Is AT&T the 800-pound Gorilla?

For years it’s been understood in the industry that Comcast is the hardest incumbent to compete against. However, they are still a cable company and many people dislike cable companies – but Comcast has been the most formidable competitor. The company is reported to have the highest gross margins on cable TV and might be one of the few companies still making a significant profit on cable. Much of that is due to their extensive programming holdings – it’s easier to make money on cable when you buy your own programming. Comcast has also been the best in the industry in creating bundles to lock in customers – bundling things like smart home and more recently cellular service.

But the new 800-pound Gorilla in the industry might be AT&T. The company seems to be finally shaking out of the transition period from integrating their purchase of Time Warner. It can be argued that the programming that came from that merger – things like HBO, CNN, and blockbuster movies – will make AT&T a more formidable competitor than Comcast.

AT&T will be launching its new streaming service, AT&T TV, next month. The company already has one of the largest streaming services with DirecTV Now. It’s been rumored that the streaming service will start at a price around $18 per month – an amazingly low price considering that HBO retails for $15 online today. The company is trying to coax more money out of the millions of current HBO subscribers. This pricing also will lure customers to drop HBO bought from cable companies and instead purchase it online.

AT&T has also been building fiber for the last four years and says that they now pass 20 million homes and businesses. They recently announced the end of the big fiber push and will likely now concentrate on selling to customers in that big footprint. The company is one of the more aggressive marketers and has sent somebody to my door several times in the last year. That’s a sign of a company that is working hard to gain broadband subscribers.

The one area where AT&T is still missing the boat is in not bundling broadband and cellular service. AT&T is still number one in the country with cellular customers, with almost 160 million customers at the end of the recently ended second quarter. For some reason, they have never tried to create bundles into that large customer base.

AT&T has most recently been having a customer purge at DirecTV. For years that business bought market share by offering low-prices significantly below landline cable TV. Over the last, year the company has been refusing to renew promotional pricing deals and is willing to let customers walk. In the first quarter of this year alone the company lost nearly one million customers. The company says they are not unhappy to see these customers leave since they weren’t contributing to the bottom line. This is a sign of a company that is strengthening its position by stripping away the cost of dealing with unprofitable customers.

AT&T has also pushed a few net neutrality issues further than other incumbents. As a whole, the industry seems to be keeping a low profile with issues that are identified as net neutrality violations. There is speculation that the industry doesn’t want to stir up public ire on the topic and invite a regulatory backlash if there is a change in administration.

AT&T widely advertised to its cellular customers earlier this year that the company would not count DirecTV Now usage against cellular or landline data caps. The same will likely be true for AT&T TV. Favoring one’s own service over the competition is clearly one of the things that net neutrality was intended to stop. Since there are data caps on both cellular and AT&T landline products, the move puts Netflix and other streaming services at a competitive disadvantage. That disadvantage will grow over time as more landline customers hit the AT&T data caps.

AT&T has made big mistakes in the past. For instance, they poured a fortune into promoting 50 Gbps DSL instead of pushing for fiber a decade sooner. They launched their cable TV product just as that market peaked. The company seemed to lose sight of all landline and fiber-based products for a decade when everything the company did was for cellular – I remember a decade ago having trouble even finding mention of the broadband business in the AT&T annual report.

We’ll have to wait a few years to see if a company like AT&T can reinvent itself as a media giant. For now, it looks like they are making all of the right moves to take advantage of their huge resources. But the company is still managed by the same folks who were managing it a decade ago, so we’ll have to see if they can change enough to make a difference.

Are Broadband Investments Increasing?

The largest ISPs and their lobbying arm USTelecom are still claiming that the level of industry capital spending has improved as a direct result of the end of Title II regulation. In a recent blog they argue that capital spending was up in 2018 due to the end of regulation – something they describe as a “forward-looking regulatory framework”. In reality, the new regulatory regime is now zero regulation since the FCC stripped themselves of the ability to change ISP behavior for broadband products and practices.

The big ISPs used this same argument for years leading up to deregulation. They claimed that ISPs held back on investments since they were hesitant to invest in a regulatory-heavy environment. This argument never held water for a few reasons. First, the FCC barely ever regulated broadband companies. Since the advent of DSL and cable modems in the late 1990s, each subsequent FCC has largely been hands-off with the ISP industry.

