Tag Archives: Net neutrality

Why Regulate Broadband?

FCC_New_LogoOften lost in the discussion of how much the big ISPs in the country hate Title II regulation of broadband is the more general discussion of whether the broadband market ought to be regulated. When I first entered the industry telephone service was heavily regulated in almost every manner imaginable, and this was due to the gigantic monopoly power of AT&T at the time. Over the years various parts of the telephone industry have become lesser regulated or even deregulated. And somehow during this process we seem to have gotten used to the idea that communications services are best when deregulated.

But I want to step back to a general discussion about regulation in general. Governments tend to regulate industries for several different reasons. For example, there is generally regulation of the financial industry because failures of large banks can devastate the rest of the economy. We also regulate businesses that can harm people, and so we do things like inspect food or have rules about transporting dangerous chemicals.

And finally, we regulate companies that provide services that most people need and for which a given provider can hold huge power over customers by nature of being a monopoly. This is why we regulate electric and water companies – because they tend to be natural monopolies in a given market. And it’s why we used to regulate Ma Bell.

When broadband first became a product there was no discussion of regulating it because it didn’t appear at the time that there were going to be monopoly providers. In the dial-up days there were all sorts of new companies like AOL and Compuserve entering the market. And then along came faster broadband and the cable companies and the telcos launched new and faster broadband products at almost the same time. It looked like there would be vigorous competition between DSL and cable modems.

But in the few decades since then it’s become obvious that cable modems have won that battle. Cable companies are growing to the point in many markets of having a virtual monopoly since the DSL products are too slow to keep pace. Every quarter when broadband customers are announced by all of the big companies it’s obvious that there are still people flocking from DSL to cable modems. It’s been clear for some time that broadband, which has largely been a duopoly market, is trending towards monopoly as DSL fades.

The other test that regulators use when considering regulation is if there is any effective substitute for the monopoly products or services. Cable companies argue that cellular wireless data and fiber are both effective substitutes for cable modem. But are they really?

I’ve written a number of times about how lousy cellular wireless is as a competitor to landline broadband. While there are certainly people who are satisfied with only a cellular data connection, the bandwidth and pricing of cellular data make it a poor second cousin to landline data, and most cellphone users seek out WiFi rather than rely solely on cellular data. And while there is talk about going to 5G and gigabit wireless networks, this talk is still almost all hype.

There are certainly markets where fiber is a good competitor for cable modems. But the other day I looked at the list of the 200 largest cities in the country and the majority of cities on that list do not have fiber and are not on anybody’s list to bring fiber. And even where there is some fiber there are no large markets where there is fiber everywhere in a city – ask all of the eastern cities how they feel about how Verizon built FiOS to only parts of their cities. Further, the cable companies are all implementing DOCSIS 3.1 which is going to give cable systems the ability to keep up with fiber speeds for the next decade.

And even where somebody builds fiber, at best we end up in a duopoly situation. When you look at where Google has brought fiber it looks to me like most of the competition is with data speeds and not with prices. If anything, the average price paid for broadband is higher where Google has built fiber.

It’s obvious that Comcast doesn’t think there is any effective competition as witnessed by their trial with data caps, which everybody expects to go nationwide soon. Their data caps are going to mean a big rate increase for a lot of customers, something that could never happen in a competitive market.

So, when looked at from a regulatory perspective, the broadband market is ripe for regulation. In fact, it probably should have been regulated much sooner. I see nothing on the horizon that is going to improve broadband choice for the vast majority of Americans and I hope the FCC can find a way to put some teeth in the way they regulate broadband.

FCC Issues for 2016

Alexander_Crystal_SeerIn what seems to be the new normal the FCC has a lot of issues on their plate at the end of this year. Following are the regulatory issues that I think will most affect small telcos, cable companies, and ISPs in the coming year.

Net Neutrality: Assuming that the courts don’t completely overturn this, this is liable to be at the top of the list for several years to come. The ink is barely dry on the new rules and companies like Comcast, T-Mobile, and Verizon are pushing new products that will test the FCC’s resolve to implement net neutrality. And if the courts uphold the law, expect to see a slew of arbitrations between content providers and ISPs. If the courts overturn parts of the new rules, expect the FCC to take one more shot at fixing the parts that don’t pass court muster.

