Tuesday, August 22, 2017

Seven Questions About Wireless Carrier Throttling of All Video Streams

            Verizon has joined the ranks of wireless carriers in the U.S. that degrade video screen resolution even if nearby tower congestion has not occurred.  See https://gizmodo.com/verizon-will-totally-start-throttling-customers-video-t-1798302947.  Here are some questions that come to mind:

1)         If ISPs have a lawful claim to First Amendment speaker status, do content providers have a similar, or stronger freedom of expression link when ISPs purposefully distort and degrade the high definition video feed they receive and deliver in standard definition or worse to broadband subscribers?

2)         When, if ever, can an ISP invoke reasonable network management as justification for continuous and deliberate throttling of video traffic even when congestion has not occurred?

3)         Should the FCC impose the same no meddling/no degradation of “must carry” content Congress mandated the Commission establish for cable television operators?

4)         While arguably consumers may not see perceive much video presentation degradation on their smartphone screens, will many wireless broadband subscribers in the future try to “sling” video content from handsets to television sets where the degradation would appear significant?

5)         Is service pricing on the basis of video screen resolution much the same as tiering on the basis of bit transmission speed, or monthly data allowances?

6)         Do wireless carriers give with one hand and take with the other when offering conditionally “unlimited” service subject to standardized throttling of video traffic?  Is this reasonable marketing and puffery, or a deceptive business practice?

7)         Do wireless carriers intentionally, or inadvertently bolster the video on demand market share held by cable television operators when offering inferior screen resolution?

            In a future post, I will provide answers, but for now I would appreciate your thoughts.

Wednesday, August 9, 2017

Thought Experiment: What Would You Do If You Saw an "Inoperative" Sticker on a Jet Exit Row Window?

Soon after I took my exit row seat on an long flight from Germany on Monday, I saw this sticker:

Here's a closer look at the text on the sticker:

Which of the following most closely fits how you would react:

A) Have confidence that safety regulatory oversight would guard against any risk of calamity;

B) Rely on market forces to support self-regulation and timely aircraft maintenance;

C) Worry that U.S. airlines can't resist the financial gain from deferred maintenance; or

D) Consider the "inoperative" label as an overstatement for something minor.

I opted for answer D, but only after conferring with the Lead Flight Attendant who conferred with the Captain. 

There is no single "correct" answer.  Each letter might offer insights on your regulatory perspective.

Saturday, July 22, 2017

The High Cost of Independence in Telecommunications Policy Analysis

            For over 25 years, I have strived to find the truth without regard to political party and economic doctrine.  My work fits no definitional template, or litmus test.   This fierce independence comes at a significant price.

            In these partisan times, the failure to make a team commitment places on in either, or both of two undesirable camps: 1) unreliable, “not one of us”; and 2) ignorable and invisible.

            For so many years, I though independence offered the opportunity to provide the “straight dope,” i.e., to offer unsponsored insights, the real deal.  On the plus side, independence has enhanced my qualifications to serve as an unbiased industry observer, legal analysist and forecaster.  On the negative side, few stakeholders and even the media want transparent analysis.  Stakeholders want advocates and they handsomely pay to use scholar-created “research” to promote their legislative and regulatory agenda.  So much sponsorship money sloshes around that the refusal to tap in generates questions about the value of one’s work.

            In light of a 24 hour news cycle, most journalists now appear content, or resigned, to interview and quote from scholars with a particular, often financially sponsored, viewpoints.  They offer no analysis leaving it up to consumers to make their own determination of the truth.

            Recently the Wall Street Journal had a front page article reporting on the breadth and reach of Google-sponsored, academic work.  See http://www.wsj.com/podcasts/google-academic-influence-campaign-paying-professors/832B4701-43E8-498E-B527-76AD0D54E553.html.  The list contained far too many “false positives,” but it does provide ample evidence of what Google does to affect policy, just like more established ventures such as AT&T, Comcast and Verizon. 

            I did not make the list.  I should note that Google did provide financial support for one project, but the scope of editorial oversight proved uncomfortable.

            I don’t know whether to revel in this confirmation of independence, or to regret not joining the ranks of some very impressive scholars. Are scholars not on this and similar lists nobodies, because no one paid for their work making it close to valueless?

            I continue to hope that there will remain a place for unsponsored research which can have financial support, but no explicit or implicit expectation of outcome.  Of course there will always be well-funded place for sponsored advocacy that masquerades as research.  The policy making process –and sadly most media outlets as well—function largely on the assessment and balancing of divergent viewpoints. 

            But unsponsored, independent research continues to dwindle in volume, significance and impact at a time when industry, government and the learned community need it to offer, fair-minded strategic planning insights.

Thursday, July 20, 2017

Wireless Carrier Ambivalence about Wi-Fi and What This Tells Us About Competition and Incentives

            Once upon a time, well over a decade ago, most wireless carriers saw Wi-Fi as a technological competitor.  The carriers always metered traffic then and wanted their subscribers to “use their minutes” rather than conserve them.  Subscribers could not “bring their own device, because the carriers managed a closed distribution link, selling most handsets and restricting the resale market.  Because the wireless carriers had a shared monopsony (buyers’ monopoly), they could dictate terms and conditions, including a prohibition on Wi-Fi access.  Nokia determined it could disable an installed Wi-Fi chip rather than redesign some handsets.

            Time passes and now wireless carriers adore Wi-Fi.  The carriers want subscribers to offload traffic onto Wi-Fi.  Better yet, U.S. carriers have lobbied the FCC to permit them to use unlicensed Wi-Fi spectrum for their commercial, licensed services.  Note what a sweet deal this would be as the carriers could avoid having to competitively bid and pay for some spectrum.