The one area where the last FCC added some regulations was with net neutrality. According to USTelecom that was crippling regulation. In reality, the CEO of every big telco and cable company has publicly stated that they could live with the basic principles of net neutrality. The one area of regulation that has always worried the big ISPs is some kind of price regulation. That’s really not been needed in the past, but all of the big companies look into the future and realize that the time will come when they will probably raise broadband rates every year. We are now seeing the beginnings of that trend, which is probably why USTelecom keeps beating this particular dead horse to death – the ISPs are petrified of rate regulation of any kind.

The argument that the big ISPs held back on investment due to heavy regulation has never had any semblance to reality. The fact is that the big ISPs make investments for the same reasons as any large corporation – to increase revenues, to reduce operating costs, or to protect markets.

As an example, AT&T has been required to build fiber past 12.5 million passings as part of the settlement reached that allowed them to buy DirecTV. AT&T grabbed that mandate with gusto and has been aggressively building fiber for the past several years and selling fiber broadband. Both AT&T and Verizon have also been building fiber to cut transport expense to cell sites – they are building where that transport is too costly, or where they know they want to install small cell sites. The large cable companies all spent capital on DOCSIS 3.1 for the last few years to boost broadband speeds to protect and nurture their growing monopoly of urban broadband. All of these investment decisions were made for strategic business reasons that didn’t consider the difference between light regulation and no regulation. Any big ISP that says they will forego a strategic investment due to regulation would probably see their stock price tumble.

As a numbers guy, I always become instantly suspicious of deceptive graphs. Consider the graph included in the latest USTelecom blog. It shows the levels of industry capital investments made between 2014 and 2018. The graph makes the swings of investment by year look big due to the graphing trick of starting the bottom of the graph at $66 billion instead of at zero. The fact is that 2018 capital investments are less than 3% higher than the investments made in 2014. This is an industry where the aggregate level of annual investment varies by only a few percent per year – the argument that the ISPs have been unleashed due to the end of Title II regulation is laughable and the numbers don’t show it.

There are always stories every year that can explain the annual fluctuation in industry spending. Here are just a few things that made an significant impact on the aggregate spending in the past few years:

  • Sprint had a cash crunch a few years ago and drastically cut capital spending. One of the primary reasons for the higher 2018 spending is that Sprint spent almost $2 billion more in 2018 than the year before as they try to catch up on neglected projects.
  • AT&T spent $2 billion in 2018 for FirstNet, the nationwide public safety network. But AT&T is not spending their own money – that project is being funded by the federal government and ought to be removed from these charts.
  • Another $3 billion of AT&T’s spending in 2018 was to beef up the 4G network in Mexico. I’m not sure how including that spending in the numbers has any relevance to US regulation.
  • AT&T has been on a tear building fiber for the past four years – but they announced last month that the big construction push is over, and they will see lower capital spending in future years. AT&T has the largest capital budget in the industry and spent 30% of the industry wide $75 billion in 2018 – how will USTelecom paint the picture next year after a sizable decrease in AT&T spending?

The fact that USTelecom keeps harping on this talking point means they must fear some return to regulation. We are seeing Congress seriously considering new consumer privacy rules that would restrict the ability of ISPs to monetize customer data. We know it’s likely that if the Democrats take back the White House and the Senate that net neutrality and the regulation of broadband will be reinstated. For now, the big ISPs have clearly and completely won the regulatory battle and broadband is as close to deregulated as any industry can be. Sticking with this false narrative can only mean that the big ISPs think their win is temporary.

Why is the FCC Still Spinning Net Neutrality?

Chairman Ajit Pai and several other FCC Commissioners are still sticking with the story that regulation and net neutrality were quashing capital spending and innovation in the industry. This was the primary argument that justified killing net neutrality and gutting Title II regulation. Pai claimed that net neutrality was disrupting the big ISPs so much that they were reining in capital spending. Chairman Pai further claimed that killing regulation would free the big ISPs to expand their networks and to improve broadband coverage – he’s also repeatedly argued that without regulation that ‘the market’ would solve the rural broadband divide. Chairman Pai launched this story on his first day as Chairman and hasn’t let up – even now, over a year after the FCC successfully killed net neutrality and Title II regulation.

I find this to be unusual. Normally, when somebody in the industry wins a regulatory battle they quietly move on to the next issue, but at almost every public speaking opportunity the Chairman is still repeating these same talking points. I’ve been thinking about why Chairman Pai would keep harping on this argument long after he successfully killed net neutrality. I can think of a few reasons.

