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.

Why is net neutrality a partisan issue and how is it negatively impacting privacy rules?

Net neutrality shouldn’t be a partisan issue. The internet isn’t a government agency even though a number of governments around the world would like to restrict their citizens access to it and regulate the content that flows through it. If the internet, as it is viewed in the United States, is a means by which liberty, equality, and democracy intersect and are expressed, then shouldn’t the Republican and Democratic wings of Congress unite on those three pillars of American society?

Is there any contention in the area of liberty as it pertains to the internet?  It does not appear that way. The left replaces the word “liberty” with “freedom” and sticks pretty close to the traditional wording of the open internet, meaning no blockading of consumer access to the legal content of a website.

The right would agree with the left that consumers should be able to access the legal content of their choice. This issue goes to the fundamentals of conservative philosophy, liberty.

Regarding equality, I see contention. On the left, equality on the internet means that traffic from one website is treated the same as traffic from another website. A broadband access provider should not be allowed to throttle a site’s traffic prior to delivering the traffic to a consumer. The principle of equality would also hold, according to left internet philosophy, regarding the issue of paid prioritization. Paid prioritization occurs when a content provider pays a broadband provider for the privilege of special treatment of its traffic. The broadband provider may provide the content provider with “faster lanes” or some other privilege that grants that content deliverer’s traffic some priority over other traffic.

The right may not necessarily disagree that paid prioritization grants a one provider an advantage over another. Whether that advantage is fair or merely a valid business decision is the question and if the decision to provide priority to one type of service versus another is reasonable, then why not?

Prioritization occurs every day. Take the example of packages sent via a common carrier such as the post office. A consumer of postal services has an option of paying to send mail via regular mail or by priority mail, getting his package to its final destination within the next one or two days. The content of the mail may be such that rush delivery is of the essence.

Taking a flexible approach to prioritization may be in keeping with varying demands of different applications. In its recommendation for bipartisan legislation on net neutrality, the Information Technology & Innovation Foundation noted that:

“Legislation should allow clear flexibility for traffic differentiation for applications that require it, avoiding an overbroad flat ban on prioritization, while clearly prohibiting anticompetitive conduct. Legislation should put some restrictions on paid prioritization to limit the potential for abuse, such as a simple ban on exclusive dealing or a requirement
to offer similar terms to all customers.”

Finally, the left has made vigorous arguments that broadband access providers have the potential to threaten democracy on the internet because of their technical capability to block and throttle traffic. This potential bad behavior would restrict a consumer’s ability to choose or produce the content of her choice.

While conservatives may empathize with the self-expression argument, I would expect a two-pronged rebuttal. First, since broadband access and the internet (for the most part) is a private, commercial enterprise, there is no state action intervening in a citizen’s right to participate in the political process. That alone should make the concerns about democracy moot. Second, it is not in a broadband provider’s best business interest to discourage the use of its network. The more users and more traffic exchanged, the greater the revenues and profits and lower the operational costs of the network.

Given the heightened concern over the last two years about privacy on the internet, the left and right wings of Congress should use the need to bring certainty to privacy as a catalyst for closing the philosophical gaps in the vision for the internet. Privacy is being placed on the backburner which is unfortunate because while most consumers are fine for the most part with the internet as it is (growth in ecommerce is one such indicator of the internet’s health), codifying net neutrality principles, general principles that the left and right agree with, in the form of a statute plus providing bright-line rules on privacy and privacy enforcement will bring certainty to consumers of broadband services as to a safer internet and certainty to broadband providers that wish to continue investment absent the nightmare that a back-and-forth that the current regulatory framework creates.

Will states seize the opening if net neutrality rules are resurrected?

11 June 2018. On this date the decision by the Federal Communications Commission that repealed the 2015 Open Internet Order will go into effect. Democratic members of the United States Senate hope to vote on a resolution that nullifies this recent decision by the Commission. In other words, the Democrats want to roll back to the way things were in 2015 with the Commission regulating broadband internet access service as if broadband access was a telephone service.

