Do We Need International Digital Laws?

German Chancellor Angela Merkel said a few weeks ago that the world needs international regulation of digital technology, much like we have international regulation for financial markets and banking.

She says that without some kind of regulations that isolated ‘islands’ of bad digital actors can emerge that are a threat to the rest of the world. I am sure her analogy is a reference to the handful of islands around the globe that play that same maverick role in the banking arena.

We now live in a world where a relatively small number of hackers can cause incredible harm. For instance, while never definitely proven, it seems that North Korea hackers pulled off the major hack of Sony a few years ago. There are accusations across western democracies that the Russians have been using hacking to interfere with elections.

Merkel certainly has a valid point. Small ‘islands’ of hackers are one of the major threats we face in the world today. They can cause incredible economic harm. They threaten basic infrastructure like electric grids. They make it risky for anybody to be in the Internet at a time when broadband access is becoming an integral part of the lives of billions.

There currently aren’t international laws that are aimed at fighting the nefarious practices of bad hackers or at punishing them for their crimes. Merkel wasn’t specific about the possible remedies. She said that the US and Germany have undertaken discussions on the topic but that it hasn’t gone very far. There are certainly a few things that would make sense at the international level:

  • Make certain kinds of hacking an international crime so that hacker criminals can more easily be pursued across borders.
  • Create a forum for governments to better coordinate monitoring hackers and devising solutions for blocking or stopping them.
  • Make laws to bring cryptocurrency under the same international auspices as other currencies.

But as somebody who follows US telecom regulation in this blog I wonder how fruitful such regulations might be? We now live in a world where hackers always seem to be one step ahead of the security industry that works to block them. The cat and mouse game between hackers and security professionals is a constantly changing one and I have to wonder how any set of rules might be nimble nimble enough to make any difference.

This does not mean that we shouldn’t have an international effort to fight against the bad actors – but I wonder if that cooperation might best be technical cooperation rather than the creation of regulations that might easily be out of date as they are signed into law.

Any attempt to create security regulations also has to wrestle with that fact that a lot of what we think of as hacking is probably really government sponsored cyberwarfare. How do we tell the difference between cyber-criminals and cyber-warriors? In a murky world where it’s always going to be hard to know who specifically wrote a given piece of code I wonder how we tell the criminal bad guys from the government bad guys?

I also see a dilemma in that any agreed-upon international laws must, by definition filter back into US laws. We now have an FCC that is trying to rid itself of having to regulate broadband. Assuming that Title II regulation will be reversed I have to wonder if the FCC would be able to try to require ISPs to comply with any international laws at a time when there might not even be many US laws that can be enforced on them.

It makes sense to me that there ought to be international cooperation in identifying and stopping criminal hackers and others that would harm the web. But I don’t know if there has even been an issue where the governments of the world engage in many of the same practices as the bad actors – and that makes me wonder if there can ever be any real cooperation between governments to police or control bad practices on the web.

FCC to Investigate MDU Broadband

The FCC is launching an investigation into anticompetitive practices that are keeping broadband from coming to apartments and other multi-tenant buildings. They have issued a Notice of Inquiry in Docket in GN Docket 17-142 looking into the topic and are expected later this month to formally release it to the public. The docket specifically looks at barriers to competition in what the FCC is calling MTEs – multiple tenant environments, which includes apartments, condominiums, shopping malls and cooperatively owned buildings.

This is not the first time that the FCC has tackled the topic. Back in 2008 the commission banned some contractual arrangements that gave incumbent ISPs unfair advantage over competitors. However, that order didn’t go far enough, and ISPs basically shifted to arrangements that were not banned by the FCC. The FCC is looking into the topic because it’s become obvious that exclusive arrangements are harming the introduction of faster broadband into a sizable portion of the market. There are cities where half or more of residents live in apartments and don’t have the same competitive choices as those living in single family homes.

The FCC has an interesting legal challenge in looking at this issue. This docket specifically looks at the potential for regulating broadband access in MTEs, something that the FCC has the authority to do under Title II regulation. But assuming that the FCC moves forward this year with plans to scrap Title II regulation they might also be eliminating their authority to regulate MTEs in the manner suggested by the NOI. If they decide to act on the issue it will be interesting to see how they define their authority to regulate anything that is broadband related. That might be our first glimpse at what a regulatory regime without Title II looks like.

Further, Chairman Ajit Pai has shown a strong preference to lighten the regulations on ISPs and you have to wonder if he is willing to really tackle a new set of regulations. But he’s faced with the dilemma faced by all regulators in that sometimes the market will not automatically produce the results that are beneficial to society and sometimes regulations are the only way to get corporations and others to behave in the way that benefits everybody. It’s clear that residents in MTEs have little or no competition and choice and new regulations might be the only way to get it for them.

