Is AT&T Violating Net Neutrality?

I got a text on my AT&T cellphone last month that told me that my wireless plan now includes sponsored data. Specifically they told me that I could now stream movies and other content from DirecTV or U-Verse TV without the video counting against my monthly data cap. This has been available to AT&T post-paid customers for a while, but now is apparently available to all customers. What I found most interesting about the message was that it coincided with the official end of net neutrality.

AT&T is not the first cellular company to do this. Verizon tried this a few years ago, although that attempt was largely unsuccessful because they didn’t offer much content that people wanted to watch. T-Mobile does something similar with their Binge-on program, but since most of their data plans are unlimited, customers can watch anything on their phones, not just the Binge-on video.

The sponsored data from AT&T would be a direct violation of net neutrality if it was still in effect and is a textbook example of paid prioritization. By excusing the DirecTV content from cellular data caps they have created an advantage for DirecTV compared to competitors. It doesn’t really matter that AT&T also happens to own DirecTV, and I imagine that AT&T is now shopping this same idea around to other video providers.

So what is wrong with what AT&T is doing? Certainly their many customers that buy both AT&T cellphones and DirecTV will like the plan. Cellular data in the US is still some of the most expensive data in the world and letting customers watch unlimited video from a sponsored video provider is a huge benefit to customers. Most people are careful to not go over monthly data limits, and that means they carefully curtail watching video on cellphones. But customers taking advantage of sponsored video are going to watch video that would likely have exceeded their monthly data cap – it doesn’t take more than a handful of movies to do that.

AT&T has huge market power with almost 140 million cellphones users on their network at the end of last year. Any video provider they sponsor is going to gain a significant advantage over other video providers. AT&T customers that like watching video on their cellphones are likely to pick DirecTV over Comcast or any other video provider.

It’s also going to be extremely tempting for AT&T to give prioritized routing to DirecTV video – what means implementing the Internet fast lane. AT&T is going to want their cellular customers to have a quality experience, and they can do that by making sure that DirecTV video has the best connections throughout their network. They don’t necessarily have to throttle other video to make DirecTV better – they can just make sure that DirectTV video gets the best possible routing.

I know to many people the AT&T plan is going to feel somewhat harmless. After all, they are bundling together their own cellular and video products. But it’s a short step from here for AT&T to start giving priority to content from others who are willing to pay for it. It’s not to hard to imagine them offering the same plan to Netflix, YouTube or Facebook.

If this plan expands beyond AT&T’s own video, we’ll start seeing the negative impacts of paid prioritization:

  • Only the biggest companies like Netflix, Facebook or Google can afford to pay AT&T for the practice. This is going to shut out smaller video providers and start-ups. Already in the short history of the web we’ve seen a big turnover in the popular platforms on the web – gone or greatly diminished are earlier platforms like AOL, CompuServe and Prodigy. But with the boost given by paid prioritization the big companies today will get a step-up to remain as predominant players on the web. Innovation is going to be severely hampered.
  • This is also the beginning of a curated web where many people only see the world through the filter of the predominant web services. We already see that phenomenon a lot today, but when people are funneled to only using the big web services this will grow and magnify.
  • It’s not hard to imagine the next step where we see reduced price data plans that are ‘sponsored’ by somebody like Facebook. Such platforms will likely make it a challenge for customers to step outside their platform. And that will lead to a segmentation and slow death of the web as we know it.

Interestingly, the Tom Wheeler FCC told AT&T that this practice was unacceptable. But through the change of administration AT&T never stopped the practice and is now expanding it. It’s likely that courts are going to stay some or all of the net neutrality order until the various lawsuits on the issue get resolved. But AT&T clearly feels emboldened to move forward with this, probably since they know the current FCC won’t address the issue even if net neutrality stays in effect.

Broadband Regulation in Limbo

The recent ruling earlier this week by the US Court of Appeals for the 9th Circuit highlights the current weak state of regulations over broadband. The case is one that’s been around for years and stems from AT&T’s attempt to drive customers off of their original unlimited cellphone data plans. AT&T began throttling unlimited customers when they reached some unpublished threshold of data use, in some cases as small as 2 GB in a month. AT&T then lied to the FCC about the practice when they inquired. This case allows the FTC suit against AT&T to continue.