TDM to IP Conversion: This is an ongoing process that is looking at modernizing the backbone telephone network to IP. The large telcos like AT&T and Verizon have commandeered the docket to try to use it as a way to get rid of rural copper lines. The FCC has been micromanaging this process so far and there should be a lot of activity in 2016.

USF Reform: The FCC wants to transition the Universal Service Fund from paying for rural telephone lines to paying for high speed data connections. This process has already started but there is still a lot to be decided. Further, the FCC is facing a crisis in funding the USF and the latest USF contribution factor, representing the ‘tax’ on interstate telecom services, is up to an astounding 18.2% for the first quarter of 2016. The FCC is going to have to find some other ways to help fund this as interstate telecom revenues keep shrinking. This is becoming a big burden on carriers that are buying interstate special access.

Lifeline Reform: Lifeline is another part of the USF that is used to help pay for telecom services for low income households. The FCC decided last year that this should cover both telephone and data expenses for low income households and there is not enough money in the fund to do that. So this year they need to figure out a way to make it work.

Skinny Bundles and OTT: There has been a docket open for most of 2015 that asked for comments on how the FCC ought to regulate video services on the web. There hasn’t been a lot of talk about this for a while, but it’s likely that the FCC is going to have to do something with this in 2016, and anything they do will be groundbreaking. Further, the FCC is in the process of cleaning up their operating rules and Congress is also mandating that they resolve dockets sooner, so this is liable to be forced to come to a head in 2016.

WiFi versus LTE-U: The large wireless carriers really want to dip into WiFi to make cellular data connections using a technology they are calling LTE-U. In places where cellular data is already overloaded this would almost certainly swamp WiFi, making it hard for anybody else to use. The FCC is going to have to decide if and how cellular carriers might be allowed to do this. In a related area, the FCC is also likely to look at opening up new public spectrum next year.

Federal Legislation: While this is nothing to count on, there has been a lot of noise about seeing a new telecom act of some sort out of Congress. If that happens there is no way to predict what Congress might tackle. If a new law passes expect the FCC to get swamped with implementing new law like they did after the Telecom Act of 1996.

Why Carriers Hate Title II Regulation

FCC_New_LogoOne of the many industry blogs I follow is the Eldo Telecom blog. Frederick L. Pilot, the author of that blog, contends that the FCC has the obligation to enforce universal service rules on broadband in the same way that they have for many years on telecom service. For telephone service this requirement has often been called the ‘carrier-of-last-resort’ obligation and it has been used by the FCC and state commissions to require telephone companies to serve everybody within a defined service area. If somebody builds a new house, for example, the telephone company has been obligated, within reason, to build to serve them.

Pilot says that the FCC created this same obligation for broadband with the newly approved Title II regulations. I’ve followed his chain of logic through the FCC rules and he is right. The carrier of last resort rules are covered under Section 254 and Section 214(e)(3) of the FCC’s rules. And those rules are in place as part of the rules that govern broadband.

The FCC created the Title II regulations by forbearance – they excluded some sections of the existing telephone rules that they did not want to apply to broadband services. The choice of which FCC rules to forbear was arbitrary and the FCC left themselves wiggle room to come back in the future and add to and/or subtract from the list of the rules that apply – and it is this flexibility that the big ISPs most hate about the Title II regulations.

The FCC didn’t really have any other options because they are not allowed, on their own, to write new FCC code – those basic laws come from Congress and the sections mentioned above, for example, come from the Telecommunications Act of 1997.

But I come to a different conclusion than Pilot. He thinks that since the carrier-of-last-resort language is part of the Title II rules for broadband that the FCC should enforce them. I read these particular rules to instead be something that the FCC can choose to enforce if they want to. A carrier-of-last-resort obligation gets triggered by a complicated process of requiring carriers to become am Eligible Telecommunications Carrier (ETC). In order for the FCC to create a universal service obligation for broadband, the FCC and the states would have to go through the ETC process for broadband, like they did in the past for telephone companies. And the rules make it clear that the triggering of ETC is completely at the FCC’s discretion.

