The FCC Process

I recently wrote a blog that discussed the possibility that the FCC would change the definition of the speed that constitutes broadband. I got a number of inquiries from readers asking how this could happen outside of the scope of the formal rulemaking process. Specifically, I had reported on the rumor that the FCC was likely to make this decision by February 3, which is not one of the dates when the FCC formally holds open meetings and votes on changes to FCC rules. Today I’m going to try to shed some light on how the FCC makes decisions, which will hopefully clarify the issue.

The FCC has several paths to make decisions. The one that the industry is most familiar with is the rulemaking process. The basic process for rulemaking for all administrative government agencies was created with the Administrative Procedure Act in 1946. This Act defined a process of changing federal rules that mandates getting feedback from the public.

The FCC might consider changing rules for several reasons. Some rule changes are mandated by Congress, with one of the more recent such FCC actions being in response to changes in consumer privacy rules. The FCC can also start a rulemaking in response to a petition asking for a clarification of the rules. In the past such petitions often came from the large carriers or else from state regulators. Finally, the FCC can simply identify an industry problem on their own and begin the rulemaking process to seek possible solutions.

The FCC then has several tools available to facilitate the rulemaking process:

  • One tool available to the FCC is the NOI (Notice of Inquiry). This can be done when the FCC is trying to understand an issue and the possible solutions.
  • But the NOI process is not mandatory and the agency can move directly to an NPRM (Notice of Proposed Rulemaking). This is a formal document that proposes specific rule changes. There is a defined minimum timeline for this process that includes time for the public to comment and for a second round of reply comments, if needed. During this process the FCC might allow ex parte meetings from interested parties, hold public meetings to solicit feedback or engage with industry experts to get feedback on their proposals.
  • Finally, some dockets proceed to an FNPRM (Further Notice of Proposed Rulemaking). This tool is used when the comments on an NPRM cause the FCC to consider a different solution than what they originally proposed. This also then goes through the public comment process.

But not everything done at the FCC goes through the rulemaking process. For example, one of the mandated functions of the FCC is acting to adjudicate industry disputes. Industry parties that disagree on the interpretation of existing FCC rules can ask the agency to clarify – and in the case the agency takes on a nearly judicial role in looking at the facts of a specific case.

Finally, the FCC has a major administrative function. The agency has to make numerous policy decisions in order to meet its mandates from Congress. A simple way to think about this is that the rulemaking process creates formal rule changes. But then the agency must develop the processes and policies to make the new rules function. The FCC spends a lot of time on these administrative functions. For example, holding auctions for spectrum is an administrative function. Deciding how to fund and administer the Universal Service Fund is an administrative function. Approving new telecom and wireless devices is an administrative function.

The decision in the past to define the speed of broadband was an administrative decision. The agency has wide discretion to arbitrarily define administrative rules, but they often ask for public feedback.

The speed of broadband has been discussed at the FCC in several different contexts. First, the FCC has administered several grant programs and they decided that it was in the public good to set minimum broadband speeds for various grant programs. For example, the CAF II program requires the large telcos to deploy technology that delivers at least 10/1 Mbps. But there have been other speed requirements for other grant programs and the ‘experimental grants’ of a few years ago looked to fund technologies that delivered at least 100 Mbps download.

But the primary reason that the FCC decided they needed to define broadband using speeds was due to a mandate from Congress for the FCC is to report once per year on the state of broadband in the country. The Congress wants to know how many people have, or do not have broadband. Past FCCs decided that a definition of broadband was needed in order to create a meaningful report to Congress. They initially set the definition of broadband at 10/1 Mbps and later raised it to 25/3 Mbps. And they purposefully have excluded cellular broadband as not being broadband.

In anticipation of each annual broadband report the FCC sometimes asks questions of the public. They did so last year in an NOI where they asked if the 25/3 Mbps definition of broadband is too high. And they asked if cellular broadband ought to now be counted as broadband. This NOI is issued only for factfinding and to solicit public opinion on the topic. But the speed of broadband is an administrative decision of the agency, meaning that there are not formal rules associated with setting or changing the definition of broadband. The agency is free to make changes at any time to these kinds of administrative definitions. In the past the definition of broadband speeds was included with the annual broadband reports issued to Congress. And the anticipation is that the agency will use this same mechanism this year. There is no formal docket open on the topic and thus no formal and public vote is required. The FCC might or might not change the definition of broadband, but as my blog conjectured, the consensus of industry experts is that they are likely to do so. But we’ll have to wait for the annual broadband report to see if they actually lower the definition of broadband speeds or add cellular data to the definition.