The ruling demonstrates that the FTC has some limited jurisdiction over common carriers like AT&T. However, the clincher came when the court ruled that the FTC only has jurisdiction over issues where the carriers aren’t engaging in common-carrier services. This particular case involves AT&T not delivering a product they promised to customers and thus falls under FTC jurisdiction. But the court made it clear that future cases that involve direct common carrier functions, such as abuse of net neutrality would not fall under the FTC.

This case clarifies the limited FTCs jurisdiction over ISPs and contradicts the FCC’s statements that the FTC is going to be able to step in and take their place on most matters involving broadband. The court has made it clear that is not the case. FCC Chairman Ajit Pai praised this court ruling and cited it as a good example of how the transition of jurisdiction to the FTC is going to work as promised. But in looking at the details of the ruling, that is not true.

This court ruling makes it clear that there is no regulatory body now in charge of direct common carrier issues. For instance, if Netflix and one of the ISPs get into a big fight about paid prioritization there would be nowhere for Netflix to turn. The FCC would refuse to hear the case. The FTC wouldn’t be able to take the case since it involves a common carrier issue. And while a court might take the case, they would have no basis on which to make a ruling. As long as the ISP didn’t break any other kinds of laws, such as reneging on a contract, a court would have no legal basis on which to rule for or against the ISPs behavior.

That means not only that broadband is now unregulated, it also means that there is no place for some body to complain against abuse by ISPs until the point where that abuse violates some existing law. That is the purest definition of limbo that I can think of for the industry.

To make matters worse, even this jumbled state of regulation is likely to more muddled soon by the courts involved in the various net neutrality suits. Numerous states have sued the FCC for various reasons, and if past practice holds, the courts are liable to put some or all of the FCC’s net neutrality decision on hold.

It’s hard to fathom what that might mean. For example, if the courts were to put the FCC’s decision to cancel Title II regulation on hold, then that would mean that Title II regulation would still be the law of the land until the net neutrality lawsuits are finally settled. But this FCC has made it clear that they don’t want to regulate broadband and they would likely ignore such a ruling in practice. The Commission has always had the authority to pick and choose cases it will accept and I’m picturing that they would refuse to accept cases that relied on their Title II regulation authority.

That would be even muddier for the industry than today’s situation. Back to the Netflix example, if Title II regulation was back in effect and yet the FCC refused to pursue a complaint from Netflix, then Netflix would likely be precluded from trying to take the issue to court. The Netflix complaint would just sit unanswered at the FCC, giving Netflix no possible remedy, or even a hearing about their issues.

The real issue that is gumming up broadband regulation is not the end of Title II regulation. The move to Title II regulation just became effective with the recent net neutrality decision and the FCCs before that had no problem tackling broadband issues. The real problem is that this FCC is washing their hands of broadband regulation, and supposedly tossed that authority to the FTC – something the court just made clear can’t work in the majority of cases.

This FCC has shown that there is a flaw in their mandate from Congress in that they feel they are not obligated to regulate broadband. So I guess the only fix will be if Congress makes the FCC’s jurisdiction, or lack of jurisdiction clear. Otherwise, we couldn’t even trust a future FCC to reverse course, because it’s now clear that the decision to regulate or not regulate broadband is up to the FCC and nobody else. The absolute worst long-term outcome would be future FCCs regulating or not regulating depending upon changes in the administration.

My guess is that AT&T and the other big ISPs are going to eventually come to regret where they have pushed this FCC. There are going to be future disputes between carriers and the ISPs are going to find that the FCC can not help them just like they can’t help anybody complaining against them. That’s a void that is going to serve this industry poorly.

AT&T and Net Neutrality

The big ISPs know that the public is massively in favor of net neutrality. It’s one of those rare topics that polls positively across demographics and party lines. Largely through lobbying efforts of the big ISPs, the FCC not only killed net neutrality regulation but they surprised most of the industry by walking away from regulating broadband at all.

We now see states and cities that are trying to bring back net neutrality in some manner. A few states like California are creating state laws that mimic the old net neutrality rules. Many more states are limiting purchasing for state telecom to ISPs that don’t violate net neutrality. Federal Democratic politicians are creating bills that would reinstate net neutrality and force it back under FCC jurisdiction.

This all has the big ISPs nervous. We certainly see this in the way that the big ISPs are talking about net neutrality. Practically all of them have released statements talking about how much they support the open Internet. These big companies already all have terrible customer service ratings and they don’t want to now be painted as the villains who are trying to kill the web.

