Is it Time for New Telecom Law?

Capitol_domeA number of articles published since the recent election claim that both the House and Senate are ready to tackle telecom reform. There have been subcommittee meetings and discussions in both chambers about the topic for several years, but the idea hasn’t gone much yet past talking about it.

We certainly need telecom reform. After all, the Telecommunications Act of 1996 was passed in a very different time. That’s the year where AOL was still the largest ISP in the US and the year they introduced new modems that doubled dial-up speeds from 28 kbps to 56 kbps. 1996 was also the year that kicked off a decade of major investment by cable companies in HFC networks. There were 10 million cable modem customers by 2002, but in 1996 there were almost none. And DSL was just hitting the market in 1996 and didn’t get serious traction until a few years later.

Probably the biggest fault with the 1996 Act is that it treated telcos and cable companies very differently. The Act imposed significant unbundling requirements on the telcos while leaving the cable companies largely untouched. Perplexingly, this was done at a time when everybody in the industry knew that cable companies and HFC networks would soon become major players in both the telephone and high-speed data markets. In 1996 engineers and technologists understood that cable modems were going to soon be faster than DSL due to inherent advantages of coaxial cable over telephone cable. At the time everybody I knew just assumed that the cable company had good lobbyists.

But the Act did impose new rules on cable companies concerning programming. And it is clear that those rules are now growing quickly obsolete with the migration of video to the web. A revised Act certainly needs to address OTT video and the entire gamut of on-line video issues.

In essence the Act of 1996 created a whole lot of rules in silos – separate rules for the cable and telco industries. In doing so the Act almost completely ignored the burgeoning cellular industry. Now that people use every data on every kind of network it’s time for rules that are updated to recognize the new reality.

One of the stickiest points of implementing a new telecom law is going to be net neutrality. If the FCC does not soon put this issue to bed, then net neutrality will be one of the biggest issues of a re-written Telecom Act. Both chambers of Congress have set a goal to have a new Act enacted by the end of 2016. That means that the Republic lawmakers are still going to need the agreement from a Democratic president to get it signed, and that means the two sides have got to somehow come together on net neutrality.

Some of the problems we have today with net neutrality come directly from the 1996 Act. In that Act the Congress very clearly decided to not impose Title II regulations on the budding high-speed cable modem market. They decided to let cable companies and telcos undertake a different path, with the telco path much more regulated than the cable path. We ended up with a decade that required DSL unbundling and DSL resale, but with no attempts to make cable modems open to competition.

There are some parts of the 1996 Act that have been very effective and I hope they remain intact. For example, the Act set forth the concept that any company with the technical knowledge and financial wherewithal ought to be allowed to compete in the telco market. That has given rise to thousands of CLECs and there are numerous markets with vigorous telephone competition. One can hope that a new Act will make it clear that there ought to be competition in every telecom market, and with a lot more products than just telephone.

One can also hope that a new Act will get rid of the silos. It is time to stop having different rules for different parts of the industry. For example, the distinction between traditional voice services and VoIP needs to be eliminated, since in practical terms customers can’t tell the difference. There should not be different rules concerning the provision of cable TV service by different types of providers.

Certainly one of the biggest challenges Congress will face is what to do with the web and video. Hopefully a new Act is forward looking. There is convergence everywhere in the industry and people want to partake of telecom services from any platform using a plethora of devices. The Congress needs to make it as okay to watch a movie on your cellphone as it is to watch it on your TV. The next Act needs to look at programmers as hard as it looks at service providers.

Rewriting the telecom Act is a massive undertaking because every lobbyist from the telecom industry is going to have ideas that they think must be included. And there will be plenty of naysayers and voices from outside the industry arguing on the side of the public. The problem is that there is no one right answer. I think if you sent twenty panels of industry experts off to list what should be in a new Act that you’d get twenty different answers.

The FCC to Unbundle Fiber?

FCC_New_LogoChairman Wheeler at the FCC announced last week that he would be bringing two proposals to the FCC meeting on November 21 associated with the IP Transition. The first involves some rules that will insure that 911 continues to function on an IP network and there ought to be no controversy with that. But his second idea is going to be very controversial, which is to give competitors access to RBOC fiber networks in the same manner that they have access today to the copper network.

The Chairman says that he doesn’t want customers, particularly business voice customers, to lose competitive options – and he believes that the unbundled network elements that are in place for copper today have brought competition to that market.