The Lawsuits. The FCC is probably concerned about the lawsuits challenging net neutrality. That order used some legal gymnastics in the FCC argument to kill Title II regulation. So perhaps Chairman Pai is continuing to make these same arguments as a way to let the courts know that keeping Title II regulation dead is still the number one priority of this FCC. I’m sure that if the courts challenge the FCC order that the agency will appeal, and so perhaps he continues to make the same arguments in anticipation of that coming court battle.

5G Deployment. In a very odd back-door way, the FCC has been using the net neutrality argument to grease the skids for an unregulated roll-out of 5G. The FCC’s message couldn’t be simpler: “all regulation bad / 5G and innovation good”.

I doubt that the average American understands the magnitude of what this FCC did when they killed Title II regulation. The agency basically killed its own authority to regulate what is probably the most important product it has ever regulated. Broadband is vital to both the economy and to people’s everyday lives. Yet this FCC thinks that their best regulatory role is to not regulate the industry in any manner. That means not regulating the many issues covered by net neutrality. It means not caring about consumer privacy on the web. It means not being concerned with runaway price increases and data caps. Killing Title II regulation means that future FCCs might have a hard time trying to reintroduce any regulation of broadband. The FCC handed the keys of the broadband industry to the monopoly ISPs and told them to run the industry as they see fit.

At the strong urging of the big wireless companies, this FCC wants to also make sure there are no restraints on 5G. It seems the only parties the FCC wants to regulate are those that might create roadblocks for 5G, such as cities that control rights-of-way.

Congress. Congress has the ability to permanently resolve the Title II and net neutrality battle. Congress could codify the current deregulated state-of-affairs or they could put Title II and net neutrality permanently back on the books. In fact, it’s the lack of Congressional action that led the FCC to kill net neutrality – they would much have preferred that Congress did it. But the Congress hasn’t undertaken any policy initiatives in the telecom industry since the Telecommunications Act of 1996, when most of us still were using dial-up.

There has been a lot of recent discussion in Congress on telecom issues and perhaps one of the reasons that Chairman Pai continues to lobby against net neutrality is to keep that position in front of Congress. However, it seems unlikely that any significant regulation is going to come out of a split Congress.

No Better Argument? Finally, and what is my favorite theory, perhaps the FCC doesn’t have any better argument about why they should be killing regulation. They’ve had years to come up with a story that the American people will buy, and the best they’ve come up with is that killing regulation will unleash innovation.

I think the FCC is afraid to touch the policy issues that the public really cares about. People in rural areas are adamant that the FCC finds a way to get them real broadband. The vast majority of broadband users are worried about being hacked and are worried about how the big ISPs are spying on them and selling their data. Everybody is concerned about the talk on Wall Street that encourages the big ISPs to significantly jack up rates. A large majority of the country cares about net neutrality and an open Internet. I can see why the FCC would rather stick with their story about how killing regulation unleashes innovation – because they are afraid of opening Pandora’s box to let all of these other issues into the open.

New Net Neutrality Legislation

On February 7, as hearings were being held on net neutrality, Congressional Republicans said they were going to offer up three different versions of a bill intended to reinstate net neutrality principles. The newest bill, the Open Internet Act of 2019, was introduced by Rep Bob Latta of Ohio. They also offered up bills previously introduced by Rep. Greg Walden of Oregon and Sen John Thune of South Dakota.

All three bills would reestablish rules against ISP blocking web traffic, throttling customers or implementing paid-prioritization, which has been referred to as creating fast lanes that give some web traffic prioritization over other traffic. Hanging over all of these bills is a court review of a challenge of the FCC’s right to kill net neutrality – a successful challenge would reinstate the original FCC net neutrality rules. There are also a number of states poised to introduce their own net neutrality rules should the court challenge fail.

The court case and the threat of state net neutrality rules are prodding Congress to enact net neutrality legislation. Legislation has always been the preferred solution for imposing any major changes in regulation. When there’s no legislation, then rules like net neutrality are subject to being changed every time there is a new FCC or a new administration. Nobody in the country benefits – not ISPs and not citizens – when policies like net neutrality change every time there is a new administration.

These three bills were clearly influenced by the big ISPs. They include nearly the identical talking points that are being promoted by NCTA, the lobbying arm of the largest ISPs, headed by ex-FCC Commissioner Michael Powell. There are two primary differences in these bills and the original net neutrality rules that were established by the last FCC.

The first is a provision that the legislation would allow the ISPs to stray from the net neutrality principles if there is a ‘public benefit’ from doing so. That would allow ISPs to adopt any web practice they want as long as they can concoct a story about how the practice creates a public benefit. Since there are winners and losers from almost any network practice of ISPs, it wouldn’t be hard to identify those that benefit from a given practice. From a regulatory perspective, this is as close as we can come to a joke. If a regulated entity gets to decide when a regulation applies, then it’s not really a regulation.