A great example is AT&T. The company’s blog posted a letter from Chairman Randall Stephenson that makes it sound like AT&T is pro net neutrality. It fails to mention how the company went to court to overturn the FCC’s net neutrality decision or how much they spent lobbying to get the ruling overturned.

AT&T also took out full-page ads in many major newspapers making the same points. In those ads the company added a new talking point that net neutrality ought to also apply to big web companies like Facebook and Twitter. That is a red herring because web companies, by definition, can’t violate net neutrality since they don’t control the pipe to the customers. Many would love to see privacy rules that stop the web companies from abusing customer data – but that is a separate issue than net neutrality. AT&T seems to be making this point to confuse the public and deflect the blame away from themselves.

Stephenson says that AT&T is favor of federal legislation that would ensure net neutrality. But what he doesn’t say is that AT&T favors a bill the big companies are pushing that would implement a feel-good watered-down version of net neutrality. Missing from that proposed law (and from all of AT&T’s positions) is any talk of paid priority – one of the three net neutrality principles. AT&T has always wanted paid prioritization. They want to be able to charge Netflix or Google extra to access their networks since those two companies are the largest drivers of web traffic.

In my mind, abuse of paid prioritization can break the web. ISPs already charge their customers enough money to fully cover the cost of the network needed to support broadband. Customers with unlimited data plans, like most landline connections, have the right to download as much content as they want. The idea of an AT&T then also charging the content providers for the privilege to get to customers is a terrible idea for a number of reasons.

Consider Netflix. It’s likely that they would pass any fees paid to AT&T on to customers. And in doing so, AT&T has violated the principle of non-discrimination of traffic, albeit indirectly, by making it more expensive for people to use Netflix. AT&T will always say that are not the cause of a Netflix rate increase – but AT&T is able to influence the market price of web services, and in doing so discriminate against web traffic.

The other problem with paid prioritization is that it is a barrier to the next Netflix. New companies without Netflix’s huge customer base could not afford the fees to connect to AT&T and other large ISPs. And that barrier will stop the next big web company from launching.

I’ve been predicting that the ISPs are not going to do anything that drastically violates net neutrality for a while. They are going to be cautious about riling up the public and legislators since they understand that Congress could reinstate both net neutrality and broadband regulation at any time. The ISPs are enjoying the most big-company friendly FCC there has ever been, and they are getting everything they want out of them.

But big ISPs like AT&T know that the political and regulatory pendulum can and will likely swing the other way. Their tactic for now seems to be to say they are for net neutrality while still working to make sure it doesn’t actually come back. So we will see more blogs and newspaper ads and support for watered-down legislation. They are clearly hoping the issue loses steam so that the FCC and administration don’t reinstate rules they don’t want. But they realistically know that they are likely to be judged by their actions rather than their words, so I expect them to ease into practices that violate net neutrality in subtle ways that they hope won’t be noticed.

Challenging the Net Neutrality Order

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

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

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

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

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

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

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

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

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

Net Neutrality – Time to Reassure Your Customers

The recent net neutrality decision by the FCC has created an amazing amount of fear for broadband subscribers who are worried that they will be losing access to popular aspects of the Internet. There is also general confusion in the public from numerous rumors circulating on social media – some potentially true and many others false.

And I think this worry and confusion creates a good opportunity for smaller ISPs to let customers know that you will continue to uphold net neutrality, even if it is no longer required. This is an easy pledge for small ISPs to make because it’s difficult for small ISPs to violate net neutrality rules even if they want to. The net neutrality rules were aimed at the largest ISPs, the ones that have enough market power to put pressure on web content providers, or ones that might implement intrusive requirements on customers.

It’s also a good time to tell customers of plans to continue to protect their privacy – something that the public probably associates with the net neutrality headlines. While the two topics are not the same, I am sure that many people equate net neutrality and privacy.

In the short run I recommend contacting customers and making a big splash about the topic. Perhaps send a heartfelt email or even mail a paper letter to customers that pledges a continuation of net neutrality and respect for customer privacy.