Let me step back and look at this idea at the big picture level. What the Chairman is proposing is a form of arbitrage. In general, telecom arbitrage comes when regulators force an artificial price on a product or service. In this specific case, the arbitrage would come from having the FCC or state commissions define the price, terms and conditions for a competitor to gain access to a fiber network. Arbitration is not necessarily good or bad, but if the price is set too low then there is an larger demand for the product than ought to be expected.

The industry does not have a very good history over the last two decades of dealing with arbitrage and the last mile network. There have been three times when FCC-administered arbitrage turned out bad for a lot of the industry and the public. First was unbundled network elements on copper that the Chairman is now acknowledging – the primary one being the unbundled T1. This was incredibly popular in the late 90’s and dozens of huge CLECs were funded to compete in this business. I had an office then in a business high-rise near the DC beltway and I remember a dozen different CLECs knocked on my door trying to sell a bundled T1/data connection.

After that came UNE-P. This was a creation that was a virtual unbundling of the network. With UNE-P a competitor didn’t have to collocate to get access to the RBOC copper. Instead they just bought all of the UNE elements and reconstructed a network. Finally, there was resale which forced the RBOCs to give set discounts on many retail products. Both UNE-P and resale were mostly used to compete for residential customers and some giant companies grew in the space. I remember Talk America, for example, that had well over a million residential customers on resale.

But for the most part all of the companies that leaped into these arbitrage situations failed. I remember well over a dozen UNE CLECs that went public with a few dozen more hoping to do so. Heck, the telecom industry was so juiced in the late 90s that there were even several telecom consulting firms that worked for the large CLECs who tried to go public. But in the end, the arbitrage opportunity became less attractive, as always happens, and all of these companies crashed and burned. The same thing happened with UNE-P and resale and all of the companies that tried to make a business using these arbitrage opportunities ultimately failed.

Arbitrage is rarely permanent and this makes it almost impossible to build a business plan to take long-term advantage of an arbitrage opportunity. The main reason for this is that the RBOCs are really good at resisting and challenging arbitrage. They file law suits and lobby and within 5-7 years after the start of an arbitrage situation they largely get it killed, or at least weakened to the point of being useless for a competitor.

Now we are looking at a new arbitrage opportunity of allowing competitors to get access to fiber networks. I have dozens of questions about how this might work, because it’s not as obvious on a physical basis how one unbundles a fiber network in the same way that has been done for copper. With copper, in essence, the copper line from a customer is physically redirected to a CLEC. But that is not going to easily work for a fiber connection.

How big this opportunity might be depends upon how the FCC implements it. For example, if they only allow fiber interconnection in places where there had once been a copper UNE connection then this is going to be very limited in scope. But it’s hard to see how they can stop there. After all, CLECs that compete using RBOC copper have always been allowed to grow, and if a competitor can’t ever add a new customer then this form of competition will be nearly worthless.

But if all of the fiber in the RBOC network comes available to competitors, then we are looking at the possibility of a whole new major push of competition. Competitors have largely been kept from the RBOC fiber network and this opens up huge market possibilities.

My advice to my clients is going to be to be cautious about leaping into this kind of opportunity. History has shown us that AT&T and Verizon will be working to kill this kind of arbitrage from the minute that it’s proposed – and so it’s likely that this will only remain lucrative for a few years before those companies squeeze the ability to use unbundled fiber.

Don’t get me wrong. As a consultant this opens up all sorts of new work for me. But having lived through the last arbitrage trials in the industry, my alarm bells are already going off and I am going to be advising caution. If the FCC tilts the arbitrage opportunity enough in favor of the competitor then there is going to be money to be made, but I will be reminding everybody that whatever the FCC giveth they can also someday take away.

How Valuable are Your Worst Customers?

Numismatics_and_Notaphily_iconEverybody who sells cable is used to the fact that some of your customers have a hard time paying their bills. Such customers will get disconnected a few times a year, but since they really want cable they usually come back when they have enough money to pay the disconnect and reconnect fees.

There is another small percentage of your customers who are deal shoppers. They will bounce between you and your competitor and take the latest and best deal they can find. These are the customers who will call and insist on a new deal the day after their special pricing deals ends.

I’ve always wondered about how valuable such customers really are to a cable company. To some degree cable companies spend most of their advertising budget chasing these customers. You have to wonder how valuable that advertising is in a mature market where new installs come mostly from people moving back and forth between competitors.

