Tag Archives: Net neutrality

Net Neutrality in the Courtroom

Network_neutrality_poster_symbolBarely two week after the release of the FCC’s new net neutrality rules there have been two lawsuits filed asking the courts to set aside the new rules. This is one of the quickest reactions to an FCC order that I can remember.

One petition was filed by the USTelecom Association with the US Court of Appeals for the District of Columbia. This is the trade group representing Verizon, AT&T, and other large telcos and ISPs. The second was filed with the US Court of Appeals in New Orleans by Alamo Broadband, a small ISP from Texas.

The lawsuits are a bit surprising because the FCC hasn’t yet published the new rules in the federal register, meaning that they are not yet in effect. There is a good chance that these two suits will be dismissed for being prematurely filed, but there is no doubt that these and other cases will be filed once the order has been officially published. It’s rumored that the CTIA plans to file an appeal on behalf of all of the large cable companies. Challenges by the trade groups will save AT&T, Verizon, and Comcast from having to challenge the FCC directly.

As expected, the suits challenge the FCC’s authority to impose Title II regulation on broadband. USTelecom refers to this as ‘utility-style regulation’, although the FCC provided forbearance on most of the regulatory requirements that apply to telcos and CLECs.

I’m not a lawyer, but I recall a lot of dismay in the industry when the FCC decided many years ago to classify the Internet as an information service rather than as a utility. My opinion is that all they have done by this ruling is to set straight the mistake they made years ago, and that they always have had the option to regulate the Internet under Title II. But of course, the courts are going to be the ones to decide the extent of the FCC’s jurisdiction.

One thing is clear, if these lawsuits succeed the FCC is basically out of options and net neutrality will probably be dead.

The final net neutrality rules are somewhat simple and straightforward and make four distinct points:

  • No Blocking. The order says there can be no blocking of transmissions of lawful content, although the order allows ISPs to refuse to transmit unlawful material such as child pornography or copyright-infringing materials.
  • No throttling. ISPs are not allowed to slow down content. This means that everything delivered to customers must have the same priority.
  • No Paid Prioritization. While this is similar to the no throttling rule, it applies more to the network between content providers and the ISPs and means that companies can’t arrange deals that provide for preferential treatment. They might still need to pay for interconnection, but they can’t use that process to gain an advantage over other content.
  • Case-by-case challenges. The FCC took an approach similar to Canada’s net neutrality rules, and rather than lay out a lot of specific net neutrality rules they will look at specific cases in the future that are brought to their attention. I think this is a wise choice because our networks and technology can change faster than any rules, and this process will allow net neutrality rules to keep up with changes in technology.

Assuming the courts allow the current rules to stand, that last rule means that net neutrality is never going to be finished. The intent of the three major rules are pretty clear, but as the FCC hears future cases they will be crafting more detailed rulings on specific topics. So, while there are no detailed restrictions in this order, over time a body of rules concerning net neutrality will grow as the result of rulings on challenges. This means that it’s likely there will always be lawsuits floating around on net neutrality topics.

I also foresee one other danger for net neutrality. Modifying net neutrality over time on a case-by-case basis will make the whole process subject to the whim of future FCC commissioners. In recent years the FCC has tended to bend and sway with changes in the administration, and so we may suffer through conflicting rulings from different FCC commissioners. But I guess before we worry too much about this we’ll have to wait a while to see if the courts allow these rules to stand.

 

Will Net Neutrality Kill Telecom Investment?

Numismatics_and_Notaphily_iconThe big telcos keep saying that the proposed net neutrality rules will kill their desire to make investments in broadband networks. Is there anything about the proposed rules that would give them reason to say that, or is this just political maneuvering to try to defeat the ruling?

Verizon is still claiming that net neutrality is going to force them to cut their investments in broadband, even though last month their CFO was quoted as saying that it wouldn’t. AT&T made the same claims in December, even though they have backed off a bit.

But for every company that has complained about Title II regulation there are others who have said it is no big deal. In the fiber world Google has said that the rules don’t seem to give them any problems and they like the fact that it would give them easier access to poles. And Sprint has come out supporting the net neutrality rules as a wireless carrier.