The other big difference from the proposed legislation and the original net neutrality order is the lack of what is called a ‘general conduct standard’. The original net neutrality order understood that the Internet is a rapidly evolving and that any specific rules governing Internet behavior would be obsolete almost as soon as they are enacted. ISPs and the other big players on the web are able to design ways around almost any imaginable legislative rules.

The original net neutrality order took the tactic of establishing the three basic net neutrality principles but didn’t provide any specific direction on how the FCC was supposed to enforce them. The concept of the general conduct standard is that the FCC will look at each bad practice of an ISP to see if it violates the net neutrality principles. Any FCC ruling would thus be somewhat narrow, except that a ruling against a specific ISP practice would generally apply to others doing the same thing.

The original net neutrality order envisioned a cycle where the FCC rules against bad practices and the ISPs then try to find another way to get what they want – so there would be a continuous cycle of ISPs introducing questionable behavior with the FCC deciding each time if the new practice violates the intent of the net neutrality principles. This was a really clever solution for trying to regulate an industry that changes as quickly as the ISP and web world.

The proposed legislation does away with the general conduct standard. That means that the FCC would not have the ability to judge specific ISP behavior as meeting or not meeting the net neutrality standards. This would take all of the teeth out of net neutrality rules since the FCC would have little authority to ban specific bad practices. This was summarized most succinctly by former FCC Chairman Tom Wheeler who testified in the recent Congressional hearings that if Congress established net neutrality rules it ought to allow for “a referee on the field with the ability to throw the flag for unjust and unreasonable activity.”

The bottom line is that the proposed legislation would reintroduce the basic tenets of net neutrality but would give the FCC almost no authority to enforce the rules. It’s impossible to imagine these bills being passed by a divided Congress, so we’re back to waiting on the Courts or perhaps on states trying to regulate net neutrality on their own – meaning a long-term muddled period of regulatory uncertainty.

ISPs Are Violating the Old Net Neutrality Rules

It’s been just over a year since the FCC repealed net neutrality. The FCC’s case is being appealed and oral arguments are underway in the appeal as I write this blog. One would have to assume that until that appeal is finished that the big ISPs will be on their best behavior. Even so, the press has covered a number of ISP actions during the last year that would have violated net neutrality if the old rules were still in place.

It’s not surprising that the cellular carriers were the first ones to violate the old net neutrality rules. This is the most competitive part of the industry and the cellular carriers are not going to miss any opportunity to gain a marketing edge.

AT&T is openly advertising that cellular customers can stream the company’s DirecTV Now product without it counting against monthly data caps. Meanwhile, all of the competing video services like Sling TV, Paystation Vue, YouTube TV, Netflix or Amazon Prime count against AT&T data caps – and video can quickly kill a monthly data plan download allotment. AT&T’s behavior is almost a pure textbook example of why net neutrality rules were put into place – to stop ISPs from putting competitor’s products at an automatic disadvantage. AT&T is the biggest cellular provider in the country and this creates a huge advantage for DirecTV Now. All of the major cellular carriers are doing something similar in allowing some video to not count against the monthly data cap, but AT&T is the only one pushing their own video product.

In November a large study of 100,000 cellphone users by Northeastern University and the University of Massachusetts showed that Sprint was throttling Skype. This is not something that the carrier announced, but it’s a clear case of pushing web traffic to the ‘Internet slow lane’. We can only speculate why Sprint would do this, but regardless of their motivation this is clearly a violation of net neutrality.

This same study showed numerous incidents where all of the major cellular carriers throttled video services at times. YouTube was the number one target of throttling, followed by Netflix, Amazon Prime, and the NBC Sports app. This throttling wasn’t as widespread as Sprint’s throttling of Skype, but the carriers must have algorithms in their network that throttles specific video traffic when cell sites get busy. In contrast to the big carriers, the smaller independent cellular carrier C.Spire had almost no instances of differentiation among video streams.

Practices that might violate net neutrality were not limited to cellular carriers. For example, Verizon FiOS recently began giving free Netflix for a year to new broadband customers. AT&T also started giving out free HBO to new customers last year. This practice is more subtle than the cellular carrier practice of blocking or throttling content. One of the purposes of net neutrality was for ISPs to not discriminate against web traffic. By giving away free video services the landline broadband companies are promoting specific web services over competitors.