I have clients who have decided to stop spending big money on advertising, and almost universally they lost customers over time. But that is not automatically a bad thing if what a company loses are the customers who churn, those who don’t pay their bills or customers who chase specials.

There are a few recent examples of bigger companies that have tightened credit policies and who have stopped chasing the marginal customer. Let’s look how that affected them.

The first example is Cablevision. During the most recent quarter they implemented policies that are aimed at getting rid of marginal customers. They significantly tightened credit limits, stopped offering lucrative win-back incentives and eliminated any promotional pricing for customers who pay late. Just during this last quarter these policy changes impacted Cablevision customers and they lost 56,000 video customers, 33,000 voice customers and 23,000 high-speed Internet customers in the quarter.

These losses are significant for Cablevision. They lost 2% of cable customers in just the third quarter while losses for all of 2013 were 2.7%. They lost 1% of both voice and data customers when those customer bases had been growing for the past several years. So clearly the new policies is chasing away customers at a much faster pace than historical and in fact has turned growth of voice and data customers into losses.

The other big company that recently tightened credit policies is DirectTV. They report that they lost 28,000 customers in the third quarter of this year and they attribute most of that to the change in credit policies. To put this into perspective, DirectTV had 20.25 million customers at the end of 2013. But in the fourth quarter of 2013 the company added 93,000 customers compared to the customer loss in this recent quarter.

So it’s clear from these two companies and from the anecdotal evidence that I’ve gotten from my clients that having tight credit policies will shrink growth or even cause a customer loss. But does that mean it’s not worth it?

If most of the advertising budget is spent going after these marginal customers, and if promotional pricing is given to the same small percentage of customers over and over again, does it make sense to spend as much on advertising or to be aggressive with win-back programs? Additionally, my clients tell me that marginal and bad debt customers cause most of the activity and effort in their customer service groups.

Every company is different and there is no right answer for everybody. Cablevision has obviously done the math and their rationale for the change is that it is shedding the customers with the lowest margins that also require the biggest effort to maintain. They think in the long-run that they will end up a little smaller but with a more stable and profitable customer base. That’s a bet they can probably afford to make with over 2 million customers, but it’s a lot riskier for a smaller company to contemplate taking this same position.

But this is food for thought. Every company has customers that cause more effort than they are worth and perhaps every company would be better off with tougher policies. It’s worth asking yourself if you should have win-back programs with huge discounts that try hard to never lose a customer. It’s worth asking if you really are better off keeping customers who don’t pay you three or four time a year.

These are even more important questions for fiber providers to ask. In networks where it costs $1,000 to $2,000 in sunk costs to add a new customer a fiber provider can’t afford too many mistakes. Fiber providers ought to consider having credit checks, required deposits, install fees, term contracts or any other tool that helps to insure that a customer stays long enough to pay for the cost of adding them. Perhaps Cablevision is right and what matters is not that you get every customer possible, but that you get the right customers.

Something New for Community Broadband

small town main streetToday’s guest blog comes from Milda Hedblom.  She is a telecom lawyer and consultant, a professor at Augsburg College, Mpls., and directs the Telecommunications Forum at the Humphrey School of Public Affairs, U. of Minnesota.  She can be reached at hedblom@visi.com.

The call for bigger, better and cheaper broadband gets louder with each passing year. The call from communities outside the urban footprint is the loudest. For more than a decade lots of energy has gone into finding a rural solution. In rural America the profile of aged wire line networks, spotty or absent wireless service, laughable broadband speeds, high prices and no choice is all too common. Taking their technology future into their own hands, some communities began to build and run networks much like the public electric utilities run by many municipalities. The political pushback has been strong and more than twenty states have been prodded into passing laws that forbid or severely limit municipals from the broadband and telecommunications arena.

Some creative thinking is needed so that communities in need can move forward even when the path of general obligation bonding for municipal broadband development is blocked. One form of creative thinking has been the promotion of public private partnerships which has a nice ring to it. Usually that has been thought about as some combination of community financial support and a willing private provider already in the business or a new private investor joining in an effort to upgrade or overbuild networks. The tricky part is identifying the incentives and the tools that could make a deal.