The FCC has never mentioned a desire to force carrier-of-last-resort obligations on ISPs, and they may never do so. But they have very obviously reserved this right for use in the future should they so choose. And there are other parts of the Title II rules that now can apply to broadband if the FCC decides to enforce them. If the courts uphold the challenges to the net neutrality ruling there are a whole slew of regulations that apply to telephone service that the FCC could try to impose on ISPs.

I really don’t think the FCC is interested in forcing universal broadband requirements on ISPs for broadband. That would force carriers, for example, to build broadband facilities in rural areas. They know there would be huge and immediate political pushback and probably a reaction from Congress. The FCC instead seems to be trying to entice the large companies to do better.

But since these rules are on the books the FCC could decide at any time to try to enforce them. This creates what I consider to be permanent uncertainty for ISPs. Not only on this one issue, but on a number of potential obligations that are buried inside the FCC rules. I think that these potential, and unenforced rules hang over ISPs like the sword of Damocles.

Don’t get me wrong – I am a big fan of regulating broadband. It’s vital to our way of life now and I think that without net neutrality the big ISPs would run roughshod over all of us. So I love the concept, but like many I am not particularly fond of the specific way that this regulation came about. The long-term problem I foresee is that the political sentiment in the country swings from left to right fairly regularly and regulation by forbearance gives a future FCC the ability to drastically change the way the net neutrality rules are applied and implemented. And that means permanent uncertainty.

What I am Thankful for in 2015

ThanksgivingThanksgiving is upon us yet again and I’ve given some thought to those things in the industry and beyond that I am thankful for this year.

Net Neutrality: I am thankful for the net neutrality ruling, more as a consumer than as someone in the industry. From what I can see the largest ISPs and cellular companies had a big bag of nasty tricks waiting for all of us had it not passed. I feel like this ruling took back some of the power in the industry from the ISPs with the FCC as our watchdog. Now we need to wait a while more to see if the courts uphold the FCC. On the other hand, I am not so glad that net neutrality seems to have taken the Federal Trade Commission out of the picture for telecom. They were starting to take a hard look at monopoly abuses and one can hope the FCC will take up where they left off. There is some reassurance that the FTC says they will still play a role, but that role is clearly diminished.

Municipal Competition: I was glad to see the FCC tackle the prohibitions against municipal telecom. As somebody who works mostly with rural broadband issues, we need to encourage anybody, including cities and counties that are willing to tackle bringing broadband to rural places. I can understand why the large ISPs don’t want competition from municipal entities in big cities, but that still has not happened anywhere larger than Chattanooga and probably won’t. I have a harder time seeing why the large ISPs fight so vigorously against competition in rural areas where they don’t spend any capital to maintain their networks. These smaller communities are waking up to the fact that if they don’t take care of the broadband gap themselves that nobody else is likely to do so.

Inching Towards More Privacy: In this last year it became apparent to everybody that the NSA and a ton of commercial companies are spying on all of us. I love the parts of the industry that are taking the side of privacy. There’s Apple that is encrypting everything in a way that even they can’t decrypt. There’s a number of companies working on block chains and other forms of peer-to-peer communication that ought to be immune from snooping. And there are a number of web sites that now promise they aren’t tracking you. We have a long way to go, but it looks like people are starting to care about their privacy.

DOCSIS 3.1: I am thankful for technologies that are making broadband faster. The DOCSIS 3.1 technology that the cable companies are starting to implement will probably help the largest number of Americans get faster broadband. Several of the big cable companies are promising that they will offer faster speeds across the board. I think cable companies have finally awakened to the fact that it doesn’t cost them that much to give out more speed and it shelters them from the competition. And there s a slow but steady growth of fiber with companies like Google and CenturyLink leading the way. You will hear me whoopin’ and hollerin’ in this blog if somebody brings an affordable gigabit to my neighborhood.

Technology is Getting Better: The speed at which technology in and near the industry is improving is mind boggling. It seems like I hear about something new almost every day. This year saw 10 gigabit fiber terminals that are cheap enough for home and small business use. We’ve seen a plethora of improvements in OTT boxes like Roku and the gaming systems. 4K video has made it into the mainstream conversation in the last year. The speed and processing power of cellphones has literally doubled in the last year.