The White House Broadband Plan

The White House used a forum at the American Farm Bureau Federation to announce new policies affecting rural broadband. Unfortunately, similar to the policies of the last administration the announced plans seem to offer no useful remedies for the lack of rural broadband infrastructure.

The President’s new recommendations were captured in two executive orders:

  • The biggest thrust of the new policies is to make it easier to place cell towers on federal lands. The President said, “Those towers are gonna go up and you’re gonna have great broadband,”. But finding places to site rural cell towers has never been a real problem. There is not much cost difference between putting a tower for free on federal land versus finding a site on private land in rural America. The biggest issue with placing new rural cell towers is getting broadband backhaul to the tower. It’s hard to think that there will be more than a handful of instances where this new policy will make a difference.
  • The second executive order was aimed at streamlining and expediting requests for placement of broadband facilities on federal lands. Except for finding better routes for long-haul fiber this new policy also doesn’t seem to have much real-life market value, particularly for the needed last mile connections.

These new policies add to a few policies issued in October by the administration’s Task Force on Agriculture and Rural Prosperity. That report made a few recommendations that included having multiple government agencies concentrate on expanding e-connectivity (a new phrase used to describe higher bandwidth), attracting private capital investment through “free-market policies, laws and structures”, and reducing barriers to rural infrastructure deployment (which the new executive orders apparently address).

To be clear, I am not particularly criticizing this administration for these announcements because they are similar to the proposals of the past administrations. President Obama had announced rural broadband policies that included:

  • A dig once policy for any construction done on federal highways. The goal was to get conduit into the ground over time along Interstate highways. But the directive came with no additional funding and to the best of my knowledge has never been implemented;
  • The last administration also announced its intention to make it easier to place broadband infrastructure on federal lands in nearly the same language as the current executive orders. But one of the biggest characteristics of federal land is that it’s extremely rural and for the most part is not close to a lot of rural homes. The big issue with building rural broadband infrastructure is the cost of construction, and making it slightly easier to site facilities barely makes a dent in the total cost of building rural infrastructure

What was not put on the table by this and the last administration is any meaningful funding for rural broadband – the one thing the federal government could do that might make a real difference. There was talk at the beginning of this administration of creating some sort of grant program aimed at paying for part of the cost of rural broadband. From the beginning all of the administration’s infrastructure plans involved using seed money from federal grants to attract significant commercial investment. The President’s speech at the AFBF mentioned hopes for the administration to still find infrastructure for “roadways, railways and waterways”, but there was no longer any mention of broadband.

Presidential policies aimed at dig once policies or easier siting for rural cell towers aren’t going to have any practical impact on new rural broadband deployment. I’ve never really understood politics and I guess the temptation to sound like you are doing something to solve an issue is too tempting. But today’s announcements bring nothing new to the table. And in fact, by making it sound like the government is doing something about rural broadband it probably does more harm than good by holding out hope for those with no broadband without any solutions.

FCC BDAC on Competitive Access

Today I discuss the draft proposal from the FCC’s Broadband Deployment Advisory Committee (BDAC) sub-committee that is examining competitive access. This draft report to the FCC is not yet final, but it details the issues and discussions of the group and is likely close to the finished work product.

This sub-committee is tackling some of the hardest issues in the industry. The pole attachment process has been a costly roadblock to implementation of new networks since the Telecommunications Act of 1996 allowed access of competitors to poles, ducts and conduits. The report considers a number of different issues:

The FCC Complaint Timeline. The FCC currently has no rules that require the agency to respond to a complaint from a carrier having problems connecting to poles. This deters attachers from making complaints since there is no guarantee that the FCC will ever resolve a given problem. The subcommittee recommends that the FCC adopt a 180-day ‘shot-clock’ to require rulings on attachment issues. The sub-committee is also recommending that the FCC react within 180 days to complaints about attachment rates and fees. The group wants to stop pole owners from capturing some capital costs twice. They claim some pole owners capitalize the cost for pole make-ready, which is paid by new attachers, and then build these costs again into the base pole attachment fees.