            Obviously the complete 360 degree reversal of position reflected changed circumstances.  But does the integration of a Wi-Fi option show how robustly competitive marketplaces operate, or are their other factors in play?  It gets murky, particularly in this partisan and contentious time.  A free marketer could use this reversal of position as evidence of how competition destroys business plans and forces ventures to enhance the value proposition for consumers. 

            I readily accept that marketplace competition imposes discipline and forces “sleepless afternoons.”  However, the free marketer overstates her case, because of other factors that either have nothing, or little to do with competition. 

            First, one should consider spectrum supply and demand.  As wireless service demand grew and bandwidth requirements expanded, e.g., streaming video, wireless carriers considered Wi-Fi a free and easy way to offload traffic.  Wi-Fi abated spectrum scarcity.  Additionally Wi-Fi provided network access where dead zones existed, because of zoning restrictions, particularly difficult terrain and perhaps the financial burden from having to install ever more cell tower sites.

            Competition does pay a major role in stimulating demand for service, but one has to look at the market structure of the industry.  You might not know that the FCC first created a wireless duopoly with a guaranteed license and market head start for incumbent wireline telephone companies.  Back then, Republican and Democratic FCC Commissioners had no problem collectively agreeing on this sweet deal. 

            Over time, two more facilities-based carriers entered the market.  As late entrants, often using spectrum at higher frequencies having less geographical coverage, these carriers had to offer a better deal to acquire market share.  But these late to market entrants had to think quite strategically about how much of a better deal to offer.  Carriers like Sprint used the prices of the two major incumbent wireless carriers, Verizon and AT&T, as a price ceiling.  Sprint was more likely to match or slightly discount the price of the incumbents, relying on features to stimulate churn and new subscriptions.  Sprint offered handset subsidies, offered not to start metering until the second minute of use and provided free automatic number identification, a feature that cost carriers virtually nothing to offer.   

            Remarkably the wireless marketplace did not show much price competition until quite recently.  I used to compile charts showing the near identical terms, conditions and prices of the four national carriers.  So much for robust price competition; the carriers have mostly competed on features.

            TMobile has aggressively used feature competition to acquire market share.  This “uncarrier” maverick has provided most of the consumer friendly feature innovations, including lower roaming fees, particularly abroad, the option to buy and use your own phone, zero rating, etc.

            Simply put, wireless carriers compete because they have to, not because they want to.  Their initial reaction to Wi-Fi was to block its use.  They embraced the technology, because they had to, not because they wanted to enhance the value position for subscribers.

            Wireless carriers are not charities, nor are they role models supporting an unregulated telecommunications marketplace.

             

Friday, July 14, 2017

Degrading Customer Quality of Experience as a Successful ISP Business Strategy

            In a recent New York Times article, the head of the cable television trade association, Michael Powell, made a curious observation about Internet Service Provider business strategy.  He sees no revenue enhancement possibilities in deliberately lowering the value proposition of broadband Internet access by blocking or degrading specific content deliveries: 

            “They’re as self-interested as Google or anybody else, but they believe they’ve found a good business selling internet access on open, unobstructed pipes. They don’t see how one could create a profitable business model by degrading the experience of their consumers.” See https://www.nytimes.com/2017/07/13/business/net-neutrality-broadband-companies-fcc.html?_r=0 

            Mr. Powell may have made a plausible observation about the broadband market, but there is another big transport market where a rush to the bottom enhances a carrier’s bottom line: commercial aviation.  Three of the four major carriers in the U.S. have created a new Economy Minus service option where previously bundled features are prohibited, or available at a surcharge.  United even prohibits “Basic Economy” passengers from carrying onboard a small bag. 

            Economists and others might welcome the proliferation of pricing options where consumers have to reveal preferences by paying for specific service enhancements.  But in most cases, the legacy carriers offering this new degraded service option have not lowered the fare.  They have reduced the service bundle and now priced out specific elements.   

            So much for not profiting from a degradation in the value proposition. 

            An ISP already has experimented with unbundling and separately pricing specific service elements.  For a brief time in selected markets, AT&T floated a new $29 monthly fee for enhanced privacy protection for broadband customers.  See https://arstechnica.com/business/2015/02/att-charges-29-more-for-gigabit-fiber-that-doesnt-watch-your-web-browsing/.  Most consumers thought privacy protection constituted an integral part of their subscription, but of course they haven’t read their subscription agreements that would disabuse them of that presumption.

            ISP service diversification, unbundling and pricing experiments evidence a maturing market.  As part of this transition, absent an explicit prohibition, expect these carriers to follow the airlines’ lead in pushing the envelope on price increases and service element unbundling.

Wednesday, July 5, 2017

The 5G Wireless Utopia Just 6 Months After the Obama Investment Downer

            Today’s Wall Street Journal continues the commitment to framing a fake, alternative reality in the telecom/Internet ecosystem.  See Holman W. Jenkins, Jr. Comcast vs. the 5G Frenzy; available at: https://www.wsj.com/articles/comcast-vs-the-5g-frenzy-1499188939.

            Just months after President Obama allegedly engineered an unprecedented decline in broadband infrastructure investment, Mr. Jenkins sees a “frenzy” in superfast fifth generation wireless network rollouts and a “dramatic restructuring of the cable and mobile broadband industries.”

            Wow!  Just a few months ago, the Journal and various sponsored researchers bemoaned the decline in broadband capital expenditures, solely generated by the FCC’s insistence on Mr. Jenkin’s characterized “1934-style utility regulation.” Now, wireless carriers like AT&T and Verizon have opened their pocketbooks to invest in new plant, at the same time as they spend billions to acquire content providers like AOL, DirecTV, Time-Warner and Yahoo.

            Here are some inconvenient and ignored truths: Congress mandated common carrier regulation of wireless carriers and that designation has NOT created any investment disincentive.  Broadband carriers have spent billions on content providers surely based on the assumption that ample capacity and transmission speed can accommodate ever growing video demand.  These very same carriers have spent additional billions on radio spectrum.

