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?

           

Wednesday, March 1, 2017

Massive 5G Investment, Despite “Regulatory Uncertainty”

            Riding closely on the heels of substantial investment in Fourth Generation wireless infrastructure investment comes a Fifth Generation.  Wireless carriers in the United States appear to have accelerated the rollout of 5G. See, e.g., http://www.cnbc.com/2017/02/27/momentum-is-building-for-5g-rollout-ericsson-ceo.html; https://www.cnet.com/news/verizon-to-hold-worlds-first-crazy-fast-5g-wireless-field-tests-next-year/; https://www.bloomberg.com/news/articles/2017-02-27/at-t-boosts-5g-networks-rollout-as-online-video-demand-spikes

            Hang on. Aren’t we living an acutely painful world of regulatory uncertainty foisted on the marketplace by network neutrality zealots?  How can carriers invest substantially in a wireless broadband technology if regulators are hell-bent to mandate access and openness?
            It strikes me that wireless carriers in the United States and elsewhere can handle regulatory uncertain and make prudent investments in next generation network infrastructure.

            There are legitimate reasons not to support network neutrality, or to advocate reforms.  But make no mistake: removing “regulatory uncertainty” is a bogus rationale having no real impact on carrier investment strategies.

Monday, February 27, 2017

FCC Chairman Pai’s Alternate Facts Part 3, Privacy "Protection" for Broadband Consumers

            FCC Chairman Ajit Pai has opposed broadband consumer privacy protection safeguards largely based on a false dichotomy: that Internet content providers, like evil Google and Facebook could collect, process and exploit consumer usage data, while ISPs could not. See
Dissenting Statement of Commissioner Ajit Pai, Re: Protecting the Privacy of Customers of Broadband and other Telecommunications Services, WC Docket No. 16-106.https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-39A5.pdf.

            This is a false dichotomy, because consumers willingly opt to barter their usage data in exchange for “free” advertiser supported content access, while broadband subscribers will have to allow such surveillance and sales of usage data as a hidden or obscure cost of service.

            Even though Internet content consumers cannot negotiate with providers and have to accept “take it or leave it terms,” Chairman Pai might perceive a viable marketplace.  Consumers willingly give up privacy protection, because they don’t know what they have to give up, they consider it a fair trade, or they trust Federal Trade Commission safeguards to provide adequate protection. 

            On the matter of FTC protection, Chairman Pai deems an “eviction” the process by which the FCC proposed rules would replace general, FTC privacy safeguards.  He conveniently forgets that the FTC has no jurisdiction to impose rules on common carriers, the regulatory status still applicable to ISPs.  Even if the Pai FCC re-reclassifies Internet access as private carriage, I don’t think it’s a given that the FTC and its apparently acceptable rules to Chairman Pai would seamlessly and quickly come into play.

            More fundamentally Chairman Pai appears to treat conduit function and content as able to operate in nearly identical bartering marketplaces.  I respectfully disagree.  It’s one thing to refrain from using Facebook and even Google’s search function, because one cannot accept the privacy invasions, dossier construction, data mining, and revenue accrual from advertising auctions used by Internet content providers to finance their services.  It’s quite another matter to opt out of wireless telecommunications services, because carriers can do the same things and perhaps even more, based on the location determination, call and IP address recording and other surveillance/network management functions.

            Simply put, wireless voice and data subscribers should not have to abandon any and all privacy protections for the “privilege” of becoming a consumer.  If consumers learn that Chairman Pai is working sleepless afternoon to sanction unlimited trading of wireless consumer data, common carrier safeguards will look increasingly essential.

Thursday, February 9, 2017

FCC Chairman Pai’s Alternative Personalities, Facts, Economics and Law—Part Two

Okay.  Turn off all electronic devices (except one with the screen on which you are reading this       blog!).  Please answer this one question pop quiz.


Who made the following public statement:
What would be best for consumers? My view is pretty simple. Our goal should not be to unlock the box; it should be to eliminate the box. If you are a cable customer and you don’t want to have a set-top box, you shouldn’t be required to have one. This goal is technically feasible, and it reflects most consumers’ preferences—including my own.

