Posts Tagged ‘ FCC ’

More Regulatory Overreach at the FCC

Monday, April 11th, 2011
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy.  Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years.  Finally, imagine that industry charged  falling prices for both consumers and businesses.

But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has  outperformed  the rest of the economy on key measures such as customer satisfaction, investment, and price.  Moreover, at a time when President Obama is calling  for more innovation,   the wireless industry has produced more genuine new products and services than anyone else.

So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7,  the FCC issued an order forcing the  big wireless providers to sign ‘data-roaming’ agreements with smaller carriers.  In effect,  the smaller carriers can now tell their customers that they could have data service all over the U.S., free-riding on the mammoth investments by the big carriers. In addition, the FCC made it clear that it is willing to set the price for each data roaming agreement if it doesn’t like what the big carriers are offering–effectively reinstituting price regulation for the most dynamic sector of the economy.

This aggressive regulatory move by the FCC follow its enactment of confusing ‘net neutrality regulations’ in December 2010, an 87-page order that raises more questions than it resolves. And then coming down the road is the ‘bill shock’ regulation. In order to address the rather rare and fixable problem of a surprisingly high bill, this regulation would force providers to spend scarce investment dollars on revamping their billing system rather than  building out their networks.

In many ways, enacting this series of regulations is like throwing pebbles in a stream. One pebble doesn’t make much of a difference, but throwing enough pebbles in the stream can dam it up.

Frankly, the degree of regulation that the FCC wants to impose is more appropriate to a failing industry rather than one which is demonstrably successful and growing.  Let’s just run through the performance of the telecom/wireless industry over the past five years.  According to the American Customer Satisfaction Index,  satisfaction with wireless service has increased by 14% over the past five years, by far the biggest  jump of any industry.

Now let’s look at investment. The data on investment is somewhat fuzzier than for satisfaction, since the government’s figures on industry investment only run through 2009, and merges the telecom and broadcasting industries.

But here’s what we see: In the telecom/broadcasting industry, real investment in equipment and software  is up 30% since 2005, despite the turbulence of the financial crisis. By contrast, overall private sector real investment in equipment and software is down 8% over the same period.

And then of course the price of wireless service keeps falling. The latest figures from the Bureau of Labor Statistics say that consumer wireless prices are down 6% since 2011, and business wireless prices are down a lot more.

Right now the FCC  has the good fortune to preside over one of the few growing industries in the economy.  If the commissioners genuinely want to  support  innovation and growth, they should stop throwing regulatory pebbles into the stream.

Crossposted at Mandel on Innovation and Growth

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Posted in A New Framework for Growth and Equity, Daily Fix | 1 Comment »

Some Thoughts on ‘Bill Shock’ and Negative Externalities

Wednesday, March 9th, 2011
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

In my paper on the Regulatory Improvement Commission, I argued that adding new regulations was like tossing small pebbles into a stream. Each pebble by itself would have very little effect on the flow of the stream. But throw in enough small pebbles and you can make a very effective dam.

Why does this happen? The answer is that each pebble by itself is harmless. But each pebble, by diverting the water into an ever-smaller area, creates a ‘negative externality’ that creates more turbulence and slows the water flow.

Similarly, apparently harmless regulations can create negative externalities that add up over time, by forcing companies to spending time and energy meeting the new requirements. That reduces business flexibility and hurts innovation and growth.

For example, consider the ‘bill shock’ regulations now under consideration by the FCC. ’Bill shock’ is when someone gets a mobile bill that is higher than they expected—say, a large roaming charge. This problem is annoying but not life-threatening.

In response to consumer complaints, the FCC invited comments on regulations that would require ”customer notification, such as voice or text alerts, when the customer approaches and reaches monthly limits that will result in overage charges,” and “ require mobile providers to notify customers when they are about to incur international or other roaming charges that are not covered by their monthly plans, and if they will be charged at higher-than-normal rates.”

One question is whether bill shock is a widespread problem. A just-released study, “An Empirical Analysis of Overages on Wireless Consumer Bills” by Recon Analytics suggests that most overages are relatively small and not repeated. What’s more, in many cases it makes financial sense to take a small overage, rather than switch to a more expensive plan. The study reports that “only 0.3% of wireless accounts go into overage during a year by such an amount that the customer would have been better off having upgraded their plan for that year.”

Now, here’s where we come to the tale of the pebble and the stream. The rule of thumb about IT projects is that they are always more complicated and take longer than you think. More precisely, it would be a major and costly effort to build a system that in real-time accurately tracks customer total charges on the home system and on domestic and international roaming systems. The key words here are ‘real-time’ and ‘accurate’ in the same sentence—the two together translate into expensive.

The bottom line is that if the bill shock regulations are enacted, significant resources—IT personnel and dollars–would be diverted into building and maintaining this real-time/accurate charge tracking system. The number of beneficiaries—the people who are truly surprised by ‘bill shock’– would be relatively small.

What’s more, these are resources that would not be available for innovation and improvements to the whole network. This negative externality—the potential slowdown in innovation and the pace of network improvements– is not measured as part of conventional cost-benefit analysis. Depending on how many other regulations are being enacted, it could be another pebble that helps dam up the stream.

Indeed, this suggests we should not evaluate regulations one at a time, but rather as part of a larger context. Think of the impact of a regulation as the net benefit of that regulation plus a negative externality E. That negative externality sums over all regulations on that industry. The more regulations, the bigger the negative impact.