The NOI looks at specific issues related to MTE broadband competition:

  • It asks if the FCC should consider overriding state and local regulations that inhibit the deployment of broadband in MTEs. Some jurisdictions have franchising and other rules that make it hard for a smaller competitor to try to serve only MTEs or parts of markets.
  • It asks if the FCC should prohibit exclusive marketing and bulk billing arrangements by ISPs.
  • It asks if the FCC should prohibit revenue sharing and exclusive wiring arrangements with ISPs.
  • It asks if there are other kinds on non-contractual practices that should be prohibited or regulated.

The NOI is interesting in that it tackles all of the topics that the FCC left untouched in 2008. When that order came out I remember thinking about all of the loopholes the FCC had left available to ISPs that wanted to maintain an exclusive arrangement with apartment owners. For example, bulk billing arrangements are where a landlord buys wholesale connections from an ISP and then includes broadband or cable TV as part of the rent, at a mark-up. Landlords under such arrangements are unlikely to allow in another competitor since they are profiting from the exclusive arrangement. The FCC at the time didn’t feel ready to tackle the issues associated with regulating landlord behavior.

The NOI asks for comments on the non-contractual issues that prohibit competition. I’ve seen many such practices in the marketplace. For instance, a landlord may tell tenants that they are pro-competition and that they allow access to multiple ISPs, but then charge exorbitant fees to ISPs for gaining access to buildings or for wanting to collocate electronics or to run wiring. I can think of dozens of different roadblocks that I’ve seen that effectively keep out competitors.

I am heartened a bit by this docket in that it’s the first thing this new FCC has done to solve a problem. Most of the work they’ve done so far is to dismantle old rules to reduce regulation. There is nothing wrong with that in general and I have my own long shopping list of regulations that are out of date or unnecessary. But there are industry issues like this one where regulation is the only way to provide a needed fix to a problem. It’s clear that large ISPs and many landlords have no interest in bringing competition to their buildings. And if that is a goal that the FCC wants to foster, then they are going to have to create the necessary regulations to make it happen – even if they prefer to not regulate.

Means Testing for FCC Funding – Part II

Yesterday I wrote about the recent blog by FCC Commissioners Michael O’Rielly and Mignon Clyburn that suggests that there ought to be a means test for anybody accepting Universal Service Funds. Yesterday I looked at the idea of using reverse auctions for allocating funds – an idea that I think would only serve to shift broadband funds to slower technologies, most likely rural cellular service for broadband. Today I want to look at two other ideas suggested by the blog.

The blog suggests that rural customers ought to pay more for broadband since it costs more to provide broadband in sparsely populated areas. I think the FCC might want to do a little research and look at the actual prices charged today for broadband where commercial companies have built rural broadband networks. It’s something I look at all of the time and all over the country, and from what I can see the small telcos, cooperatives, WISPs and others that serve rural America today already charge more than what households pay for broadband in urban areas – sometimes considerably more. I am sure there are exceptions to this and perhaps the Commissioners have seen some low rural pricing from some providers. But I’ve looked at the prices of hundreds of rural ISPs and have never seen prices below urban rates.

The small rural ISPs have to make a commercial go of their broadband networks and they’ve realized for years that the only way to do that is to charge more. In most urban areas there is a decent broadband option starting around $40 per month and you rarely see a price close to that in rural America. If you see a low price in rural America it probably offers a very slow speed of perhaps a few Mbps, which certainly doesn’t compare to the 60 Mbps I get from Charter for $44.95 per month.

The issue of rural pricing does raise one policy issue. Historically the Universal Service Fund was used for precisely what this blog seems not to like – to hold telephone rates down in rural America so that everybody in the country could afford to be connected. That policy led to the country having telephone penetration rates for decades north of 98%. I’m not advocating that USF funds ought to be used to directly hold down rural broadband rates, but it’s worth a pause to remember that was the original reason that the Universal Service Fund was started and it worked incredibly well.

The second idea raised by the blog is that Universal Service Funds ought not be used to build broadband to wealthy customers. They suggest that perhaps federal funding ought not to be used to bring broadband to “very rich people who happen to live in the more rural portions of our nation.”  The blog worries that poor urban people will be subsidizing ‘some of the wealthiest communities in America.’  I am sure in making that statement that the Commissioners must have a few real-life communities in mind. But I work all over the country and there are not very many pockets of millionaires in rural America, except perhaps for farmers.