But there is a new option today called the public benefit corporation and I want to show why it is something new under the sun for setting up a community broadband network. Looking around you see that options are few and they include the municipal owned and operated network, the municipal owned but contracted operator network, the cooperative owned and operated network, the non-profit owned and operated network, and the open access network. Among these it is the municipal networks that have caused industry heartburn and political pushback. At the same time public funding is the most likely source of funds for building community networks and each year a few municipal broadband networks open their doors—except where they can’t.

The public benefit corporation may be a good option for communities wanting to build their own networks–especially where legal limitations hamper community development. The essence of a public benefit corporation is that it combines the best of public and the private worlds by allowing the legal creation of for-profit socially minded businesses. This type of corporation gains the flexibility and protections of a corporation but will obligate itself to serve public benefits which could be named as general or specific benefits. Building and operating a community broadband network could certainly be one of those benefits.

An extremely important fact about this type of corporation is that it could accommodate both public and private investments. Public economic development funds could be loaned to the corporation to help meet startup costs and private investors who want equity could invest. It should go without saying that a solid business plan is essential in any case.

More than two dozen states have put this option into their state statutes and in general the corporation runs under the general law for corporations for the state. The major innovative feature of the public benefit corporation is that directors are obligated to consider the interests of the constituencies to receive the benefits from the corporation’s activities as well as the pecuniary interests of shareholders. This fits very well with the growing trend for socially based investing and could help meet the gap in broadband development across America.

Sometimes the Numbers Tell the Story

Math_equation_dice_d6Statistics can sometimes tell a powerful story. I don’t know that I have ever seen a more striking set of statistics than the following, which compares the retail price of various telecom products when compared per megabit of bandwidth used:

Text $1,000
Cellular Voice $1.00
Wireline Voice $0.1
Residential Internet $0.01
Backbone Internet $0.0001

The statistic comes from professor Andrew Odlyzko, a mathematics professor at the University of Minnesota, and I will cover more of his analysis in another blog. But what is striking about these simple statistics is how much we pay for various services compared to the bandwidth each uses

It’s always been well-known that text-messaging is almost all profit, but these statistics really make that obvious. Text messages use nearly no bandwidth and yet even today there are cell phone plans that charge $0.10 per text message when a user goes over their base allotment. There has never been a telcom product that is priced so amazingly higher than its cost (which is really tiny). It’s not a stretch to talk about text messaging plans having 99% profit margins.

But the chart also shows that cellular voice is priced about ten times higher, on a bandwidth basis, than landline voice. There is a really simple statistic that I have recently used when talking about how profitable cellphone plans are for the carriers. AT&T and Verizon together have roughly 70% of the cellphone market in the US, and each of them makes roughly $1 billion per month in profits from that business. With roughly 100 million total cellphone users now in the US that means that the average cellphone customer of these carriers is contributing roughly $27 in profits to one of them every month, or $325 per year.

The above table also tells the story well for about the profitability of Internet service. The last two numbers show that the cost of residential Internet, on a per megabit of usage is 100 times more expensive than the cost of the Internet backbone (or the price that carriers pay for the raw Internet usage). This is why Comcast and other large cable companies are not upset to be transitioning to becoming mostly ISPs, because residential data is where the profits are.

There is one simple reason that some of these products are so expensive and the profits are so out of line with costs – and that is the lack of competition that we have in the US market where the vast majority of telecom products are sold by oligopoly providers. That lack of competition let’s these companies keep the profits on test messaging, cellular phone service and residential Internet service much higher than is reasonable. It has been shown in the US that in those handful of places where there is competition that prices end up significantly lower.

I have been reading a lot lately about how the US has both the most expensive residential Internet and the lowest average data speeds of any of the western nations. This is due almost entirely to lack of competition. But interestingly there are countries like South Korea that have even less competition than here that still have much better Internet pricing because the government there understands that Internet is a driver of the overall economy. The other countries with lower cost Internet have policies in place that foster competition and that promote the construction of fiber networks. Here, we let all of this up to the very profitable oligopoly providers who constantly cry that they can’t afford to invest in broadband infrastructure.

If there is any one proof that there is an oligopoly in the country it’s the fact that Comcast and Verizon have a joint marketing agreement to sell each other’s products in their business offices. That fact alone ought to be enough evidence that Comcast should not be allowed to merge with Time Warner. The FCC doesn’t really need to be spending a ton of money to analyze the proposed merger and they could use this one fact to just say no to Comcast. The short and simple table above shows the effect of oligopoly competition in this country. Sometimes the numbers tell the story better than words.