The Senate’s vote, expected to take place the middle of next week, is expected to go nowhere in the U.S. House of Representatives where Republicans hold firmer control. Partisanship is expected to rein supreme. And even if the House were to join the Senate in condemning the Commission’s decision to repeal net neutrality regulations, President trump is expected to veto the bill, sending it back to Congress where an override of the veto has next to no chance of happening.

For students of federal government, this congressional review action demonstrates a major weakness in the legislative branch of federal government. Congress may hold the purse strings, but when it comes to wielding any power, Congress is slow, its actions cumbersome. It is no wonder it gets accused of doing nothing. It is not that it doesn’t try. Congress is designed not to usurp the power of the executive, but simply to keep him or her in check.

Congressional Democrats could have expended energy drafting legislation that not only codified open internet principles but addressed transparency and privacy of consumer data handed over to social media firms such as Facebook or Twitter.  But when it’s time for political theater, no place is better than the chambers of Congress. Senator McCarthy’s search for communists. The Warren Commission. The Nixon impeachment. Iran/Contra hearings on Oliver North’s gun trading in Nicaragua. The Clinton impeachment. All great theater. Democrats may want to add to this list a vote on net neutrality.

Unfortunately for the Democrats, Congress will slide into a couple summer recesses mixed in with campaigning for the November 2018 midterm elections. Except for uninformed millennials and assorted nerds, there will be little attention paid to net neutrality.

Twenty-two states will give repeal the college try, however. A lawsuit filed by a number of state attorneys general hopes to show that the Commission’s action was arbitrary and capricious. I suspect that even if the states were successful in their attempt to overturn the repeal via the courts, I don’t see them doing much on the state utility commission level to regulate broadband access providers.  Just let their states AGs expend resources to tackle on a case-by-case basis complaints alleging throttling, blocking, and lack of transparency on the part of providers. Regulating broadband as a telephone service is fun to say and probably gets a few voter brownie points, but states have spent the past two decades moving away from utility-style regulation of phone services and are not about to roll the clock backward.

Besides, the old heads like me who were members of the public utility commission staffs that did the regulating have moved on and aren’t interested in revisiting the ghosts.

 

Net neutrality: Good politics is about manipulating reality

Democracy gets too much credit as a platform for openness and equity. It operates efficiently by being the opposite: as a platform for manipulating reality by manipulating consensus. American society is under the mistaken belief that facts create reality. I would go further and say that Americans are confused as to the definition of the word “facts.” Engaged in an argument with the average bloke about politics and he will offer as fact his assertions based on what he perceives his surroundings to be as supported by something Joy Ann Reid or Sean Hannity said. That a fact should be measured and its existence corroborated would make his head spin. Measurement and corroboration require too much work and it is much easier to rely on feelings.

There is nothing wrong with feelings and perception per se as navigation tools for moving through life as an individual. As I get older I find myself increasingly comfortable with “going with the flow” of the day, an argument, an event. Being too linear in thinking for my personal daily life is restricting, cuts off the blood flow, creating an uptightness that drives my teenager crazy sometimes.  Sometimes you just have to say, “fuck it.”

But can a society take that attitude? I have some reservations at to what a society is purposed for but will share them some other time. For now, let us stick with a standard definition of what a society is, an organized group with some interest in common or group of persons forming a single community. While as individuals our daily rules of living may differ; you may choose to stay linear, I may choose the flow. A society, if it is to stay, by definition, cohesive must follow some standard that should be followed by everyone. It is a standard arrived at via some political mechanisms and agreed upon by consensus. The agreed upon standard is basis for the political, legal, and economic reality of the community.  Manipulate the consensus and you manipulate the reality.