Small ISPs that are competing directly with the big ISPs also ought to consider making this one of the highlights of any sales or marketing campaign. This is a differentiation from the big ISPs that customers will value that really doesn’t cost a small ISP anything. It should be easy to promise not to block Internet traffic, throttle customer broadband speeds or force paid prioritization of Internet traffic. It also should be easy to pledge to not share customer data.

If the current reversal of the net neutrality rules lasts for a while (something I am doubtful about) this could get a little more complicated. I am positive, for example, that at some point over the next few years that bigger ISPs or data brokers are going to offer to pay small ISPs for access to customer data. Small ISPs ought to reject such offers because the benefit of maintaining customer privacy is worth more than payments from selling customer data.

I also suspect that small ISPs will eventually get offers to take part in programs or products that would violate net neutrality rules. You might be offered software that will create bundles of Internet products, like the ones likely offered by the big ISPs. You might be offered cheaper backhaul bandwidth that includes some blocking and prioritization of traffic. Again, my guess is that maintaining a totally open Internet product is worth more than can be gained by implementing such future products.

The big ISPs are unwittingly handing their competitors a chance to take the high road and it would be silly not to take advantage of this opportunity. I know that if I had an option to buy broadband from a small ISP I would jump at the opportunity as long as they were making this pledge. I currently have broadband from Charter. They haven’t said what they might have in mind due to the end of net neutrality, but I find it impossible to believe that they won’t copy things done by the other big ISPs that prove to be profitable. As a consumer my real fear about the end of net neutrality is that the public won’t be told what their ISP is doing. For example, you might experience slowdowns of some kinds of web traffic and not know that you were being throttled. The big ISPs are already quietly monetizing customer data.

Even if some of the net neutrality rules should be put back in place I think any marketing advantage from the topic will still favor small ISPs. Small ISPs will be able to claim for many years that you never lobbied to end net neutrality and you never violated customer trust, even after the net neutrality rules were killed.

Telecom Predictions for 2018

It’s that time of year to pause and look at what the next year might bring us. I see the following as the biggest telecom trends for 2018:

End of Net Neutrality Not a Big Deal. At least during 2018 we aren’t going to see the end of the Internet as predicted by many in the press and on social media. First, there are going to be a series of lawsuits challenging the FCC ruling, and ISPs are generally unwilling to do anything that might be changed by the courts. But I also think the big ISPs are unlikely to immediately do anything that will be unpopular with the general public. We might instead see subtle changes like more zero-rating that the public seems to favor. The big ISPs understand that this FCC ruling is immensely unpopular and they have to be worried about Congress or a new administration reversing a lot of the ruling. For now I think this means we won’t see any drastic changes in ISP behavior in the coming year. The big ISPs want the issue to quietly die away, and the best way for them to accomplish that is to not do anything unpopular right away.

Cable TV Declines Faster as a Product. We are seeing the perfect storm of events attacking the traditional cable market. First, programmers are raising programing rates to cable providers at historically high rates. It’s almost as if they want to get the last drop of profits out of the product before it wanes. This means another round of noticeably high cable rate increases – the primary reason that cord cutters cite for leaving traditional cable. We are also seeing a proliferation of alternate programming choices. The most popular cable networks are now available in lower-priced online alternatives. The growth in OTT alternatives has been significant in 2017 and in 2018 a lot more people are going to be lured into switching to one of the alternatives. The 3rd quarter of 2017 saw the cable providers lose a million customers and losses will accelerate in 2018.

Is 5G Hype or Real? In 2018 we are going to find out if the 5G hype is real. Verizon has been talking about rolling out a residential 5G broadband solution to 30 million homes, with a few specific markets identified in 2018. AT&T has been hyping the near-term roll-out of its AirGig 5G product. I think in 2018 we are going to get a look at how these technologies function in real neighborhoods and we’ll find out the real-life benefits and shortcomings of the technologies.

Networked WiFi Goes Mainstream. Poorly configured home WiFi networks are one of the major culprit for poor broadband experiences. Many homes have decent broadband connections but then lose all of the power by using a poorly placed single WiFi router. Many ISPs are now offering managed WiFi as a way to solve this problem. But there are also numerous inexpensive solutions available directly to consumers. Word of mouth about the benefits of networked WiFi are making this into the preferred home solution.