One Touch Make Ready. The sub-committee looked in depth at make-ready costs – the costs of a new attacher to get onto a pole. They are making numerous recommendations:

  • They want a simplified one-touch pole attachment process that streamlines the application, permitting and make-ready process. They would like to see all attachers agree to use only one contractor to speed up the make-ready process. They are also asking that the various parties agree to one contractor that is allowed to work in the power space, which is needed for some wireless attachments. They want make-ready rules to be uniform across all jurisdictions.
  • They want to require that the pole owner and all existing atachers be present during the feasibility survey, rather than having to coordinate visits with each existing attacher.
  • They want to speed up the time lines for reviewing and amending attachment requests.
  • They want to strengthen the FCC’s rules for ‘self-help’ which allow work to proceed when existing attachers don’t respond to attachment requests.

Fees and Rates. The sub-committee does not want the FCC to create a new pole attachment rate for a broadband connection – something they fear might be considered due to removing Title II regulation of broadband. They want ‘broadband’ attachments to be the same rate as telecom or cable attachments.

Recommendations for Other Infrastructure. The sub-committee would like to see an infrastructure database that identifies the owners of common telecom infrastructure like poles, ducts, trenches, street lights, traffic lights, towers, water towers, bridges, etc. This should include public buildings that might be useful for placement of 5G infrastructure. Knowing such a database will be expensive they have suggested ways to fund the effort.

Jurisdictional Issues. They want to see processes that streamline the jurisdictional differences for projects that crosses multiple local jurisdictions.

Use of Subsidized Infrastructure. Currently infrastructure built to serve schools or rural health care facilities is restricted to those specific uses if subsidized by the E-rate or Healthcare Connect Fund. The sub-committee wants such facilities to also be usable for other commercial purposes.

It’s hard to guess how much traction some of these recommendations might get at the FCC. Some of the jurisdictional issues, as well as the creation of an attachment database probably require Congressional action to solve. And some of the biggest ISPs like AT&T are both pole owners and fiber builders and it’s hard to know where they will support issues that will help them but which will also make it easier for their competitors. It’s also worth noting that the FCC is under no obligation to respond to the BDAC process. However, this particular sub-committee has taken a logical approach to some of the biggest problems with attachments, and these proposals deserve a hearing.

Challenging the Net Neutrality Order

It looks like there are going to be a number of challenges to the FCC’s recent repeal of Title II regulation and net neutrality. Appealing FCC decisions is normal for controversial rulings and the big telcos and cable companies have routinely challenged almost every FCC decision they haven’t liked.

The FCC voted to repeal Title II regulation on December 14th, but just released the order on Friday. As expected, there were some wording changes made that the FCC hopes will help during the expected legal challenges. The time clock for any challenges will start when the order is published in the Federal Register. The FCC order goes into effect 60 days later and any court challenges must be filed within that two-month window.

When FCC rules are challenged, it’s not unusual for a court to put a stay on some parts, or even make an entire new ruling until the legal issues are sorted out. This happened a few years back when Verizon challenged the FCC’s first net neutrality order and the courts stayed all of the important parts of that ruling before eventually ruling that the FCC didn’t have the authority to make the rules as they did.

It appears that challenges are going to come from a number of different directions. First, there are states that have said they will challenge on procedural issues. This is a tactic often taken by the big ISPs, and generally if the courts agree that the FCC didn’t follow the right procedures in this docket they will then rule that the agency has to start the whole process over again. That alone would not change the outcome of the proceeding, but it could add another year until the FCC’s order goes into effect. I wonder if this kind of delay is meaningful because it’s likely that this FCC won’t enforce any net neutrality ‘violations’ during a reboot of the rules process.

The Attorney General of New York has an interesting appeal tactic. He is claiming that the FCC ignored the fact that there were millions of fake comments made in the docket – some for and others against the proposed rules. New York is suing the FCC over the issue and expects some other states to join in the lawsuit. This would be a unique procedural challenge and would be another way to have to reset and start the whole process over again.

Legislators in California, New York and Washington are planning to tackle the issue in a different way. Legislators are proposing to create a set of state net neutrality laws that basically mimic what was just repealed by the FCC. These states would not be directly challenging the FCC order and it would require some third party like a big ISP to challenge the state laws through the court system. Such a process might take a long time since it might have to go through several layers of courts, and might even end up at the US Supreme Court. State’s rights have been a common way to challenge FCC rulings ad there have been numerous fights between states and the FCC any time that Congress has created ambiguity in telecom laws.