Take for example the issue of net neutrality. Net neutrality is a set of principles that provide for transparency in the management of broadband networks, calls for equal treatment of all traffic flowing from all websites, and ensures that consumers are able to access the legal content of any website they choose to visit. In short, net neutrality guarantees an open and democratized internet experience.  Over the past fifteen years, ever since the inception of the concept via a paper written by a law professor, net neutrality has become for millions of Americans their internet reality.

Net neutrality is an example of manipulated consensus creating a new reality. Prior to 2003, there was no “net neutrality” concept. All traffic could not, and today arguably cannot, be treated the same. Latency, speed, and bandwidth requirements differ between types of content. Video form RealNetworks in the year 2000 used more bandwidth than an email. Remember your buffering issues? In 2018 while the buffering problems have been adequately addressed to the point where we can watch a two-hour movie on our laptops, a video still uses more bandwidth than email.  But why and how did the new consensus come about, that all traffic should be treated equally, even in the face of facts regarding network management?

First the why. In the early 1990s, alternative network providers, including cable television companies, offered services where they would take a business customer’s calling traffic, route it around a telephone company’s network, and deliver the traffic to the customer’s designated location. This was called bypass.   As revenues and profits increased and technology improved, these companies started their own local telephone networks competing for residential as well as business traffic. In these early local telephone competition days, the traffic that new entrants handed off to incumbent telephone companies was less than the traffic the new entrants received from incumbents. Instead of paying each other for the traffic they exchanged, they decided to merely keep the revenues they received from their own subscribers.

Competitors became increasingly successful and given the increased traffic they provided to the incumbents, the incumbents decided to start pursuing payments. New entrants including fledgling new content providers wanted to maintain the neutrality of payments i.e. no payment exchange, meaning that traffic should continue to be treated with neutrality. This was the beginning of the net neutrality argument.

Now, the how. Politics is about marketing to vote providers and behind good marketing is good communications. First, you make a legal and regulatory argument that neutral exchange of traffic is good policy and should be set in rule. Second, you approach regulators and the courts with this principle and try to convince them as to the feasibility, efficacy, and legality of such a rule. Lastly, to secure the rule once it has been passed, or to gain more support should the rule face roadblocks, you enlist an ignorant public with a narrative that net neutrality is about “open networks” and “freedom on the internet.” Get 4 million signatures on post cards mailed to the Federal Communications Commission and get John Oliver to go on television and skip 20 years of telecommunications history and you can change consensus on what net neutrality is really about.

So far, the efforts have put net neutrality on the political radar.  Efforts by the Federal Communications Commission to remove net neutrality rules from the books are being met in court by proponents for net neutrality rules. How it plays out, I don’t know. I do know that good politics is about effective manipulation of consensus and consensus creates the reality of net neutrality.

Time for broadband providers and Facebook to call a truce

Americans talk too much. They give up too much information on themselves. Right now, I am writing this post in a Krispy Kreme joint where a worker on break is sitting on my right yacking personal business on her smart phone. At the same time a customer is walking out of the store providing details on her travel itinerary including where she is to be picked up from and the color of the vehicle that will scoop her up.

Walk into the Kroger here in the West End Atlanta and you will gather a lot of opinions on the seemingly high prices and the budgetary stresses consumers are under. The U.S. Departments of Labor and Commerce would have a field day gathering so much consumer information.

And as the news that Bill Cosby has been convicted of sexual assault sits atop the “what’s trending” columns of social media, it will be impossible to avoid all the amateur legal and sociological assessments of the former “America’s Dad.”  Fans of Hugh Beaumont and Robert Young may be blowing sighs of relief that these two now sit alone at the top of the perch.

The current political environment provides much fodder for political commentary particularly on social media. The current occupant, as David Horowitz has observed, has had a seven second honeymoon post inauguration and is providing the left plenty to talk about. I don’t consider rumor about his wife, his philandering with prostitutes, or his fast food meal plan true political news. It is noise and in American politics that noise has become the new baseline. It is the surprise that pops out of the baseline that interests me. That is true information. How valuable those noises are is another matter.