Voice Controls Become Practical. Until now voice control devices like the Amazon Echo have been novelties. But there are now practical applications with these devices that will make them go mainstream in 2018. Functions like simple web searches, home intercom systems, initiating phone calls or texts, controlling TVs and other devices along with the ability to play music everywhere is going to make most houses try the technology. This will be the year when a lot of people accept the idea of a voice interface to technology as an alternative to computers or smart phones.

Real Cellular Competition. The entrance of Comcast and Charter into the cellular markets is going to be significant. We also see T-Mobile increasing competitive pressure by bundling video with cell service. It’s clear that the cellular market in the US is fully saturated and that everybody has a cell phone. This all adds up to another round of price wars between cellular providers. It also means that the ‘unlimited’ plans introduced by the cellular companies in 2017 will quickly move from a novelty to the become the expected norm.

Explosion in Rural Communities Looking for a Broadband Solution. The digital divide between towns and rural areas is now obvious to everybody. Broadband has grown to become a necessity rather than a nice-to-have commodity. Rural citizens are demanding that their local governments help them find a broadband alternative. This movement is accelerated by the numerous success stories from proactive communities that have found a broadband solution. The most common market solution I see is public-private partnerships, but communities are finding other creative solutions. I also see numerous rural communities willing to talk about bringing public financing to help solve the problem. Expect numerous rural communities to start looking for solutions in 2018.

Net Neutrality – What Happens Next?

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

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

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

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

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

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

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

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

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

FCC and FTC Divvy up Broadband Regulation

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

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

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

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

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

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

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

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

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

Portugal and Net Neutrality

Last week I talked about FCC Chairman Ajit Pai’s list of myths concerning net neutrality. One of the ‘myths’ he listed is: Internet service will be provided in bundles like cable television as has happened in Portugal.

This observation has been widely repeated on social media and has been used as a warning of what would happen to us Internet access without net neutrality. The social media postings have included a screen shot of the many options of ‘bundles’ available from the mobile carrier Meo in Portugal. Taken out of context this looks exactly like mobile data bundles.

Meo offers various packages of well-known web applications that customers can buy to opt the applications from monthly data caps. For example, there is a video bundle that includes Netflix, YouTube, Hulu, ESPN, Joost and TV.Com. There are a number of similar bundles like the social bundle that includes Facebook and Twitter, or the shopping bundle that contains Amazon and eBay.

But the reality is that these bundles are similar to the zero-rating done by cellular carriers in the US. The base product from Meo doesn’t block any use of cellular data. These ‘bundles’ are voluntary add-ons and allow a customer to exclude the various packaged content from monthly data caps. If a customer uses a lot of social media, for example, they can exclude this usage from monthly data caps by paying a monthly fee of approximately $5.

The last FCC headed by Tom Wheeler took a look at zero-rating practices here in the US. They ruled that the zero-ratings by AT&T and Verizon violated net neutrality because each carrier has bundled in their own content. But the FCC found that T-Mobile did not violate net neutrality when they included content from others in their zero-rating package. The current FCC has not followed through on those rulings and has taken no action against AT&T or Verizon.

The Meo bundles are similar to the T-Mobile zero-rating packages, with the difference being that the Meo bundles are voluntary while T-Mobile’s are built into the base product. The FCC is correct in pointing out that Portugal did not create mobile ‘bundles’ that are similar to packages of cable TV channels. If anything, I see these bundles as insurance – in effect, customers spend a small amount up front to avoid larger data overages later.

It is also worth noting that Portugal is a member of the European Union which has a strong set of net neutrality rules. But the EU is obviously struggling with zero-rating in the same way we are in the US. The real question this raises is if zero-rating is really a violation of net neutrality. It’s certainly something that customers like. As long as we have stingy monthly data caps then customers are going to like the idea of excusing their most popular apps from measurement against those caps. If cellular carriers offered an actual unlimited data then there would be no need for zero-rating.

I disagreed with the Wheeler FCC’s ruling on T-Mobile’s zero-rating. That ruling basically said that zero-rating is okay as long as the content is not owned by the cellular carrier. This ignores that fact that zero-rating of any kind has a long-term negative impact on competition. T-Mobile is like Meo in that they exclude the most popular web applications from data ca measurement. One of the major principles of net neutrality is to not favor any Internet traffic, and by definition, zero-rating favors the most popular apps over newer or less popular apps.