This doesn’t sound harmful, but the discussions in the net neutrality order warned about a future where the biggest ISPs would partner with a handful of big web services like Facebook or Netflix to the detriment of all smaller and start-up web services. A new video service will have a much harder time gaining customers if the biggest ISPs are giving away their competitors for free.

There are probably more bad practices going on that we don’t know about. We wouldn’t have known about the cellular throttling of services without the big study. A lot of discrimination can be done through the network routing practices of the ISPs, which are hard to prove. For example, I’ve been seeing a growing number of complaints from consumers recently who are having trouble with streaming video services. If you recall, net neutrality first gained traction when it became known that the big ISPs like Comcast were blatantly interfering with Netflix streaming. There is nothing today to stop the big ISPs from implementing network practices that degrade certain kinds of traffic. There is also nothing stopping them from demanding payments from web services like Netflix so that their product is delivered cleanly.

Interestingly, most of the big ISPs made a public pledge to not violate the spirit of net neutrality even if the rules were abolished. That seems to be a hollow promise that was to soothe the public that worried about the end if net neutrality. The FCC implemented net neutrality to protect the open Internet. The biggest ISPs have virtual monopolies in most markets and public opinion is rarely going to change an ISP behavior if the ISP decides that the monetary gain is worth the public unhappiness. Broadband customers don’t have a lot of options to change providers and Cable broadband is becoming a near-monopoly in urban areas. There is no way for a consumer to avoid the bad practices of the cellular companies if they all engage in the same bad practices.

There is at least some chance that the courts will overturn the FCC repeal of net neutrality, but that seems unlikely to me. If the ISPs win in court and start blocking traffic and discriminating against web traffic it does seem likely that some future FCC or Congress will reinstitute net neutrality and starts the fight all over again. Regardless of the court’s decision, I think we are a long way from hearing the last about net neutrality.

Looking Back at the Net Neutrality Order

Chairman Ajit Pai used three arguments to justify ending net neutrality. First, he claimed that the net neutrality rules in effect were a disincentive for big ISPs to make investments and that ending net neutrality would lead to a boom in broadband investment. He also argued that ending net neutrality would free the big ISPs to make broadband investments in rural parts of the US that were underserved. Finally, he argued that the end of net neutrality would spark the growth of telecom jobs. It’s been two years since he used those arguments to justify the repeal net neutrality and it’s easy to see that none of those things have come to pass.

The investment claim is easy to check. The big ISPs are starting to release their 2018 financial results and it looks like capital spending in 2018 – the first year after the end of net neutrality – are lower than in 2017. We’ve already heard from Comcast and Charter and that capital spending was down in 2018 over 2017. The industry analyst MoffettNathanson has already predicted that capital spending for the four biggest cable companies – Comcast, Charter, Altice, and CableONE is expected to drop by 5.8% more in 2019. Anybody who watches the cable companies understands that they all just made big investments in upgrading to DOCSIS 3.1 and that capital spending ought to drop significantly for the next several years.

MoffettNathanson also predicts that wireline capital spending for Verizon and AT&T will drop from $20.3 billion in 2018 to $19.6 billion in 2019. The press is also full of articles lamenting that investments in 5G by these companies is far smaller than hoped for by industry vendors. It seems that net neutrality had no impact on telecom spending (as anybody who has spent time at an ISP could have told you). It’s virtually unheard of for regulation to drive capital spending.

The jobs claim was a ludicrous one because the big companies have been downsizing for years and have continued to do so after net neutrality was repealed. The biggest layoff came from Verizon in October 2018 when the company announced that it was eliminating 44,000 jobs and transferring another 2,500 to India. This layoff is an astronomical 30% of its workforce. AT&T just announced on January 25 that it would eliminate 4,600 jobs, the first part of a 3-year plan to eliminate 10,000 positions. While the numbers are smaller for Comcast, they laid off 500 employees on January 4 and also announced the close of a facility with 405 employees in Atlanta.

Pai’s claim that net neutrality was stopping the big ISPs from investing in underserved areas might be the most blatantly false claim the Chairman has made since he took the Chairman position. The big ISPs haven’t made investments in rural America in the last decade. They have been spending money in rural America in the last few years – but only funds handed to them by the FCC through the CAF II program to expand rural broadband and the FCC’s Mobility Fund to expand rural cellular coverage. I’ve been hearing rumors all over the industry that most of the big ISPs aren’t even spending a lot of the money from those two programs – something I think will soon surface as a scandal. There is no regulatory policy that is going to get the big ISPs to invest in rural America and it was incredibly unfair to rural America for the Chairman to imply they ever would.