Whether noise or baseline, Facebook is collecting and analyzing this user output, ascertaining as much user behavior as possible in order to offer up the user on an advertiser’s menu. This business model, at least in the short term, is working for Facebook as the social media firm is seeing an uptick in users and revenues. According to The Wall Street Journal, the number of Facebook users jumped to 2.2 billion while quarterly revenue jumped to $11.97 billion. It’s quarterly per share profit came in at $1.69, up from $1.04 a year ago. As I write this, Facebook shares are up 9.06% after today’s trading.  All this, according to The Journal, over a tumultuous 17 months of allegations that the company allowed Russians to abuse its platform and that its lax privacy practices allowed third parties to use its subscribers’ private data against the company’s privacy practices.

Some users have managed to share their opinions about Facebook’s privacy practices even as they continue to share cat videos, vacation schedules, and religious and political views. Facebook has been instrumental, as a supporter of net neutrality rules, in convincing some of these users to push the Federal Communications Commission to subject internet service providers (ISPs) to 20th century telephone rules in order to enforce management transparency and privacy protections for broadband subscriber data. The irony. How things have changed since the FCC passed onerous net neutrality rules in 2015 not only to see them overturned late last year but now to have Facebook be subjected to rules onerous enough to damage its business model.

Facebook could, in my opinion, do one of three things. It could continue with business as usual, taking a chance that continued user and revenue growth will buffet it against the threat of onerous regulation. On a second path it could call a truce with ISPs and together convince Congress to pass a statute containing a consumer bill of rights that provides for protection of data while codifying net neutrality principles of transparency   in network management, no blocking, and no throttling. The third path, would be market-based, where Facebook introduces a tiered service where subscribers that want added privacy protections would pay Facebook for insuring no third-party use of information.  Facebook could also “purchase” subscriber data in exchange for not using subscriber data beyond activities related to providing a better customer experience. That promise not to use customer data beyond the need for managing the CX should be equal to the very onerous telephone rules that Facebook would like seen applied to ISPs.

I would recommend Facebook go the middle route. It would ensure, in my opinion, a seamless application of privacy throughout the internet, something that past FCC chairman advocated for and the net neutrality posse cheered on.

Facebook is learning the hard way that American democracy has its spillover effect. To call for a democratized internet means Facebook must do its part to bring it about.

Free Press and Public Knowledge are getting a taste of big tent progressive politics

Brian Fung of The Washington Post put out a great piece this morning describing a growing rift between two factions on the progressive side of the net neutrality debate. Grass roots groups such as Free Press and Public Knowledge believe that supporters of the Federal Communications Commission’s 2015 Open Internet Order should aggressively push the Congress to overturn the Commission’s 2017 repeal of the Order.

Corporate supporters of the Commission’s Open Internet Order such as Facebook and Google are taking a more centrist approach. While they apparently still support applying net neutrality rules based in Title II of the Communications Act of 1934, they are now signaling that a bi-partisan Congressional approach via a new law would help resolve the net neutrality dispute once and for all.

Based on Mr Fung’s writing, the big tent has a few holes in the tarp, as meetings hosted by the Internet Alliance and attended by both net neutrality factions are growing in the number of attendees and an increasingly diverse level of issues are sprouting. Free Press and Public Knowledge are finding the hard way a couple important lessons about any corporations true mission and that diversity is an empty narrative.

First, the corporate mission. I hesitate to say that the good people at Free Press and Public Knowledge are naive (but I wouldn’t hesitate to say that their 4 million pro net  neutrality followers are), but both groups seem to have fallen for Google’s and Facebook’s silly mission statements about doing no evil and connecting the world for connection sake.