            A)        President Donald Trump;

            B)        FCC Chairman Ajit Pai

            C)        Former FCC Chairman Thomas Wheeler; or

            D)        Harold Feld, Senior Vice President, Public Knowledge (an advocacy group)


Perhaps this answer surprises you as the quote would appear to originate from someone with a strong commitment to consumer protection. You might have kicked out answer B) based on Chairman Pai’s removal of the cable set-top box Notice of Proposed Rulemaking without prior notice which he seems to consider necessary in most instances.

Perhaps Chairman Pai will replace the prior set-top box proceeding with one more likely to achieve his stated objectives.  Maybe not.  Chairman Pai appears to send mixed messages.

Wednesday, February 8, 2017

FCC Chairman Pai’s Alternative Personalities, Facts, Economics and Law—Part One

            FCC Chairman Pai has launched a charm offensive showcasing his commitment to transparency and regulatory restraint.  However, behind the scenes, he ignores due process, the rule of law, FCC tradition, bipartisanship and fair play to shut down previous FCC initiatives of which he disapproves. 

            For example, this bi-polar personality makes it possible for the Chairman to claim how much he cares about curbing extraordinarily gouging long distance telephone rates borne by the “captive” 2.2 million inmates in the U.S. even as he instructs his General Counsel to abandon any participation in an ongoing judicial review of prior FCC decision which resulted in rules.  See New Chairman Orders FCC To Abandon Court Defense Of Rule Limiting Prison Phone Rates; https://consumerist.com/2017/02/02/new-chairman-orders-fcc-to-abandon-court-defense-of-rule-limiting-prison-phone-rates/. By ordering his counsel’s no show,—akin to the Democratic Senators’ boycotts of Trump Cabinet nominee confirmation hearings—Chairman Pai facilitates maintenance of the status quo.
            Ironically, the Chairman has acknowledged the inmate calling marketplace fails to support his heartfelt belief that markets usually are infallible and efficient:

I believe that the government should usually stay its hand in economic matters and allow the price of goods and services to respond to consumer choice and competition. But sometimes the market fails, and government intervention carefully tailored to address that market failure is appropriate. Dissenting Statement of Commissioner Ajit Pai as Delivered at the August 9, 2013 Open Agenda Meeting, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-322749A4.pdf.

            On the other hand, Chairman Pai willingly works to prevent the consequences of market failure and the need for remedies, if the FCC errs in any way that he believes might establish a precedent for jurisdiction and overreach where market self-regulation suffices.  Better to eliminate in its entirety a ruling containing Pai-identified flaws than subject it to a court test, and refinements under his administration.

            The Pai-identified flaws are based on alternative facts, economics, accounting and law.
The Chairman has determined that the FCC’s prescribed per minute caps would prevent inmate calling companies from recouping costs.  He has interpreted Sec. 276 of the Communications Act as foreclosing any FCC jurisdiction over intrastate calling by inmates.  Additionally, the Chairman reads Sec. 276 as authorizing the FCC to remedy the unlikely instances of below cost rates, but prohibiting the Commission from remedying the far more likely scenario of rate gouging.

            To reach these conclusions, Chairman Pai accepts an alternative reality.  For example, he appears to believe that interested parties report the actual costs of doing business to the last dollar.  The Chairman takes as a fact the calculation made by the National Sheriffs’ Association that annual administration costs for jail-based calling amounted to $244,253,292 around 2012-13, but the FCC’s price cap/safe harbor rate would yield only $136,704,062 in revenue. See Dissenting Statement of Commissioner Ajit Pai, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-340632A5.pdf.  He can conclude that the FCC would impose “confiscatory” rates on long suffering inmate calling companies should they have to reduce rates.