And My Readers: This marks my third Thanksgiving with this blog and I don’t seem to be running out of topics. I am truly thankful that people read this from time to time. I started writing this blog as a way to force myself to stay up with current events in the industry and it has done that in spades. I seem to learn something new every day, and for that I am most thankful.

Is Net Neutrality Hurting Telecom Investment?

Network_neutrality_poster_symbolLeading up to the net neutrality decision a lot of the big carriers claimed that putting broadband under Title II regulation would kill their desire to make new investments in broadband. AT&T went so far as to tell the FCC that they would stop all capital investments if net neutrality was ordered. Chairman Tom Wheeler of the FCC quickly called their bluff on this and AT&T backed down.

But net neutrality has been the law now for a while and the large carriers are still crying the same tune. There are regular postings by USTelecom, the trade group for the large carriers, claiming that Title II is hurting investment in the industry.

There is uncertainty in the industry due to the fact that much of the FCC’s ruling is being challenged in the courts. At a recent hearing of the House Communications Subcommittee, Frank Louthan of Raymond James told the committee that the big carriers are making investments in line with what they think will be the final rules after the court fights. I’m sure he’s right because that’s what large companies always do when they face uncertainty – they pick what they think will happen and operate under that assumption. But in this case the uncertainty is ironic since it is being caused directly by the lawsuit brought by the carriers that don’t like the uncertainty.

And it’s hard to see that net neutrality is hurting the biggest carriers. Certainly nobody was affected more by the rule changes than the big cable companies who had essentially no regulation on their broadband before the net neutrality rules. Ars Technical has dug into the most recent financials for these companies and reports that large cable companies have increased capital spending. They report that Comcast’s capital spending this year is up 11% over last year and Time Warner is up 10%. And every large cable company has said they are going to be pouring money into upgrades to DOCSIS 3.1 over the next year, so their capital spending is not going to go down in the foreseeable future.

I always wonder what exactly the carriers don’t like about net neutrality. Net neutrality stopped the carriers from making deals that enriched themselves but that restricted customer choices. But it seems like the public was very much on the FCC’s side on this issue and it’s hard for the carriers to find any sympathy for their cause. Probably more problematic for the carriers is that the FCC, in a surprising part of the net neutrality ruling, put in place rules on the network side of the carriers. They were all getting ready to start charging large content providers like Netflix for bringing content to their networks. The FCC decided that the millions of customers paying for monthly broadband were already paying that cost. What the carriers seem most annoyed about is that customers actually want to use the broadband to which they subscribe. The carriers have plans to put an end to that and everybody is watching Comcast’s new attempt at data caps.

One topic that came up in the House hearings was the fact that much of the net neutrality order was done by forbearance, meaning that the FCC chose which existing rules for telephone service would apply or not apply to regulating data. The carriers fear that a future activist FCC could change their mind at any time on the rules that have been forborne and either change the regulations or else hold change over the carriers’ heads while negotiating other issues. On that topic I agree with the carriers and what the FCC has given they also have the right to take away. The only real fix for this would be a new telecom act from Congress, and with our divided political parties that doesn’t seem very likely.

I remember this same level of teeth gnashing and hair rending by AT&T and Verizon after the Telecommunications Act of 1996. They challenged that ruling and spent the next several years complaining about it loudly. But eventually they were complaining to deaf ears, and in this case one has to think that whatever the courts order is going to stand as the law for a while. But eventually the complaining about the Act died down and both companies have gone on to be far more profitable than they were before the Act. Perhaps they ought to go back and revisit their own recent history and just get on with what they do best—make money.

The Ongoing Fight Against Network Neutrality

Network_neutrality_poster_symbolThere was such a big ruckus over the net neutrality battle that it’s easy to think that the fight against it is over and that net neutrality is now the rule of the land. But I see news on a regular basis that indicates that the fight is not over.