Chairman Pai’s arguments for repealing net neutrality were all false and industry insiders knew it at the time. I probably wrote a dozen blog posts about the obvious falsehoods being peddled. The Chairman took over the FCC with the goal of eliminating net neutrality at the top of his wish list and he adopted these three talking points because they were the same ones being suggested by big ISP lobbyists.

What bothers me is this is not how regulation is supposed to work. Federal and state regulatory agencies are supposed to gather the facts on both sides of a regulatory issue, and once they choose a direction they are expected to explain why. The orders published by the FCC and other regulatory bodies act similar to court orders in that the language in these orders are then part of the ongoing record that is used later to understand the ‘why’ behind an order. In later years courts rely on the discussion in regulatory orders to evaluate disputes based upon the new rules. The order that repeals net neutrality sadly repeats these same falsehoods that were used to justify the repeal.

There are always two sides for every regulatory issue and there are arguments that could be made against net neutrality. However, the Chairman and the big ISPs didn’t want to publicly make the logical arguments against net neutrality because they knew these arguments would be unpopular. For example, there is a legitimate argument to made for allowing ISPs to discriminate against certain kinds of web traffic – any network engineer will tell you that it’s nearly mandatory to give priority to some bits over others. But the ISPs know that making that argument makes it sound like they want the right to shuttle customers into the ’slow lane’, and that’s a PR battle they didn’t want to fight. Instead, telecom lobbyists cooked up the false narrative peddled by Chairman Pai. The hoped the public would swallow these false arguments rather than argue for the end of net neutrality on its merits.

Deregulating Text Messaging

“This is one of the oddest dockets I’ve ever seen”. That’s roughly quoting myself several times over the last year as I read some of the things that the current FCC is up to. I find myself saying that again as I read the FCC’s recent docket that proposes to classify SMS text messaging as a Title I information service. Their stated reason for the reclassification is that it will make it easier to fight text message spam, and that stated reason is where the FCC loses me.

Text message spam is a real thing and I’ve gotten some annoying text spam over the last year and I’d sure hate to see my texting inbox get polluted with crap like my email inbox. However, I doubt that you’ll find any technologist in the industry that will tell you that the way to fight spam of any kind is by waving a magic wand and changing the way that something is regulated. The way you fight spam is to put barriers in place to detect and block it – and that is something that only the carriers that control the flow inside of a communications path can do. It’s the solution that the FCC themselves just pushed recently to try to stop robocalling – by demanding that the telephone industry find a solution.

Yet here sits a docket that blindly declares that reclassifying texting as an information service will somehow dissuade bad actors from sending spam text messages. I’m pretty sure that those bad actors don’t really care about the differences between Title I and Title II regulation.

One of the interesting things about this filing is that past FCCs have never definitively said how texting is regulated. Over the years the industry has come to assume that it’s regulated under Title II just like a telephone call – because functionally that’s all a text message is, a telephone call made using texted words rather than a voice call.

To some extent this docket is the first time the FCC has every officially addressed the regulatory nature of text messaging. In the past they made rulings about texting that implies a regulatory scheme, but they never have officially put texting into the Title II category. Now they want to remove it from Title II authority – the first time we’ve ever been told definitively that text is already a Title II service. Here are some of the past FCC treatment of the regulatory nature of text messages:

  • In 1994 the FCC ruled that systems that store and forward telecommunications messages, like SMS texting are ‘interconnected’ services, which at that time were clearly regulated by Title II. But there was no specific statement at the time that texting was a Title II service.
  • In the Telecommunications Act of 1996 the FCC defined a telecommunications service for the first time – which was defined as a service that uses telephones and the PSTN to communicate. The 1996 Act didn’t mention texting, but it clearly fits that definition.
  • In 2003 the FCC declared that text messages were ‘calls’ when the agency implemented the Telephone Consumer Protection Act, which was the same treatment given to other Title II telephone services.
  • In 2007 the FCC included texting as one of the Title II services for which cellular carriers must allow roaming.
  • In 2011 USAC began enforcing the inclusion of text revenues as a Title II interstate revenues that used to assess monies owed to the Universal Service Fund.

All of these regulatory actions implied that texting is a Title II service, although that was never explicitly stated until now, when the FCC wants to reclassify it to be an information service. Reclassification doesn’t pass the ‘quack like a duck test’ because telephone calls and anything like them fit squarely as Title II services. Texting is clearly a type of telephone call and any person on the street will tell you that a text message from a cellphone is just like a phone call using text rather than voice.

