded to disparage the credibility of Diamond and Silk by asking repeatedly whether or not they were paid by the Trump campaign. After the second or third time Diamond and Silk answered “no”, the congressman should have moved on but he kept asking the same question and brought back the same taint of ridiculousness he managed to pour on himself when failing in 2010 to articulate a simple concept of overpopulation of the island of Guam by projecting that the island would “capsize” if additional American military personnel were stationed there.

Ms Lee didn’t much better in the get it together department when she gave up two minutes of her time to introduce two kids visiting congress during bring your offspring to work day and tried to get time back in order to keep up an attack using vague questions about the timing of communications between Diamond and Silk and Facebook. Ms Lee also repeatedly asked Diamond and Silk if they had received payment from the Trump campaign. After answering no at least three times, Ms Lee just kept asking the same question. By this time Louis Gohmert, Republican of Texas, dropped the gavel repeatedly letting his home girl know that question time was over.

The only saving grace during the questioning of Diamond and Silk came from Steve King, Republican of Iowa. In his questioning he alluded to similarity between Facebook and FedEx, where, like FedEx, Facebook promises to deliver a message from user to follower. If the company is preventing those messages from being received then they may be discriminating.

Facebook prefers to describe itself as a digital commune where the world connects over a bottle of Coke, a smile, and a blunt. As a user, I look at Facebook as an entertainment medium and a channel for my blog. But, over a Coke and a smile sans blunt I can also see why it could be called a common carrier.

Roger LeRoy Miller and Gaylord A. Jentz define a common carrier as a transportation service publicly licensed to provide transportation services to the general public. A common carrier must arrange carriage for all who apply, within certain limitations. The delivery of goods to a common carrier creates a bailment relationship between the shipper and the common carrier.

A bailment is a situation in which the personal property of one person (the bailor) is entrusted to another (the bailee), who is obligated to return the bailed property to the bailor or dispose of it as directed.

The common carrier’s standard of care over the received goods is based on strict liability. This means that the carrier is absolutely responsible for damage to the property in its possession with the exception of five common law exceptions:

  1. An act of God.
  2. An act of a public enemy.
  3. An order of a public authority.
  4. An act of the shipper.
  5. The inherent nature of the goods.

Calling Facebook a common carrier could raise the issue of lost profit. Diamond and Silk could claim lost profits from Facebook’s failure to deliver their messages to their followers. Diamond and Silk would have to provide evidence that the messages are being delivered for the purpose of making money and not just the expression of an opinion. Diamond and Silk would also have to provide evidence that a clear communication of profit motive was given to Facebook and that Facebook understood that communication.

Facebook’s net neutrality posse never had this scenario in mind when they pushed for more regulation of internet freedom via the imposition of net neutrality rules based on a telephone statute passed in 1934. Nor did they foresee the very openness on the internet they advocate for would lead to third-party abuses from violating user privacy to one nation-state upsetting the elections of another nation-state in cyberspace. Unfortunately, to keep Facebook in line with its commercial users’ expectations, common carrier treatment of Facebook may be an option.

 

Congress can’t regulate privacy on Facebook until it understands what drives Facebook

In the movie Star Trek: The Undiscovered Country, the crew of the Enterprise had a dilemma: how to detect and destroy a cloaked Klingon ship.  After a few minutes of debate among its senior officers, Commander Uhura makes the observation, “Well. The thing has got to have a tailpipe?”

It was clear from the questions that a number of senators posed to Mark Zuckerberg during a hearing on Facebook’s privacy policies that Congress has not yet located Facebook’s tailpipe. Facebook’s tailpipe is comprised of its subscribers’ demand for and willingness to use the social media firm’s platform. What is it about Facebook that causes subscribers to ignore existing albeit confusing and vague privacy terms and fork over to Mark Zuckerberg, Sheryl Sandberg, and the rest of the Menlo Park posse our inner most personal thoughts, our rabid political stances, pictures of our kids, and videos of young women twerking?

I have concluded from my own personal observation of behavior on the medium that it has a lot to do with attention. As an entertainment medium, two billion subscribers take the opportunity emit ego energy by posting the aforementioned twerking videos and kiddie pictures in order to draw attention to themselves. “Look at me! Look at my kids! Look at the European vacation I’ll spend the next twelve months paying for!” Contribution of free content by subscriber A serves Facebook’s business model well by providing the company with free content. This free content is used to grab the attention of subscriber B and if the algorithms are working, provided in such a way as to hold subscriber B’s attention long enough to make her a target for advertisements.

Subscribers A and B may become aware eventually that they are fodder for Facebook’s advertisement machine. Selling advertisement is how Facebook generates almost all of its revenues. What is it about Facebook that causes the need for attention to outweigh the willingness to ignore Facebook’s privacy terms?