Farmers are an interesting case when it comes to broadband. By definition farmers are rural. But US agriculture is the largest industry in the country and the modern farmer needs broadband to be effective. We are headed soon towards a time when farm yields can increase dramatically by use of IoT sensors, farm robots and other high technology that is going to require broadband. I know that a lot of the rural communities that are clamoring for broadband are farming communities – because those farms are the economic engine that drives numerous counties and regions of the country. I don’t think it’s unreasonable if we are going to rethink policy to talk about bringing broadband to our largest industry.

The FCC blog suggests that perhaps wealthier individuals ought to pay for the cost of getting connected to a broadband network. It’s certainly an interesting idea, and there is precedent. Rural electric companies have always charged the cost of construction to connect customers that live too far from their grid. But with that said we also have to remember that rural electric grids were purposefully built to reach as many people as possible, often with the help of federal funding.

This idea isn’t practical for two reasons. It’s already incredibly hard today to finance a fiber network. I picture the practical problem of somehow trying to get commitments from farmers or other wealthy individuals as part of the process of funding and building a broadband network. As somebody who focuses mostly on financing fiber networks this would largely kill funding new networks. To get the primary borrower and all of the ‘rich’ people coordinated in order to close a major financing is something that would drive most lenders away – it’s too complicated to be practically applied. The FCC might want to consult with a few bankers before pushing this idea too far.

But there is a more fundamental issue and the FCC blog touches upon it. I’m trying to imagine the FCC passing a law that would require people to disclose their income to some commercial company that wants to build a fiber network. I’m not a lawyer, but that sounds like it would bump against all sorts of constitutional issues, let alone practical ones. For example, can you really picture having to report your income to AT&T?  And I then go back to the farmers again. Farmers don’t make a steady income – they have boom years and bust years. Would we put them on or off the hook for contributing towards a fiber network based upon their most recent year of income?

I certainly applaud the Commissioners for thinking outside the box, and that is a good thing when it leads to discussions of ways to improve the funding process. I will be the first to tell you that the current USF distributions are not always sensible and equitable and there is always room for improvement. Some of the ideas suggested by the blog have been discussed in the past and it never hurts to revisit ideas. But what most amazes me about the suggestions made by this blog is that the proposed solutions would require a heavy regulatory hand – and this FCC, or at least its new Chairman has the goal of reducing regulation. To impose a means test or income test would go in the opposite direction and would require a new layer of intrusive regulations.

Means Testing for FCC Funding – Part I

A recent blog by FCC Commissioners Michael O’Rielly and Mignon Clyburn asks if there should be a means test in federal high cost programs. This blog is something every telco, school, library or health care provider that gets any form of Universal Service funding needs to read.

There is already some means testing in the Universal Service Fund. For instance, the Lifeline program brings subsidized voice and broadband only to households that meet certain poverty tests. And the Schools and Libraries program uses a mean test to make certain that subsidies go to schools with the most low-income students. The FCC blog talks about now applying a means test to the Universal Service Funds that are used to promote rural broadband. There are several of these programs, with the biggest dollar ones being the CAF II funding for large telcos and the ACAM program for small telcos to expand rural broadband networks.

The blog brings up the latest buzzword at the FCC, which is reverse auction. The FCC embraces the concept that there should be a competition to get federal money to expand broadband networks, with the funding going to the carrier that is willing to accept the lowest amount of funding to expand broadband into an area. On the surface that sounds like a reasonable suggestion in that it would give money to the company that is the most efficient.

But in real-life practice reverse auctions don’t work, at least for building rural broadband networks. Today these FCC infrastructure programs are aimed at bringing broadband to places that don’t have it. And the reason they don’t have it is because the areas are largely rural and sparsely populated, meaning costly for building broadband infrastructure. In most of these places nobody is willing to build without significant government subsidy because there is no reasonable business plan using commercial financing.

If there was a reverse auction between two companies willing to bring fiber to a given rural area, then in my experience there wouldn’t be much difference between them in terms of the cost to build the network. They have to deploy the same technology over the same roads to reach the same customers. One might be slightly lower in cost, but not enough to justify going through the reverse auction process.

And that is the big gotcha with the preference for reverse auctions. A reverse auction will always favor somebody using a cheaper technology. And in rural broadband, a cheaper technology means an inferior technology. It means using federal funding to expand DSL or cellular wireless as is being done with big telco CAF II money instead of building fiber, as is being done by the small telcos accepting ACAM money.

Whether intentional or not, the FCC’s penchant for favoring reverse auctions would shift money from fiber projects – mostly being done by small telcos – to the wireless carriers. It’s clear that building cellular technology in rural areas is far cheaper than building fiber. But to use federal money to build inferior technology means relegating rural areas to dreadfully inadequate broadband for decades to come.

