Net neutrality challenges the affordability of information

Last weekend, the State of California upped the ante in the net neutrality debate when Governor Jerry Brown signed into law SB 822, a bill that put into California law net neutrality requirements that were contained in the Federal Communications Commission’s 2015 Open Internet Order, a set of rules that were later repealed by the FCC in its 2017 Restore Internet Freedom Order.  Section 3101(a) and Section 3101(b) of SB 822 provide the core element of the legislation and reads as follows:

“3101. (a) It shall be unlawful for a fixed Internet service provider, insofar as the provider is engaged in providing fixed broadband Internet access service, to engage in any of the following activities:
(1) Blocking lawful content, applications, services, or nonharmful devices, subject to reasonable network management.
(2) Impairing or degrading lawful Internet traffic on the basis of Internet content, application, or service, or use of a nonharmful device, subject to reasonable network management.
(3) Requiring consideration, monetary or otherwise, from an edge provider, including, but not limited to, in exchange for any of the following:
(A) Delivering Internet traffic to, and carrying Internet traffic from, the Internet service provider’s end users.
(B) Avoiding having the edge provider’s content, application, service, or nonharmful device blocked from reaching the Internet service provider’s end users.
(C) Avoiding having the edge provider’s content, application, service, or nonharmful device impaired or degraded.
(4) Engaging in paid prioritization.
(5) Engaging in zero-rating in exchange for consideration, monetary or otherwise, from a third party.
(6) Zero-rating some Internet content, applications, services, or devices in a category of Internet content, applications, services, or devices, but not the entire category.
(7) (A) Unreasonably interfering with, or unreasonably disadvantaging, either an end user’s ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of the end user’s choice, or an edge provider’s ability to make lawful content, applications, services, or devices available to end users. Reasonable network management shall not be a violation of this paragraph.
(B) Zero-rating Internet traffic in application-agnostic ways shall not be a violation of subparagraph (A) provided that no consideration, monetary or otherwise, is provided by any third party in exchange for the Internet service provider’s decision whether to zero-rate traffic.
(8) Failing to publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of those services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.
(9) Engaging in practices, including, but not limited to, agreements, with respect to, related to, or in connection with, ISP traffic exchange that have the purpose or effect of evading the prohibitions contained in this section and Section 3102. Nothing in this paragraph shall be construed to prohibit Internet service providers from entering into ISP traffic exchange agreements that do not evade the prohibitions contained in this section and Section 3102.
(b) It shall be unlawful for a mobile Internet service provider, insofar as the provider is engaged in providing mobile broadband Internet access service, to engage in any of the activities described in paragraphs (1), (2), (3), (4), (5), (6), (7), (8), and (9) of subdivision (a).”

Political actors that favor the FCC’s implementation of net neutrality rules have managed in the past to endear their position to the public by describing efforts opposing the rules as a barrier to freedom of expression.  Net neutrality rules proponents argue that internet service providers have a financial incentive to use their positions as gateways to internet access to favor their content over that of edge providers.  Favoring ISP content may take the form of throttling data coming from a favored website or blocking a consumer’s access to their favorite website.

Net neutrality rules proponents would also argue that even if their access to a website was not blocked or data from their favorite website not slowed down, the receipt by an ISP of compensation in exchange for giving an edge provider higher priority of their traffic may mean that smaller content providers are put at a disadvantage compared to larger content providers with deeper pockets.

Opponents of putting net neutrality into an agency rule would agree that the principles of net neutrality should be adhered to.  However, as network operators, ISPs argue that they cannot afford to devalue their networks by frustrating consumer access to internet content.  The internet has grown in use and popularity as a result of the “network effect” where as more consumers use the internet, the demand for and supply of content and other services increases thus increasing the value of an operator’s network.  In the end, blocking, throttling, or prioritizing content would only work against the network operator.

Often overlooked in the net neutrality debate is the global nature of the internet.  Facebook users, for example, take for granted that most of the social network’s subscribers are not located in the United States and that we all access a network of interconnected computers located in multiple countries. The traffic you receive can come from a number of jurisdictions before landing on your computer.

Ironically, California leads the way in North America when it comes to internet traffic density.  According to data from Akami, California accounts for 5.1% of traffic flows in North America.  Statista.com reports that internet traffic in North America amounts to  1,411,021 terabytes a month. This means that California’s approximate share is 71,962 terabytes a month.

And the amount of internet traffic flowing is expected to continue increasing.  According to findings by Cisco, internet traffic is expected to increase by 278 exabytes a month by 2021.  As gateways for internet traffic, ISPs concerned about managing congested networks may want to employ a time honored method of congestion management: price, and this method of determining where resources flow is what is really being kept in check by SB 822.

SB 822 prohibits ISPs from charging content providers for the handing off of edge provider traffic.  It is ironic that proponents of these rules on the one hand support the notion of regulating broadband providers like telephone companies, but prohibit the very practice telephone companies have used to recover a portion of their network costs. As internet traffic increases along with the costs for delivering traffic, would proponents prefer ISPs increase the prices the end use consumer pays while providing edge providers with free content? If this is the case, then net neutrality proponents in California, many of whom are unwittingly support keeping edge provider costs low, may find accessing information on the internet less affordable.

