Should We Regulate Google and Facebook?

I started to write a blog a few weeks ago asking the question of whether we should be regulating big web companies like Google and Facebook. I put that blog on hold due to the furor about Cambridge Analytica and Facebook. The original genesis for the blog was comments made by Michael Powell, the President and CEO of NCTA, the lobbying arm for the big cable companies.

At a speech given at the Cable Congress in Dublin, Ireland Powell said that edge providers like Facebook, Google, Amazon and Apple “have the size, power and influence of a nation state”. He said that there is a need for antitrust rules to reign in the power of the big web companies. Powell put these comments into a framework of arguing that net neutrality is a weak attempt to regulate web issues and that regulation ought to instead focus on the real problems with the web for issues like data privacy, technology addiction and fake news.

It was fairly obvious that Powell was trying to deflect attention away from the lawsuits and state legislation that are trying to bring back net neutrality and Title II regulations. Powell did make same some good points about the need to regulate big web companies. But in doing so I think he also focuses the attention back on ISPs for some of the same behavior he sees at the big web providers.

I believe that Powell is right that there needs to be some regulation of the big edge providers. The US has made almost no regulations concerning these companies. It’s easy to contrast our lack of laws here to the regulations of these companies in the European Union. While the EU hasn’t tackled everything, they have regulations in place in a number of areas.

The EU has tackled the monopoly power of Google as a search engine and advertiser. I think many people don’t understand the power of Google ads. I recently stayed at a bed and breakfast and the owner told me that his Google ranking had become the most important factor in his ability to function as a business. Any time they change their algorithms and his ranking drops in searches he sees an immediate drop-off in business.

The EU also recently introduced strong privacy regulations for web companies. Under the new rules consumers must opt-in the having their data collected and used. In the US web companies are free to use customer information in any manner they choose – and we just saw from the example of Cambridge Analytica how big web companies like Facebook monetize consumer data.

But even the EU regulations are going to have little impact if people grant the ability for the big companies to use their data. One thing that these companies know about us is that we willingly give them access to our lives. People take Facebook personality tests without realizing that they are providing a detailed portrait of themselves to marketeers. People grant permissions to apps to gather all sorts of information about them, such a log of every call made from their cellphone. Recent revelations show that people even unknowingly grant the right to some apps to read their personal messages.

So I think Powell is right in that there needs to be some regulations of the big web companies. Probably the most needed regulation is one of total transparency where people are told in a clear manner how their data will be used. I suspect people might be less willing to sign up for a game or app if they understood that the app provider is going to glean all of the call records from their cellphone.

But Powell is off base when he thinks that the actions of the edge providers somehow lets ISPs off the hook for similar regulation. There is one big difference between all of the edge providers and the ISPs. Regardless of how much market power the web companies have, people are not required to use them. I dropped off Facebook over a year ago because of my discomfort from their data gathering.

But you can’t avoid having an ISP. For most of us the only ISP options are one or two of the big ISPs. Most people are in the same boat as me – my choice for ISP is either Charter or AT&T. There is some small percentage of consumers in the US who can instead use a municipal ISP, an independent telco or a small fiber overbuilder that promises not to use their data. But everybody else has little option but to use one of the big ISPs and is then at their mercy of their data gathering practices. We have even fewer choices in the cellular world since four providers serve almost every customer in the country.

I was never convinced that Title II regulation went far enough – but it was better than nothing as a tool to put some constraints on the big ISPs. When the current FCC killed Title II regulation they essentially set the ISPs free to do anything they want – broadband is nearly totally unregulated. I find it ironic that Powell wants to see some rules the curb market abuse for Google and Facebook while saying at the same time that the ISPs ought to be off the hook. The fact is that they all need to be regulated unless we are willing to live with the current state of affairs where ISPs and edge providers are able to use customer data in any manner they choose.

Is This an Activist FCC?

FCC_New_LogoSince I have been in the industry there have been fourteen different Chairmen at the FCC. And during that time those have been split pretty evenly between democrats and republicans. We had Chairmen who had the reputation of leaning towards the public such as Reed Hundt and those that have favored the large businesses in the industry like Michael Powell. But you can find FCC decisions under each of Chairman that are in favor of the public or in favor of carriers, radio and television stations that the FCC regulates.

When you read the press about the current FCC (the Tom Wheeler FCC) the public impression is that it is pro-competition and pro-public. And there are plenty of rulings that back that up such as:

  • Net neutrality that regulates broadband ISPs and stops them from various practices that would restrict internet choice.
  • The current proposal for privacy rules that would let people restrict how ISPs can use their personal data.
  • Opposed the Comcast / Time Warner merger.
  • Reset the definition of broadband to 25 Mbps down / 3 Mbps up.
  • The decision last year that said that restrictions on municipal broadband were anti-competitive.
  • Opposed the AT&T / T-Mobile merger.
  • Slashed prison calling rates to make it easier for families to stay in contact with those in prison.

Every one of these orders favors the public over the big companies that are regulated by the FCC. And there are other orders beyond this list.  It’s not hard to see why this FCC has built the reputation of being pro-competition and anti-big business. And yet there are some major decisions that have been clearly in favor of the big companies regulated by the FCC.