Google and Facebook created and maintained dominant positions in internet search and social networking by first optimizing their business models to maximize shareholder value, a lesson the lawyers at Free Press and Public Knowledge failed to remember from the business associations classes in the second year of law school. “Russiagate” has raised the ire of Congress and Google, Facebook, and other social networking and internet portal companies are gathering their wagons around their revenue streams and profit centers from potential government attacks. They cannot afford any regulatory volatility that will arise from the uncertainty of how net neutrality principles will be applied to broadband access providers. They are realizing that compromise legislation passed in the immediate term is good for long term growth.

While Google and Facebook play in the “attention economy”, Free Press and Public Knowledge play in the “agitation economy.” To stay relevant as a grass roots advocate leader, they must tear up the astro turf regularly. Settling the net neutrality tennis match via a bi-partisan bill means 4 million pairs of eye balls not looking their way because the show will be over. Nothing else to see here. Problem solved.

As for diverse voices, that narrative does not work. The bigger your tent, the further off course the original message drifts. Sooner or later the money bags step up and start setting priorities and those priorities will place those with the least coin ahead of the pack. The 4 million three huggers are going to have internet access no matter their personal beef with their broadband access provider. Most have access to two or three providers whether wireless or wireline. Facebook and Google cannot take comfort in any certainty. As big as they are in digital space, the wilderness is huge and there is always a young predator getting ready to spring out with new technology and the hunger and thirst to match.

Facebook and Google’s profit motives and needs are no different than the broadband access providers Free Press and Public Knowledge rail against. Facebook and Google will take control of the circus under the big tent and call for some grown up behavior that protects their revenues and profits.

 

Listening to the whiny left on net neutrality can leave you jaded about “edge” technology

Over the past week, a number of progressive grass roots groups and some 21 state attorneys general have filed suit in federal appellate courts seeking to overturn the Federal Communications Commission’s repeal of net neutrality rules that were promulgated in December 2015. This early in the process the petitions have laid out general assertions that the Commission’s decision to repeal was arbitrary, capricious, and an abuse of agency discretion.

In other words, the Commission, dominated by three Republicans to two lone Democrats, was given to sudden and unaccountable mood swings as it went from determining in 2015 that broadband access providers should be viewed as old style telephone companies to last year’s decision where the Commission now views broadband access providers as information service providers.

I don’t see how the left’s position, that the Commission should use rules for regulating a point to point communications service, is to increase broadband access for insular communities like the U.S. Virgin Islands and Puerto Rico. According to Commission data, 66% of population in U.S. territories lacks access to 25 megabit per second download, 3 megabit per second upload broadband access services.  The flexibility required for deploying more advanced broadband access services in U.S. territories like the USVI and Puerto Rico cannot manifest itself in a regulatory framework that requires a body of regulators give approval or delay proceedings necessary for approving the introduction of new services.

The real arbitrary behavior took place when the Commission, led by Democrat Tom Wheeler, actually persuaded two other Democratic members of the board and some four million naive voters and taxpayers, that the Commission was actually in a position to ensure traffic neutrality throughout the entire internet; from the voter and taxpayer’s laptop to her favorite porn site hosted on a server located in the Azores. For Mr Wheeler to premise a ridiculous expansion of the Communications Act on the assertion that the Commission, via regulation, could ensure that all traffic be treated equally on the internet only resulted in creating false expectations regarding service among a public that couldn’t tell you exactly what net neutrality is in the first place.

The Commission, now led by Ajit Pai, has, if anything, reintroduced some reality into communications regulation. The first reality is that Title II of the Communications Act of 1934 is not necessary for regulating advanced, broadband internet access services in the 21st century. Second, the repeal of the 2015 Wheeler order recognizes that providing American consumers with the best access to a global, interconnected computer network means being able to leverage the openness of the internet to provide new services in a permission-less environment.

It is ironic that the edge providers that want their subscribers to access their content on the highest quality communications networks are willing to endure delays that will certainly arise under a Title II regime that requires permission to innovate at every turn.