            So much for the FCC’s frenzy killing network neutrality regulation on investment, innovation and employment.

            Mr. Jenkins implies that the telecom/Internet marketplace will grow even more competitive, apparently not likely to suffer when additional acquisitions reduce the number of national wireless carriers to three and other mergers further concentrate other markets.  If not now in the new 4G environment, the future 5G environment will make wired and wireless networks interchangeable.

            Maybe, but Mr. Jenkins seems to ignore additional inconvenient truths.  Unlimited wireless—now and in the future—does not truly fit the term.  Unlimited plans have limits which if exceeded result in a major degradation of service to second or third generation network speeds that cannot provide video carriage. This occurs when a subscriber exceeds a cap of 20-30 Gigabytes and when the top few percentage power users take service from a congested tower. Wireless carriers also down-convert high definition video streams from 1080 lines of resolution to 480 lines.

            Currently, wireless carriers do impose hard and soft data caps while wireline carriers do not, or have a soft cap at more than 500 Gigabytes. Now, wireless carriers charge substantially more than wireline carriers on a per Gigabyte rate. We will see true intermodal competition when wireless broadband subscribers do not bother to program their smartphones to shift from their wireless carriers to available Wi-Fi options.


            So for the time being, Mr. Jenkins has lobbed yet another canard to discredit skeptics of an unregulated marketplace and to vilify network neutrality advocates.

Monday, June 5, 2017

Handicapping the Odds for Perpetually Full Voice Mailboxes


            The FCC will consider whether ringless voicemail messaging falls within a law that generally prohibits the transmission of unconsented voice and text messages (other than those from charities and political parties) to wired and wireless telephones.  See https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-88A1.pdf.  Until now, the FCC has sided with the court of public opinion and interpreted the Telephone Consumer Protection Act, (codified at 47 U.S.C. § 227; see Telephone Consumer Protection Act of 1991, CG Docket No. 02-278, Report and Order, 27 F.C.C.R. 1830 (2012)) in ways that provide support for curbing the cockroach-like infestation of spam calls, faxes and text messages.

            The FCC may reverse course this time, largely because the two Republican Commissioners have plenty of incentives to embrace something the Republican National Committee and the U.S Chamber of Commerce supports.  See https://www.recode.net/2017/5/23/15681158/political-campaign-robocall-ringless-voicemail-without-ringing-cellphone-republican

            This issue presents itself as something of a litmus test for an FCC, tightly managed by Chairman Ajit Pai.  Despite rhetoric about making the Commission more disciplined by fact finding and sound economics and law, Chairman Pai has evidenced a penchant for results-driven decision making that supports his agenda.  In this matter, he has very little rhetoric, rationale, law and evidence to support what his Party and the Chamber of Commerce endorse.  Allowing spammers to overload mailboxes will not create many jobs as the messages are software generated, often by foreign manufactured devices.  Framing spam as First Amendment protected commercial speech defies common sense and disregards the congressionally recognized rights of subscribers to be left alone.  Ignoring the clear and unambiguous language and mission of law would lend credence to the view that Chairman Pai is not the transparent and honest broker he claims to be.  Defying and frustrating just about every cellphone user does not seem a smart move.  The assertion that ringless voice mail does not trigger costs to carrier, or consumer simply does not pass the smell test.

            Despite plenty of reasons to determine that ringless voice mail falls within the Telephone Consumer Protection Act of 1991, it would not surprise me if the FCC finds a clever, weaselly way to accommodate the spammers.  I can envision a lofty invocation of regulatory forbearance, claims of statutory ambiguity and trust in the wisdom of the marketplace, despite a clear legislative mandate to regulate and unequivocal evidence that telephone subscribers cannot participate in a spam marketplace. 

            On the other hand, the FCC might restrict, or prohibit such calls largely because of consumer pushback and evidence that ringless voicemail does trigger costs for both subscribers and more importantly for carriers, despite not having to route calls all the way to a subscriber handset.   Subscribers incur costs in accessing their mailboxes, and in scrolling through and erasing the messages, particularly when something serious and personal follows a slew of spam.  Similarly, subscribers experience frustration when their mailboxes reach capacity and carrier surely incur some costs in having to generate recorded announcements that another voicemail message cannot be stored.

            Few at the FCC may recall another instance where carrier network resources were used without compensation.  When international telephone toll rates often exceeded $1.00 a minute clever entrepreneurs created a “call-back” device (later software) that converted an expensive inbound call into a lower priced outbound call.  Someone seeking to establish a voice connection initiated a call to the United States, but cut the call before completion and the start of metering.  Because signaling preceded the meter, one could provide the foreign telephone number that the device, or software would immediately use to initiate a call.

            International telephone companies like AT&T opposed the use of their networks without compensation.  Remarkably, the FCC rejected their complaints and sided with consumers who benefitted from lower international toll charges through arbitraging the difference between inbound and outbound rates.


            For ringless robocalling, both carrier and customer interests align, because both stakeholder incur costs.  Still it remains to be seen whether the FCC will find a way to accommodate key benefactors, e.g., the Republican Party and all types of spammers, to the detriment of other benefactors it usually serves, e.g., Verizon and other carriers.