Forget all of the hype about how 5G cellular is going to bring amazing broadband speeds – and I hope the FCC Commissioners have not bought into cellular company’s press releases. Because in rural areas fast 5G requires bringing fiber very close to customers – and that means constructing nearly the same fiber networks needed to provide fiber into homes. The big cellular companies are not going to invest in rural 5G any more than the big telcos have ever invested in rural fiber. So a reverse auction would divert federal funds to Verizon and AT&T to extend traditional cellular networks, not for super-fast wireless networks.

We already know what it looks like to expand rural cellular broadband. It means building networks that deliver perhaps 20 Mbps to those living close to cell towers and something slower as you move away from the towers. That is exactly what AT&T is building with their CAF II funding today. AT&T is taking $426 million per year for six years, or $2.5 billion in total to expand cellular broadband in rural areas. As I’ve said many times in the past this is perhaps the worse use of federal telecom funding I have ever seen. Customers on these cellular networks are getting broadband on day one that is too slow and that doesn’t even meet the current FCC’s definition of broadband. And in the future these customers and rural communities are going to be light-years behind the rest of the country as household demand for broadband continues to grow at a torrid pace while these customers are stuck with an inadequate technology.

The FCC blog also mentions the concept of possibly re-directing future USF payments, and if I am a small telco that scares me to death. This sounds like the FCC may consider redirecting this already-committed ACAM funding. Numerous small telcos just accepted a 10-year commitment to receive ACAM funding from the USF Fund to expand broadband in rural areas, and many are already borrowing matching funds from banks based upon that commitment. Should that funding be redirected into a reverse auction these small companies will not be able to complete their planned expansion, and if they already borrowed money based upon the promise of that ACAM funding they could find themselves in deep financial trouble.

Can the States Regulate Internet Privacy

Since Congress and the FCC have taken steps to remove restrictions on ISPs using customer data, a number of states and even some cities have taken legislative steps to reintroduce some sort of privacy restrictions on ISPs. This is bound to end up in the courts at some point to determine where the authority lies to regulate ISPs.

Congress just voted in March to end restrictions on the ways that ISPs can use customer data, leading to a widespread fear that ISPs could profit from selling customer browsing history. Since then all of the large telcos and cable companies have made public statements that they would not sell customer information in this way, but many of these companies have histories that would indicate otherwise.

Interestingly, a new bill has been introduced in Congress called the BROWSER Act of 2017 that would add back some of the restrictions imposed on ISPs and would also make those restrictions apply to edge providers like Google and Facebook. The bill would give the authority to enforce the privacy rules to the Federal Trade Commission rather than the FCC. The bill was introduced by Rep. Marsha Blackburn who was also one of the architects of the earlier removal of ISP restrictions. This bill doesn’t seem to be getting much traction and there is a lot of speculation that the bill was mostly offered to save face for Congress for taking away ISP privacy restrictions.

Now states have jumped in to fill the void. Interestingly the states looking into this are from both sides of the political spectrum which makes it clear that privacy is an issue that worries everybody. Here is a summary of a few of the state legislative efforts:

Connecticut. The proposed law would require consumer buy-in before any “telecommunication company, certified telecommunications provider, certified competitive video service provider or Internet service provider” could profit from selling such data.

Illinois. The privacy measures proposed would allow consumers to be able to ask what information about them is being shared. The bills would also require customer approval before apps can track and record location information on cellphones.

Massachusetts. The proposed legislation would require customer buy-in for sharing private information. It would also prohibit ISPs from charging more to customers who don’t want to share their personal information (something AT&T has done with their fiber product).

Minnesota. The proposed law would stop ISPs from even recording and saving customer information without their approval.

Montana. The proposed law there would prohibit any ISPs that share customer data from getting any state contracts.

New York. The proposed law would prohibit ISPs from sharing customer information without customer buy-in.

Washington. One proposed bill would require written permission from customers to share their data. The bill would also prohibit ISPs from denying service to customers that don’t want to share their private information.

Wisconsin. The proposed bill essentially requires the same restrictions on privacy that were included in the repealed FCC rules.

This has even made it down to the City level. For example, Seattle just issued new rules for the three cable providers with a city franchise telling them not to collect or sell customer data without explicit customer permission or else face losing their franchise.

A lot of these laws will not pass this year since the new laws were introduced late into the legislative sessions for most states. But it’s clear from the laws that have been proposed that this is a topic with significant bipartisan support. One would expect a lot of laws to be introduced and enacted in legislative sessions that will occur later this year or early next year.