From that perspective, in order to meet President Obama’s goal to eliminate regulations that hurt job creation, conventional cost-benefit analysis is not enough. Agencies such as the FCC need to look skeptically at the bill shock rule and other borderline regulations that could impose genuine negative externalities on job growth and innovation without helping many people.

Cross-posted at Mandel on Innovation and Growth

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Too Soon to Tell About FCC Rules

Wednesday, December 22nd, 2010
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

I had hoped to write a simple post giving thumbs up or down to yesterday’s FCC ‘net neutrality’ rule-making. Alas, I can’t, yet.

Let me explain. I judge their actions by applying the principle of countercyclical regulatory policy: In recessions, the government should refrain from imposing heavy-handed regulations on innovative, growing sectors. The goal is to keep the communications innovation ecosystem growing and healthy.

From that perspective, the three basic rules that the FCC approved are fine: Transparency, no blocking of legitimate websites, and no “unreasonable discrimination” by wired broadband.

The key here is the transparency provision, which gets little attention. If we look back at the wreckage of the financial boom and bust of the 2000s, the big problem was not financial innovation. Rather, the big mistake made by the financial regulators was not pushing for more information about the decisions being made by Wall Street. That would have enabled regulators to put up a stop sign before things got out of hand.

Learning from that bad example, an intelligently-enforced transparency provision for broadband providers—requiring them to release “accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services”—would go an awfully long way to deterring abusive practices without interfering with innovation.

If the FCC had just stopped with its three rules, we could be heading for the best of all possible worlds …where the communications innovation ecosystem keeps growing, the providers earn enough profits to allow them to keep investing, but where transparency helps encourage them to be good stewards and not to be too greedy.

But not content to leave well enough alone, the FCC appears to have added a lot of extra verbiage to the order that muddies the waters,  to the point where I can’t even figure out what they are trying to achieve. I say ‘appears’ because all we have so far is excerpts from the text, rather than the full text itself.

If regulators can’t make rules that are clear and straightforward, it’s a sign they shouldn’t be doing it. I wait eagerly for the actual text of the order.

This piece is cross-posted at Mandel on Innovation and Growth

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How Do You Define the Internet?

Thursday, November 11th, 2010
Richard Bennett


Richard Bennett is a research fellow at the Information Technology and Innovation Foundation, specializing in broadband networking and Internet policy. He has a 30-year background in network engineering and standards.

by Richard Bennett

One of the more interesting comments filed with the FCC in its recent Further Inquiry into Two Under-Developed Issues in the Open Internet Proceeding came from a group of illustrious computer industry stalwarts such as Apple hardware designer Steve Wozniak, computer spreadsheet pioneer Bob Frankston, Stupid Network advocate David Isenberg, and former protocol designer David Reed.

Their comments are worth noting not only because they come from such a diverse and accomplished group of people, but also because they’re extremely hard to follow (one of the signers told me he almost didn’t sign on because the statement was so unclear.) After reading the comments several times, asking the authors for clarification, comparing them to previous comments by a similar (but larger) group known as “It’s the Internet, Stupid,” and to an even older statement by a similar but larger group called the Dynamic Platform Standards Project (DPSP), I’m comfortable that I understand what they’re trying to say well enough to explain.

A Passion for Definition

The author of these three statements is Seth P. Johnson, a fellow from New York who describes himself as an “information quality expert” (I think that means he’s a database administrator, but it’s not clear.) Johnson jumped in the net neutrality fray in 2008 by writing a proposed law under the name of the DPSP and offering it to Congress.

The gist of the thing was to define Internet service in a particular way, and then to propose prosecution for any ISP that managed its network or its Internet connections in a way that deviated from the definition.  Essentially, Johnson sought authority from the IETF’s Internet Standards, but attempted to reduce the scope of the Internet Standards for purposes of his Act. The proposed Act required that ISPs make their routers “transmit packets to various other routers on a best efforts basis,” for example, which precludes the use of Internet Type of Service, Class of Service, and Quality of Service protocols.

IETF standards include a Type of Service (ToS) option for Internet Protocol (IP) as well as the protocols IntServ, DiffServ, and MPLS that provide mechanisms for network Quality of Service (QoS.) QoS is a technique that matches a network’s packet transport capabilities to the expressed needs of particular applications, ensuring that a diverse group of applications works as well as possible on a network of a given, finite capacity.  ToS is a similar method that communicates application requirements to one of the networks that carries IP datagrams, such as Ethernet or Wi-Fi. Packet-switched networks, from the ARPANET days to the present, have always included QoS and ToS mechanisms, which have been used in some instances and not in others. You’re more likely to see QoS employed on a wireless network than on a wireline network, and you’re also more likely to see QoS on a local network or at a network edge than in the Internet’s optical core; but the Internet’s optical core is an MPLS network that carries a variety of private network traffic at specified service levels, so there’s quite a bit of QoS engineering there too.

The purpose of defining the Internet as a QoS-free, “Best-Efforts” network was to prevent network operators from making deals with content providers that would significantly privilege some forms of sources of content over others. This approach originated right after Bill Smith, the former CTO of Bell South, speculated that ISPs might increase revenues by offering exceptional performance to select application providers for a fee. While the service that Smith proposed has a long history in Internet standards (RFC 2475, approved in 1998, discusses “service differentiation to accommodate    heterogeneous application requirements”), it’s not part of the conventional understanding of the way the Internet works.