The hope of these state legislators is that the state rules will be allowed to stand. They know that if ISPs and other tech companies have to follow net neutrality laws in large states like California that they are more likely to follow them in the whole country. A similar State / Federal battle is also underway on a different issue and twenty states are considering enactment of state privacy laws to replace ones preempted by Congress.

Another challenge to the FCC’s decision will come from democrats in Congress who are trying to use the Congressional Review Act (CRA) rules to challenge the FCC’s ruling. This is a set of rules that allow Congress to reverse rulings from administrative agencies like the FCC with a simple majority and has been used effectively recently by republicans in a number of ways. With a 51-49 Republican majority it would only take a few republican defections to maintain at least some aspects of net neutrality. The make-up of the Congress might also change with the elections later this year – meaning that Congress might change the rules in the middle of all of the various appeals.

One thing is for certain – this FCC ruling is not going to be easily implemented and I’m guessing that during the next sixty days we will see a number of creative challenges used to appeal the FCC’s ruling. It could easily be a few years before these issues are resolved through the courts.

The New European Privacy Standards

It’s worth keeping an eye on the new European privacy standards that go into effect in May. Titled the General Data Protection Regulation (GDPR), the new rules provide significant privacy protection for European Union citizens. The new rules are required for all companies doing business in the EU, so that means it applies to the majority of web companies operating in the US. The GDPR rules also apply to brick and mortar companies that collect customer data like banks and doctors. The privacy rules apply to companies that collect data directly from customers (data controllers) as well as any secondary companies that process that data (data processors). Interestingly, under the new rules a data controller is responsible to know what data processors do with the data they provide to them.

The major basis for the new rules are that consumers own and have control of their own data and companies can only use data if there is at least one lawful basis for doing do. This includes:

  • A consumer gives specific permission to use personal data for one or more specific purposes;
  • Processing the data is necessary to meet a contractual arrangement with a consumer;
  • Processing the data is necessary to meet a legal obligation which applies to the consumer;
  • Processing is necessary to protect the vital interests of the consumer or some other natural person;
  • Processing is allowed for the performance of a task carried out in the public interest, such as by the government;
  • Processing is necessary to pursue legitimate interests of the data controller or a third party.

For the most part the new laws require consumers to give explicit consent to use their data, including the specific purpose for the use. Just like in the US, there are provisions for law enforcement to gain access to customer data through subpoena or court order.

Larger companies are expected to create the position of Data Protection Officer who is tasked to make sure that all parts of a company are compliant with the law. As you might expect, meeting these requirements is a major change for many companies and there has been a two-year transition period leading up to the May implementation.

The new law also changes the way that companies store customer data to minimize the impact of data breaches. For example, companies are encouraged to store data in such a way that the stored data cannot be attributed to a specific person without the use of additional data. The law calls this pseudonymisation which means encrypting stored data and storing it in a manner to make it hard for an outsider to use. For example, a company would not store things like a social security number, date of birth, address and email address all in the same record.

The law has teeth and allows for fines up to 4% of the worldwide revenues of a business for massive violations of the rules. The expectation is that there will probably have to be a few serious fines levied to get most companies to get serious about following the new rules.

Overall this law creates a drastic change in the handling of customer data. Companies will not be allowed to mine and sell customer data without specific customer approval. It seems to particularly discourage the practice of selling data to brokers who can then use the data in any manner they choose. In this country companies like Google and Facebook make huge revenues from data mining and the big ISPs are now leaping into this same business line. In Europe this is going to greatly restrict the value of selling customer data.

This new law is worth following since the big web companies that are so predominant in this country are going to be complying with the new rules. This means it would be relatively easy at some point to require similar rules here concerning customer data.

The GDPR data storage rules also have the purpose of limiting the value of data breaches. If we see a great reduction in damaging hacking in the EU because of this law, then companies here might begin following the EU recommended data storage methods even if the privacy rules are never implemented here. Some of the most damaging hacks we’ve seen here are when a hacker gets records that provide multiple data points for a given customer. If a hacker can’t use the data to put together a coherent picture of a given customer then the value of a breach is greatly reduced.

FCC BDAC Model State Code

This is the first in a series of blogs on the progress being made by the FCC’s Broadband Deployment Advisory Committee. The FCC created five working groups to make recommendations on rule changes needed to better promote broadband deployment. Today’s blog discusses the subcommittee considering model codes for states.