I have a hard time thinking that net neutrality rules are going to somehow make broadband unprofitable. I saw just this past week that Time Warner claimed in their annual report that their broadband product has a 97% margin. That surprised me a bit, since it’s the highest margin I have ever seen claimed, but many of my smaller clients have 90% margins on broadband products. Perhaps Time Warner’s higher margin comes from the economy of scale of having millions of customers. I would think that margins that high would make telcos want to expand their networks regardless of regulatory rules.

Today, the big carriers claim to be making major investments in broadband. For instance, the USTelecom web site says that the wireline, wireless, and cable industries together spent $75 billion on broadband in 2013, which was up 10% over 2012. It’s worth noting that $33.1 billion of that number was spent by the wireless carriers, and we can debate all day if wireless data is really broadband and if that should count as broadband investment.

I took a hard look at the proposed net neutrality rules to see if I could figure out which part of it would make Verizon and AT&T cut back on building infrastructure. Here are a few things the new rules won’t do, and I assume that the ISPs view these as positive:

  • The new rules impose no new taxes on the carriers or on their customers. Broadband will not be taxed by the Universal Service Fund. And there won’t be any future taxes unless Congress someday has a change of heart about taxing the Internet (and note that Congress could decide to tax broadband even without Title II).
  • Broadband won’t be subject to any of the rules that are a regulatory burden for big telcos – no tariffs, no rate approval, no unbundling, no administrative burdens or accounting standards.

But there are a few new rules that will enforced with net neutrality and it must be one of these that makes the carriers not want to not build new networks:

  • No blocking of access to legal content on the Internet.
  • No throttling of Internet traffic on the basis of content, applications, services, or devices.
  • No paid-prioritization which would favor some Internet traffic over other content.

These rules basically stop the big companies from devising schemes to bill customers extra to get access to content that they have already paid for in their base rate. The carriers that are against net neutrality must not be happy with a data product with a 90%+ margin and they want to impose rules that will let them charge customers even more.

There is another rule coming out of the order that they also might not like: the FCC will have the ability to intervene in disputes between ISPs and content providers concerning interconnection. This provision means that ISPs cannot extract extra payments from companies like Netflix to deliver their content. I can see why carriers wouldn’t like this, because they want to charge at both ends of the network – to companies like Netflix when content enters their network and to customers when content leaves their network.

The final rule from the order just reiterates one that was passed a few years ago but that has never been fully enforced. It has to do with transparency. Under these rules ISPs are supposed to disclose things to customers like the real data speeds they are delivering. I can see why carriers don’t like this because it will stop them from advertising one speed but delivering something much slower.

But I don’t see anything in those rules that would stop an ISP from investing. That is of course unless an ISP was counting on making a whole lot of money from charging companies like Netflix for bringing content and then charging customers a lot more to get that same content. Any ISP that delivers the speed that a customer purchases regardless of the source of the content is not going to see drastic changes, or even what I would consider as annoying changes from these new rules. So I guess the ISPs who say the new rules will force them to reduce network investments are the ISPs who were planning to screw their customers. That’s what I always figured, but looking at the proposed rules confirms it.

My Take on the Net Neutrality Ruling

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

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

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

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

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

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

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

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

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

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

How Canada Handles Net Neutrality

canada_flag-1920x1080Every country that wants an open Internet is wrestling with the same net neutrality issues that we face in the US. Canada has come up with a common sense approach that and some of what they have done could be applied here.

Telecom rules are administered in Canada by the CRTC (Canadian Radio-television and Telecommunications Commission) which has the same role as our FCC. Major telecom laws are formulated by the Canadian parliament just as they are done by our Congress, but the CRTC then has leeway to interpret the rules.