At Least I’m Not Verizon

In this attached news article it has been reported that Verizon’s new tech blog Sugarstring does not allow any content related to net neutrality or Internet spying. This topic was not worth a whole blog, but as someone who writes a daily industry blog I couldn’t let it pass unmentioned. So I guess this is a second supplemental blog for today.

There are a wide range of viewpoints and sources of information on the web. But this article points out that when you choose a major corporation as a news source that whatever you read there is going to be filtered through their corporate point of view. I’m not even sure that you can call what Verizon is doing censorship. I look at it more like they are producing a blog that is passed through a public relations filter. They are entitled to do that, but readers of that blog ought to always remember their bias.

The publisher of the Verizon blog admits that he is not allowed to touch these two specific topics, and you know in the future there will be other topics. But what he doesn’t say is that his blog is certainly never going to be critical of Verizon.

There is a lot to like about Verizon and AT&T and Comcast and every big telecom company. And when praise is due I don’t hesitate to praise them. But a lot of the problems we have with broadband in the country falls directly onto these same companies, almost by definition. and so you have seen me criticize them often in my blogs.

I don’t hold myself out as any special beacon of truth, but what this blog and other independent blogs try to do is to look fairly at the hundreds of issues facing our industry. I can’t say that I look at issue without bias because I know that my own bias is a strong attitude that our country ought to do better with broadband We can afford to do it right. So you often hear my frustration when I see large companies or the FCC acting in ways that create barriers to broadband.

But one thing I will never do is to shy away from any specific topic. You may not always agree with what I write about, but I have enough daily followers to know that I must be giving people something to think about – and that is my only real goal with this blog. I try to shine the light on topics that my audience of small carriers find of interest.

 

The Battle to Track Your Cellphone

HTC-Incredible-S-SmartphoneWe all know that advertising is what drives the Internet today. There is a sophisticated system in place to track desktop users through cookies and numerous other techniques that let companies amass information on who you are and how you use the internet. But these same tracking tools are largely not available for cellphones. The slimmed down operating systems for cell phones have created an environment that is very unfriendly to cookies and the other kinds of tools that are used to track desktop users.

Tracking and profiling customers is now key to advertisers. They are only willing to spend big bucks on web advertising if they can send directed ads to consumers. I live in Florida and I’ve barely been able to visit any web site in the last month where I didn’t get an ad about the Florida governor’s race. The tracking tools for web sites are good enough to know where I live and then give me ads appropriate to where I live and to my interests. The rest of the year my ads are directed more to me specifically and I get very different ads on my computer compared to what my wife gets.

You can’t blame the advertisers. The real value in web advertising is through the ability to direct ads that try to match the advertisement and the offers made to the person receiving the offer. They don’t want to try to sell a sports product to a non-sports fan or a cooking application to someone who has no interest in food. And so directed advertising is helping them to narrow the target audience to improve their chance of success. One of the main drivers behind developing big data techniques is to hone the ability to track people over time, across multiple devices and multiple web sites to form profiles on each of us.

Advertisers are desperate to be able to direct ads as accurately on cellphones as they do on desktops. This is incredibly important to advertisers because ad space on cellphones is so much more limited, and thus more valuable. On a cellphone you can’t do popups or even insert ads in any meaningful way onto the smaller screens when a cellular customers looks at a cellular version of a website. When I visit the typical commercial website on my laptop probably 20% or more of each page has been made available for the insertion of ads. And there is a huge industry that has sprung up to fill the space on those millions of web pages.

Recently both Verizon and AT&T have been experimenting with a new way to track wireless users. They have been inserting tracking numbers into the headers that identify individual cellphones. Apparently these headers have been very successful for advertisers and several of them have announced that they have had great success tracking phones through these identifying headers.

Several years ago the manufacturers of smartphones tried building an identifying number into each cellphone they made. But there was a huge outcry from the public and from privacy critics and these device IDs were either eliminated or somehow encoded and protected so that outsiders could not use them to identify an individual cellphone.

But the cellphone companies are desperate to find something that will enhance advertising revenues and so they now are putting identification in the headers. This means that every time that a cellphone visits any website, when that web site scans who is making a request they can gather these identifying numbers.

Verizon and AT&T say that these numbers are not for advertising and that they regularly rotate the numbers, in the same manner that they are supposed to change IP addresses for landline Internet connections. But we know in practice that in this age when people no longer log off the Internet that homes sometimes maintain the same IP address for months at a time. The wireless carriers don’t say how often the identifying headers are changed at a given cellphone.