This draft report is roughly in the form of legislation recommended for adoption by states. This report largely reads like a wish-list of regulations wanted by the big ISPs. There are a few ideas in here that have been widely discussed for years along with some new ideas. I could write ten pages talking about the nuances of this draft report, but here are some of the highlights:

  • State Goals. The goals are innocuous and have a state pledging to promote broadband everywhere including in rural areas. But there is one interesting twist over the existing goals that a number of states have adopted that defines broadband as bandwidth adequate to meet the person, business, educational and economic needs of the state. This differs from current goals that often set a specific download speeds as the goal.
  • Statewide Franchising. The proposed regulations would do away with all local franchising and establish one statewide franchise authority. This is something that a number of states have already adopted. The proposed regulations have more teeth than most existing such rules and eliminate a locality from imposing any kind of restrictions on a broadband service provider.
  • Access to Government Assets. The rules would create a centralized Network Support Infrastructure Register in which local governments would have to list every asset that might be of use for broadband providers. This would include rights-of-ways, towers, buildings, etc. Governments would then have to provide access to these assets to any communication provider at affordable rates set by the state.
  • One Touch Make Ready. The rules contain one of the many variations on one-touch make ready for attaching to poles. These rules allow for short time frames for existing wire owners to comply with an attachment request before allowing an attacher to connect to poles using pre-approved contractors.
  • New Hoops for Municipal Broadband Infrastructure. Cities and counties must jump through a lot of hoops before building any broadband infrastructure. For example, before building a fiber to connect government buildings they would have to seek permission of the State through a process called a Minimum Network Specification Notice. Commercial providers would be able to intervene in this process and offer to build some or all of the desired infrastructure. This would largely stop municipalities from building private networks to serve their own needs and would let ISPs instead build the facilities and bill the municipalities for the use.

Municipalities would also have to jump through a series of hoops before being able to build a broadband network to serve customers. For example, a city would have to prove that what they propose could not be done better through some kind of public-private partnership or by a commercial provider. These kinds of restrictions have been pushed for years by ALEC, and where they are enacted they effectively stop municipalities from creating a broadband business.

Any broadband facilities built by a municipality would have to be made available on a cost-plus lease basis to a service provider. This would include dark fiber, towers, and space inside of government buildings.

  • Preempt Building Owner Rights. The rules require that building owners must provide access for communications providers to create a ‘network access point’ inside or outside of a building.
  • Priority for Wireless Infrastructure. The proposed rules would prohibit localities from restricting the deployment in any way of wireless towers or small cell site.
  • Paying for Rural Broadband. The report supports the idea of State Universal Service Funds and a new Rural Broadband Deployment and Maintenance Fund that would be used to support rural broadband service providers.

In summary, this represents the same wish list we’ve seen from the big ISPs and from their lobbying arms like ALEC. While many states have adopted some portion of these rules, nobody has adopted them all. It’s fairly obvious that the recommendations from this sub-committee are being driven by the big ISPs.

It’s worth noting that these sub-committees are advisory and the FCC doesn’t have to do anything with their recommendations. In this particular case, since these are proposed state rules the FCC would not have the authority to implement most of these recommendations, so these are really a ‘model’ set of regulations that the big ISPs would love to see enacted at the state level. However, by generating this through the FCC process these recommendations will be touted as being blessed by the FCC.

FCC to Hide the Digital Divide?

The next big decision on the FCC’s agenda is to consider the agency’s definition of broadband and to also consider if cellular data should be considered as broadband as part of that definition. This is slated to come up for a vote on February 3. The FCC raised the issue back in August and asked for feedback on the two issues.

To put this discussion into context, the FCC previously defined the speed of broadband while issuing mandated reports to Congress about the national state of broadband. These mandated broadband reports are issued every year and discuss major broadband issues, as well as quantifying the number of households that are considered to have broadband.

The FCC used the annual broadband report in 2015 to increase the definition of landline broadband to 25 Mbps download and 3 Mbps upload. The FCC is thinking about using this year’s report to revise the definition of broadband lower again. At least two of the Commissioners are in favor of lowering the definition for landline broadband back to the old speed threshold of 10 Mbps download and 1 Mbps upload.