The CRTC regulates net neutrality along with other ISP behavior through its ITMP (Internet Traffic Management Practice) rules. These rules are implemented as follows:

  • Somebody must come to the CRTC with a credible complaint of discrimination by an ISP. The CRTC doesn’t have a standing list of things that ISPs can’t do, but instead investigates and sometimes creates rules based upon actual cases of discrimination.
  • The CRTC has developed definitions of various types of discrimination over the years. For example, they use a different standard to judge technical network issues than they do commercial issues such as how customers are billed. They have developed rules that we would label as net neutrality and any ISP practice that is imposed on users that, in effect, delays or prioritizes traffic from one type of user, source, protocol, application, content, service, or destination is likely to assumed to be discriminatory
  • An ISP gets an opportunity to justify the discrimination. In order to prevail an ISP must show that:
    • The practice is justified and that the solution they have implemented is narrowly designed to address a specific problem and does not cause other negative consequences;
    • The practice is done in such a way as to cause as little discrimination as possible;
    • They must show that any harm caused to customers is as minimal as is reasonably possible;
    • And they must show that there is not some other reasonable technological solution that would achieve the same goals with less or no discrimination.

These rules have just recently been strengthened on December 17 when Parliament passed a bill that adds significant fines to ISPs that are found guilty of discrimination. Fines of up to $10 million can be levied per infraction for first offenses and up to $15 million for subsequent offenses. This adds some teeth to net neutrality and other violations.

To some degree the Canadian telecom environment is a lot like ours. Canada has three large telcos – Bell, Rogers and Telus – that each are the predominant provider in different areas of the country. The country also has smaller competitors, but like us the company doesn’t have vigorous competition in a lot of markets.

Perhaps there is something to learn from the Canadian approach. It certainly is very pragmatic and the same regulatory process is used to judge a huge array of issues. It all stems back to a law passed years ago that said that telecom providers and ISPs can’t discriminate. The CRTC has used that one rule to achieve what would we call net neutrality rules. For example, in 2005 the CRTC faulted Telus which had blocked web access to pro-union websites that were striking against it. Earlier this year they ruled against Bell Canada for charging more for access to products that compete with ones that it owns. The Canadian system builds rules based upon the cases brought to it rather than crafting a big framework of rules up-front.

The Canadian system also treats wireline and wireless the same in terms of the way they treat customers or the way they operate their networks.

The new fines are the part of the Canadian law that I find to be the most attractive. Without significant financial penalties there is not much incentive for the large ISPs to change their behavior. I would venture to say that fines of $10 million and $15 million are probably not high enough for the US Market where a carriers might make hundreds of millions by discriminating. But it’s the right concept.

The FCC’s Plate is Full

FCC_New_LogoI don’t think I can remember a time when the FCC had more major open dockets that could impact small carriers. Let’s look at some of the things that are still hanging open:

Net Neutrality. This is the granddaddy of all FCC dockets, if for no other reason than the number of responses filed in the docket. The network neutrality docket asks the basic question if there is any legal mechanism that the FCC can use to ensure that the Internet remains open. The public debate on the issue has concentrated on discussion of whether there should be Internet fast lanes, meaning that some companies could buy priority access to customers. Of course, the flip side of that question is if most of the Internet can be made slower in favor of a handful of large companies willing to pay a premium price to ISPs to be faster.

The issue has become political and there are polarized positions on opposite sides of the topic. The large players in the industry have also lined up in predictable ways with the giant cable companies and telcos against any form of regulation on broadband and almost everybody else on the opposite side of the fence.

Municipal Broadband. Petitions filed by Chattanooga TN and Wilson NC prompted the FCC to investigate if they should overturn the various state restrictions against broadband. There are roughly twenty states that have some sort of restriction against municipalities either entering the business or for operating as a retail provider of services. In some state there is an outright ban against any form of municipal broadband competition. In others, municipalities can build networks but can only provide wholesale access to the networks.

This issue is a classic case of pitting states’ rights against the ability of the a federal agency to preempt them. The FCC has overturned numerous state laws in the past and certainly has that ability in terms of telecom law. But in most past cases the FCC overturned rules established by state commissions and here they would be overturning laws created by state legislatures. There are a number of states that say they will sue over the issue as well as some members of congress that are vehemently against overturning state laws.

IP Transition. The IP transition can have huge repercussions on LECs and CLECs. At issue is the replacement of the traditional TDM network with an all-IP network. From a technical perspective this transition if very straightforward and the carrier world is already in the process of implementing IP connections in the voice network.