AT&T notified customers in 2013 that it would be inserting these identifiers as part of a ‘test’ of future advertising products, and they offered their customers the ability to opt out of the program. But it’s been reported by those who opted out (and who are savvy enough to track this sort of thing) that they are being given these tracking numbers today and that there is apparently no way to elect out of the process.

The real proof that the tracking numbers are effective is the buzz that this has created in the wireless advertising world. Numerous advertising firms are now touting advertising programs that can help their clients track cellular customers in ways similar to desktop users.

Interestingly, Google has proposed a new Internet protocol they are calling SPDY that would eliminate and prevent these kinds of advertising headers. However, since Google makes the vast majority of their revenue from directed advertising these days, one has to think that this just means that they have found a different way to achieve the same results and want to eliminate one of the tools of their competitors.

Let’s face it. Our cellphones and other devices are amazing tools that bring us all a lot of benefits. But with those benefits it is just assumed that the carriers and advertisers are going to find a way to track us. It seems that if we want the benefits these devices bring us that the cost is our privacy.

A Comeback for Landlines?

Black phoneTime Warner Cable this past week announced an app it calls Phone 2 Go that will work on any smartphone or tablet and that will let a Time Warner customer use their home phone plan on these devices instead of cellular voice. At CCG we have predicting for several years that somebody would do this and hopefully Time Warner is the first among many to try this.

This gives landline telcos the ability to fight back against the continued loss of voice customers to the cellular carriers. We all know that cellphones are more convenient than landlines, but cellphone voice is much more expensive. Take the typical household. They probably can buy an unlimited long distance plan for their home phone for $25 – $30 per month. But if each member of their household buys unlimited voice on a cellphone then each one is paying $20 – $30 per month for voice. Even with a family plan it’s far cheaper for a family to share one landline than it is for each of them to buy a cellular voice plan.

With this app calls are completed over the data connection on the smartphone or tablet, be that on WiFi or cellular data. The press release I saw was short on details and I have many questions about the specifics of the product. But it’s a great idea for telcos to fight back against the continuing loss of voice lines to cellular companies. For example, how does this plan handle having more than one call at the same time? How does it allow for incoming calls to be segregated by family member so that each person only gets the calls intended for them? These are all solvable issues and I’m just curious to see the specific Time Warner solutions.

Since there are also numerous free text messaging apps available for smartphones today, it would be possible for a smartphone customer with a Time Warner landline to buy only data from the cellular company and avoid paying for both voice and text plans. It’s not a big secret that the cellphone companies are making a fortune today on voice and text plans – cellular voice has a very high margin and text is nearly 100% margin. It will be interesting to see how the cellular providers react to Time Warner’s move assuming that the product gets traction.

This app is going to create a demand for data-only plans for cellphones and tablets. There are a number of data-only plans available for tablets today, but I have never seen a data-only plan for smartphones. However, one has to imagine that Sprint of T-Mobile will offer a data-only plan if there is public demand for it. Such a plan would still be quite profitable for the cell carrier. One might picture AT&T and Verizon trying to squelch this idea, but if additional telcos pick up on the idea it’s going to be hard to stop.

This could potentially stop the flood of landlines that are being dropped in favor of cellular numbers. This plan gives people the flexibility to build a voice plan in a way that best fits their needs. Many people who have dropped landlines may well want them back again if the landline connection also covers their cell phones.

One of the articles I read on this suggested that this would only work for companies that already offer VoiP. But I can’t think of any reason why this wouldn’t work for any company that uses a modern softswitch. Such switches can handle calls in multiple formats from multiple sources and should easily be able to handle a mix of TDM and VoIP calls. I can’t think of hardly any of my clients who could not make this work, assuming they could get the app.

This app raises regulatory issues. For example, does a call made over a cellphone’s data connection have the calling scope of the cellphone or of the associated landline? This kind of application completely blurs the regulatory distinctions we have maintained between cellphone and landline voice and might force the FCC to examine those differences.

I find it funny when people say that voice has become irrelevant, because just the opposite is true. There are more people paying for voice plans today than ever before in this country. What we have seen is an increase in the number of people unwilling to pay for both a landline and cellular line. This app is the first step towards making voice agnostic of the platform and it gives anybody with landline customers the ability to serve voice to any device. This actually gives a big advantage to landline companies because they can serve every line a customer has while the cellular companies can only serve cellular lines. In some ways this gives the advantage back to the landline providers. Let’s see if they are able to take advantage of the opportunity.