Further, the FCC is considering counting cellular data speeds as a substitute for landline broadband, using a 10/1 Mbps definition. This would mean that a customer who can receive either cellular data or landline data that meets the appropriate speed would be considered to have broadband available.

Even if the FCC doesn’t lower the landline definition of broadband, adding cellular broadband into the test will mean that millions of homes would now be considered to have adequate broadband. That is a significant change, because by law, the FCC is mandated to work towards bringing broadband to any parts of the US that don’t have it. In effect, by a definition change the FCC will have done away with a lot of the digital divide. And if they lower the definition of landline broadband they will categorize even more homes as having adequate broadband.

There are a lot problems with using cellular data speeds to define broadband.  Here are several major ones to consider:

Hard to Measure Cellular Speeds. In the real world cellular speeds are nearly impossible to accurately measure. First, speeds differ by distance from a cell site, much like DSL. Customers more than a few miles from a given cell site get significantly slower speeds. Cellular data speeds also suffer from the same kind of interference as any wireless technology. For instance, homes behind a hill or tall building won’t get speeds as fast as those with a clear line-of-sight. Cellular data speeds change with variations in temperature or with precipitation. And most cell sites are still capable of making both 4G and 3G connections – which obviously has a major impact on speed.

Broadband Speeds are Reported by the Carriers. The cellular carriers are likely to report speeds by cell site, meaning that they will ignore all of the variations of speeds listed above. Further, there is more than one way to measure broadband speeds, which I have discussed before in this blog. There is over a 100% difference in reported cellular broadband speeds between Ookla and Akamai, the two major entities tracking data speeds. The carriers typically use the higher Ookla numbers when bragging about their speeds.

Makes No Assessment of Affordability. There is a monstrous difference in price between landline and cellular data. A household using 100 gigabytes of cellular data in the month might pay nearly $1,000 per month. Most ISPs report that the average US household now uses between 150 and 200 gigabytes of broadband per month. It’s hard to think of cellular broadband as a substitute for landline broadband with such disparate pricing.

Ignores Latency. One of the problems with cellular broadband is latency. This is one of the major reasons that downloading a web site on a cellphone sometimes seems to take forever. (The other reason is that cellular operating systems aren’t really designed to maximize web browsing). The poorer latency means that a 10 Mbps landline connection will feel much faster than 10 Mbps cellular connection.

Takes the FCC Off the Hook. But the major reason that counting cellular data as equivalent to landline data is that it’s going to largely take the FCC off the hook for promoting broadband. They currently have directed billions from the Universal Service Fund to help build faster broadband networks, mostly in rural America. They can discontinue such programs and not expand their effort if most of rural America is considered to have broadband. With a simple vote a large percentage of rural homes on the wrong side of the digital divide will suddenly have broadband. That’s going to be big news to rural people who already understand that cellular broadband is not really broadband.

DOJ Opposes AT&T / Time Warner Merger

The US Department of Justice filed an antitrust lawsuit against AT&T opposing the upcoming merger with Time Warner. The filing was surprising since it came so late in the merger process with the proposed merger on the table for much of 2017.

There are those saying that the DOJ objections are political, but the DOJ objections are all legitimate. Some of the major concerns of the DOJ include:

  • The merger could disadvantage AT&T rivals like Comcast and Charter by forcing them to pay hundreds of millions more for access to Time Warner programming.
  • The merger will slow the industry transition to online video through OTT and MVPD providers.
  • The vertical integration of last-mile network and programming gives AT&T the ability to create an unfair advantage over competitors.

I don’t think AT&T or anybody can dispute these objections with a straight face, and in fact, these findings are exactly what AT&T has in mind. AT&T already has major synergies between its various business lines. For example, the latest expansion of the AT&T FTTP network is largely taking advantage of fiber routes that are already in place to support the cellular network. It’s something that AT&T probably should have taken advantage of long before now. AT&T also is starting to take advantage of the synergies between its large acquired DirecTV customer base and its cellular products. It’s also the existing programming contracts of DirecTV that have enabled the successful launch of the MVPD offering DirecTV Now.

What this DOJ suit does not acknowledge is that AT&T is just trying to keep pace with Comcast. Comcast has already integrated programming with a last-mile network when the DOJ and FCC let the company buy NBC Universal in 2009. And now that Comcast is entering the cellular business I have a hard time seeing any real difference between what Comcast has today and what AT&T is trying to become with this merger.