First, the lawsuit filed by USTelecom is still being fought in court. A few months ago there were comments filed in that case by USTelecom, AT&T, CenturyLink, the National Cable and Telecommunications Association (NCTA), the Wireless Association (CTIA), the Wireless Internet Service Providers Association (WISPA), and the American Cable Association (ACA), all of which argued that the FCC had exceeded its authority when it adopted the net neutrality rules. AT&T subsequently dropped this suit as part of the agreement to buy DirecTV,

This is quite a diverse group and they don’t all share identical concerns about the net neutrality rules, but together these trade groups represent both the smallest and the largest telcos, cable companies, cellular providers, and ISPs in the country, all of whom would like to see net neutrality overturned.

And there is no surety that the court will uphold the net neutrality order. I’ve read legal opinions on both sides of the issue that paint a pretty good story about why the FCC ought to be upheld or overturned. Most of these arguments revolve around whether the FCC had the authority to act as they did – with obviously very different opinions on the issue.

And then there are the politicians. The politicians have gotten somewhat quiet on the issue since it has been in the court. But overturning net neutrality is still part of the Republican Party platform and one would expect this issue to come up every time Congress looks at funding the FCC. The House Energy and Commerce Committee will be ” taking a closer look at how the Commission’s net neutrality rules impact our fragile economy, as well as what can be done to foster continued deployment of broadband networks,” in the words of its chairman Rep Greg Walden (R-Ore).  And very recently, Jeb Bush came out against neutrality in one of his stump speeches.

I can understand why carriers would be against some aspects of net neutrality since it puts limitations on the things they can do to make money. But I’ve never understood why any politician would take a strong stance against it. When this is explained to people in the simplest terms – that net neutrality basically says that your ISP can’t make deals that would impede your ability to use the Internet freely – then most people think this is a good idea. I certainly understand that politicians are often beholden to the large corporations that fund them. But one would think that on a topic that is this popular with the general public that politicians would find backdoor ways to fight against something like net neutrality rather than being staunchly and publicly against it.

I’m even a little surprised that the industry is still fighting this battle as hard as they are. The one thing Wall Street hates is uncertainty, and if net neutrality is overturned we would return to a period of major regulatory uncertainty. Wall Street seems to have favored the industry since net neutrality was passed. For example, until the recent market correction the large cable companies had seen a major surge in stock prices, due at least in part to the fact that net neutrality has brought regulatory stability to the market.

There were dire predictions before net neutrality was passed that it would kill capital investments in the industry. And yet we see companies like CenturyLink pouring billions into expanding their fiber networks. And AT&T didn’t massively cut back on capital spending as they had threatened during the net neutrality debate.

As someone who partially makes my living on helping companies keep up with regulations, it seems that net neutrality hasn’t made any drastic changes so far in the way that companies do business. I find it interesting that the WISPA group is so against net neutrality, because I see their member companies expanding like crazy in rural areas and I can’t imagine that any of them have seen and drastic changes due to regulation due to net neutrality.

When Will We See Landline Data Caps?

Numismatics_and_Notaphily_iconThe National Journal asked the FCC how it was going after one month of net neutrality and also asked how many complaints they had gotten from consumers during this time. The FCC estimated they had gotten about 2,000 complaints, and further said that most of them were not about net neutrality issues, but were more generally about service issues with ISPs. One of the more common complaints was about data caps.

The FCC has already ruled that customers with unlimited plans can’t be throttled. Just recently the FCC fined AT&T $100 million for throttling its unlimited wireless data customers for actually trying to use the data they paid for. But it’s a harder case to say that data caps are somehow prohibited by net neutrality. Perhaps an argument might be made that data caps can unreasonably interfere with a consumer’s internet access, something that is prohibited by net neutrality.

But for the most part, data caps are just a way of getting more money out of customers. The US has high broadband rates compared to the rest of the developed world and the rates charged on our cellular traffic have to be among the most expensive Internet access in the world.

Net neutrality does define a few things that carriers can’t do. For example, in the past the FCC has ruled that carriers can’t have a data cap and then provide some of their own programming for free, not to be counted against the caps. The FCC has also frowned on sponsored data where a content provider or somebody else will pay the fee for data so that it won’t count against a cap. If you recall, Netflix had worked out a deal to pay AT&T so that their customers would get the ‘fast lane’ and so that Netflix usage wouldn’t count against data caps.