Defining One Obscurity in Terms of Another

“Best-efforts” (BE) is a term of art in engineering, so defining the Internet in this way simply shifts the discussion from one obscurity to another. BE has at least three different meanings to engineers, and another one to policy experts. In the broadest sense, a BE network is defined not by what it does as much as by what it doesn’t do: a BE network makes no guarantee that any given unit of information (“packet” or “frame” ) transmitted across the network will arrive successfully. IP doesn’t provide a delivery guarantee, so the TCP code running in network endpoints such as the computer on your desk or the mobile phone in your hand has to take care of checking for lost packets and retransmitting when necessary. BE networks are appealing because they’re cheap to build, easy to maintain, and very flexible. Not all applications need for every packet to transmit successfully; a Skype packet that doesn’t arrive within 200 milliseconds can be dropped, for example. BE networks permit that sort of decision to be made by the application.  So one meaning of BE is “a network controlled by its endpoints.”

Another meaning of BE comes from the QoS literature, where it is typically one of many service options in a QoS system. In the Internet’s DiffServ standard and most other QoS systems, BE is the default or standard treatment of all packets, the one the network router employs unless told otherwise.

Yet another definition comes from the IEEE 802 standards, in which BE is the sixth of seven levels of service for Ethernet, better than Background and worse than all others; or the third of four levels for Wi-Fi, again better than Background. When policy people talk about BE, they tend to use it in the second of these senses, as “the standard treatment,” with the additional assumption that such treatment will be pretty darn good most of the time.

Johnson’s FCC filing insists that the Internet, properly defined, must be a best-efforts-only system; all other QoS levels should be considered “managed services” rather than “Internet.” The filing touts a number of social benefits that can come about from a BE-only Internet, such as “openness, free expression, competition, innovation and private investment” but doesn’t explain the connection.

Constraining Applications

One of the implications of this view is that both network operators and application developers must adapt to generic treatment and refrain from relying on differentiated services or offering differentiated services for sale as part of an Internet service.

Unfortunately, the advocates of this viewpoint don’t tell us why they believe that the Internet must refrain from offering packet transport and delivery services that are either better or worse than generic best-efforts, or why such services would harm “openness, free expression, competition, innovation and private investment” if they were provided end-to-end across the Internet as a whole, or where the authority comes from to support this definition. We’re supposed to simply trust them that this is the right way to do things, relying on their group authority as people who have been associated with the Internet in various capacities for a long time. This isn’t engineering, it’s religion.

There is nothing in the Internet design specifications (Internet RFCs) to suggest that providers of Internet services must confine themselves to BE-only, and there is nothing in the architecture the Internet to suggest that all packets must be treated the same. These issues have been covered time and again, and the FCC knows by now exactly where to look in the RFCs for the evidence that this view of the Internet is faulty. The Internet is not a packet delivery system, it’s a virtual network that only works because of the underlying physical networks that transport and deliver packets. This virtual network defines an interface between applications of various types and networks of various types, and as is the case in all abstract interfaces, it may provide least common factor services, highest common factor, or anything in between, all according to the needs of the people and organizations who pay for it, use it, and operate it. As Doc Searls said many years back, nobody owns the Internet, anyone can use it, and anyone can improve it. The capacity for constant improvement is the magic of the Internet.

Myth of the General Purpose Network

If we insist that the Internet must only provide applications with one service option, we doom application developers to innovate within narrow confines.  A generic Internet is effectively optimized for file-transfer oriented applications such as web browsing, email, and media streaming; it’s fundamentally hostile to real-time applications such as immersive video conferencing, telepresence, and gaming. Some of the best minds in the Internet engineering community have labored for past 20 years to devise systems that would allow real-time and file transfer applications to co-exist happily on a common infrastructure, and these efforts are perfectly consistent with the nature of the Internet properly understood.

The central myth underlying the view of the Johnson and his co-signers is the “general purpose network” formulation. This terminology is part of telecom law, where it refers to networks that can support a variety of uses. When adapted to engineering, it becomes part of an argument to the effect that best efforts is the “most general purpose” method of supporting diverse applications and therefore the “best way to run a network.” I think it’s wrong to frame the challenges and opportunities of network and internetwork engineering in this way. I’d rather that people think of the Internet as a “multi-purpose network” that can offer diverse packet transport services suitable for diverse applications.  We want network operators to build networks that serve all applications appropriately at a price that ordinary people can afford to pay. We don’t want consumers to pay higher prices for inefficient networks, and we don’t want to foreclose application innovation to the narrow bounds of legacy systems.

Segregated Systems are Harmful

Systems that allow applications to express their requirements to the network and for the network to provide applications with differentiated treatment and feedback about current conditions are apparently the best way to do this; that’s the general concept of Internet QoS. This has been the thinking of network and internetwork engineers since the 1970s, and the capability to build such systems is embedded in the Internet architecture. The technical people at the FCC who are reading the comments in this inquiry know this.