Unfortunately, the only conclusion I can draw from this docket is that the FCC has an ulterior motive since their stated reasons for wanting to reclassify texting are pure bosh. There seem to be no obvious reasons for the reclassification. There are no parties in the industry, including the cellular carriers, that have been clamoring for this change. Further, the change will have the negative impact of further shrinking the Universal Service Fund – and expanding rural broadband is supposedly the number one goal of this FCC.

This is disturbing for somebody who has followed regulation for forty years. By definition, regulatory agencies are not supposed to push for changes without first opening an industry-wide discussion about the pros and cons of any suggested changes. Regulators are not supposed to hide the motives for their ideas behind false premises.

The only justification for the FCC’s proposed ruling that I can imagine is that the FCC wants to kill all Title II regulation. It seems they are on a mission to eliminate Title II as a regulatory category to make it hard for future FCC’s to reregulate broadband or to bring back network neutrality.

If that’s their real agenda, then we ought to have an open discussion and ask if we ought to eliminate Title II regulation – that’s how it’s supposed to work. The rules establishing the FCC call for a process where the agency floats new ideas to the world so that all interested parties can weigh in. The FCC is not ready to face the backlash from openly trying to kill Title II regulation, so instead of an open debate we are seeing a series of ridiculous attempts to chip quietly away at Title II regulation without overtly saying that’s their agenda.

In my opinion the time when we ought to stop regulating telephone services is getting closer as technology changes the way that we communicate. But that time is not here and there is still room for monopoly abuse of text messaging. There are a number of examples over the last decade where carriers have blocked text messages – sometimes when they disagreed with the content.

I’m disappointed to have an FCC that is using regulatory trickery to achieve their agenda rather than having a bold FCC that is willing to have the public debate that such a decision deserves. Telephone and related services like text messaging were regulated for many reasons and we ought to examine all of the pros and cons before deregulating them.

I’m guessing that this FCC wants to kill Title II regulation without ever having to tell the public that’s their agenda. I think they want to deregulate text messaging and then point to that deregulation as the precedent to justify deregulating all Title II services without having to suffer to criticism that is sure to come when the public realizes this closes the door on net neutrality.

Small ISPs and the Internet Bill of Rights

Recently Ro Khanna, a California Congressman, worked with some of the biggest thinkers in Silicon Valley to develop what he’s calling an Internet bill of Rights – the document included at the end of this blog. This Bill of Rights lays forth the ideal basic right of privacy that users most want out of the Internet.

This document is possibly the start of the process of discussing regulation for the big Internet companies – something that doesn’t exist today. Currently the Federal Trade Commission theoretically can pursue web companies that rip off the public and the Justice Department can tackle monopoly abuses – but otherwise the web companies are not regulated.

It’s becoming increasingly clear in the last few years that web companies have grown to the size where they value profits first, and any principles that were loosely followed in the early days of the Internet are long gone. There are constant headlines now declaring abuses by web companies. Recent Congressional hearings made it clear that the big companies are misusing customer data – and those hearings probably barely uncovered the tip of the iceberg.

The European Union has begun the process of trying to reel in some of the biggest abuses of the web companies. For example, web companies in Europe now have to disclose to users how they intend to use their data. In this country we’re starting to see sentiment from both Democrats and Republicans that some level of regulation is needed.

It won’t be easy to regulate the big web companies, which are now gigantic corporations. I read recently that there are now more lobbyists in DC working for web companies like Facebook and Google than work for the big telcos and ISPs. There will a major pushback against any form of regulation and it would obviously require a significant bipartisan effort over many years to create any worthwhile regulations.

My guess is that the public wants some sort of protection. Nobody wants their data released to the world through data breaches. Most people want things like their medical and financial records kept private and not peddled between big companies on the web. Almost everybody I know is uneasy with how the big web companies use our personal data.

I think this creates an opportunity for small ISPs. There are aspects of this Bill or Rights that the big ISPs will oppose. They are clearly against net neutrality. All of the big ISPs have purchased companies to help them better mine customer data – they obviously want to grab a slice of the money being made by Google and Facebook off user data. The big ISPs are likely to fight hard against regulation.

It’s virtually impossible for small ISPs to violate any of these principles. That creates an opportunity for small companies to differentiate themselves from the big ISPs. I think small ISPs need to tout that they are for net neutrality, that they value customer privacy and that they will never misuse customer data. I have a few clients that do this, but very few make this one of the key ways to differentiate themselves from the big ISPs they compete against.