There is no doubt that at some point this is going to result in lawsuits to resolve the conflict between federal and state rules. An issue of this magnitude will almost certainly will end up at the Supreme Court at some point. But as we have seen in the past, during the period of these kinds of legislative and legal fights the status of any rules is muddy. And that generally means that ISPs are likely to continue with the status quo until the laws become clear. That likely means that ISPs won’t openly be selling customer data for a few years, although one would think that the large ones have already been collecting data for future use.

The Proliferation of Small Wireless Devices

Cities nationwide are suddenly seeing requests to place small wireless devices in public rights-of-way. Most of the requests today are for placing mini-cell sites, but in the near future there are going to be a plethora of other outdoor wireless devices to support 5G broadband and wireless loops.

Many cities are struggling with how to handle these requests. I think that once they understand the potential magnitude of future requests it’s going to become even more of an issue. Following are some of the many issues involved with outdoor wireless electronics placement:

Franchising. One of the tools cities have always used to control and monitor placement of things in rights-of-way is through the use of franchise agreements that specifically spell out how any given company can use the right-of-way. But FCC rules have prohibited franchises for cellular carriers for decades – rules that were first put into place to promote the expansion of cellular networks. Those rules made some sense when cities only had to deal with large cellular towers that are largely located outside of rights-of-way, but make a lot less sense for devices that can be placed anywhere in a city.

Aesthetics. These new wireless devices are not going to be placed in the traditional locations like large cellular towers, water towers and rooftops of buildings. Instead the wireless providers will want to place them on existing telephone poles and light poles. Further, I’ve heard of requests for the placement of new, taller poles as tall as 100 feet that would be used just for the wireless network.

The devices that will be used are going to vary widely in size and requirements, making it difficult to come up with any one-size-fits-all new rules. The devices might vary in sizes ranging from a laptop computer up to a small dorm refrigerator. And some of the devices will be accompanied by support struts and other devices that together make for a fairly large new structure. The vast majority of these devices will need an external power feed (some might be solar powered) and many are also going to need a fiber feed.

It’s also expected that 5G devices are going to want relatively clear line-of-sight and this means a lot more tree-trimming, including trimming at greater heights than in the past. I can picture this creating big issues in residential neighborhoods.

Proliferation. I doubt that any city is prepared for the possible proliferation of wireless devices. Not only are there four major cellular companies, but these devices are going to be deployed by the cable companies that are now entering the cellular market along with a host of ISPs that want to deliver wireless broadband. There will also be significant demand for placement for connecting private networks as well as for the uses by the cities themselves. I remember towns fifty years ago that had unsightly masses of telephone wires. Over the next decade or two it’s likely that we will see wireless devices everywhere.

Safety. One of the concerns for any city and the existing utilities that use poles and rights-of-way is the safety of technicians that work on poles. Adding devices to poles always makes it more complicated to work on a pole. But adding live electric feeds to devices (something that is fairly rare on poles) and new fiber wires and the complexity increases again – particularly for technicians trying to make repairs in storm conditions.

Possible Preemption of City Rights. Even after considering all these issues, it’s possible that the choice might soon be moot for cities. At the federal level both the FCC and Congress are contemplating rules that make it easier for cellular companies to deploy these devices. There are also numerous bills currently in state legislatures that are looking at the same issues. In both cases most of the rules being contemplated would override local control and would institute the same rules everywhere. And as you might imagine, almost all of these laws are being pushed by the big cellular companies and largely favor them over cities.

It’s easy to understand why the cellular companies want universal rules. It would be costly for them to negotiate this city by city. But local control of rights-of-way has been an effective tool for cities to use to control haphazard proliferation of devices in their rights-of-way. This is gearing up to be a big battle – and one that will probably come to a head fairly soon.

Net Neutrality and the Digital Divide

There is an interesting idea floating around the industry that is bound to annoy fans of net neutrality. The idea comes from Roslyn Layton who does telecom research at Aalborg University in Denmark. She served on the FCC Transition team for the new administration.

She envisions zero-rating as the best way to solve the digital divide and to finally bring Internet access to everybody. She says that after decades of not finding any other solutions that this might the only reasonable path to get Internet access to people that can’t afford a monthly subscription.

The idea is simple – there are companies who will provide an advertising-driven broadband connection for free to customers, particularly on a cellphone. It’s not hard to envision big companies like Facebook or Google sponsoring cellphone connections and providing data access to customers who would be a captive audience for their ads and content.