If enough customers participate in zero-rating the popular apps will maintain prominence over start-ups apps due to the fact that customers can view them for free. This is not the same thing as paid prioritization. That would occur if Netflix was to pay T-Mobile to exclude their app from data caps. That would clearly give Netflix an advantage over other video content. But voluntary zero-ratings by the cellular carriers has the exact same market impact as paid prioritization

None of this is going to matter, though, if the FCC kills Title II regulations. At that point not only will zero-rating be allowed in all forms, but ISPs will be able ask content payers for payment to prioritize their content. ISPs will be able to create Internet bundles that are exactly like cable bundles and that only allow access to certain content. And cellular carriers like AT&T or Comcast are going to be free to bundle in their own video content. It’s ironic that Chairman Pai used this as an example of an Internet myth, because killing net neutrality will make this ‘myth’ come true.

The Impact of the End of Net Neutrality

Charter has given us a peek at how the big ISPs are likely to take advantage of the end of net neutrality. Charter is in the middle of a lawsuit filed by New York Attorney General Eric Schneiderman. The suit attacks Charter for promising to deliver Internet speeds as part of the purchase of Time Warner that the company knew it couldn’t deliver. There are other allegations in the suit and I covered it in this earlier blog.

While the FCC won’t formally vote to end Title II regulation for another week it’s largely a foregone conclusion that they will do so. Charter is assuming that it’s a done deal and they have filed paperwork trying to dismiss the New York lawsuit based upon the assumption that the FCC will end net neutrality.

Charter has sent a letter to the courts and is making the following claims:

Federal law preempts state and local laws. Charter is arguing that the planned FCC order will preempt state and local laws concerning broadband. This is an aspect of the proposed FCC order that has not gotten much attention. The proposed FCC order contains a long discussion that talks about the role of federal versus state regulations and comes to the conclusion that federal low should override state and local broadband laws. It’s sort of an ironic position for the FCC to take since they are actually eliminating the FCC’s role in regulating broadband – but they interpret that to mean that states and localities also have no right to regulate broadband.

Charter specifically says that New York can’t criticize the company for delivering slow Internet speeds. They argue that since the FCC will no longer regulate broadband and Internet speeds that New York also does not have the right to do so.

Paid Prioritization. Charter is also arguing that New York has no right to regulate paid prioritization. This is one of the three principles of net neutrality that currently is in effect. Charter is arguing that the FCC’s proposed ‘light-touch’ regulation means that the FCC will be eliminating the net neutrality principles and this means that these principles can no longer be used to judge Charter’s products.

The New York lawsuit had attacked Charter for not maintaining a robust enough network that could deliver the speeds customers need. Specifically, New York alleged that people were unable to watch Netflix and that Charter’s network failures amount to throttling of the Netflix data stream.

The new FCC rules aren’t even in effect yet, but this tells a lot about how the big ISPs are viewing the change in rules. Charter wants to use these rules to protect themselves against any fines for not delivering advertised broadband speeds to customers. They also are openly acknowledging that they have no obligations against violations of the current net neutrality rules – and that they have no obligations to ever try to meet them.

Charter’s arguments in the case erase any doubt about how the big ISPs intend to act once they are not regulated. While they will probably generally try to deliver a decent broadband product, they feel under no legal obligation to do so. If you go back and look at the facts in this case you will see customers in New York who have been paying for clearly inferior broadband for years – broadband that is far slower than advertised and that is even too slow to deliver Netflix. Charter promised to fix the network issues that are causing the slow broadband, but it’s clear from the New York lawsuit that no upgrades have been implemented. Lack of broadband regulations might mean that the Charter customers in New York might never get good broadband – the company doesn’t think they have any obligation to provide it.

Charter’s response to this lawsuit largely validates all of the consumer fears that have been expressed as part of the net neutrality debate. The FCC is washing their own hands of anything having to do with broadband regulation, and are also preempting states and localities for doing anything. This leaves the consumer with no place to go to remedy, or even protest bad ISP behavior.

One hopes that the big ISPs want to deliver a decent broadband product – but the facts in this case show a blatant disregard for both customers and regulators. Charter has promised to improve the condition of the Time Warner networks as part of the merger but then failed to do so. The sad fact is that many of the customers with the shoddy Charter service have no real alternative. DSL is dying and the cable companies are becoming virtual monopolies in most of the markets in the country. If Charter prevails with these arguments it will show that there is no regulatory body with the ability to police the ISPs.