These arguments seem to endorse a disturbing trend that the so-called “public interest” advocates are now advancing, to the effect that advanced network services must be segregated from generic Internet service on separate (but equal?) physical or logical facilities. This is not good, because it robs us of the benefits of converged networks.  Rather than dividing a coax or fiber into two frequencies and using one for IPTV and the other for Generic Internetting, it’s better to build a fat pipe that provides IPTV and Generic Internetting access to the same pool of bandwidth. The notion of sharing a common pool of bandwidth among multiple users and applications was the thing that started us down the road of packet switching in the first place, and it’s very important to continue developing that notion; packet switching is the Internet’s enabler. Segregated facilities are undesirable.

Integrating Applications and Networks

What we need in the Internet space is a different kind of vertical integration than the kind that was traditional in the single application networks of the past. QoS, along with modular network and internetwork design, permits applications and end users to essentially assemble networks as applications are run that provide them with the level of service they need at the price they can afford. We get to that by allowing applications to explicitly state their requirements to the internetwork, and for the internetwork to respond with its capabilities. Application choice meets the needs of innovators better than by a rigid “one size fits all” formulation.

The Internet is, by design, a platform for both generic and differentiated services. That’s its true legacy and its promise. We don’t need to run into historical blind alleys of myth and prejudice when the opportunity faces us to build this platform out to the next level. As more Internet use shifts to mobile networks, it will become more critical than ever to offer reasonable specialization to applications in a standards-compliant manner. The Internet of the Future will be multipurpose, not generic.

Photo credit: Pixelsior

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Is the Google-Verizon Proposal a Killer App in the Broadband Debate?

Tuesday, August 10th, 2010
Scott Thomasson


Scott Thomasson is the economic and domestic policy director for the Progressive Policy Institute. Follow @st_ppi

by Scott Thomasson

Google and Verizon have finally released the details of the policy proposal they have been negotiating for nearly a year now, and the news has generated enormous chatter around Washington and across the blogosphere, with bloggers panning it and watchdog groups warning of the end of the internet as we know it.

Obviously, advocacy groups on both sides are focused on the substance of the agreement. But I am more interested in what this means for the policy process, and how effective it will be in nudging Congress and the FCC to clarify the rules of the game for broadband internet service. What these two companies have provided is helpful: a concrete policy proposal that Congress and the FCC can consider, and that imposes a framework for targeted comments from the industry and watchdog groups.

In fact, given the weight of these two companies and the collapse last week of the FCC’s attempts at talks, the roll-out for this proposal may make it a “killer app” in the broadband debate (and not simply an internet killer, as some are calling it). Now that Google and Verizon have put a policy proposal on paper, it becomes the baseline that everyone else has to support or oppose to some degree, including FCC commissioners and members of Congress. Pressuring leaders to make decisions is an appropriate goal, and that’s what this proposal does.

As for the proposal itself, it should be judged as a work in progress. Many of the principles themselves are worthy goals: giving consumers freedom to choose content, applications, and devices; requiring more product transparency from service providers, and prohibiting paid fast lanes for internet traffic. The recommendation that the FCC have real teeth to enforce violations of the proposed rules on a case-by-case basis is a good one.

If the kind of self-regulation proposed for the broadband internet industry is going to be successful, there also needs to be enough competition in the market to empower consumers to punish service providers for violating the principles that Google and Verizon have laid out. That means that in addition to policing the market for bad apples, the FCC needs to be vigilant in monitoring the health and competitiveness of the market for broadband internet access. If there are enough companies offering similar services, and the FCC and watchdog groups hold companies publicly accountable for their behavior by informing consumers of violations, consumers can play a valuable role in policing the market by switching providers when they feel their content or services are being unfairly restricted.

Both CEOs acknowledge that “no two companies should be so presumptuous as to think they can solve this challenge alone,” and no one should see this as an end to the debate. Verizon and Google have given everyone involved a chance to speed up the process by narrowing the conversation to actual yes-or-no decision making. I commend these companies for at least trying to move the ball forward with a good-faith proposal.

Photo Credit:  Peter Huys’s Photostream

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After Comcast, What’s Next for Net Neutrality?

Wednesday, June 2nd, 2010
Richard Bennett


Richard Bennett is a research fellow at the Information Technology and Innovation Foundation, specializing in broadband networking and Internet policy. He has a 30-year background in network engineering and standards.

by Richard Bennett

Congress is gearing up to reopen the Communications Act of 1934 in order to come up with what it hopes will be a better way to make sure as much information flows through the Internet as possible and in a manner fair to consumers, service providers and other stakeholders. During a panel discussion co-sponsored by the Free State Foundation and the Information Technology and Innovation Foundation, it was clear that the coming debate on the future of America’s Internet policy in general and its net neutrality policy in particular will continue to be a lively one.

Congress has effectively advised the Federal Communications Commission (FCC) not to reclassify Internet edge networks –- cable, DSL, FTTx and wireless –- under Title II of the Communications Act. A majority of House members signed letters last week to that effect, and while these letters don’t have the force of law, they’re certainly significant statements of congressional sentiment. The FCC is, after all, a creature of Congress that isn’t entitled to operate outside the scope of its statutory authority, regardless of how noble its motives may be or how urgent the problems it seeks to address are.

The paramount questions for the immediate future concern the shape of Internet policy, and most of the answers must come from Congress. Jim Cicconi of AT&T and moderator Rob Atkinson of ITIF pointed out that the net neutrality debate has sucked the oxygen out of the room on Internet policy for the past five years. Instead of developing plans for national purposes of the Internet and ensuring that it reaches all Americans at reasonable speeds and prices, the policy community has struggled with questions about packet discrimination and “reasonable network management.” While we’ve been obsessing over how to differentiate good network operator behavior from bad, other nations have leapt ahead of us in broadband speed, adoption, or both. Even after the unveiling of a National Broadband Plan, the public debate continues to focus too much on hypothetical anti-consumer behavior by network operators and service providers.