But there is probably not much of an argument to be made against data caps as long as the customer is fully informed that they are part of the product. The FCC is likely to enforce hidden data caps or plans that were not openly obvious to consumers.

Data caps are also a big issue with satellite data. Customers with that service get very small monthly data caps, and unlike cellular that lets you keep using data and charging you more money, some of the satellite companies cut off your service once you reach the cap. That has to be painful and perhaps that starts crossing the network neutrality line.

Cable companies and telcos have fewer hard data caps, but they do exist. Many cable companies with caps today don’t strictly enforce them. Interestingly, they often use the argument that data caps are necessary to avoid network congestion. They argue that big users tie up networks and make it hard for others to get good service. But two years ago, Michael Powell, ex-FCC Chief and head of the NCTA admitted that data caps are not about congestion but are about ‘pricing fairness’ – which means they are not about fairness at all, but about charging large users more.

I believe we are going to see data caps become a much bigger issue. I wrote recently about how cable companies will be struggling to find ways to grow revenues in the future. They are losing cable customers and they are no longer seeing double digit growth of new data customers as that market gets saturated. They are likely to start routinely raising data monthly rates, but they are also likely to introduce and then fully implement data caps as a way to extract more revenue from their biggest data users. Unfortunately, the large cable companies are publicly traded firms and they will be punished with lower stock prices if they can’t find a way to keep revenues growing quarter over quarter.

I know that Comcast has been ‘experimenting’ with data caps for a number of years in the southeast. They put them in on a trial basis and then get so many complaints that they withdraw the test. But I feel certain that when the extra revenues are needed to meet earnings goals that Comcast and others will then ignore complaints. And sadly, if Comcast or any one other large ISP introduces and enforces data caps and shows a lot of revenue from the process, the other large ISPs are going to follow suit.

Congress and Net Neutrality

Capitol_domeNet neutrality is going to be in limbo for the next few years as the myriad of lawsuits make their way through the courts. I’ve written other blogs looking at this issue and, at least in my opinion, it’s unlikely that the FCC ruling will make it through the courts unscathed. Not only is there a question about if they have the authority to order what they did (I happen to think they do), but the whole process included irregularities compared to the normal FCC process. This was not one of those dockets where the FCC issued an idea, got comments, and then made a decision. There were numerous twists and turns during the process and some changes in thinking at the FCC. The irregularities of the process make the ruling vulnerable to court challenges.

If we had a functional Congress this could all be fixed with a very simple new bill. At the end of the day the FCC’s net neutrality decision boils down to three basic tenets that can all be captured in just over a page of text. It would be easy for Congress to pass a bill that laid forth those same principles and then concluded by giving the FCC the authority to enforce them.

Such a decision would cut through all of the red tape, and a Congressional order doing this would establish the FCC’s clear authority to keep the Internet open. Such a law would avoid the whole mess of Title II and forbearance from old rules that don’t really have anything to do with the Internet. Such a Congressional law could avoid the whole issue of treating ISPs and broadband as a utility.

There were several laws floating around Congress last year that did half of what was needed. They basically said that the Internet needs to be open and that nobody should be able to do things that endanger that openness. But every one of these draft bills had the fatal flaw of not giving the FCC the authority to enforce the net neutrality concept.

The bills that I’ve seen are just window dressing. They would let Congress go on the record as being in favor of net neutrality, without actually having done anything to make net neutrality the law of the land. The net neutrality bills I saw didn’t have any more practical application than the laws that Congress is always passing to celebrate things on a given day. We need net neutrality to be more important than National Friendship Day (August 2).

I don’t normally get too political in the blog, but this is not really a partisan issue. Congress as a whole, both parties, has increasingly gotten in bed with corporations, and those corporations that fund the incredibly expensive process of getting elected and staying in office now have most of the influence on what laws get passed.

And so Congress is loathe to pass a net neutrality bill that is not favored by the large cable companies and telcos that contribute to them. The carriers don’t want to be regulated in any manner (as is probably true of all large companies), and so it’s incredibly unlikely that our Congress, in this current environment, is ever going to establish telecom laws with the teeth needed to make them effective.

