Regulation - What is it Good For?

Regulating Broadband Rates

FCC_New_LogoFCC Chairman Wheeler testified in front of the House Communications Subcommittee recently about the FCC’s authority to set broadband rates. He was testifying about a bill passed out of subcommittee a few weeks ago, introduced by Rep. Adam Kinzinger (R-Ill.) that would prohibit the FCC from regulating broadband rates.

Wheeler cautioned that he was concerned that any law that curtailed the FCC’s right to regulate rates might also inhibit the FCC’s ability to regulate the three basic tenets of network neutrality – preventing blocking, throttling, or paid prioritization of data.

Unless you are an FCC rule junkie it’s probably hard to understand why rates and net neutrality might be tied together. But the Chairman’s concern comes from the reliance of the FCC on using Title II as the basis for regulating net neutrality. Part and parcel with the Title II rules also comes the ability to regulate rates.

Back when the Chairman was talking about using Title II rules he said publicly that the FCC wasn’t intending to get into the rate regulation business for broadband. In these hearings the Chairman repeated this and said that the FCC would be glad to help craft language that limit the FCC’s ability to do traditional rate regulation while making sure not to undo the other aspects of Title II regulations.

As a consumer and one who tracks industry trends I’m not so sure that the FCC should be so quick to give up rate regulation of broadband. I believe that we are at the beginning of the time when we will see continuous annual price increases for broadband. The large cable companies and telcos are under huge pressure from Wall Street to increase earnings every quarter and a lot of their traditional revenue streams like cable TV and telephone service are in a decline. This is going to leave no alternative to the big ISPs but to raise broadband rates.

We’ve already seen the beginning of this. The recent Comcast data caps trials and the recent announcement from AT&T that customers could buy unlimited data for only $30 more than what they are already paying for broadband are both nothing more than big rate increases on the biggest data users of broadband. All of these companies understand how fast consumer use of broadband is growing. We have been a curve since the 1980s where home use of broadband has doubled about every three years and there is no sign of a slowdown. So the big ISPs set data caps knowing that they will get extra revenue today from perhaps 10% to 20% of their customers, but also knowing that each year it’s going to affect more and more people.

And rate caps are only the first place ISPs will raise rates. We’ve seen a number of the large ISPs raise rates a few bucks in the last few years, and as earnings pressure increases one can expect that we are not many years away from a time when data rates are going to be increased each year in the same manner that cable rates have increased. But there is a huge difference. Cable rate increases have been driven in large part by increases in programming costs (although cable companies usually tacked on a little extra to boost bottom line). But it’s already clear today that broadband has a huge margin and that, if anything, the cost of underlying Internet connectivity keeps dropping each year. If ISPs raise data rates it’s due to nothing more than wanting to make more money.

And there is fundamentally nothing wrong with any business wanting to make more money. Except that for most markets in the US there is only one dominant broadband provider in the form of a cable company. And even where there is a second provider, like Verizon FiOS, they will undoubtedly be raising rates in lockstep with the cable companies in a pure demonstration of duopoly competition.

So I hope that the FCC doesn’t give up rate setting abilities because the day is coming within a decade when it’s going to be badly needed. You can be sure that the ISPs understand this completely and that they are the authors of the bill that would stop the FCC from looking at rates. They know that the FCC isn’t likely to do this today, but they know that there is going to be a huge public outcry for the FCC to do this in the future and they are launching a preemptive strike now to win this battle before it starts.

Current News Regulation - What is it Good For?

My Take on the Net Neutrality Ruling

Chairman Wheeler announced the highlights of his proposed order on net neutrality, and since I have been following this closely I guess I should weigh in on what he is proposing. Assuming the FCC vote goes along party lines, this ought to be passed later this month.

My first reaction is one of huge respect for the Chairman. When he first came to office I looked at his background and was highly skeptical about a guy who had worked as the head lobbyist for both the wireless and the cable industries. I assumed it was going to be difficult for him to make the hard calls against those two industries. But with this ruling, and with other rulings such as the expected ruling later this month about allowing municipal broadband, he has proven he is willing to make hard choices.

The Chairman is proposing to implement Title II as the mechanism for regulating the Internet. He is fixing the mistake the FCC made a generation ago when they decided not to use Title II. There is no doubt that one of the big telcos, cable companies, or wireless companies will take this order to court. And that’s too bad, because in this case I think it just delays the inevitable. This is something that the FCC is allowed to do, and I think ultimately any court is going to agree with that.

The carriers hate this ruling because it gives the FCC the ability to tell them no. The FCC can stop ISPs from abusing the public through their broadband policies. It’s a bit ironic since the big companies have mostly been on their best behavior for several years so that they didn’t get this kind of net neutrality ruling. But even so they have done things that harmed the public. Look at the whole fiasco last year when most of the big ISPs were slowing down Netflix on purpose and trying to extract payments from them.

The largest ISPs have proven many times that they are only out for profits. This is somewhat sad because the old Ma Bell, even with many flaws, was mostly a company that did the right thing by the public. There were times when they would dig in their heels and take a stupid position, but the old AT&T also built and operated a telecom network that was the envy of the rest of the world.

But I see zero morality these days out of the likes of AT&T and Comcast. They only care about profits and stock prices and they will try anything and do anything that makes them the most money. And that is why these net neutrality rules are badly needed. I’ve always assumed that they have had a pile of bad ideas ready to foist on the public the second they think that net neutrality is no longer an issue.

So I view these net neutrality rules as a safety net for all of us little people who otherwise have no power against the oligopoly telecom providers. Now the FCC can step in when they get complaints and tell the large ISPs to stop bad behavior.