Five years ago, panelist Randy May of the Free State Foundation developed a model law for the Internet called the “Digital Age Communications Act” (DACA) that sought to update the 1934 Communications Act that governs the FCC. Under the DACA framework, regulators can only take action on incidents in which a broadband provider was enforcing policies harmful to consumers in non-competitive markets. The virtue of DACA is its simplicity – it forswears technical prejudgment of particular management practices – but it has attracted criticism from those who find it too strict as well as from those who find it too permissive; it’s not clear why a market power test is relevant once a given practice has been found to harm consumers, for example. Questions of this sort must ultimately be addressed by Congress, as they pertain to the policy space and aren’t simply matters of regulation.

Professor James Speta of Northwestern warned that the “Title II with forbearance” approach to Internet regulation proposed by FCC chairman Julius Genachowski is inherently unstable. (Under this idea, Title II would apply to the Internet, except for the parts of Title II that don’t.) Obviously, the reclassification itself raises troubling legal issues, and is certain to cause litigation. As the outcome of the litigation is uncertain, it would likely take years to resolve its status. The forbearance process is a second source of instability, because regulations can be imposed and withdrawn so easily as matters of forbearance. While the FCC’s proposed “Third Way” built on reclassification and forbearance appears to offer a short cut to an Internet regulation framework, its expeditious character is probably more an illusion than a reality.

A number of panelists addressed the question of what to do while we’re waiting for Congress to draft an Internet policy. Eric Klinker, CEO of BitTorrent, Inc., pointed out that industry deals with questions of Internet management through self-regulatory and other cooperative efforts. BitTorrent, Inc. was not a party to the complaint against Comcast dealt with by the previous FCC – its competitor Vuze, Inc. filed the petition. BitTorrent took a very different approach, meeting with the Comcast network operations team to determine the nature of the problem that motivated them to actively manage parts of the network as they did and to map out a better solution. Rather than seeking regulatory relief, BitTorrent developed a better protocol, uTP, which yields to interactive applications but saturates network links when no other applications are active. BitTorrent improved the Internet in a way that no regulatory action can.

The self-regulatory systems that have emerged from the broadband and Internet markets organically have been largely effective, but they may need to be supplemented with more active government involvement in the future. Whether this happens, and if so, how it happens, are likely to be the subject of debate in the near future — but that debate should take place in the Congress, not at the FCC.

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Will the FCC Go Nuclear?

Wednesday, April 7th, 2010
Mike Derham


Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

The D.C. Circuit Court ruled yesterday (PDF) that the Federal Communications Commission (FCC) doesn’t have authority over the Internet. Back in 2007, Comcast was filtering the Internet connections of users who were suspected of using file-sharing programs and eating up a lot more bandwidth than expected. The FCC told Comcast to cut it out, under the concept of net neutrality, which required that all packets of data sent over the Internet be treated equally. Comcast challenged the FCC’s right to do that, and yesterday the court agreed with the Philly-based company.

The FCC had argued that it had the right under the authority given to it by Title I of the Communications Act of 1934, which established the FCC. According to the FCC’s argument, Title I empowered the commission to regulate Internet connectivity as an “ancillary” authority, even though it wasn’t explicitly charged to do so by Congress in the act (which, after all, was passed more than half a century before the World Wide Web was launched). The D.C. Circuit Court said no, Title I does not give the FCC that authority. While the decision can be appealed to the Supreme Court, which could reverse the ruling, even proponents of a strong net neutrality role for the FCC admit the decision is pretty solid.

While the case is technically a “win” for Comcast (their challenge was upheld) some observers say it could turn out to be a Pyrrhic victory. Now the FCC could claim authority to regulate Internet communication under its Title II powers. Regulating the Internet under Title II, which covers “common carriers,” would require Internet service providers (ISPs) to adhere to net neutrality as a common carrier requirement. This means that physical providers of an Internet connection to your house (in other words, traditional phone and cable companies that have evolved into ISPs) would be limited in their ability to manage the information going over their networks — unable to prioritize some data over other data — much as phone companies have no control over whom you talk to over your phone line.

This is apocalyptically referred to as “the nuclear option,” as it would result in a radical change in how telecommunications firms view Internet connectivity. Title II would require them to behave more like utilities. Proponents of this idea say its potential upside would be increased competition in services provided over that connection. Critics, including the ISPs themselves, say the potential downside is that ISPs could lose a big incentive (profit maximization) to invest in our residential broadband connections, which are lagging behind other countries like South Korea.

In its own discussions of a National Broadband Plan, the FCC has avoided the Title I vs Title II debate. However, with this ruling, the appeals court has forced the commission’s hand. The best solution for the FCC could be to go before Congress for clarification of its role in regulating the internet. As our friend Brian Wingfield points out, it’ll be a tech lobbying fight, but the FCC would have a better chance with a Democratic Congress than it’s likely to have in the courts.