 

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FCC to vote on a 5G order designed to deploy more broadband

On 26 September 2018, the Federal Communications Commission will vote on an order that members of the Commission believe will help pave the way for deployment of the small cell technology that supports 5G technology.

5G refers to a next generation wireless technology that promises to deliver wireless communications at faster speeds with increased data capacity.  Writing for TechTarget.com, Margaret Rouse describes 5G as a technology that could provide data traffic speeds of 20 gigabits per second while enabling increases in the amount of data transmitted due to more available bandwidth and advanced antenna technology.

“In addition to improvements in speed, capacity and latency, 5G offers network management features, among them network slicing, which allows mobile operators to create multiple virtual networks within a single physical 5G network. This capability will enable wireless network connections to support specific uses or business cases and could be sold on an as-a-service basis.” — Margaret Rouse

Unlike current 4G Long Term Evolution wireless technology that relies on the deployment of large cell towers, 5G depends on the deployment of small cell antenna sites that are placed on utility poles or rooftops.  5G is designed to operate in frequencies between 30 GHz and 300 GHz allowing for greater data capacity but over shorter distances.

Commissioner Brendan Carr has been given credit for driving the development and release of this order.  Mr. Carr has been traveling the United States advocating for streamlined regulations that in turn would facilitate deployment of 5G technology.  Mr. Carr sees local and state regulations for cell tower and other facility siting as an issue and is making the argument that Sections 253 and 332(c)(7) of the Communications Act of 1934 can be leveraged to make local and state regulations less adverse to 5G deployment.

Under Section 253 of the Communications Act, the Commission may preempt any local or state statute or regulation that prohibits an entity from providing intrastate or interstate telecommunications services. States and localities can regulate telecom companies in order to preserve universal service, protect the public safety and welfare, and manage public rights-of-way.  Section 332(c)(7) maintains a state or local government’s authority over decisions regarding placement, construction, and modification of personal wireless facilities.

Mr. Carr argues that the order will generate $2 billion in cost savings for the wireless industry while generating an additional $2.4 billion in wireless investment.  Actual deployment is still nascent with expectations as to what 5G can do versus what it is actually doing.  Phones using 5G standards, according to Ms. Rouse’s article, are expected in 2019.  Cities are still constructing their blueprints for reconciling their smart city concepts and the “internet of things” with 5G expectations.  It may not be until 2030 that 5G becomes commonplace.

 

NAFTA negotiations provides Trump an opportunity to force Congress’ hand on net neutrality and privacy legislation

The North American Free Trade Agreement went into effect 1 January 1994, a full two years before President Bill Clinton would sign the Telecommunications Act of 1996 and almost a decade before law school professor Tim Wu would pen the essay that set the concept of net neutrality into motion. It doesn’t come to me as a surprise that issues such as equal treatment of data over networks or the privacy of subscriber data were not huge ones back then.

From the early 1980s through the mid-1990s, the policy priorities included universal service and promoting competition in local markets while increasing telephone subscribership among low income, black, and Hispanic communities. Talking about the internet in the mid-1990s was synonymous to Natasha Romanova whispering to Steve Rogers about the existence of The Winter Soldier, something that may be real, but we just don’t know.

But by 1995, the whispers were becoming clearer to industry and Congress that the internet and high-speed broadband access to an increasingly global inter-network of computers provided investment opportunities for capital while increasing the speed and efficiency in moving the most important resource: information.

Over the last fifteen years, American telecommunications markets have had to contend with the back and forth threats of an additional regulatory overlay in the form of net neutrality rules. Attempts to codify net neutrality, the principle that broadband access providers should be transparent about their management practices while not discriminating against non-affiliated traffic, and allowing subscribers to access content of their choice, has become very politicized over the past three years. In 2015, a Democrat-led Federal Communications Commission passed net neutrality rules that were repealed two years later by the current Republican-led Commission.

And while Democrats in the U.S. Senate were able to persuade enough Republicans to pass a resolution to repeal the Commission’s transparency rules and replace them with the 2015 rules, the likelihood of passage of the resolution by the U.S. House is impossible because it is currently controlled by the GOP.

The political reality is that subscriber concerns about accessing content of their choice as well as maintaining the privacy of the data that they buy and sell is important to maintaining the internet and broadband as attractive communications tools. The Trump administration has an opportunity to head off an international net neutrality debate by including language that encapsulates net neutrality principles while reiterating the importance of protecting privacy on both sides of the border with Canada and Mexico.

An additional benefit of putting privacy and net neutrality language in Chapter 13 is that it will force Congress’ hand during the ratification process. It would be inconsistent for the United States to approve language in a treaty that incorporates privacy protections and net neutrality principles for international data trade while not recognizing those principles in its national laws. This level of certainty in American and international law will provide a great benefit for investors.