Thursday, May 25, 2017

Summary of the FCC's Restoring Internet Freedom NPRM



            With the election of President Donald Trump and the appointment of Ajit Pai as FCC Chairman, muscular network neutrality rules soon will evaporate as the Commission reverts to a general promotion of openness and best practices. [1]  Despite judicial affirmance of an earlier reclassification of broadband Internet access as a telecommunications service, subject to common carrier regulation, the Restoring Internet Freedom Notice of Proposed Rulemaking proposes to revert to a looser regulatory classification triggering substantially less government oversight:
Today, we take a much-needed first step toward returning to the successful bipartisan framework that created the free and open Internet and, for almost twenty years, saw it flourish.  By proposing to end the utility-style regulatory approach that gives government control of the Internet, we aim to restore the market-based policies necessary to preserve the future of Internet Freedom, and to reverse the decline in infrastructure investment, innovation, and options for consumers put into motion by the FCC in 2015. [2]

            The FCC now proposes to apply an information service regulatory classification to broadband Internet access [3] and to treat wireless service as private carriage rather than the existing commercial designation established by Congress. [4] The Commission heavily relies on a questionable conclusion that common carriage regulation stifles investment, innovation and employment in the Internet ecosystem.  While offering a passing reference to contrary studies, the FCC opts to accept unconditionally the conclusion in one study sponsored by incumbent carriers that existing regulation imposed substantial marketplace harms.  The Commission espite clear evidence that Internet ventures continue to invest billions in both content delivery plant and content creators who need a robust distribution network to deliver content to consumers. [5] 
            Remarkably, the Commission appears confident that any and all reductions in investment, innovation and employment have resulted directly and exclusively from common carrier responsibilities imposed by a Democratic majority.  It provides no evidence of causation, nor does it even consider other factors that may have contributed, such as the billions of dollars recently invested in content, e.g., Verizon’s acquisition of America Online and Yahoo,  AT&T’s acquisition of DirecTV and several mergers of cable television operators.  Additionally, the Commission conveniently ignores the cyclical nature of facilities investment that, for example, triggers a spike in a new generation of wireless plant, e.g., from 3d generation to 4th generation, followed by a normal reduction capital expenditures as the new equipment becomes operational.
The FCC also ignores the fact that despite operating within a so-called public utility regulatory regime, wireless carriers have invested billions on spectrum and network facilities capable of delivering content as near wireline speeds. [6]
            The Restoring Internet Freedom NPRM devotes substantial space supporting the proposed reclassification of broadband Internet access as an information service.  The Commission considers this classification more appropriate and lawful, going so far as to claim bipartisan support, despite the fact that the previous Democratic majority favored common carrier requirements:
We believe the Commission under Democratic and Republican leadership alike was correct in these decisions to classify broadband Internet access service as an information service and that, 20 years after the passage of the Telecommunications Act, we should be reluctant to second-guess the interpretations of those more likely to understand the contemporary meaning of the terms of the Telecommunications Act.  [7]

            The Commission identifies ample precedent where reviewing courts defer to its technical expertise and statutory interpretation, particularly where the underlying law lacks clarity.  [8] 
           Ironically, reversion to the information services classification will result in two outcomes that can have directly harmful impact on consumers and carriers.  First, reliance on Title I authority does not in and of itself reduce will the regulatory uncertainty which the FCC and stakeholders abhor, [9] because of the potential disincentives for investment, innovation and employment it creates.  The FCC clearly signals that its reliance on Title I will promote deregulation, if not unregulation, but ample case precedent shows that reviewing courts may not trust regulatory agencies to maintain consistency. [10] The FCC clearly seeks to remove regulatory oversight, but it also retains Title I, so-called ancillary jurisdiction to intervene as circumstances warrant, e.g., when a carrier deviates from any of the 2005 Open Internet principles.
            Second, reversion to Title resurrects the view that the FCC can compartmentalize Internet technologies into an air tight, mutually exclusive dichotomy of telecommunications services and information services, [11] despite market and technological convergence.   For example, the FCC already has had to address the fact that wireless devices combine basic, regulated, telecommunications services, such as voice telephony and texting, with unregulated or differently regulated content and information services.  Even during a time when the Commission considered broadband access as constituting an information service, it imposed common carrier type, affirmative duties to deal and interconnect on wireless carriers so that consumers can access Internet services when “roaming” outside their home service territories. [12]
            The FCC also proposes to eliminate the application of a catch-all standard used in the 2015 Open Internet Order that prohibited “current or future practices that cause the type of harms [the Commission’s] rules are intended to address.”  [13] This standard allows the Commission to prohibit practices that it determines unreasonably interfere with or unreasonably disadvantage the ability of consumers to reach the Internet content, services, and applications of their choosing or of online content, applications, and service providers to access consumers.   It also enables the FCC to prohibit any Internet service provider practice that it believes violates any one of the non-exhaustive list of factors adopted in the 2015 Open Internet Order.
            The Commission believes that eliminating a standard of conduct will provide greater clarity to stakeholders, because the current Internet conduct standard “is premised on theoretical problems that will be adjudicated on an individual, case-by-case basis, Internet service providers must guess at what they are permitted and not permitted to do.” [14] The Commission cites the zero rating as an example where the FCC, under a Democratic majority, investigated the lawfulness of subsidized data access, while the new Republican majority quickly shut down the investigation.  Arguably, the regulatory uncertain resulted from different interpretations of the conduct standard, based on political party affiliation, rather than the conduct standard itself.  Removing the standard provides no guidance at all, unless the Commission has signaled that it cannot anticipate a problem with any carrier offer to exempt specific types of traffic from debiting a monthly data allowance.
            The 2017 Restoring Internet Freedom NPRM also seeks comments on whether the FCC should eliminate three carrier conduct prohibitions contained in the 2015 Open Internet Order: blocking, throttling, and paid prioritization.  The Commission strongly hints that it considers these, ex ante safeguards both unnecessary and imposed without evidence that consumers have, or would suffer harm if the prohibitions did not exist.[15] 
            The Commission also seeks comments on whether Section 706 of the Telecommunications Act provides it with direct statutory authority to impose regulatory safeguards, or simply requires the FCC to assess the competitiveness and accessibility of the broadband marketplace and report findings to congress.  This portion of the NPRM may appear insignificant and narrow, but the Commission clearly implies its view that Section 706 provides no statutory authority to impose regulatory safeguards under any circumstances. [16]  Even if the current FCC Commissioners did retain the option of regulatory intervention, an already expressed view that the wired and wireless broadband marketplace operates competitively strongly implies that a majority Republican FCC would never seek to impose regulatory safeguards based on Section 706 authority. 
            For good measure, the Restoring Internet Freedom NPRM  also seeks comments whether any regulatory burden on broadband access providers would violate their First Amendment expression rights, a matter summarily dismissed by the D.C. Circuit Court majority, but raised in a dissent. [17]  Lastly, the FCC expresses a keen interest in applying a disciplined and substantive cost/benefit analysis assessing the financial impacts of its action. [18] While laudable, the FCC’s NPRM provides several instances where the Commission reaches broad sweeping conclusions without the empirical evidence and analysis it now regularly seeks to conduct.