The appeals court has ruled that the FCC lacks the authority to regulate Internet, but it may also lack the ability. The communications sector is changing rapidly. Some ISPs are acquiring content creators, and others are providing mobile services only previously seen in Dick Tracy cartoons. The FCC was established to regulate what was then regarded as a “natural” telephone monopoly. What’s needed is either an FCC with a dramatically transformed mandate or — maybe better — a new entity dedicated to protecting the environment for continuous innovation on the Internet.

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Ooh, They Have the Internet on Computers Now

Thursday, March 25th, 2010
Mike Derham


Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

Tom Tauke, chief lobbyist at Verizon, spoke yesterday in a speech designed to take a fresh start on governance of the Internet. His comments got some coverage as challenging the Federal Communication Commission’s (FCC) role in regulating broadband communication. The FCC’s broadband powers may be decided in a court ruling expected this spring — following oral arguments in January — on a Comcast challenge to the FCC’s oversight of Internet service providers on constitutional grounds.

But it’s worth pointing out that many of the statutes covering internet communications are woefully out of date. The Computer Fraud and Abuse Act (CFAA), the main law against hackers, passed in 1984. The Electronic Communications Privacy Act (ECPA), the main law covering online privacy, was enacted in 1986. These laws were written when faxes were still cutting edge. While the behemoth PATRIOT Act included some fine-tuning of these laws, they still envision a last-millennium Internet. The CFAA treats hacking my desktop computer with the same penalties as hacking a Microsoft data center. ECPA requires Gmail to treat emails I have stored from six months ago — writing about the start of the baseball playoffs last season — differently from this month’s emails on spring training.

Tauke’s suggestion that the FCC should evolve into more of an enforcement body is worth discussing. But regardless of who oversees the Internet, getting new laws to bring it into the 21st century should be a top priority.

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Posted in A New Framework for Growth and Equity, Clean Energy and Modern Infrastructure, Daily Fix | 1 Comment »

FCC Can Win a Supporting Role Nod on Broadcast TV Fees

Thursday, March 11th, 2010
Mike Derham


Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

So I wasn’t the only one who thought the FCC dropped the ball in its dealing with the carriage fee kerfuffle over the weekend—some of the nation’s largest cable and broadcast companies have sent a letter to the FCC to that effect.

In a petition filed with the FCC, Time Warner Cable, Verizon Communications, Cablevision and advocacy group Public Knowledge said that regulations governing transmissions from broadcasters to subscription-television providers are outdated and warned that last weekend’s standoff between Cablevision and Walt Disney Co. will be repeated unless the FCC issues new rules. They also called on regulators to assign an arbitrator during stalled negotiations and to require broadcasters to maintain their signals if talks break down.

Updating technology and media legislation is a perennial issue in an era where rules are oftentimes obsolete as soon as they’re spelled out. But it’s rare that you see industry players go to the government and ask to be regulated further. In this case, the FCC should take them up on the offer.

The most immediate benefits will come from the willingness of both broadcasters and cable companies to submit to arbitration, and the signal maintenance requirement. The debate between broadcasters and cable companies is broadly not one of principle, but of money. This negotiation lends itself readily to arbitration, as both sides are not facing an all-or-nothing choice, but seeking a middle ground is reached on fee pricing. Arbitration means that they will find that middle ground faster.

In the off chance that they can’t find that middle ground in time for a “major television event” (whether it be the Oscars, a bowl game, or the 24 season finale), the signal maintenance requirement means that consumers wouldn’t be the loser if talks broke down. Agreeing to extend exiting contracts an additional couple of days is much less costly to either party than the damage done by angering customers in a fiasco like last Sunday’s Oscar-fest.

The FCC should take this opportunity to work with industry—and not impose a solution on them—on a negotiation framework that will be as big a hit with consumers than Sandra Bullock’s role in The Blind Side was with the Academy of Motion Picture Arts & Sciences.

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NY Lost at the Oscars Last Night

Monday, March 8th, 2010
Mike Derham


Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

“So did you watch the Oscars last night?”

You probably heard that question at least 20 times around the water cooler this morning, and followed it up debating the merits of Avatar vs. The Hurt Locker or Jeff Bridges (who will always be “The Dude” to me) vs. Colin Firth…unless you were one of three million households in New York City, in which case you were fuming that Cablevision and ABC conspired to keep the Academy Awards off your TV screen. In a last-ditch effort to not alienate all their viewers, the two companies — which had allowed ABC service to Cablevision subscribers to expire at midnight the night before the Oscars — got ABC back on Cablevision under an “agreement in principle” about the time Christoph Waltz was accepting the best supporting actor award.

How two of the largest entertainment companies in the country (ABC you know; Cablevision, in addition to being the nation’s fifth largest cable company, owns Madison Square Garden and Radio City Music Hall) could work together to keep the biggest night in entertainment from viewers would seem to boggle the mind.

Cable operators provide local terrestrial broadcast stations over their cable systems under a “must carry” rule, paying carriage fees to provide free-to-air local channels. This arrangement — a leftover from the birth of the cable era in the 1980s — is how you can get your local affiliate on your cable box. But now that “everyone” has cable (87 percent of households in the U.S. subscribe to satellite or cable), terrestrial providers have noticed that they could be charging cable providers for as much as they are paying for the Home Shopping Network. Needless to say, while cable providers want rates to reflect what they feel is the cost of providing a free-to-air channel, local stations want to have the special relationship they have with viewers priced into their carriage fees.