 

Compromise on Net Neutrality?

Network_neutrality_poster_symbolThe FCC is considering a compromise solution to net neutrality that already is satisfying almost nobody. Both through speeches given by FCC Chairman Wheeler along with some leaked memos, it’s clear that the FCC is strongly considering a solution that falls halfway between allowing fast lane deals and in regulating ISPs as common carriers.

While nobody has seen any actual proposed rules, the industry has already reacted strongly to the proposed solution. Apparently, what the FCC has in mind is to reclassify the interactions of the ‘back-end’ Internet as common carrier business while leaving the interactions between ISPS and end users the same as they are today, which is largely unregulated.

This means that the FCC would have the ability to overlook deals between companies like Level3 and Comcast, between companies that transport and switch the Internet. One would have to assume that if this was considered as a regulated common carrier business that rules similar to the way that large carriers interact today would apply. For example, there are rules in place today for agreements between telecom carriers that dictate defined timelines for the completion of a negotiated arrangement as well as defining some broad parameters that must be followed in such agreements. The current interconnection rules have stopped a lot of the abusive practices due to the natural advantage that large carriers hold over small carriers and tends to make the negotiations open and fair to both parties.

The FCC’s compromise is said to have come from a proposal submitted by Mozilla, although to me it seems to differ a lot from that proposal. Mozilla had suggested two forms of regulation. First, they had recommended common carrier regulation between the companies that own the networks that physically carry Internet traffic, about the same as what the FCC is now considering. But Mozilla went on to also say that the FCC should regulate arrangements between ISPS and content creators like Netflix, which Mozilla called “remote delivery services”. Mozilla thought this created a back-door way for the FCC to still have some say over deals that affect the last mile between consumers and the ISPs. That part of the Mozilla proposal seems to have been left on the floor.

I’ve given this some thought all weekend and there seems to be two things that this proposal gives the FCC. First, by not reclassifying the whole Internet business as Title II the FCC is probably trying to create a solution that has a chance of withstanding legal challenge. This proposal does not drastically change the industry enough to create a fatal flaw that would inevitably reverse the decision.

But unfortunately this is still very much a proposal that favors the large ISPs. They will rant and rave and say they hate it, because that is the public relations games they must play, but they will all be pleased and they will all chalk this up as a victory. I find it unlikely that they will challenge this, because if they do then the FCC is going to be left with little option but to try for total Title II regulation of the industry under the common carrier rules.

What I dislike about this, and what the public is going to dislike after they understand it is that this still allows for ISPs to do almost anything they want to consumers. They can cook up plans that give people special pricing if they limit their content to certain providers like Facebook. The ISPs are going to be free to implement more stringent data caps or to introduce plans that charge more for certain types of content. This ruling will make it clear that the FCC has given the ISPs free reign to do whatever they want at the customer level. The ISPs have been held in check for the last years from doing anything too crazy with customers due to this impending ruling. But once this is resolved the ISPs will be free to impose almost anything on customers they want to try.

When I first saw the headlines that there was a compromise solution I had a moment of hope where I thought the FCC would declare the connection to customers as common carrier business but would leave the network connections unregulated. Such a regime would be effective because the ISPs would be free to do whatever they want, up to the point of harming the customer product.

Regulating the customer connection is the only way to protect customers. The Mozilla proposal did this through regulating what they called the ‘remote delivery service’ aspects of the customer experience, meaning that ISPs could not undertake policies that would slow down Netflix at the customer level. To me that was a compromise because it still did not necessarily regulate everything about the customer interaction. For example, DSL services offered by the phone company have always been regulated, and years ago the FCC said that telcos must provide ‘naked DSL’, meaning they must sell DSL as a standalone service without requiring that it be bundled with something else. The FCC has no such authority over cable modems or fiber networks due to the lack of regulating the customer side of the Internet.

This proposal is no safe or wise solution and it is not cutting the baby in half like was done by the wise King Solomon. This is being made to look like a compromise, but it gives the ISPs what they have always wanted, which is free reign to offer any plans they want to consumers. One only has to look at our Internet to know that the ISPs are about nothing but their own bottom line, I saw several articles last week that reminded us that the US internet product is both the slowest and most expensive product among western nations. And this ruling is not going to change that.