The professionals cite a number of reasons beyond my amateur observations for moths being drawn to Facebook’s fire. One post in Adweek sums up some of the professionals’ findings.  One reason that Facebook draws attention is fulfill a need to belong to a group. You have heard the adage, that humans are social animals and this need for community has people gravitating to group pages on Facebook.

Feel like expressing yourself and receive near instant approval of the “you” that you share? Facebook provides its users plenty of opportunity for that. I have often likened Facebook as the dorm that Zuckerberg never left with a user’s profile being a dorm room and the user’s “wall” a bulletin board on the dorm room door where people can drop by and leave a post-it message on the door or the occupant can leave some zany flyer announcing the next beer party.

For students, Facebook is probably used to relieve stress. According to Adweek, students are worried about grades, writing papers, and dealing with professors and going online looking for reassuring likes may be helpful.

Courtney Seiter shared in a blog post how use of Facebook has an impact on our “reward centers”. The more likes we get from our sharing on Facebook, the more our nucleus accumbens lights up.

Also, the “likes” we share on Facebook are currency. Forty-four percent of Facebook users share the love on the content their friends provide by liking it, according to Ms Seiter.

For information theory buffs, the Facebook “like” button carries more information beyond a “yes” or “no” difference. Ms Seiter cites research that found that mining a decision to “like” a post can reveal information about race, gender, political persuasion, or age of the user.

Another piece of information that data on Facebook user participation provides us is on the level of loneliness. Students felt more connected, less lonely when they engaged on Facebook.

This is just a small snippet of the literature out there on why people use a social network like Facebook. The takeaway that is important to me is given what appears to be an emotional or social connection between users of the platform and that this connection is the fuel to Facebook’s business where the connection is so strong that users are not paying attention to Facebook’s disregard for privacy, how best can Congress intervene in this space?

Uhura might say, “Facebook’s got a tailpipe. Are you willing to syphon the gas?”

When the #internet was just for #academics….#broadband

Democrats are wary of Facebook, Google, and Twitter. Hillary Clinton’s loss in the November 2016 elections allegedly compounded by a misinformation game played by the Russians via social media has the Democrats in Congress asking themselves if a little more transparency i.e. regulation of social media practices is necessary in order to prevent any more shenanigans from Russia.

In the net neutrality debates, Democrats and grass roots progressives have taken the position that due to their gatekeeper position, internet access providers such as AT&T, Comcast, and Verizon are in a position to negatively impact the innovative internet portal and social media services that Facebook and Google provide. Democrats argue that we don’t want to discourage the creation of the next Facebook by allowing Comcast to throttle speeds from potential upstarts or block a consumer’s access to the new Twitter. Now these members of Congress appear a bit wary of the cat that they have been snuggling up to; being scraped by the FANGs (Facebook, Amazon, Netflix, Google) is not fun.

What I find ironic is that these congressmen were no where to be found as the FANGs were busy building a business model on acquiring consumer data from the droppings that consumers leave all over the internet. This data collection didn’t impact the politicians, who thrive on political intelligence so having a master information collector or two on their donor page didn’t hurt. It wasn’t until the FANGs messed with the source of a politician’s livelihood i.e. the vote, that the FANGs fell under deeper scrutiny.

It is up to the individual to choose whether to use FANG services. I have little to no use for Facebook myself. Amazon, Google, and Netflix deliver pretty much what they promise: logistics and content. What’s amusing is that highly educated, professionals in the Congress have yet to figure out the business model that social media relies on for its survival.

I think it is best that the internet go back to what it was meant to be: a way to connect information seekers with data. The irony is that internet service providers have been providing their networks as a part of the larger data transmission scheme for over two decades but seem to be catching the most heat from congressmen that support the companies providing the most abuse.

What happens when the State abandons black Americans?

In their book, The Sovereign Individual: Mastering the Transition to the Information Age, James Dale Davidson and Lord William Rees-Mogg describe the demise of the welfare state with the political changes the information age will bring about. Those who can garner, manipulate, organize, distribute, and monetize information and use today’s digital technology to deploy this new capital from anywhere in the world will be able to achieve a level of individual sovereignty such that the protection services of the old nation-state will no longer be needed. The internet, cyberspace, will be their new jurisdiction, and with capital in the form of information, they will be able to carve out a minimized or tax-free environment in whatever physical jurisdiction they choose.