With the conversion of free-to-air analog signal to digital broadcast TV — indistinguishable in quality from the basic cable signal — the stakes seem to have gotten higher. The first shots in this particular war rang out among the New Year’s fireworks, when Fox Television and Time Warner Cable came to a last-minute agreement on providing Fox TV (and the bowl games it broadcast) to 13 million Time Warner subscribers. Fox was looking to get one dollar per subscriber from Time Warner, while the cable provider hoped to continue paying in the neighborhood of the existing nickel-per-customer fee structure.

As local broadcasters are a patchwork across the country, their carriage fee agreements come up for renewal on an irregular basis. The game of chicken was played again this past week between ABC and Cablevision — and with no agreement and neither side blinking, the cars crashed. New York area Cablevision viewers were the losers, though I’m sure Time Warner subscribers and local bars were very popular last night.

The impasse raised the attention of Sen. John Kerry and the Senate Commerce Subcommittee on Communications, Technology, and the Internet — who unsurprisingly thought this was as head-slappingly bad an idea as the rest of us — but the Federal Communications Commission (FCC) has jurisdiction over the issue. FCC media bureau chief William Lake emailed a tepid statement yesterday urging “both parties to quickly reach a resolution for the benefit of viewers.” Rather than taking a passive role with service providers, content providers, and consumers, the FCC should have taken a proactive role in this issue. The goal should have been to keep the players involved from grandstanding in an attempt to gain an undue advantage, and bring them both to the table in search of a solution beneficial to both parties and — most importantly — us viewers.

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Why It’s Too Soon to Worry About Wireless Net Neutrality

Friday, February 5th, 2010
Tom Lee


Tom Lee is a project director for the Sunlight Foundation. The views expressed here are his own.

by Tom Lee

Last week’s Verizon/Google joint FCC filing on net neutrality contained a substantive idea that was worth discussing – a proposal for “Technical Advisory Groups.” But there’s an item that’s also worth discussing because of its incompleteness: net neutrality in the wireless space. Google and Verizon apparently consider it an important enough issue to include, even though they couldn’t agree on anything more specific than to encourage the FCC to “examine specific market and technical factors before applying any general oversight or specific rules to wireless broadband networks.”

But while the issue of wireless network neutrality is important, it’s the wrong one to fixate on at the moment. Wireless is, in fact, different from wired, and the issue of neutrality does not transplant as cleanly from one to the other. Neutrality opponents have, in general, greatly overstated the technical case against regulation. But in the wireless arena as it exists today, their dire warnings are far more plausible.

As with the points of agreement in the Verizon/Google brief, this comes down to the participants’ market positions. Verizon is the country’s most powerful wireless operator, while Google is at the center of the Open Handset Alliance, the organization behind the Android platform and the effort to diminish carrier control that it represents.

Getting a Handle on Wireless Net Neutrality

But what does network neutrality mean in the wireless context? As with the larger debate, people have varyingly expansive ideas about where to draw the line. A good place to start is Tim Wu’s 2007 Wireless Carterfone paper. Wu, at least, is quite specific about what network neutrality involves, basing his criteria off of then-FCC chairman Michael Powell’s “four network freedoms”: choice of applications, choice of devices, choice of content and service plan transparency.

As you might imagine, the wireless carriers don’t like some of these ideas — particularly the first two — saying that they’re technically unworkable. And though I’m hardly a cheerleader for America’s wireless carriers, in this instance, they do have a point. Roger Entner makes the case, pointing out that wireless cells are a shared resource with limited capacity. Wu anticipated this criticism:

The problem with this argument is that scarcity is an economic feature of not just wireless networks, but wireline networks as well. Both wireless and the local loop are last-mile networks of limited available bandwidth, and, in fact, the bandwidth available on a copper local loop is considerably less than on some of today’s wireless networks. For both products, it can be claimed that third parties cannot be trusted to make products that respect the shared needs of the network. In the Hush-a-Phone case, for example, AT&T claimed that third parties would bear “no responsibility for the quality of telephone service, but [be] primarily interested in exploiting their products.” Similarly, local carriers for years complained that modems abused the scarce resources of the phone network (by maintaining long connections). But as Judge Robert Bork argued in another context: “All economic goods are scarce… since scarcity is a universal fact, it can hardly explain regulation in one context and not another. The attempt to use a universal fact as a distinguishing principle necessarily leads to analytical confusion.”

But this is an oversimplification. There are spatial constraints on wireless operators that don’t apply to wired networks. Two cables running side-by-side will not typically interfere with one another; two cell towers operating on the same portion of spectrum and space will. And mobile data users are just that — mobile. A bad DSL modem or heavy Bittorrent user with a cable connection might impact the service of those on the same local loop, but the size of that loop can be controlled by the network operator, and the customers on it can be easily tracked and, if necessary, sanctioned. The number of users impacted by a malfunctioning wireless modem or handset-spewing packets is primarily a factor of population density.

And on cellular networks, tracking down network malefactors is harder and sure to be more expensive than the example cited by Wu. In the Hush-a-Phone case, a commercial entity existed that AT&T could sue. If the manufacturers of the Hush-a-Phone device were to lose such a lawsuit, they risked losing their capital investment. It was in their own interest to produce a device that worked well enough with the AT&T network to satisfy consumers and avoid the network operator’s wrath. The incentives for individuals to use wireless networks gently are much weaker: a canceled contract? A stern letter? This wasn’t enough to discourage those who participated in Operation Chokehold, a deliberate effort by iPhone users to cripple the AT&T network in protest of new bandwidth restrictions.