I strongly recommend giving this some thought. Supporting consumer data rights can be made a key part of small ISP advertising. Some statements akin to the Internet Bill of Rights can be made prominent on web sites. These concepts should be prominent in your terms of service. These are concepts your customers will like and it shouldn’t be hard for any small ISP to embrace them.

Internet Bill of Rights

The internet age and digital revolution have changed Americans’ way of life. As our lives and the U.S. economy are more tied to the internet, it is essential to provide Americans with basic protections online.

You should have the right:

(1) to have access to and knowledge of all collection and uses of personal data by companies;

(2) to opt-in consent to the collection of personal data by any party and to the sharing of personal data with a third party;

(3) where context appropriate and with a fair process, to obtain, correct or delete personal data controlled by any company and to have those requests honored by third parties;

(4) to have personal data secured and to be notified in a timely manner when a security breach or unauthorized access of personal data is discovered;

(5) to move all personal data from one network to the next;

(6) to access and use the internet without internet service providers blocking, throttling, engaging in paid prioritization or otherwise unfairly favoring content, applications, services or devices;

(7) to internet service without the collection of data that is unnecessary for providing the requested service absent opt-in consent;

(8) to have access to multiple viable, affordable internet platforms, services and providers with clear and transparent pricing;

(9) not to be unfairly discriminated against or exploited based on your personal data; and

(10) to have an entity that collects your personal data have reasonable business practices and accountability to protect your privacy.

The Zero-rating Strategy

The cable companies are increasingly likely to be take a page from the cellular carriers by offering zero-rating for video. That’s the practice of providing video content that doesn’t count against monthly data caps.

Zero-rating has been around for a while. T-Mobile first started using zero-rating in 2014 when it provided its ‘Music Freedom’ plan that provided free streaming music that didn’t count against cellular data caps. This highlights how fast broadband needs have grown in a short time – but when data caps were at 1 GB per month, music streaming mattered.

T-Mobile then expanded the zero-rating in November 2015 to include access to several popular video services like Netflix and Hulu. AT&T quickly followed with the first ‘for-pay’ zero-rating product, called FreeBee Data that let customers (or content providers) pay to zero-rate video traffic. The AT&T plan was prominent in the net neutrality discussions since it’s a textbook example of Internet fast lanes using sponsored data where some video traffic was given preferential treatment over other data.

A few of the largest cable companies have also introduced a form of zero-rating. Comcast started offering what it called Stream TV in late 2015. This service allowed customers to view video content that doesn’t count against the monthly data cap. This was a pretty big deal at the time because Comcast was in the process at the time of implementing a 300 GB monthly data cap and video can easily push households over that small cap limit. There was huge consumer pushback against the paltry data caps and Comcast quickly reset the data cap to 1 terabyte. But the Stream TV plan is still in effect today.

What’s interesting about the Comcast plan is that the company had agreed to not use zero-rating as part of the terms of its merger with NBC Universal in 2011. The company claims that the Stream TV plan is not zero-rating since it uses cable TV bandwidth instead of data bandwidth – but anybody who understands a cable hybrid-fiber coaxial network knows that this argument is slight-of-hand, since all data uses some portion of the Comcast data connection to customers. The prior FCC started to look into the issue, but it was dropped by the current FCC as they decided to eliminate net neutrality.

The big cable companies have to be concerned about the pending competition with last-mile 5G. Verizon will begin a slow roll-out of its new 5G technology in October in four markets, and T-Mobile has announced plans to begin offering it next year. Verizon has already announced that they will not have any data caps and T-Mobile is also unlikely to have them.

The pressure will be on the cable companies to not charge for exceeding data caps in competitive markets. Cable companies could do this by eliminating data caps or else by pushing more video through zero-rating plans. In the case of Comcast, they won’t want to eliminate the data caps for markets that are not competitive. They view data caps as a potential source of revenue. The company OpenVault says that 2.5% of home currently exceed 1 TB in monthly data usage, up from 1.5% in 2017 – and within a few years this could be a lucrative source of extra revenue.

Comcast and the other big cable companies are under tremendous pressure to maintain earnings and they are not likely to give up on data caps as a revenue source. They are also likely to pursue sponsored video plans where the video services pay them to provide video outside of data caps.

Zero-rating is the one net neutrality practice that many customers like. Even should net neutrality be imposed again – through something like the California legislation or by a future FCC – it will be interesting to see how firmly regulators are willing to clamp down on a practice that the public likes.

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.