There has been talk over the last few years that Congress is working on a new telecom reform law. It certainly is time for one. The last Act was passed in 1996. While that doesn’t sound like very long ago, the telecom world has changed in drastic ways since then. 1996 was the height of AOL being the predominant broadband provider in the country. The broadband technologies of DSL and cable modems were just hitting the markets and there were no broadband customers using them at the time. Businesses thought that a T1 was blazingly fast access to the burgeoning Internet.

So the rules created then could use a fresh look, because many of them are already obsolete. But it seems doubtful that a similar kind of law can be passed today. The Telecommunications Act of 1996 opened up the large telephone companies to competition and they absolutely hated everything about the bill. The 1996 Act also changed a number of rules for cable companies that they did not like.

Today there really isn’t much practical difference between large cable and telephone companies, but we treat them very differently. And now that wireless data is growing, wireless providers should be considered in any new rules. One has to wonder if Congress has the gumption to rein in all of these companies under one set of sensible regulations. My fear is that any new telecom law would do just the opposite and that they would mostly relieve all large companies from being regulated – because corporations seem to be far more in favor right now than people.

. . . In Which the Blogger Gets to Play Lawyer

Network_neutrality_poster_symbolNow that numerous lawsuits are being filed against the net neutrality order, I thought I would give my own take on some of the issues being raised by the various lawsuits. I’m certainly no lawyer, but I have been following the FCC closely since 1980 and have seen how numerous challenges to their regulations have gone over the years. So following is my take on the major arguments being made against them.

Procedural Issues There are two procedural problems that could be troublesome for the FCC. First, the final order bears almost no resemblance to the original proposal that the Commission floated when seeking public comments. Even though it took a few hundred pages to explain it, the final net neutrality order boils down to a handful of actual new principles defining the way net neutrality is going to work.

The problem is that those few provisions include new ideas and terminology like prohibiting paid prioritization and not allowing throttling of web traffic. Those concepts were not included explicitly in the original notice. The FCC and other similar agencies have a long history of adhering to specific procedures for making new rules, and that process involves presenting the proposed ideas to the public and then soliciting comments.

I can see a valid argument that there was not adequate opportunity to discuss what was actually ordered. Of course, if that’s the only thing that the courts find wrong about the order, it’s a pretty easy fix, and at worst the FCC would have to go through another public notice and comment period.

More troubling is that at the last minute the FCC tossed in the idea of regulating Internet interconnection agreements and peering arrangements. That was a surprise to most of the industry and even made a few proponents come out against the final order. That is a major change in FCC authority and I can’t find any prior notice of the FCC’s intent to do this to the extent contained in the order.

Reversing Major Precedents Generally, agencies like the FCC must rely on the intent of Congress and existing legislation in creating their overall framework of rules. In this order the FCC reversed a lot of prior work it did on the topic of regulating the Internet. Obviously federal agencies are allowed to change their interpretation of the law, but in this case there is a mountain of prior legal opinions from FCC lawyers saying that Congress did not intend to treat the Internet as a public utility under the 1996 Telecommunications Act.

That makes it hard, under external scrutiny from courts, for the FCC to now reverse itself and say that the Internet is a utility and should be regulated as such. The net neutrality order spends a whole lot of words trying to defend its change in direction. And rightfully so, because I would guess that this is going to be at the crux of any court review of the FCC’s authority to make this new set of rules.

Use of Forbearance to Modernize Regulatory Law I thought the way that the FCC chose to implement net neutrality was clever, by bringing it under Title II rules but then forbearing against rules there that they don’t choose to apply. But that cleverness is a point of legal attack. Obviously choosing which parts of Title II to forbear was somewhat arbitrary. But worse, if forbearance is an acceptable method of regulating the Internet, there would be nothing to stop the FCC in the future from changing the list of things they are forbearing from.

Regulating the Internet is a major new undertaking, and one would normally expect an agency to publish a new coherent set of rules laying forth how they will accomplish such a new undertaking. They would publish the gist of the new rules and ask for comments. In this case, by choosing forbearance, there was no public discussion of which Title II rules should or should not apply, nor is there any particular reason to think that the forbearance choices made are permanent and cast in stone.