But there is a long list of carrier compensation issues that are tied deeply to TDM network rules that must be dealt with. For example, one the primary principles that help to make CLECs competitive is that they can choose to meet incumbent networks at any technically feasible point of their choice. The RBOCs view the IP transition as a way to change this balance and they want CLECs to pay to bring all voice traffic to them.

And rural consumers have a huge stake in this docket since the large telcos see this as an opportunity to ditch customers on rural copper. AT&T, for example, has made it clear that they would like to cut the copper to millions of rural customers.

Mergers. The FCC is processing two large merges between Comcast and Time Warner and between AT&T and DirecTV. The Comcast merger is the one with the most practical market consequences since it merges the two largest incumbent cable companies. The cable industry already suffers from the lowest customer satisfaction among all industries and the two companies are near the bottom of the pack in the industry.

So customers are worried that the merger will lead to even worse service. And competitors worry that the mega-company that would result from these two mergers will have too much market power. The FCC Chairman Tom Wheeler has publically expressed some concern about this merger being good for the industry, so it doesn’t sound like a slam dunk.

Internet TV. The FCC is looking at whether it should regulate Internet TV. For example, should a channel line-up broadcast over the Internet have to follow the same rules as a broadcast over a cable network? This ruling is going to have a huge influence over how small companies deliver cable TV.

Everything Else. In addition to these big issues the FCC has a lot of other open dockets. Some of them are relatively small, such as the docket that looks at whether the FCC should regulate robocalls. But some cover large issues, such as the docket that is examining how the FCC sells wireless spectrum.

Forbearance and Net Neutrality

Network_neutrality_poster_symbolAs the FCC crawls slowly towards a decision on net neutrality, I thought it would be useful to talk a bit about forbearance. Forbearance means restraining from doing something, and all of the proposals to protect net neutrality that involve Title II regulation require forbearance to some of the FCC’s rules.

The FCC is somewhat unique when it comes to regulation because Congress has given them the right for forbearance, meaning the FCC can selectively decide when to apply certain laws and regulations. Most federal agencies don’t have this power. But this makes sense for the FCC since they are regulating such diverse companies such as cable companies, telephone companies, cellular companies, fiber networks, microwave companies and a number of other niche technologies. It’s always been obvious that rules that make sense for one of these industries might not make any sense when applied to another one.

If the FCC was to put broadband providers under Title II this means subjecting them to all of the rules that are still in place from the Telecom Act of 1934 as well as many of the rules in the Telecom Act of 1996. It is the fear of having to comply with all of these rules that is causing the harsh reaction of ISPs to the idea of being regulated. (Well, that, or just the idea of being regulated at all).

Let’s look at one example of the kinds of rules that are required by the Telecom Act of 1934. That Act requires all telephone companies to issue tariffs. People tend to think of tariffs as a price list and a description of the products offered by a telephone company. But tariffs are much more than that. Tariffs include details of the way that a carrier must interact with its customer. Tariffs define things like how much notice you have to give a customer before you can disconnect them for non-payment. Tariffs require a carrier to give notice before changing rates, meaning that rates can’t be changed on the fly, but must wait for a period of time before being implemented. Tariffs also require nondiscrimination between customers, and that might be the biggest part of tariffs that scare ISPs, who routinely offer different deals to customers every day.

Additionally, every state has developed specific rules for what must be contained in tariffs filed in that state. This means that a nationwide ISP would have to file a different tariff in each state and follow different rules in each state. If forbearance is not applied to these parts of Title II then ISPs would not just be regulated by the FCC, but by each of the fifty states.

There are many parts of Title II that would also not make sense to apply to ISPs. For example, there are sections of the various Acts that look at things like protecting customers from obscene phone calls or the requirement to provide operator services that obviously don’t apply to data services.

But there are other requirements that have the ISPs running scared. For example, the Telecom Act of 1996 requires the large telephone companies to unbundle their networks and to give access of their networks to competitors. And this does not just apply to telephone lines but also to DSL. There is no reason why this could not be applied to cable companies to bring competition into the data market. And there are related rules that regulate things like collocation and that require interconnections between carriers that exchange voice and data traffic.