A More Pressing Wireless Issue

Of course, Chokehold proved to be something of a bust — unsurprising, perhaps, given that even its creator was urging people not to participate by the time the event actually rolled around. Still, the capacity of individuals to damage other wireless users’ service shouldn’t be ignored. I’m in no position to judge the legal merits of Judge Bork’s assertion that scarcity is an incoherent rationale for regulation, but surely it makes practical sense to demand that people stop watering their lawns during a drought. The FCC considered Operation Chokehold a real threat; anyone who’s tried to share wifi on a discount bus line with someone watching video — or just tried to use their iPhone during business hours in San Francisco or New York — intuitively understands how cramped the data portion of cellular networks currently is.

One obvious response is that the networks should be expanded. This is undeniably true: the nation’s demand for wireless data is sure to increase dramatically. The carriers must find fairer ways to charge for access, and begin paying more attention to infrastructure and less to marketing gimmicks. But it’s still the case that the operators must prioritize reliable voice service over data service; that spectrum is a scarce resource; and that there is a tension between expanding existing infrastructure and investing in coming generations of technology.

There’s reason for optimism. WiMAX promises to deliver a wireless network designed for data, and is close to widespread deployment. The transition to digital television also promises to deliver useful spectrum for wireless data (though much of it is currently being used to broadcast reruns of Magnum P.I. and redundant weather channels, thanks to an indefensible giveaway to incumbent broadcasters). Once new wireless networks and technologies remove the tight constraints currently facing mobile data users, protecting and enhancing users’ network freedoms should become a priority for the FCC. Until then, ensuring those networks’ viability must unfortunately remain their focus.

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On Net Neutrality, Google and Verizon Find Common Ground

Tuesday, January 26th, 2010
Tom Lee


Tom Lee is a project director for the Sunlight Foundation. The views expressed here are his own.

by Tom Lee

It’s been about a week since the deadline for comments on the FCC’s notice of proposed rulemaking for net neutrality. Regulators are no doubt immersed in what promises to be an extremely long review process (in a somewhat unusual move, various advocacy organizations directed their supporters to submit comments directly — by at least one account, over 120,000 were submitted).

None of those comments attracted as much attention as the joint filing between Google and Verizon. An Internet service provider (ISP) and a content producer on the same side of this debate? It might not seem like a natural fit. It’s consequently tempting to look at the Google/Verizon proposal as an indication of what a possible net neutrality compromise could look like. But is it? And, just as important: would it be a good idea?

In truth, the partnership isn’t as unusual as one might think. Google and Verizon have collaborated on this issue before, publishing a joint blog post in advance of the FCC notice. It’s not entirely surprising: among the ISPs, Verizon’s current market position makes it uniquely amenable to the case being made by the content provider bloc. With DSL hitting technical limits and receding into a role as a budget broadband option, Verizon has undertaken a major infrastructure upgrade to FiOS — one that should leave them with a substantially higher-capacity network than the cable ISPs can offer. They’re also a new entrant to the digital-television marketplace. In short, Verizon is gunning for the Comcasts of the world, and doing so as a bit of an underdog. It has little reason to fight for a regulatory environment in which the network operators currently at the top of the heap can use their market power to entrench their positions.

So does the jointly submitted letter represent a good-faith common ground, free of the hyperbole and deliberate obfuscation that has characterized so much of this debate? Well, kind of. There’s a pleasant lack of “the FCC is about to accidentally break the internet!”-style fear-mongering. But there isn’t too much else on offer: some opening paeans to the Internet and consumer choice; an endorsement of transparency; a gentle reminder that neither party wants to be on the hook for enforcing intellectual property laws; and muted terror at the realization that the FCC is about to do… well, something.

From this flows the one really substantive idea in the letter: a proposal to create one or more “technical advisory groups” consisting of industry stakeholders, which would resolve neutrality-related disputes on a case-by-case basis, acting as a layer of mediation before the government became involved. Optimists will see this as an attempt to avoid the potential inefficiencies of regulation. Cynics will see it as a recipe for regulatory capture before the regulations are even written. And of course it’s not clear which stakeholders would have a say in these advisory groups. Would Joost? Or Sopcast users? It may be difficult to identify scrappy startups that deserve a seat at the table, particularly if they aren’t corporate entities.

More than anything, the letter serves as a reminder of how nebulous the net neutrality debate has become. What could the ISPs do to our society if they decided to press their advantage? It’s easy to let one’s imagination run wild and conjure net neutrality threats to virtually any cause or principle — hence the various framings of net neutrality as a fundamental economic/political/human rights/feminist issue.

But it’s worth keeping in mind that the only unambiguous violation of net neutrality that we’ve yet seen is Comcast’s decision to monkey with Bittorrent users’ reset packets — and, relatedly, some ISPs’ decision to throttle all encrypted traffic in an effort to fight Bittorrent (though this is still largely a Canadian phenomenon). That’s not to say that neutrality regulation isn’t worth pursuing. But whatever system is established should at least be able to deal with the one problematic case we’ve actually seen — and while the details could prove me wrong, the advisory group proposal doesn’t strike me as being up to the task. Verizon and Google’s common ground may indeed prove to be a useful preview of the FCC’s final vision of net neutrality, but it seems unlikely to be the whole picture.

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