Applying the Rules to Small ISPs One of the lawsuits attacks the FCC for applying the network neutrality rules to all ISPs, including small ones that don’t have any market power. Certainly small ISPs, on their own, cannot undertake the large deals that would give priority to some content over others. But this doesn’t mean that small ISPs can’t be bad actors. It certainly is within the ability of small ISPs to block access to content that they find unacceptable, even if such content is lawful. Further, small ISPs often work as part of larger consortiums that might have the market power to undertake arrangements that would violate net neutrality. For example, there are several large ISP clearinghouses in the country that provide the servers, software, and ISP functions for millions of end users.

The courts have an interesting challenge with this order. To some degree, in the FCC’s defense, they undertook regulating the Internet in a manner that the last court review suggested they should consider. But the way they went about it is unorthodox, and in regulatory law that always creates a challenge.

Regulatory Alert – One Many Seemed to Have Missed

Network_neutrality_poster_symbolThe original net neutrality ruling went into effect in October, 2011. This was an order from the FCC titled In the Matter of Preserving the Open Internet, GN Docket No. 09-191, Report and Order, FCC 10-201, known at the time as the Open Internet Order. Of course, the heart of that order was challenged in court by Verizon which led to the recent net neutrality order earlier this month.

However, there were parts of that original order that were not challenged in court and that are still in effect. There is one important requirement that everybody should notice having to do with disclosure for Internet data products. The disclosure requirements apply to all ISPs, both wireline and wireless. The gist of the requirements are that ISPs should “disclose the network management practices, performance characteristics, and terms and conditions of their broadband service.”

In the Order, the FCC included a long list of the types of information that would satisfy the disclosure requirement. ISPs should be reporting the following facts to their customers:

Network Practices    

  • Congestion Management. Descriptions of congestion management practices; types of traffic subject to practices; purposes served by practices; practices’ effects on end users’ experience; criteria used in practices, such as indicators of congestion that trigger a practice, and the typical frequency of congestion; usage limits and the consequences of exceeding them; and references to engineering standards, where appropriate.
  • Application-Specific Behavior. Whether and why the provider blocks or rate-controls specific protocols or protocol ports, modifies protocol fields in ways not prescribed by the protocol standard, or otherwise inhibits or favors certain applications or classes of applications.
  • Device Attachment Rules. Any restrictions on the types of devices and any approval procedures for devices to connect to the network.
  • Security. Practices used to ensure end-user security or security of the network

Performance Characteristics

  • Service Description. A general description of the service, including the service technology, expected and actual access speed and latency, and the suitability of the service for real-time applications. (Emphasis mine.)
  • Impact of Specialized Services. What specialized services, if any, are offered to end users, and whether and how any specialized services may affect the last-mile capacity available for, and the performance of, broadband Internet access service.

Commercial Terms

  • Pricing. Monthly prices, usage-based fees, and fees for early termination or additional network services.
  • Privacy Policies. Whether network management practices entail inspection of network traffic, and whether traffic information is stored, provided to third parties, or used by the carrier for non-network management purposes.
  • Redress Options. Practices for resolving end-user and edge provider complaints and questions.

I know that many ISPs took note of this requirement at the time of the original order. But most assumed that when the courts vacated the net neutrality provisions of the order that the entire order was vacated.

If you have a good network, these are things that you want to be telling your customers. And if you think you have a better network than your competitors then you also want to make sure that your competitors are disclosing this same kind of information. The most interesting thing on the list of requirements is a disclosure of actual speeds, as opposed to advertised speeds. I know that this is a really big deal in rural markets where the large companies often advertise their urban products that are not actually available in smaller markets with older technology.

If you have not put together this sort of disclosure, you really need to do so. It’s somewhat surprising that no customer has ever complained to the FCC about ISPs not making these disclosures. I would guess that everybody got so confused by the court cases that the requirement got lost in the shuffle. I recall years ago that the same sort of thing happened with the original access charge order in 1984, where some sections were challenged and overturned while others went into immediate effect. In any event, if you haven’t made these disclosures you should do so, and you also ought to look to make sure that your competitors have done the same.