The question that must be asked is if the DOJ is going to block the AT&T merger, then shouldn’t their next step be to ask for the divestiture of the Comcast business lines? If they are not going to pursue that, then this filing is largely political. But if the concern is monopoly abuse, as the DOJ document indicates, then they should pursue the only fully-integrated monopoly like the one that AT&T is asking to create.  In fact, Comcast has already gone far past where AT&T is headed and also bundles in smart home, security and even solar panels with other telecom services.

There is no question that Comcast, and AT&T, if they are able to complete the merger, will have a competitive advantage over any other last-mile network provider. Any other ISP that wants to offer video will have to pay significant amount of money to these two companies as part of competing with them. It can be argued that Comcast cable also has to buy the various Comcast programming – but the fact is that when calculating earnings all intercompany purchases cancel out, so whatever Comcast pays itself for programing is largely funny money. And this gives these big conglomerates an instant $5 / $10 advantage per month in costs over any rival.

It’s an interesting filing, and if the DOJ sticks to its guns this is likely to end up at the Supreme Court. My gut tells me that the courts are going to have a hard time saying no to AT&T for trying to create the same synergies that their primary rival Comcast already has.

We haven’t even seen the full power of the new Comcast bundle yet. The company has so many possible ways to tie down a customer and make it hard to break the bundle. Once Comcast has millions of cellular customers and millions of smart home customers they are going to be a fierce competitor against any newcomer. Combine this with the fact that they will soon have gigabit broadband available everywhere and they can match broadband speeds in any market (while keeping prices higher in non-competitive markets). That is the real power of the big conglomerate ISPs – the ability to compete unfairly in any one market by charging more elsewhere.

I doubt that the DOJ petition will hold up. We don’t really need another company with the same market power as Comcast – but stopping the second big conglomerate is already too late.

Net Neutrality – What Happens Next?

I’ve been thinking some about what happens next in the industry with the fall-out from the FCC’s decision to kill net neutrality and to eliminate Title II regulation. It seems like the big ISPs have gotten everything they ever wanted in terms of having unregulated broadband. What might happen next?

I expect there to be little change in the industry in the short run. The FCC just made the ruling and there already looks like there will be a number of lawsuits against the order. It’s not unusual for courts to put FCC orders on hold until lawsuits make it through the legal system and this probably won’t be much different.

But even without the lawsuits I don’t expect to see the big ISPs make any drastic changes in the next year. There is a huge public furor over this ruling and my guess is that the ISPs don’t want to roil the public for a while. The end of net neutrality will allow the ISPs to make all sorts of changes the public will hate, such as big price increases for broadband or the introduction of draconian data caps. But I’m guessing that the ISPs are not going to do anything too drastic until the topic has settled in the public mind.

The ISPs also still have to worry about regulatory push-back. There is a good possibility over the next few election cycles that Democrats take back part or all of Congress or the administration, and reversing what this FCC just did is probably high on the Democratic wish list. Net neutrality is popular across the political spectrum and an administration that puts it back in place will likely get lauded by the public.

I think the big ISPs really made a tactical error in pushing to totally deregulate broadband. It’s easy to think that the net neutrality rules have only been around for a few years since the latest iteration was just approved in 2015. But the FCC has been discussing net neutrality since 2005 and to a large degree the big ISPs didn’t do anything too outrageous during those many years so as to invite strict regulations they didn’t want. I think the ISPs would have been far better off to have compromised and put in place a new set of rules that a future FCC might still keep.

For instance, they could have changed the rules to give them safer pricing flexibility, which is what I think they most want. But they could have kept the three basic net neutrality principles in place to mollify the public and regulators. But honestly, I don’t think big corporations are capable of constraint. The big ISPs got a friendly FCC and it seems they are going after everything on their wish list, with Title II regulation just one item on the longer list.

But over time, if some future FCC or Congress doesn’t put some version of net neutrality back in place then I think you will see all of the many things that the public feared start to come into play. There will be a lot of zero rating with content bundled with bandwidth. The ISPs will put pressure on big content providers to pay for premium access, to the detriment of smaller players and start-ups. We’ll see significant price increases and billing practices like data caps that make the ISPs more money.