There are yet other portion of the Title II rules where it is not clear if forbearance ought to be applied. For example, the FCC requires jurisdictional separation of revenues and costs to determine what is under the control of the FCC versus the control of states. Would the FCC just declare broadband to be an Interstate service to keep it all under their control? That is what has been done with DSL, and yet the states are still involved in many aspects of regulating DSL.

It appears to me like the idea of forbearance in this case is going to be extremely complicated. There are repercussions for deciding to forbear or not to forbear different parts of the existing telecom rules. It’s a huge puzzle to solve, and I am going to guess that every decision to forbear or not forbear will present a chance for legal challenge.

But the FCC forbears things all of the time. In fact, there is a legal process that allows for carriers to ask for forbearance from a specific rule, and if the FCC does not act within a year then the forbearance is assumed to be granted.

We already know that Verizon and AT&T are threatening to sue the FCC should they try to regulate broadband under Title II. Even should the FCC be able to win such a challenge, they would have to expect a decade where ISPs are constantly asking for additional forbearance from whatever regulation the FCC chooses to apply to broadband. If nothing else, this sounds like a full employment act for telecom lawyers.

Is it Time for New Telecom Law?

Capitol_domeA number of articles published since the recent election claim that both the House and Senate are ready to tackle telecom reform. There have been subcommittee meetings and discussions in both chambers about the topic for several years, but the idea hasn’t gone much yet past talking about it.

We certainly need telecom reform. After all, the Telecommunications Act of 1996 was passed in a very different time. That’s the year where AOL was still the largest ISP in the US and the year they introduced new modems that doubled dial-up speeds from 28 kbps to 56 kbps. 1996 was also the year that kicked off a decade of major investment by cable companies in HFC networks. There were 10 million cable modem customers by 2002, but in 1996 there were almost none. And DSL was just hitting the market in 1996 and didn’t get serious traction until a few years later.

Probably the biggest fault with the 1996 Act is that it treated telcos and cable companies very differently. The Act imposed significant unbundling requirements on the telcos while leaving the cable companies largely untouched. Perplexingly, this was done at a time when everybody in the industry knew that cable companies and HFC networks would soon become major players in both the telephone and high-speed data markets. In 1996 engineers and technologists understood that cable modems were going to soon be faster than DSL due to inherent advantages of coaxial cable over telephone cable. At the time everybody I knew just assumed that the cable company had good lobbyists.

But the Act did impose new rules on cable companies concerning programming. And it is clear that those rules are now growing quickly obsolete with the migration of video to the web. A revised Act certainly needs to address OTT video and the entire gamut of on-line video issues.

In essence the Act of 1996 created a whole lot of rules in silos – separate rules for the cable and telco industries. In doing so the Act almost completely ignored the burgeoning cellular industry. Now that people use every data on every kind of network it’s time for rules that are updated to recognize the new reality.

One of the stickiest points of implementing a new telecom law is going to be net neutrality. If the FCC does not soon put this issue to bed, then net neutrality will be one of the biggest issues of a re-written Telecom Act. Both chambers of Congress have set a goal to have a new Act enacted by the end of 2016. That means that the Republic lawmakers are still going to need the agreement from a Democratic president to get it signed, and that means the two sides have got to somehow come together on net neutrality.

Some of the problems we have today with net neutrality come directly from the 1996 Act. In that Act the Congress very clearly decided to not impose Title II regulations on the budding high-speed cable modem market. They decided to let cable companies and telcos undertake a different path, with the telco path much more regulated than the cable path. We ended up with a decade that required DSL unbundling and DSL resale, but with no attempts to make cable modems open to competition.

There are some parts of the 1996 Act that have been very effective and I hope they remain intact. For example, the Act set forth the concept that any company with the technical knowledge and financial wherewithal ought to be allowed to compete in the telco market. That has given rise to thousands of CLECs and there are numerous markets with vigorous telephone competition. One can hope that a new Act will make it clear that there ought to be competition in every telecom market, and with a lot more products than just telephone.