This idea is already working elsewhere. Facebook offers this same service in other countries today under the brand name “Free Basics.’ While it certainly costs Facebook to buy the wholesale data connections they must have done the math and figured that having a new customer on their platform is worth more than the cost. Facebook’s stated goal is to serve most of the billions of people on earth and this is a good way to add a lot of customers. With Free basics customers get full use of the Facebook platform along with the basic ability to surf the web. However, the free basic service does not allow a user to freely watch streaming video or to do other data-intensive activities that are not part of the Facebook universe – it’s not an unlimited data plan. I can remember similar products in the US back in the dial-up days when several dial-up providers that gave free connections as long as the customers didn’t mind being bombarded by ads.

There are certainly upsides to this. Such a service would provide enough bandwidth for people to use the web for the basics like hunting for a job or doing school work. And users would get unlimited use of the Facebook platform for functions such as messaging or watching Facebook-sponsored video and content. There are still a substantial number of people in the US who can’t afford a broadband subscription and this would provide a basic level of broadband to anybody willing to deal with the ad-heavy environment.

But there are downsides. This idea violates net neutrality. Even if the current FCC does away with net neutrality one has to think that a future FCC will institute something similar. But even with net neutrality rules in place the FCC could make an exception for a service that tackles the digital divide.

The real downside is that this is not the same as the real internet access that others enjoy. Users would be largely trapped inside whatever platform sponsors their product. That could be Facebook or Google, but it could also be an organization with a social or political agenda. Anybody using this kind of free platform would have something less than unfettered Internet access, and they would be limited to whatever the platform sponsor allows them to see or do outside the base platform. At best this could be called curated Internet access, but realistically it’s a platform to give sponsors unlimited access to users.

But I think we have to be realistic that nobody has yet found a solution to the digital divide. The FCC’s Lifeline program barely makes a dent in it. And I’m not aware of any major ISP who has ever found any mechanism to solve the digital divide issue.

While Facebook offers this in many countries around the globe they received massive pushback when they tried to bring this to India. The Indian government did not want a class of people given a clearly inferior class of Internet connectivity. But in India the government is working hard themselves to solve the digital divide. But there is nobody in the US giving the issue any more than lip service. The issue has been with us since the dial-up days and there has been little progress in the decades since then.

I read some persuasive articles a few years ago when the net neutrality debate was being discussed about this kind of product. There were arguments made that there would be long-term negative ramifications from having a second-class kind of Internet access. The articles worried about the underlying sponsors heavily influencing people with their particular agenda.

But on the flip side, somebody who doesn’t have broadband access probably thinks this is a great idea. It’s unrealistic to think that people have adequate broadband access when they can only get it at the library or a coffee shop. For broadband to benefit somebody it needs to be available when and where they need to use it.

I lean towards thinking this as an idea worth trying. I would hope that there would be more than one or two companies willing to sponsor this, in which case any provider who is too obnoxious or restrictive would not retain customers. People who go to sites like Facebook today are already voluntarily subjected to ads, so this doesn’t seem like too steep of a price to pay to get more people connected to the Internet.

What is ‘Light Touch’ Regulation?

The new FCC Commissioner Ajit Pai has made several speeches in the last month talking about returning to ‘light-touch regulation’ of the big ISPs. He is opposed to using Title II regulation to regulate ISPs and wants to return to what we had in place before that.

His argument is that the Internet has grown and thrived under the prior way that it was regulated. And he has a point – the Internet has largely been unregulated since its inception. And in many ways the industry has even received preferential regulatory treatment such as the way that Congress has repeatedly exempted broadband services from taxes.

It’s certainly hard to argue with the fact that the Internet has thrived. It’s a little harder to draw the conclusion that light regulation was the cause for this, as the Internet has primarily grown because people love the online content they find there.

But we are now at a different point in the broadband industry than we were when it was in its infancy. Consider the following:

  • The vast majority of homes now have broadband. While the industry is still adding customers there aren’t that many more households that can get broadband that don’t have it.
  • Look back just ten years ago and there was a lot more competition for broadband. In 2007 cable modems and DSL served roughly the same number of customers with similar products in terms of speed. But today cable broadband has become a near-monopoly in most markets.
  • One of the drivers towards implementing net neutrality was the explosive growth of video. Just a few years ago there were many reports of the big ISPs slowing down Netflix and other video traffic. The ISPs were trying to force video providers to pay a premium price to gain access to their networks.
  • While broadband prices have held reasonably stable for a decade, both the cable TV and voice products of the large ISPs are under fire and it’s widely expected that the ISPs will have to start raising broadband rates every year to meet earnings expectations.
  • The ISPs have changed a lot over the last decade and all of the big ones now own content and are no longer just ISPs. This gives them competitive leverage over other competitors.
  • The Internet has become a far more dangerous place for consumers. Hacking and viruses run rampant. And the ISPs and web services like Google and Facebook routinely gather data on consumers for marketing purposes.