And a lot of this isn’t going to happen due to large strategic decisions by corporate management at the ISPs. That’s not how huge corporations work. A lot of changes that would have violated the previous net neutrality rules will actually come as the result of lower-level management making decisions. Marketing people will promote bundled packages if they think it will increase sales. Divisional VPs will negotiate tough terms with content providers if doing so will increase their bonuses. In the recent past one has to think that many discussions of new ideas inside of ISPs included somebody asking if the new ideas violate net neutrality. But with net neutrality out of the picture that question will no longer be asked and the desire for bonuses and profits will drive the people at the ISPs to make decisions that are good for the company while not necessarily good for the public or the industry. That’s the main reason why we regulate big companies, because they have a natural tendency to favor profit over almost everything else.

My own personal prediction is that we are not done with net neutrality and that a future administration is going to bring it back in some manner. And that is probably the worst possible outcome for the big ISPs. It’s ironic that the CEOs of all of the big ISPs said that they could live with the three principles of net neutrality – and I believed them. But, when they were given the chance, they still could not help themselves from lobbying to kill it. Uncertainty is far more costly to big corporations than regulatory rules they don’t like. And my guess is we might not be done with this topic for quite some time. I just hope we don’t get into a pattern of yoyo decisions out of each future administration.

FCC and FTC Divvy up Broadband Regulation

The FCC voted last Thursday to reverse the Net Neutrality order that had been put into place by the previous Tom Wheeler FCC. This action eliminates the use of Title II to regulate broadband. In order to get rid of Title II authority the FCC believes it has to relinquish some of its regulatory role today and to move certain regulatory functions to the Federal Trade Commission. To effectuate this shift the two Commissions have agreed to a Memorandum of Understanding (MOU) that defines the ongoing regulatory and enforcement responsibility of each agency related to broadband.

The Federal Trade Commission will renew investigating ISPs as they do other large businesses in the country. They will investigate complaints made against the companies for practices that the agency deems to be unfair or deceptive. The agency has undertaken this kind of investigation in the past and has cited and fined a few big ISPs for various deceptive pricing and billing practices. In this role the FTC could elect to tackle topics that were part of net neutrality such as anticompetitive blocking of Internet traffic, throttling customer broadband or paid prioritization practices. While the three legs of net neutrality would not explicitly be part of the FTCs responsibilities, they should be free to investigate practices that harm the public. The FTC would also take back jurisdiction over ISP privacy practices.

It appears that dropping the Title II regulatory regime allows the FTC to again regulate ISPs. Since the FCC approved Title II regulation, the big ISPs have argued that the FTC is prohibited by its charter to regulate common carriers. But since broadband providers are no longer considered to be common carriers it would seem to open the door to the FTC again.

The big difference in a shift to FTC regulation is that anything they do is done retroactively. They look at consumer complaints and then prosecute the worst abuses they find in multiple industries. But their rules often come years after abuse by companies and their rulings only generally affect one company at a time. Other ISPs might shift behavior due to an FTC enforcement action, but they are not required to do so. This is a drastic change from having a set of proactive regulations in rules in place that define acceptable ISP behavior.

The FCC will be giving up most regulatory oversight of broadband. There are still a few broadband rules that fall under FCC jurisdiction. For example, there are still rules in place that require ISPs to disclose information about their products, data speeds, etc., to customers. The FCC will still be monitoring and regulating these notices. There are also regulations that will remain in place because they were put in place by laws that can’t be reversed by the FCC. As an example, the FCC will still oversee CALEA compliance, where ISPs are required to provide access to broadband records to law enforcement.

Probably the biggest regulatory gray area left is cellular broadband. While broadband in general is now largely unregulated there are still numerous regulations about cellular service that remain in place. We’ll have to see how the FCC deals with any conflicts between old cellular rules and their desire to unregulated broadband.

To a large extent there will be little regulation of broadband and it is now an unregulated business line. This is a bit ironic in that broadband has grown to become the most important telecommunications product, while the many regulations on the waning product lines of telephone and cable TV still remain in place.

The FCC acknowledges that its technical staff best understands the ISP industry and has promised in the MOU to make FCC staff available to the FTC as needed. It will be interesting to see how that works in practice since some of the FTC investigations drag on for years. I foresee budgetary issues making major collaboration impractical.

The bottom line is that this MOU makes it clear that broadband is largely deregulated. The FTC can step in and punish ISPs that engage in fraudulent and unfair practices. But otherwise nobody will be monitoring or enforcing any regulations on broadband.