One can also hope that a new Act will get rid of the silos. It is time to stop having different rules for different parts of the industry. For example, the distinction between traditional voice services and VoIP needs to be eliminated, since in practical terms customers can’t tell the difference. There should not be different rules concerning the provision of cable TV service by different types of providers.

Certainly one of the biggest challenges Congress will face is what to do with the web and video. Hopefully a new Act is forward looking. There is convergence everywhere in the industry and people want to partake of telecom services from any platform using a plethora of devices. The Congress needs to make it as okay to watch a movie on your cellphone as it is to watch it on your TV. The next Act needs to look at programmers as hard as it looks at service providers.

Rewriting the telecom Act is a massive undertaking because every lobbyist from the telecom industry is going to have ideas that they think must be included. And there will be plenty of naysayers and voices from outside the industry arguing on the side of the public. The problem is that there is no one right answer. I think if you sent twenty panels of industry experts off to list what should be in a new Act that you’d get twenty different answers.

Compromise on Net Neutrality?

Network_neutrality_poster_symbolThe FCC is considering a compromise solution to net neutrality that already is satisfying almost nobody. Both through speeches given by FCC Chairman Wheeler along with some leaked memos, it’s clear that the FCC is strongly considering a solution that falls halfway between allowing fast lane deals and in regulating ISPs as common carriers.

While nobody has seen any actual proposed rules, the industry has already reacted strongly to the proposed solution. Apparently, what the FCC has in mind is to reclassify the interactions of the ‘back-end’ Internet as common carrier business while leaving the interactions between ISPS and end users the same as they are today, which is largely unregulated.

This means that the FCC would have the ability to overlook deals between companies like Level3 and Comcast, between companies that transport and switch the Internet. One would have to assume that if this was considered as a regulated common carrier business that rules similar to the way that large carriers interact today would apply. For example, there are rules in place today for agreements between telecom carriers that dictate defined timelines for the completion of a negotiated arrangement as well as defining some broad parameters that must be followed in such agreements. The current interconnection rules have stopped a lot of the abusive practices due to the natural advantage that large carriers hold over small carriers and tends to make the negotiations open and fair to both parties.

The FCC’s compromise is said to have come from a proposal submitted by Mozilla, although to me it seems to differ a lot from that proposal. Mozilla had suggested two forms of regulation. First, they had recommended common carrier regulation between the companies that own the networks that physically carry Internet traffic, about the same as what the FCC is now considering. But Mozilla went on to also say that the FCC should regulate arrangements between ISPS and content creators like Netflix, which Mozilla called “remote delivery services”. Mozilla thought this created a back-door way for the FCC to still have some say over deals that affect the last mile between consumers and the ISPs. That part of the Mozilla proposal seems to have been left on the floor.

I’ve given this some thought all weekend and there seems to be two things that this proposal gives the FCC. First, by not reclassifying the whole Internet business as Title II the FCC is probably trying to create a solution that has a chance of withstanding legal challenge. This proposal does not drastically change the industry enough to create a fatal flaw that would inevitably reverse the decision.

But unfortunately this is still very much a proposal that favors the large ISPs. They will rant and rave and say they hate it, because that is the public relations games they must play, but they will all be pleased and they will all chalk this up as a victory. I find it unlikely that they will challenge this, because if they do then the FCC is going to be left with little option but to try for total Title II regulation of the industry under the common carrier rules.

What I dislike about this, and what the public is going to dislike after they understand it is that this still allows for ISPs to do almost anything they want to consumers. They can cook up plans that give people special pricing if they limit their content to certain providers like Facebook. The ISPs are going to be free to implement more stringent data caps or to introduce plans that charge more for certain types of content. This ruling will make it clear that the FCC has given the ISPs free reign to do whatever they want at the customer level. The ISPs have been held in check for the last years from doing anything too crazy with customers due to this impending ruling. But once this is resolved the ISPs will be free to impose almost anything on customers they want to try.

When I first saw the headlines that there was a compromise solution I had a moment of hope where I thought the FCC would declare the connection to customers as common carrier business but would leave the network connections unregulated. Such a regime would be effective because the ISPs would be free to do whatever they want, up to the point of harming the customer product.