             Let’s take a look at the U.S. inmate calling industry and its financial viability.  Two privately owned companies, Global Tel*Link and Securus Technologies control 70% of the market.  These companies pay massive commissions—some would say kickbacks—to jails and prisons. That surely contributed significantly to the Sheriffs’ $244.2 million calculation.  Let’s call them franchise fees.  No stakeholder, no one at the FCC, no one period has provided credible evidence that these inmate carrier costs plus franchise fees are compensatory vis a vis the cost of providing telephone service. Inmate calling companies operate as telecommunications service providers, subject to Title II common carrier regulation.  Their rates have to be cost-compensatory, plus a reasonable profit.  Fees of any sort have to relate to the cost of providing service and not doughnuts, boondoggle trips to conferences and kickbacks.

             Chairman Pai has railed against voodoo economics and the absence of economics.  Yet when it comes to inmate calling, he accepts the accounting of a stakeholder having every incentive to pad the cost calculation.

             The Sheriffs’ calculation and Chairman Pai’s endorsement of it do not pass the smell test.  Outside the penal environment, long distance telephone calls cost retail subscribers about 2-5 cents for interstate calls and about 10-15 cents for intrastate calls.  For example, see http://www.phonedog.com/long-distance.  Outside jail, telecommunications costs are so cheap that it makes financial sense to use cheap overseas labor to provide operator assistance.  Operator assistance is also computerized.

            I don’t believe the Sheriffs have made a credible calculation, nor do I believe their threat to yank out phones if the FCC’s 13 cent rate cap were implemented.  If a jail’s phones accrue $2 million in phone commissions annually, which would management choose: $0, or $1.5 million?  Similarly, I have seen no evidence that jailors are spending millions policing, monitoring, and safeguarding the payphones.

            I readily accept that jails house a lot of “bad dudes,” foreign and domestic.  They have to pay a debt to society, but it does not have to include $15 for a 10 minute telephone call.        

            In this time of alternative realities, apparently the Chairman can be all things to all people.  It simply depends on your selective perception.

Monday, January 23, 2017

An Open Letter to FCC Chairman-Nominee Ajit Pai

Dear Commissioner Pai:

Congratulations on your likely nomination to become Chairman of the Federal Communications Commission.  For the good of everyone in the country, I hope you will lead the Commission with decorum, pragmatism and collegiality, no matter how real your prior grievances.  You owe everyone a renewed commitment toward humility, grace and an open mind, despite real or perceived justifications for snarkiness, sanctimony and hubris.

I am greatly disappointed that the FCC has become so partisan and fractious.  Far too many years ago, Commissioners of both Parties sought compromise rather than self-aggrandizement and accommodation of a few key stakeholders.  The public interest served as a goal worth identifying and serving.

As recently as 2005, all Commissioners could reach closure on basic principles of the role of the FCC in helping shape the Internet.  Every Commissioner agreed that the FCC could achieve a greater good with well-calibrated oversight and a limited regulatory regime, neither interventionist nor libertarian.  This agreement did not take a lot of pages, did not originate in the word processor of an outside law firm, or consultant and did not require endorsement by sponsored researchers, political parties and the most vocal and deep pocketed stakeholders.

Going further back in time, the Republican Party’s public interest mandate included rigorous antitrust enforcement and a commitment to a level competitive playing field.  You might not know that in true Teddy Roosevelt fashion, President Nixon’s Justice Department started the litigation that eventually resulted in the divestiture of AT&T and the unleashing of competitive energies.

I hope you will take every effort to achieve consensus which used to be the usual outcome of matters before the FCC.  Issues did not have a Republican position and an opposite Democratic one.  Most votes were unanimous, because fair minded Commissioners—led by a fair-minded Chairman—could achieve a just and proper outcome, even if it disappointed a major incumbent.

No one had to overreach, or grandstand.  No one had to write 50 page dissents.  No one dared resort to smugness, righteous indignation and arrogance.

I share your excitement about the promise of telecommunications and information technology to enhance national welfare and make life better for all.  Such potential makes it that much more important that you strive to lead by example and refrain from using your considerable power to settle all the grudges you bear.

Best wishes for a successful Chairmanship.