I would be the first to agree that hands-off regulation probably contributed to the growth of the Internet. But this is no longer the same industry and it’s hard to think that any of the big ISPs or transport providers need any further protection. These are huge companies with big profits.

It seems to me that the Chairman’s use of the term ‘light-touch regulation’ is code for basically having no regulations at all. And since that was the state of the industry just a few years ago we don’t have to stretch the imagination very far to know what that means.

Before Title II regulation the FCC had almost no power over the big ISPs. The most they could do was to encourage them to do the right thing. Interestingly, in the two or three years leading up to the Title II order it was the threat of coming regulation that kept the ISPs in line more than anything else. The FCC tried to intercede in disputes between the ISPs and video providers and found that they had no leverage on the ISPs. The FCC also didn’t like data caps but they had no power to do anything about them. However, since the ISPs feared price regulation under Title II most of them raised data cap limits to defuse the public outcry over the issue.

So my recollection of the past five years is that it was the threat of coming regulation that kept the big ISPs in line. Because at the end of the day a big ISP could challenge the FCC on broadband issues in court and win every time. So the FCC’s best way to influence the ISPs was to hold the threat of regulation over their heads.

If we go back to that same regulatory place (which is what would happen if Title II is reversed) then there will no longer be any leverage at the FCC. ISPs will be free to do almost anything they want in the broadband arena. The FCC has already let them off the hook for consumer privacy, and that is just the beginning.

You can expect without regulation that the ISPs will do all of those things that net neutrality was supposed to protect against. They all say today that will never happen, and that they believe in the core tenets of net neutrality. But I think we all know that is public relations talk and that the big ISPs will pursue anything that will make them money. That means discriminating against traffic and demanding payments from video providers to get unimpeded broadcasts. It means the ISPs favoring their own content over content of others. And it means a return of price caps and broadband price increases with no fear of FCC intervention. I have a hard time thinking that ‘light-touch’ means anything other than ‘no-touch.’

Another Reversal of the FilmOn X Decision

In the continuing saga of looking for alternate ways to get programming to the home, the U.S. Court of Appeals for the Ninth Circuit reversed an earlier ruling that said that FilmOn X had a right to retransmit over-the-air television signals.

FilmOn is a global provider of internet-based programming. They carry over 600 channels of broadcast TV from around the world. They also carry a big library of movies and offer a few of their own theme-based channels (such as Shockmasters that specialize in Alfred Hitchcock movies and television shows).

I won’t go through the history of the company and its attempts to carry the major US networks like ABC, NBC, CBS and Fox. The company was granted the right to carry this content several times in various courts and then had those decisions reversed by other courts. This case marks the third time that the company has been told it doesn’t have the right to retransmit these networks.

The company has tried several ways of delivering these networks to customers. They originally just grabbed the signals out of the air and put them on the internet. When told this wasn’t allowed by the courts they then set up satellite farms to wirelessly send individual signals to customers in a manner similar to Aereo.

This latest ruling said specifically that FilmOn is not eligible to call itself a cable company and to demand that local stations sell them content. That ruling hinged upon testimony provided by the US Patent office that said that such authority for internet-based retransmission was not clear. This differed from an earlier US Supreme Court ruling in the Aereo case that said that internet retransmission was equivalent to cable retransmission.

What’s really at the heart of this case is the definition of who is eligible to retransmit signals from the major over-the-air networks. Congress, through various laws, has given the right (and usually also the obligation) for landline-based cable companies to carry the major networks. Cable companies are obligated to carry those stations that are within certain distances from their customer base.

But over the years those that have been allowed to carry local programming has grown. Within the last decade the satellite cable companies began carrying local stations in many markets. I lived in the Caribbean for many years and some of the cable providers in Puerto Rico and the Virgin Islands somehow obtained the rights to carry some New York City local stations. Today there are a number of OTT providers like Sling TV and Playstation Vue that are carrying local network stations.

But the current rules draw a firm distinction between those that must carry local programming and everybody else. And this gives the flexibility to local stations to decide if they will sell their signal to those without the automatic rights. The big networks have decided to provide programming to Sling TV, but not to FilmOn or Aereo.

Originally both FilmOn and Aereo captured the broadcast signals from the air and put them onto their own networks. That obviously angered the big networks and they got that ruling reversed. But then these providers refused to sell their signal to these two companies. One has to think that was partly done to punish these companies for challenging them, and perhaps partly due to the cable companies who lobbied against competition.

This ruling could really stifle new OTT providers. It seems one part of the OTT appeal is the ability to deliver local network programming as part of their packages. This ruling gives local stations the ability to choose who can or cannot buy their signal, and to thus pick winners and losers in the competitive OTT battlefield.