Regulating the customer connection is the only way to protect customers. The Mozilla proposal did this through regulating what they called the ‘remote delivery service’ aspects of the customer experience, meaning that ISPs could not undertake policies that would slow down Netflix at the customer level. To me that was a compromise because it still did not necessarily regulate everything about the customer interaction. For example, DSL services offered by the phone company have always been regulated, and years ago the FCC said that telcos must provide ‘naked DSL’, meaning they must sell DSL as a standalone service without requiring that it be bundled with something else. The FCC has no such authority over cable modems or fiber networks due to the lack of regulating the customer side of the Internet.

This proposal is no safe or wise solution and it is not cutting the baby in half like was done by the wise King Solomon. This is being made to look like a compromise, but it gives the ISPs what they have always wanted, which is free reign to offer any plans they want to consumers. One only has to look at our Internet to know that the ISPs are about nothing but their own bottom line, I saw several articles last week that reminded us that the US internet product is both the slowest and most expensive product among western nations. And this ruling is not going to change that.

What if We Never Get Net Neutrality?

Network_neutrality_poster_symbolI’ve been reading a number of summaries of the million plus comments made in the net neutrality docket at the FCC. Since we are sitting today with basically no rules in place on the issue I wondered a bit about what would happen if we never put any effective rules in place. I think we know the answer based upon the behavior of various carriers in the past during times when there were rules in place. Following are some of the most publicized examples of carrier behavior for the past decade in the US and Canada that would be in violation of net neutrality rules:

2005. Madison River Communications, a small telco, blocks customers from using Vonage.

2005. Comcast blocks numerous peer-to-peer sites like BitTorrent.

2005. Telus, the second largest ISP in Canada blocks hundreds of web sites associated with a union they were having disputes with.

2006. AOL blocks emails that contained the words ‘DearAOL’ which is the name of a group that was protesting AOL’s spam policies.

2006. Clearwire Communication and Bell Canada block VoIP from competitors of Clearwire.

2007. T-Mobile blocks customers from using other vendors for VoIP or text messaging.

2007. Both Cisco and Nokia announce products that make it easy for ISPs to block specific web traffic. While this in itself not a violation, I think it demonstrates that these companies found a market demand for blocking of content. I suspect there are a lot of net neutrality violations that never made it to the press.

2008. Apple blocks Skype on iPhones subject to a secret contract with AT&T.

2010. Windstream hijacks search queries using Google Toolbar and Firefox and redirects the searches to its own search engine.

2011. MetroPCS announced it would block all streaming video except YouTube from its 4G platform.

2011. Verizon, AT&T and T-Mobile all block Google Wallet from phones in favor of their own payment system called Isis.

2011. Large ISPs like Comcast, AT&T and Verizon are accused of slowing down Netflix.

2012. The FCC caught Verizon Wireless blocking people from using data tethering from their cellphones after the company had promised in 2008 to stop the practice.

2014. Verizon Wireless says it will throttle customers with older unlimited data plans first whenever there is contention on its network.

2014. Virgin Mobile offers plans for access to popular web sites that don’t count against data caps.

I know to me that some of these events, like Comcast blocking peer-to-peer sites feels like ancient history – but this has all happened in the last decade. And this was a decade where the FCC was actively trying to police and stop net neutrality violations. It’s not hard to envision that carriers will go much farther in the next decade if there are no restriction on them. I’ve read estimates that in Europe about 1 in 5 customers is affected in some way by lack of network neutrality rules. I think it’s clear in this country that ISPs large and small will restrict customers’ choices if there is no consequence for doing so.

It’s a slippery slope. But it doesn’t take much to imagine going from Virgin’s plan to give special access to Facebook to ISPs who only give access to certain sites if that makes them more money. The counter-argument to net neutrality is that the market will stop the worst abuses. But the vast majority of us only have access to the Internet through one or two major ISPs, and that makes it nearly impossible for consumers to vote with their feet.

The FCC and Peering

Zeus_peering_around_a_corner__(9386751334)As the politics of net neutrality keep heating up, Senator Pat Leahy and Representative Doris Matsui introduced the Online Competition and Consumer Choice Act of 2014.