[1]              Restoring Internet Freedom, WC Docket No. 17-108, Notice of Proposed Rulemaking, FCC 17-60 (released May 23, 2017); available at: https://apps.fcc.gov/edocs_public/attachmatch/FCC-17-60A1.docx [hereinafter cited as Restoring Internet Freedom NPRM].  The FCC proposes to treat broadband Internet access as an information service, subject to Title I of the Communications Act, that does not authorize the FCC to impose common carrier regulations.  Instead the Commission has an ambiguous regulatory authority to impose safeguards and to promote goals.  For example, the Restoring Internet Freedom NPRM endorses four principles for Internet freedom to further ensure that the Internet would remain a place for free and open innovation with minimal regulation.   These four “Internet freedoms” include the freedom to access lawful content, the freedom to use applications, the freedom to attach personal devices to the network, and the freedom to obtain service plan information. See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, Policy Statement (2005); available at: https://apps.fcc.gov/edocs_public/attachmatch/FCC-05-151A1.pdf.

[2]              Restoring Internet Freedom NPRM  at ¶5. 

[3]              “Today, we propose to reinstate the information service classification of broadband Internet access service and return to the light-touch regulatory framework first established on a bipartisan basis during the Clinton Administration.” Id. at ¶24.

[4]              “We also propose to reinstate the determination that mobile broadband Internet access service is not a commercial mobile service.” Id. “Furthermore, insofar as mobile broadband Internet access service is best interpreted to be an information service, we believe that likely also would counsel in favor of classifying it as a private mobile service to avoid the inconsistency of the service being both an information service and a common carrier service.  The Commission explained this reasoning when originally classifying mobile broadband Internet access service as both an information service and a private mobile service, and we propose to apply that same reasoning again here.” Id. at ¶60. 

[5]              “We believe that these reduced expenditures are a direct and unavoidable result of Title II reclassification, and exercise our predictive judgment that reversing the Title II classification and restoring broadband Internet access service to a Title I service will increase investment.” Id. at ¶46.  The Commission relies on a single study, prepared by a researcher financially sponsored by stakeholders opposed to network neutrality rules. Id. at n.113.

[6]              The FCC implies that regulatory compliance forces carriers to incur costs that otherwise would have accrued consumer benefits. “Internet service providers have finite resources, and requiring providers to divert some of those resources to newly imposed regulatory requirements adopted under Title II will, unsurprisingly, reduce expenditures that benefit consumers.” Id. at ¶46.

[7]              Id. at ¶39.

[8]              “An agency also is free to change its approach to interpreting and implementing a statute so long as it acknowledges that it is doing so and justifies the new approach. [citing FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515-16 (2009) (Fox); Mary V. Harris Found. v. FCC, 776 F.3d 21, 24-25 (D.C. Cir. 2015)]  Evaluating the change in regulatory approach in the Title II Order, the D.C. Circuit majority in USTelecom applied a ‘highly deferential standard’ to the agency’s predictive judgments regarding the investment effects of reclassification, [citing United States Telecom Ass’n v. FCC, 825 F.3d 674,707 (D.C. Cir 2016), reh’g en banc denied, No. 15-1063, 2017 WL 1541517, at *1 (D.C. Cir. May 1, 2017)] and deferred to the Commission’s ‘evaluat[ion of] complex market conditions’ underlying its rejection of providers’ reliance interests in the prior classification [citing Id. at 710 (quoting Gas Transmission Northwest Corp. v. FERC, 504 F.3d 1318, 1322 (D.C. Cir. 2007)]. Restoring Internet Freedom NPRM  at ¶53.  “The Commission has authority, as the Supreme Court recognized in Brand X, to interpret the Communications Act, including ambiguous definitional provisions.” Id. at ¶52, citing Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005).

[9]              The Commission considers Title II regulation as causing substantial regulatory uncertainty despite the greater specificity this Title provides as compared to Title I. “In addition to imposing significant regulatory costs on Internet service providers, Title II reclassification created significant regulatory uncertainty.  USTelecom specifically identified ‘regulatory uncertainty’ as one of the causes of reduced investment.   Id. at ¶48.  Title I provides an ambiguous sphere of regulatory authority which the FCC overstepped when it imposed common carrier responsibilities on broadband service providers then classified as information service providers. See,  See Formal Complaint of Free Press and Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, Memorandum Opinion and Order, 23 F.C.C.R. 13,028 (2008), vacated, Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010) (FCC deemed to have exceeded its statutory authority when responding to a complaint and imposing network neutrality rules); Preserving the Open Internet, Report and Order, GN Docket No. 09-191, WC Docket No. 07-52, 25 F.C.C.R. 17905 (2010)[hereinafter cited as 2010 Open Internet Order] aff’d in part, vacated and remanded in part sub nom. Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014).