It’s hard to think that this makes any sense. But Congress or the FCC could clarify this issue if they cared to tackle it. Just over two years ago the FCC put out a Notice for Proposed Rulemaking asking about this exact topic. The FCC wanted to clarify the rights for internet-based programmers to buy content, and in that docket the FCC had suggested that anybody ought to be allowed to buy programming if they agree to pay the market rates for it. But the FCC has never acted in that docket which has led to today’s situation where some providers are given programming and others not. The have-nots aren’t just companies like FilmOn and Aereo, and it’s been reported for years that Apple has been unable to get programming rights.

At some point this needs to be clarified. The last companies we want deciding who can or cannot offer programming services are the major networks, especially since some of them are owned by cable companies. I have no idea if the FCC will address this, but they need to.

Regulating Broadband

I’ve often hear it suggested that we ought to regulate broadband like a utility. The proponents of this idea say that this is the only way to make sure that everybody gets broadband and to make sure, over the long haul, that broadband stays affordable. But it’s never been entirely clear in hearing these arguments if people mean we should regulate the physical networks that carry broadband or the broadband products that ride on any network (or both).

Obviously in the current environment where the big ISPs have gained the favor of both the FCC and Congress regulation of this sort is not going to happen. But governments change, and so the time could come when such regulation is possible. But even if we had a pro-regulation government, I see all sorts of issues that would make such regulation hard to implement and still remain fair. Consider the following issues:

Size of ISP. Any regulation might only need to be applied to the biggest ISPs. A few companies like Comcast, AT&T, Charter (Spectrum), Verizon and CenturyLink together sell over 80% of the broadband connections in the country (and more if you count cellular data as broadband). Smaller ISPs have little market power, and some of them, like the smaller independent telephone companies, would tell you that they are already regulated to a large degree.

Incentive to Deploy New Technology. One of the reasons that historic telephone regulation worked so well was that the technology used to deliver traditional telephone service was expected to live out its full economic life, meaning that telcos could make an investment and know that they would recover the cost of doing so. But that is no longer the case. We now live in a world where there are dizzying new technologies developed all of the time that are faster, cheaper and better at delivering broadband. The large ISPs are not keeping up with technology improvements today in a fully deregulated environment where they can charge enough to recover their costs – it’s hard to imagine that regulations would do anything but slow down the rate of technology upgrades.

What gets Regulated? Today’s fiber networks are not as simple as older TDM networks. A lot of new fiber construction is being done for purposes other than serving residential customers. For example, Verizon just announced that they were ordering over $1 billion of fiber cable – but I think most of this fiber is going to be used to replace leased transport to cellular towners and is not going to be used to bring broadband to customers. It’s going to be hard in a complex network to define regulated and non-regulated assets.

What About Competition? Regulation works best with monopolies, which is why there is still regulation for electric and water companies. But the ISP world is a maze of differing levels of competition. There are cities – or neighborhoods of cities – that are competitive and areas where there are virtual monopolies – and this can differ block by block in larger cities. It’s hard to think of a regulatory scheme that somehow accounts for such differences.

Regulating Parts of Businesses. The big ISPs are no longer just ISPs, and in fact most of them make a most of their profits elsewhere. I just wrote a blog a week ago discussing how complex Comcast has become with their mix of cable networks and other businesses like television networks, sports teams, and soon cellular wireless. It’s incredibly challenging to regulate companies of this complexity because they have the ability to manipulate the books of the regulated entity to show any level of earnings they want. They could shift costs to make a regulated entity perform as well or as poorly as needed to satisfy regulators.

Realities of Wall Street. Rate regulation has always meant setting a reasonable return on investments for the regulated entity. The return for telephone companies that are still under rate regulation is being phased-down to just over 9%. To those of us who wish we had a bank account that could earn that much it might sound like a high rate of return. But the realities of Wall Street are that capital investments must earn more than that. If we put that kind of cap on new fiber investment for the big ISPS, I think the result would be a massive cut back in building new fiber. Wall Street would punish ISPs for investing capital at returns that low. And if the big companies stop building the rest of the industry including equipment vendors come to a screeching halt.

Challenges of Re-regulation. I’ve tried to work through the idea of how to take companies like Comcast and somehow regulating them. Putting the politics and the chances of this happening aside, I’m not sure how you can take assets that were built during a time of no regulation and somehow start regulating them. The court cases against that effort would probably stretch for a decade.

My conclusion from all of this is that it’s an interesting idea and thinking about it is a great mental exercise. But I can’t envision how you could somehow shove today’s unregulated companies back into a regulated environment. Even was the government determined to do so it might be too hard to do without causing more harm than good.