This bill requires the FCC to forbid paid prioritization of data. But then, Senator Leahy was quoted in several media outlets talking about how the bill would stop things like the recent peering deal between Netflix and Comcast. I’ve read the proposed bill and it doesn’t seem to ban those kinds of peering arrangements. His comments point out that there is still a lot of confusion between paid prioritization (Internet fast lanes) and peering (interconnection between large carriers). The bill basically prohibits ISPs from creating internet fast lanes or in disadvantaging customers through commercial arrangements in the last mile

The recent deals between Netflix and Comcast, and Netflix and Verizon are examples of peering arrangements, and up to now the FCC has not found any fault with these kinds of arrangements. The FCC is currently reviewing a number of industry peering agreements as part of investigating the issue. These particular peering arrangements might look suspicious due to their timing during this net neutrality debate, but similar peering arrangements have been around since the advent of the Internet.

Peering first started as connection agreements between tier 1 providers. These are the companies that own most of the long haul fiber networks that comprise the Internet backbone. In this country that includes companies today like Level3, Cogent, Verizon and AT&T. And around the world it includes companies that you may not have heard of like TeliaSonera and Tata. The tier 1 providers carry the bulk of the Internet traffic and peering was necessary to create the Internet as these large carriers need to be connected to each other.

Most of the peering arrangements between the tier1 carriers have been transit-free or what is often referred to as bill-and-keep. The traffic between the major carriers tends to balance out in terms of originating and terminating volumes and in such cases it doesn’t make a lot of sense for two carriers to bill each other for swapping similar amounts of data traffic.

But over time there were peering arrangements made between the tier 1 carriers and tier 2 providers that includes the large ISPs and telcos. Peering was generally done in these cases to make the network more efficient. It makes more sense to interchange traffic between and ISP and somebody like Level3 at a few places rather than at hundreds of places. It’s always been typical for these kinds of peering arrangements to include a fee for the tier 2 carrier, something that is often referred to as a transit fee.

There is no industry standard arrangement for interconnection between tier 1 and tier 2 providers. And this is because tier 2 providers come in every configuration imaginable. Some of them own significant fiber assets of their own. Others, like Netflix have a mountain of one-directional content and own almost zero network. And so tier 2 providers scramble to find the best commercial arrangement they can in the marketplace. One thing that is almost universal is that tier 2 providers pay something to connect to the Internet. There is no standard level of payment and transit is a very fluid market. But payment generally recognizes the relative level of mutual benefit. If the traffic between two parties is balanced then the payments might be small or even free. If one party causes a lot of costs for the other then payments typically reflect that imbalance.

Netflix has complained about paying Comcast and Verizon. But those ISPs wanted payments from Netflix since the traffic from Netflix is large and totally one-directional. Comcast or Verizon needs to construct a lot of facilities in order to accept the Netflix traffic and they don’t get any offsetting benefit of being able to send traffic back to Netflix on the same connection.

In economic terms, on a national scale the peering market is referred to as an n-dimensional market, meaning that a large tier 2 provider has the ability to negotiate with multiple parties to achieve the same result. For example, Verizon has a lot of options for moving data from the east to the west coast. But eventually the Internet becomes local, and that is where the cost and the contention arises. As Internet traffic enters a local metropolitan market it begins to hit choke points where the traffic can overwhelm the local facilities and cause congestion. The payments that Comcast or Verizon want from Netflix are to build the facilities needed for getting Netflix movie traffic to and through these local hubs and chokepoints.

Peering arrangements like this make sense. I find it hard to believe that the FCC is going to get too deeply involved in peering arrangements. It’s an incredibly dynamic market and carriers are constantly rearranging the network as they find better prices or more efficient network arrangements. If there is any one place where the market works it is between the handful of large carriers that handle the majority of the Internet traffic. Most of the bad things that can happen to customers are going to happen in the last mile network, and that is where net neutrality should properly be focused.

And why the picture of the kitten? I work at home and at my very local part of the network this is the kind of peering that I often get.