[10]            For example, a reviewing court twice rejected a Democratic majority FCC from imposing consumer safeguards based on a general conferral of jurisdiction over wire and radio contained in Title I of the Communications Act of 1934, as amended.  See Formal Complaint of Free Press and Public Knowledge Against Comcast Corp. for Secretly Degrading Peer-to-Peer Applications, Memorandum Opinion and Order, 23 F.C.C.R. 13,028 (2008), vacated, Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010) (FCC deemed to have exceeded its statutory authority when responding to a complaint and imposing network neutrality rules); Preserving the Open Internet, Report and Order, GN Docket No. 09-191, WC Docket No. 07-52, 25 F.C.C.R. 17905 (2010)[hereinafter cited as 2010 Open Internet Order] aff’d in part, vacated and remanded in part sub nom. Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014). 

[11]            “The Commission has previously concluded that Congress formally codified information services and telecommunications services as two, mutually exclusive types of service in the Telecommunications Act.   The Title II Order did not appear to disagree with this analysis, finding that broadband Internet access service was a telecommunications service and not an information service.   We believe this conclusion regarding mutual exclusivity is correct based on the text and history of the Act.” Id. at ¶40. “We also believe that mobile broadband Internet access service is not the ‘functional equivalent’ of commercial mobile service. Id. at ¶61.

[12]            Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers
and Other Providers of Mobile-data Services, Second Report and Order, 26 F.C.C.R. 5411
(2011), aff’d sub. nom. Cellco Partnership v. FCC, 700 F.3d 534 (D.C. Cir. 2012).

[13]            Protecting and Promoting the Open Internet, WC Docket No. 14-28, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, 5659 (2015), aff’d sub nom., United States Telecom Ass’n. v. FCC, 825 F.3d 674 (D.C. Cir. 2016). pet. for en banc rehearing denied.

[14]            Restoring Internet Freedom NPRM  at ¶74. 

[15]            “In the Title II Order, despite virtually no quantifiable evidence of consumer harm, the Commission nevertheless determined that it needed bright line rules banning three specific practices by providers of both fixed and mobile broadband Internet access service: blocking, throttling, and paid prioritization.  The Commission also ‘enhanced’ the transparency rule by adopting additional disclosure requirements. Today, we revisit these determinations and seek comment on whether we should keep, modify, or eliminate the bright line and transparency rules.” Id. at ¶76. 

[16]            “We seek comment on whether section 706(a) and (b) of the 1996 Act are best interpreted as hortatory rather than as delegations of regulatory authority.  Such an interpretation generally is reflected in the Commission’s approach to section 706 prior to 2010.” Id. at ¶101.

[17]            Id. at ¶104.

[18]            Id. at ¶105-15.
       

Friday, May 19, 2017

Hidden in Plain Sight: FCC Chairman Pai’s Strategy to Further Concentrate the U.S. Wireless Marketplace

          While couched in noble terms of promoting competition, innovation and freedom, the FCC soon will combine two initiatives that will enhance the likelihood that Sprint and TMobile will stop operating as separate companies within 18 months.  In the same manner at the regulatory approval of airline mergers, the FCC will make all sorts of conclusions sorely lacking empirical evidence and common sense. 
            FCC Chairman Pai’s game plan starts with a report to Congress that the wireless marketplace is robustly competitive.  The Commission can then leverage its marketplace assessment to conclude that even a further concentration in an already massively concentrated industry will not matter. Virtually overnight, the remaining firms will have far less incentives to enhance the value proposition for subscribers as TMobile and Sprint have done much to the chagrin of their larger, innovation-free competitors AT&T and Verizon who control over 67% of the market and serve about 275 million of the nation’s 405 million subscribers.
            Like so many predecessors of both political parties, Chairman Pai will overplay his hand and distort markets by reducing competition and innovation much to the detriment of consumers.  He can get away with this strategy if reviewing courts fail to apply the rule of law and reject results-driven decision making that lacks unimpeachable evidence supporting the harm free consolidation of the wireless marketplace.  Adding to the likely of successful overreach, is the possibility of a muted response in the court of public opinion.
            So how will the Pai strategy play out?  First, the FCC soon will invite interested parties to provide evidence supporting or opposing a stated intent to deem the wireless marketplace sufficiently accessible and affordable throughout the nation.  The FCC has lots of evidence to support its conclusion, but plenty of countervailing and inconvenient facts warrant a conditional conclusion, particularly in light of future market consolidation.  Wireless carriers have invested billions in network infrastructure and spectrum.  Rates have significantly declined as the industry has acquired scale and near full market penetration.  Bear in mind that all of this success has occurred despite, or possibly because of a federal law requiring the FCC to treat wireless carriers as public utility telephone companies.  Congress opted to treat wireless telephone service as common carriage, not because of market dominance, but because it wanted to maintain regulatory parity with wireline telephone service as well as apply essential consumer safeguards. 
            How ironic—perhaps hypocritical—of Chairman Pai and others who surely know better  to characterize this responsibility as the product of overzealous FCC regulation that has severely disrupted and harmed ventures providing wireless services.  Just how has common carrier regulation created investment disincentives for wireless carriers when operating as telephone companies?  Put another way, how would removal of the consumer safeguards built into congressionally-mandated regulatory safeguards unleash more capital investment, innovation and competitive juices?
            U.S. wireless carriers regularly report robust earning and average revenue per user that rival any carrier worldwide.  Of course industry consolidation would further improve margins while relaxation of network neutrality and privacy protection safeguards would create new profit centers.  TMobile shareholders get a big payout, while the remaining carriers breath a sigh of relief that their exhaustively competitive days are over.
            Will the court of public opinion detect and reject the FCC’s bogus conclusion that common carrier regulation has thwarted wireless investment and innovation?  That requires a lot of vigilance and memories of the bad old days when no carrier opted to play the role of maverick innovator and marketplace disrupter.  With TMobile or Sprint merged or acquired, the remaining ventures have ever more incentives not to spend sleepless afternoons competing and devising new ways to stimulate customer interest in changing carriers.  TMobile and Sprint have offered just about every value enhancement in recent years such as carry forward minutes, reduced roaming charges, unlimited service, new bundles and use your own device at much lower monthly rates.  Would these options exist if only three carriers served 95% of the market?
            If you think the recent spate of airline mergers has enhanced competition and the air travel experience, then a wireless marketplace with 3 national carriers will work out just peachy.