The FCC published this document of talking points that outlines what will be up for a vote later this month. I am sure that there is going to be a lot more detail to wade through when the order comes out, but this provides a pretty complete picture of how it is going to work.

One thing that I hope doesn’t happen is for politics to raise its ugly head, get involved, and interfere to give the carriers what they want. For instance, there is a bill  circulating in Congress right now that says that it provides for an open Internet without using Title II. That may sound okay, but the bill was written by the big carriers, and it says all the right feel-good stuff about net neutrality but doesn’t give the FCC the authority to crack down on carriers when they misbehave. No bill like that is going to make it into law because the President will veto anything that endangers net neutrality. But you have to worry about the carriers sneaking in watered-down net neutrality rules through some backdoor approach.

This is a bold move by the FCC. I’ve read every proposal imaginable about how to make net neutrality work and this is the only approach that has enough teeth to be able to rein in the ISPs while fitting within the existing law in a way that should survive legal challenge. In fact, when the courts overturned the last net neutrality order they basically suggested Title II as an approach they could approve. A year ago nobody gave this solution a chance. But Chairman Wheeler has done the right thing and preserved the Internet for a while longer.

Current News Regulation - What is it Good For?

How Many Households Have Broadband? – Part I

FCC Chairman Wheeler made a speech last week about the lack of broadband competition in the country. As part of the speech he released four bar charts showing the percentage of households that have competitive alternatives at the download speeds of 4 Mbps, 10 Mbps, 25 Mbps and 50 Mbps. His conclusion was that a large portions of the households in the US can only buy broadband from one or two service providers. I was glad to hear him talking about this.

But unfortunately there is a lot of inaccuracy in the underlying data that he used to come to this conclusion, particularly at the charts showing the slower speeds. The data that the FCC relies on for measuring broadband is known as the National Broadband Map. While the data gathered for that effort results in a Map, it’s really a database, by census block, that shows the number of providers and the fastest data speed they offer in a given area.

A census block is the smallest area of population summarized by the US Census. It is generally bounded by streets and roads and will contain from 200 – 700 homes (with the more populated blocks generally just in urban areas with high-rise housing). A typical rural census block is going to have 200 – 400 homes. The National Broadband Map gathers data from carriers that describe the broadband services they offer in each census block. As it turns out, self-reporting by carriers is a big problem when it comes to the accuracy of the Map. In tomorrow’s blog I will show a real life example of how this affects new deployment of rural broadband.

Broadband service providers don’t generally track their network by census blocks, so part of the problem is that census block don’t match the physical way  that broadband networks are deployed in a rural area. Anybody who lives in rural America understands how utilities work there. In every small town there is a very definite line where utilities like City water and cable TV stop. Those utilities get to the edge of the area where people live and they stop. That doesn’t match up well with Census blocks that tend to extend outward from many small towns to include rural areas. Rural census blocks are not going to conveniently stop where the utilities stop.

There are three widely used rural broadband technologies – cable modem, DSL and fixed wireless. Let’s look briefly at how each of these match with the broadband mapping effort. Cable is the easiest because every cable network has a discrete boundary. There is some customer at the end of every cable route and the next house down the road cannot get cable. So it is not too likely that the cable companies are claiming to serve census blocks where they have no customers.

DSL and fixed wireless are a lot trickier. Both of these technologies share the characteristic that the bandwidth available with the technology drops quickly with distance. For example, DSL can transmit over a few miles of copper from the last DSLAM in the network. The household right next to that DSLAM can get the full speed offered by the specific brand of DSL while the last house at the end of the DSL signal gets only a small fraction of the speed, often with speeds that are not really any better than dial-up.

The same thing happens with fixed wireless. A WISP will install a transmitter on a tower or tall structure and the customers close to that tower will get decent broadband, and those transmitters tend to be installed in small towns where people live. But wireless broadband speeds drop rapidly with distance from the transmitter and if you go more than a few miles from any tower there is barely any bandwidth.

Both telcos and WISPs input their coverage areas into the National Broadband Map database. And in doing so, it appears that they claim broadband anywhere where they can provide service of any kind. But for DSL and fixed wireless, that service-of-any-kind area is much larger than the area where they can deliver actual broadband. Remember that broadband is currently defined as the ability to deliver 4 Mbps download. Because of the nature of their technologies, a lot of the people who can buy something from them will get a product that is slower than 4 Mbps, and at the outer ends of their network speeds are far slower than that.

I don’t necessarily want to say that the carriers inputting into the system are lying, because in a lot of cases customers can call and order broadband and a technician will show up and install a DSL modem or a wireless antenna. But if that customer is too far away from the network hub, then the product that gets delivered to them is not broadband. It is something slower than the FCC definition of broadband, but it is probably better than dial-up. But customers with slow connections can’t use the Internet to watch Netflix or do a lot of the basic things that require actual broadband. And as each year goes by, and as more and more video is built into everything we do on the Internet there are more and more web sites and services that out of reach for such customers.

But unfortunately, there are also areas where it appears that the carriers have declared that they offer broadband where there isn’t any. If you were to draw something like a 5-mile circle around every rural DSLAM and every WISP transmitter you will see the sort of broadband coverage that many rural carriers are claiming. But the reality is that broadband can only be delivered for 2-3 miles, which means that the actual broadband coverage area is maybe only a fourth of what is shown on the Map. If you go door-to-door and talk to people outside of rural towns you will find a very different story than what is shown on the National Broadband Map. Unfortunately, the Chairman’s numbers are distorted by these weaknesses and distortions underlying the Map. There are a lot more rural Americans without broadband than are counted in the Map and rural America has far fewer broadband options than what the Chairman’s charts claim.

Tomorrow, a real life example.