Probably the biggest of these was the decision to award over $6 billion to the largest telcos to upgrade rural broadband. In establishing the Connect America fund the FCC gave almost all of the money to AT&T, Frontier, and CenturyLink and is only requiring them to upgrade rural broadband over a six year period to speeds of 10 Mbps / 1 Mbps. Those speeds are already becoming obsolete today and are the equivalent of somebody still sitting on a 1 Mbps DSL connection in 2005. Those speeds will provide Internet access, but a household on those speeds can’t do the same things that those of us with faster connections can do. And by the end of the six years these speeds are going to be completely out of date and inadequate.

And just last week this FCC put a rule in its Lifeline order that can be seen as nothing but a giveaway to cellular companies. The FCC is going to allow the $10 per month Lifeline subsidy for low income households to go to a cellular plan operating on the 3G network and with a monthly data cap of only ½ gigabit. The stated purpose of the Lifeline plan is to close the ‘homework gap’ and yet this one provision will probably end up sending a billion dollars a year to the cellular providers to pay for data plans that won’t meet the stated goal of the Lifeline program.

I remember when Chairman Wheeler was announced that industry insiders assumed that he was going to be in favor of the large carriers and cable companies since he had spent his career representing them. But he immediately quieted this criticism by making a number of pro-competitive and anti-carrier rulings.

When I look at the whole record I have a hard time seeing this FCC as activist. They certainly lean towards promoting things that a democratic White House would favor, as you would expect from a democratic FCC Chairman. But at the same time this FCC has handed billions of dollars to big carriers, and in doing so has greatly harmed the public. One can just imagine how far the Connect America Funds could have gone if that money was instead given out over six years as matching funds to build rural fiber systems. That much seed money would have brought a fiber solution to millions rather than stick them with another decade of poor DSL.

But in retrospect, when I look back at all of the various FCC Chairmen I can see that they have presided over decisions on both ends of the spectrum, and that probably comes with the job. The FCC is in charge of regulating very complex industries that change rapidly and which are controlled by large and powerful companies. I’m glad it’s not me sitting in that chair.

Should You Have a Data Cap?

data recovery

data recovery (Photo credit: Sean MacEntee)

Over the last few years most of the cable companies and some telcos have implemented data caps on high-speed Internet access. They always claimed that caps were necessary to help protect their networks from congestion. They claimed that heavy users would clog the networks and make data speeds slow for everybody else. But as someone who sees hundreds of networks, this claim holds no technical validity, except in some isolated instances and in some parts of some networks.

Michael Powell, the head of the National Cable and Telecommunications Association admitted publicly last week that caps are not about congestion, but rather are about ‘pricing fairness”. In the telecom world there is a general rule of thumb that the most active 15% of your users will use 85% of any resource, be that minutes, data, etc. And it’s a pretty good rule of thumb. If cable companies had come along and lowered prices for the 85% who are not heavy users and then made up the difference on higher rates for the 15%, then his argument would resonate with the public. But nobody saw any rate reductions and it’s hard to see data caps as anything more than a way to make even more money from data service.

One has to just note that the US has some of the highest-priced Internet services in the world to poke holes in NCTA’s announcement. If you compare US rates to the Far East or Europe it is easy to see that our rates are way out of line on a cost per megabit of service available to customers.

To make it worse, cable companies are starting to raise data rates. And this follows a ten-year period where the underlying cost of raw data has gotten cheaper every year. When a cable company set a monthly rate of $40 or $50 a decade ago, during that decade the cost of buying wholesale access to the Internet has probably dropped by 90%. It’s my opinion that cable companies know that in another decade that they are going to mostly become ISPs since cable and telephone are both dying products. They are starting to creep the rates up now to hedge against the day when that is their only product.

But even assuming that our rates are too high and that profits are really high, should any ISP consider any sort of cap or limitation on how customers use their data. I think the answer is yes, and it is not for any of the reasons that the cable companies have given.

Using my metric, 15% of the users on a network create most of the data usage. But absent any rules on how the network can be used, a small number of them could be using most of the usage for that group. For example, customers who operate servers and operate ecommerce site or other very busy sites like a pornography server can use huge amounts of data on the network. Much of that data is sent in the upload direction and doesn’t cost as much for a carrier as downloaded data, but a few such sites actually can clog a part of the network if they are busy continuously. The way around this problem is a prohibition against using servers on a basic residential data product. But if you are going to have this kind of policy you also need to have some way to measure how much data each customer is using.

On the download side of the equation, there are always a few customers who abuse any system. There are internet hoarders just as there are hoarders of anything else, and so you might want to set a cap that discourages continuous downloading. Comcast has implemented data caps of around 300 Gb in a lot of markets lately. If a customer downloads movies at a very high quality rate, they can use around 2 Gb per hour. If they watch non-HD movies it’s about half of that. And so a 300 Gb data cap would limit people to watching 150 hours of HD programming or 300 hours of normal programming per month. That works out to a limit of 5 hours per day or HD programming or 10 hours per day of normal programming. That may seem like a lot, but if each person in the family is watching their own programming, that is a really small limit.

I have advised my clients to institute a fairer cap, but to still have one. For instance, a cap set at 1 Tb (1,000 Gb) allows for over three times the usage than the Comcast cap. Anybody going over a 1 Tb cap is likely a data hoarder because that requires somebody to be downloading video more or less continuously every day of the week. Every network has a different configuration and so this is not a hard and fast limit. But I suggest some limit on data, at a very high rate that will only affect a truly small handful of people. The Comcast rate is set to make any family who actually uses their bandwidth to pay more. My suggestion is to set a cap that stops bad abuse, while giving people what they have paid for.