Tuesday, May 9, 2017

FCC Chairman Pai's Results-Driven Decision Making

Hello All:

In a contribution to The Hill, I take issue with FCC's Chairman Pai's commitment to sound economics and empirical fact finding even as he engineers results-driven outcomes.  See http://thehill.com/blogs/pundits-blog/technology/332503-ajit-pai-too-focused-on-deregulation

Thursday, April 20, 2017

More Doctrinal and Partisan Economic Analysis at the FCC


            According to FCC Chairman Amit Pai and the partially dissenting judge in a key case, the FCC desperately needs more economists and their work product. See https://www.youtube.com/watch?v=-JL7Wrwj9dg; and https://www.cadc.uscourts.gov/internet/opinions.nsf/3F95E49183E6F8AF85257FD200505A3A/%24file/15-1063-1619173.pdf.  If only these disciplined and intellectually honest non-lawyers were on the case, the FCC would better serve the public interest. See, e.g., Gerald R. Faulhaber, Hal J. Singer and Augustus H. Urschel, The Curious Absence of Economic Analysis at the Federal Communications Commission: An Agency in Search of a Mission, 11 INTERNATIONAL JOURNAL OF COMMUNICATION, 1214–1233 (2017); available at: http://ijoc.org/index.php/ijoc/article/view/6102/1967.

            I don’t buy it one bit.

            The FCC has far more lawyers than economists, because much of the agency’s job requires statutory interpretation and implementation.  The Commission has an established body of case precedent from which it has a legal obligation to consult and apply absent changed circumstances, particularly in the frequent adjudications it performs.  Of course economists should participate in the FCC’s policy making process to assess whether and how circumstances have changed.  Additionally, laws occasionally do specifically require the FCC to conduct economic analysis such as assessing whether a market operates with “sufficient competition.”

            D.C. Circuit Court Judge Williams endorsed a statement attributed to former Chief Economist Professor Tim Brennan criticizing the FCC for ignoring economic analysis.  See Williams Partial Dissent at 41, citing http://www.wsj.com/articles/economics-free-obamanet-1454282427.

            Professor Brennan is no shrinking violet who somehow found himself ignored, if not shunned at the FCC.  What is sought by Chairman Pai, Judge Williams, incumbents and the legions of sponsored economists already participating in FCC proceedings is something quite different from legitimacy and a seat at the table.  They want doctrinal superiority.

            Doctrinal superiority means that the FCC should unconditionally accept the work product of specific economists and their particular views. Chairman Pai does not appear to want more robust and open economic analysis.  He appears to want a specific strain of economic doctrine to apply.  Unsurprisingly that doctrine supports a deregulary wish list of incumbent ventures so they can accrue more market power, profits and insulation from competition. 

            Chair Pai does not appear to embrace peer reviewed, disciplined economic analysis unfettered by specific, desired outcomes.  Instead, he seems to welcome economics that create unimpeachable rules that he endorses.  Lawyers surely can interpret law and parse its meaning, but economists do not even have to start with an underlying predicate. They can make it up as they go along.

            Free of having to start from case precedent and specific statutes, economists can state unequivocally that mergers and acquisitions “promote competition.”  Other Big Truths from sponsored telecommunications economists include the conclusion that:

●          markets only need 3 competitors to operate efficiently;
●          deregulation should start if a market might become competitive in the future;
●          vertical integration always helps a venture achieve scale and efficiency; and
●          incumbent common carriers should receive the same or greater compensation for having to                 lease capacity to a competitor than what would accrue if the carrier provided service to an end             user.

            Most economists I know have solutions to all of society’s ills.  Many have great confidence bordering on smugness, no doubt enhanced by their command of complex math.  Most have a particular agenda that colors their research converting it into advocacy that would not pass must with peer review.  The allure of easy and lucrative financial sponsorship from stakeholders converts most economic analysis submitted to the FCC into predictable, biased, partisan and doctrinal work product.  The FCC already receives tons of this kind of material in the proceedings for which it solicits public comments.

            I have little confidence that having more unsponsored, but likely partisan and doctrinal economists at the FCC will miraculously enhance the work product of the Commission.

            I’ll conclude with a lame joke about an economist who suddenly finds herself in a pit.  How does she get out of this dilemma?  She assumes a ladder.

Monday, April 10, 2017

Being a Regulated Common Carrier Means You Never Have to Be Truly Sorry: How United Airlines Can Forcefully Evict Paying Passengers to Make Way for Non-Rev Crew

            United Airlines brought in some muscle to execute an “involuntary denied boarding” decision, well within its contractual and regulated tariff rights.  See https://www.bloomberg.com/news/articles/2017-04-10/united-s-forcible-removal-from-overbooked-flight-triggers-outrage.

            Okay, they may have allowed the use of more force than wise, but that’s a matter of police, or rent-a-cop brutality, hardly a matter under United Airlines’ control.  Perhaps this knowledge explains the rather tone dead, unremorseful response from the CEO of United.  See https://twitter.com/united/status/851471781827420160/photo/1 He characterizes the episode as “upsetting to all of us here at United,” and he’s sorry for having to “reaccomodate” customers. 

            Reaccommodate reminds me of the word re-delivery used by local newspaper when they failed to deliver a paper in the first place.

            Nothing in the CEO Munoz statement comes within a time zone of heartfelt remorse, because United can pretty much do anything it considers necessary—even the involuntary deplaning of 4 revenue producing passengers to make way for 4 non-revenue producing crew needed to fly a future flight.