Sincerely,

Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law
Pennsylvania State University

Wednesday, January 18, 2017

TMobile’s 480p Video Delivery Gambit: Tiering, or Throttling?

Predictably, and perhaps appropriately, broadband carriers are spending sleepless afternoons crafting new ways to diversify service without violating the FCC’s Open Internet Order restrictions on traffic blocking, throttling and paid prioritization.

TMobile has opted to give with one hand and somewhat furtively take with the other.  The carrier will offer “unlimited” data, subject to quality of service limitations, including delivery of video at 480 p regardless of what format it received from an upstream content provider or distributor. See, e.g., http://variety.com/2016/digital/news/t-mobile-unlimited-data-plan-video-caps-1201840422/.  TMobile will retain a higher screen resolution provided a subscriber pays a $25 upcharge.

Is TMobile throttling service by deliberately downgrading quality, or is the carrier simply using screen resolution as a tiering option and proxy for bit transmission speed? 

Bear in mind that many wireless carriers have offered “unlimited” data, subject to throttling to 2G or 3G speeds after a subscriber exceeds a stated allowance.  Perhaps a carrier does not throttle if it does so on a nondiscriminatory basis.  The carrier does not single out traffic from a specific content provider or carrier.  Every content source faces service degradation if the subscriber exceeds a still enforceable cap.

So one person’s tiering may be another’s throttling and the FCC places itself in the middle as an awkward judge, jury executioner. 

Monday, January 16, 2017

Who Pays What to Whom in the Internet Ecosystem?

Internet interconnections and compensation arrangements have been based on voluntary terms and conditions after government underwriting stopped. In a commercial context, funds flow on the basis of traffic volume, but also bargaining power (individually, or collectively held).

Last mile ISPs have significant bargaining power in light of their control of access to end users ("eyeballs" to advertisers and content providers alike).  While we could debate about the robustness of competition and last mile broadband options (functional equivalency), few would disagree that most consumers select one and only one last mile wireline provider (where available) for traffic requirements exceeding 10 Gigabytes.  The FCC termed last mile ISPs as "terminating monopolists," appropriate insofar as most consumers are willing to pay for and rely on a single wireline last mile ISP.  Consumers might also subscriber to a wireless broadband carrier, but data caps force conservation and create incentive to retain a wireline option offering unlimited data, or very high caps like Comcast's 1 terabyte monthly cap, plus Wi-Fi tethering.

In the context of platform/double-sided markets model, last mile ISPs have 2 compensation/revenue streams available: 1) last mile broadband subscriptions and 2) payments from upstream CDN and content providers.  While I can see how a credit card company might need to offer free cards, or even pay car users with airline miles and rebates, last mile ISPs have not given up imposing tiered service rates, primarily based on transmission speed (and not data volume like wireless carriers).  Last mile ISPs now want to increase the compensation received from upstream players.

Netflix, Google and other large volume generators of content have been free riders only if one considers content providers/distributors as solely responsible for compensating downstream carriers handling more traffic than generating upstream.  But Netflix is not the sole revenue source: last mile ISPs used to rely primarily (if not exclusively) on their retail subscribers' monthly payments.  The last mile ISPs want to maximize revenues on BOTH sides of their platform and I don't see the same financial constraints like that incurred by credit card companies.

Netflix blinked first, had payer's remorse, but the commercial negotiation process generates winners and losers.  For my part, I don't see how commercially negotiated compensation arrangements trigger network neutrality concerns, unless and until the FCC has jurisdiction to apply Title II, which it now has, plus evidence that the arrangement is discriminatory and/or unreasonable as defined by the FCC.  Bear in mind that the FCC has eschewed requiring tariffs and doesn't apply the prohibition of paid prioritization upstream from the last mile ISP.

So in large part, it seems to me that a maturing Internet ecosystem has diversified from the traditional peering/transiting dichotomy into a variety of hybrid arrangements.  Has such diversification harmed competition and/or consumers?  I'm not sure that it has, even when zero rating has the potential to influence consumers' content choices by injecting a possible cost avoidance factor.