Information losers, according to Davidson and Rees-Mogg, won’t like this new world. This information-based economy will challenge their welfare state “employee” status. It is a welfare state employee status because in exchange for the “work” that they do at the polls i.e. their vote, information losers are awarded with transfer payments such as Medicaid, Medicare, food stamps, and low-income housing. As the hoarders of the new capital, information, choose lower tax jurisdictions, information losers are left holding the bag containing reduced benefits, the result of a lowered tax base.

The recent tax reform legislation passed by a GOP-led Congress and signed by President Donald Trump is a small indicator of the leverage the wealthy have, especially those who make their income as sole proprietors or partners in a business where they are now beneficiaries of a 20% reduction in the taxes they would normally pay on pass-through income. Congress and the President will now have to reduce or eliminate programs made infeasible by a $1.5 billion tax cut.

There is no guarantee that tax cut goody bags will be continually given out in the future. If the GOP loses both chambers of Congress in this year’s midterms, then Democrats will pursue a rewrite of the tax reform, or at least put on a good show effort.  I say a good show effort because the response by the wealthy will be, “Remember the two trillion dollars we have stashed overseas? How about we keep it there?”

Black Americans are not in the information age game even though blacks over-index on social media sites and, as a proportion of their population, own as many smartphones as whites and Latinos. Black Americans are under-indexed when it comes to employment in information technology. In an article for The Huffington Post, Jamal Simmons noted that black women may be able to scrape up $36,000 for a tech start-up, but white males scrape up on average $1.3 million in start-up funds.

And while blacks and Latinos continue to represent low single-digit proportions of actual STEM employees (technologists, mathematicians, engineers), there are plenty of black consumers of entertainment content on Facebook and Instagram. This content is low value. It differs from information which can be used as an input for production.

You may ask, “Don’t blacks have a right to consume entertainment?” My answer would be, “It’s not about rights to consumer content. It’s about channeling as much time and energy into mining and distributing information that creates knowledge that solves the deep well of problems in the black community.

Meanwhile, the State apparatus that blacks have disproportionately relied on for economic support and political protection is becoming bankrupt. Based on this recent tax reform, one would not sound too cynical in concluding that the GOP was in cahoots with the plot to blow it all up.  The information winners will not think twice about leaving information losers behind.

ISPs, not edge providers, reflect the reality of communications and connectivity

Within the Communications Act of 1934, Congress created the Federal Communications Commission for the purpose of regulating interstate and foreign commerce in communications. Congress intended the Commission to make available a rapid,efficient, nation-wide, and world-wide wire and radio communications network and provide that network at reasonable rates for the nation-state’s consumers. Congress wanted a nation-state, barely a hundred years into its industrial revolution and in the middle of its worst recession, to have the ability to connect all of its citizens.

The episodes of connection via a phone call were not expected to take up the 135 minutes a day that the average person spent on social media in 2017. Earlier today in an op-ed on Axios.com, Evan Spiegel wrote about the difference between social media and his communications app, Snapchat. In his words:

“The personalized newsfeed revolutionized the way people share and consume content. But let’s be honest: this came at a huge cost to facts, our minds and the entire media industry.

This is a challenging problem to solve because the obvious benefits that have driven the growth of social media – more friends! more likes! more free content! – are also the things that will undermine it in the long run.

  • New alternatives for self-expression, including services like text messaging, WhatsApp, and Snapchat are part of a shift towards using communication applications to express yourself rather than posting on social media, because communication apps are oriented around talking with your close friends, free from judgment.
  • Social media fueled “fake news” because content designed to be shared by friends is not necessarily content designed to deliver accurate information. After all, how many times have you shared something you’ve never bothered to read?”

Social media is a bulletin board that you placed on the front of your dorm room, open to a myriad of Post-It notes left by dorm mates and easily read by everyone else, is my summation of Mr Spiegel’s distinction between his service and Facebook. Snapchat; another form of private communication similar to texting or voice calls versus the barroom brawl that is social media.

As concerned as progressive congressional Democrats appear to be about Russia’s ability to use the permeability of Facebook, Twitter, and Google to allegedly upend an election, they do not appear to be in any rush to apply onerous privacy rules to social media, a business model designed for fake news.

Social media was a “god send” for the State. Social media aggregates people into groups that can be operationalized and manipulated. A lot less expensive than tapping phone lines in order to get the pulse of society. Facebook, Twitter, and Google are media outlets and as such are in a position to create messaging and target it toward certain groups. Facebook doesn’t ask “What’s on your mind” for no reason.

Some consumers want balance. They are using the ear buds to create space in the real world and don’t mind connecting where there is value in social media exchange, but they want the option of withdrawing to a position where their smartphone, at the end of the day, is merely for texting and sending/receiving voice calls.

Congress and the Commission should keeps their focus on the infrastructure aspect of communications and leave the bulletin board behavior to the kids.