            The lesson here—and the link to telecommunications/Internet regulation—lies in the legal protections accruing to service providers vis a vis their customers.  United files a public contract, called a tariff, for air service.  This non-negotiable document offers very little consumer protection, because the carrier wrote it with carrier protection in mind and with limited, “job killing” regulatory oversight.

            Airline carriers have no duty to provide service even if they take your money, issue you a boarding pass with seat assignment and make no initial effort to block your ingress to your assigned seat.  Sure, they have to pay you for your inconvenience, but the amount cannot exceed $1350 for domestic travel. 

            $1350 is a small price for never having to say you’re really sorry.

            I have no doubt that staff and management of United consider this episode business as usual.  They will continue to overbook passengers and deny carriage to selected, unlucky passengers.

            Airline executives seem oblivious to public relations and compassion. If someone gets roughed up for tardy deplaning, it’s “outside the airline’s control.”



Tuesday, April 4, 2017

This is the Information Age?


            Infrequently, I take stock of my relationship with technology and marvel at both improvements and declines.  Yes, many transactions are faster, better, smarter, cheaper and more convenient.  Alas, others coarsen society, convert people in to algorithmic decision points and remove joyful human interaction.

            Today I marvel at instances where the status quo has persisted, despite ample opportunities for technological improvements.  Consider these examples:

1)         Much of the medical ecosystem still communicates via facsimile.  In preparation for a total hip replacement, I have to undergo a number of tests.  The exchange of test results from lab to doctor using a 1960s analog technology that combines a scanner with a modem operating at a snail’s pace often at 14,400 bits per second.  Care to estimate the lost productivity in having to send and receive faxes?  This week I had to devote considerable time in confirming a diagnostic code change for a blood test.  Two faxes ordering the change never made it to the appropriate processor.

2)         It still takes 4-6 weeks for a magazine subscription to renew if you opt to use a venture offering a lower price who has no direct affiliation with the publisher.  Perhaps they too communicate by weekly faxes.

3)         The IRS still communicates primarily in person and by mail.  Perhaps this tactic prevent some fraud as many have received fake robocalls and emails from scammers posing as IRS agents.  Ok, I get that, but why can’t I send necessary evidence to the IRS as a pdf file instead of—you guessed it—sending a lengthy and time consuming fax?

4)         My Comcast set top box must remain on 24/7 even though my wife and I watch television for less than 2 hrs a day.  For more than 5 years, I have had recurring set top box issues.  I solved the issue (not a technician or the dozens of clueless customer service reps) by inferring that the box missed some type of polling call from the headend.  Rather than resend the poll, to re-authenticate my box, Comcast treated my box as offline or worse.  My solution uses more electricity, because I no longer can turn the box off—Ever.


            I’ll stop now . . .

Saturday, April 1, 2017

Differences Between Content and Carrier Privacy

            With narrow thin margins, both the U.S. Senate and House of Representatives have passed Resolutions foreclosing the FCC from imposing privacy safeguards on Internet Service Providers (“ISPs”).  See https://www.nytimes.com/aponline/2017/03/23/us/politics/ap-us-congress-broadband-privacy-rules.html; https://www.wsj.com/articles/fcc-approves-new-customer-privacy-rules-for-broadband-providers-1477583556.  Advocates on both sides of the issue have offered insights that distort reality, but eventually the court of public opinion will get this matter right: ISPs can mine and monetize subscriber data without offering a dime in compensation, or any sort of enhanced value proposition.  Content providers have to provide something of value for the privilege.

            I marvel how smart people, who really should know better, spout the party line that ISPs and content providers should face symmetrical privacy obligations, or freedoms.  Why?  Advocates for foreclosing FCC consumer protection, frame the matter as a giveaway to villainous Google and Facebook, if content providers have easier access to consumer data than the firms like Verizon and Comcast that carry the content.

            Here’s my newsflash: content providers provider something of value for the privacy they monetize, while carriers have to offer nothing in return.  For a brief period, AT&T offered its subscribers the opportunity to pay a surcharge for enhanced privacy protection.  Data about subscribers location, wants, needs, desires, habits, frequent web site visits, search terms etc. have significant value.  But so far, content providers understand that they have to provide something of value in return for the privilege.  Carriers do need some of this information, e.g., subscriber location, to provide service, but clearly lots of it is marketable without costing the carrier anything by way of a discount, or savings to subscribers.

            Even if we ignore the need for a fair exchange between carrier and consumer, there are major differences between what consumers have to give up to carriers versus what content providers can glean.  Carriers need constant monitoring and managing of factors such as subscriber location and data (bandwidth) requirements to manage networks and maintain high quality of service.  However, these carriers can configure network management into quite intrusive and sellable subscriber surveillance.  For example, content providers have to make do with IP addresses rather than specific location coordinates unless and until subscribers opt into such tracking.  Carriers have that information on an ongoing basis without having to ask for permissible to use and sell it.

            Consumers readily give up privacy expectations and rights in exchange for something of value from content providers.  It’s a voluntary and often mutually beneficial transaction.  On the other hand, carriers do not have to initiate such a transaction, but can incorporate non-negotiable, terms and conditions of carriage.  Acceptance of these “take it, or leave it” provisions constitute a pre-condition for the “right” to become a subscriber. 

            Eventually the court of public opinion will see the unfairness in having to abandon most privacy expectations for the “privilege” of subscribing to something that has become a fundamental—dare I say public utility—aspect of life.  One might have reluctance to give up the information, communications and entertainment (“ICE”) services of Google and Facebook, but who wants to abandon tetherless, lifeline access to the real and virtual world via handsets?

            Lastly, defenders of the privacy takeaway seek to assure the public that adequate safeguards remain in place.  Of course, the FCC can apply telecommunications carrier safeguards, e.g., Section 222 of the Communications Act, but only if it the Commission does not re-reclassify broadband as an information service. Does this imply that the New FCC will not remedy Old FCC overreach?