Democracy and Technology Blog

Network access regulation 4.0

More this week on the efforts of Reed Hastings of Netflix to reignite the perennial debate over network access regulation, courtesy of the New York Times. Hastings is seeking a free ride on Comcast’s multi-billion-dollar investment in broadband Internet access.
Times columnist Eduardo Porter apparently believes that he has seen the future and thinks it works: The French government forced France T�l�com to lease capacity on its wires to rivals for a regulated price, he reports, and now competitor Iliad offers packages that include free international calls to 70 countries and a download speed of 100 megabits per second for less than $40.
It should be noted at the outset that the percentage of French households with broadband in 2009 (57%) was less than the percentage of U.S. households (63%) according to statistics cited by the Federal Communications Commission.
There is a much stronger argument for unbundling in France – which lacks a fully-developed cable TV industry – than in the U.S. As the Berkman Center paper to which Porter’s column links notes on pages 266-68, DSL subscriptions – most of which ride France T�l�com’s network – make up 95% of all broadband connections in France. Cable constitutes approximately only 5% of the overall broadband market. Competition among DSL providers has produced lower prices for consumers, but at the expense of private investment in fiber networks.

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Nothing to fear from pricing freedom for broadband providers

The airline would not let coach passenger Susan Crawford stow her viola in first class on a crowded flight from DC to Boston, she writes at Wired (Be Very Afraid: The Cable-ization of Online Life Is Upon Us).

Just imagine trying to run a business that is utterly dependent on a single delivery network — a gatekeeper — that can make up the rules on the fly and knows you have nowhere else to go. To get the predictability you need to stay solvent, you’ll be told to pay a “first class” premium to reach your customers. From your perspective, the whole situation will feel like you’re being shaken down: It’s arbitrary, unfair, and coercive.

Most people don’t own a viola, nor do they want to subsidize viola travel. They want to pay the lowest fare. Differential pricing (prices set according to the differing costs of supplying products and services) has democratized air travel since Congress deregulated the airlines in 1978. First class helps make it possible for airlines to offer both lower economy ticket prices and more frequent service. Which is probably why Crawford’s column isn’t about airlines.
For one thing, Crawford seems to be annoyed that the “open Internet protections” adopted by the Federal Communications Commission in 2010 do not curtail specialized services — such as an offering from Comcast that lets Xbox 360 owners get thousands of movies and TV shows from XFINITY On Demand. As the commission explained,

“[S]pecialized services,” such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide end users valued services, supplementing the benefits of the open Internet. (emphasis mine)

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Landline rules won’t work for telecoms, or for Susan Shaw

Cecilia Kang of the Washington Post reports that

the telecom industry is forcing policymakers to re-examine what has long been a basic guarantee of government – that every American home should have access to a phone, along with other utilities such as water or electricity. Industry executives and state lawmakers who support this effort want to expand the definition of the phone utility beyond the century-old icon of the American home to include Web-based devices or mobile phones.

The quid pro quo for a monopoly franchise was an obligation to provide timely service upon reasonable request to anyone, subject to regulated rates, terms and conditions. The Telecommunications Act of 1996 eliminated the monopoly franchise, but the obligation to serve remains in the statute books of most states. Telecom providers, aka carriers-of-last-resort (COLR), are stuck with the quid without the quo.
This has become a problem as more and more consumers are “cutting the cord” in favor of wireless or VoIP services. AT&T, for example, has lost nearly half of its consumer switched access lines since the end of 2006. However, most of the loops, switches, cables and other infrastructure which comprise the telephone network must be maintained if telecom providers have to furnish telephone service to anyone who wants it within days.

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New Client of the Regulatory State Expects Results

When the federal government torpedoed the AT&T/T-Mobile USA merger in December pursuant to the current administration’s commitment to “reinvigorate antitrust enforcement,” it created a new client in search of official protection and favors.
It was clear there is no way T-Mobile – which lost 802,000 contract customers in the fourth quarter – is capable of becoming a significant competitor in the near future. T-Mobile doesn’t have the capital or rights to the necessary electromagnetic spectrum to build an advanced fourth-generation wireless broadband network of its own.
T-Mobile’s parent, Deutsche Telekom AG, has been losing money in Europe and expected its American affiliate to become self-reliant. In 2008, T-Mobile sat out the last major auction for spectrum the company needs.
The company received cash and spectrum worth $4 billion from AT&T when the merger fell apart, from which T-Mobile plans to spend only $1.4 billion this year and next on the construction of a limited 4G network in the U.S. But it must acquire additional capital and spectrum to become a viable competitor.
Unfortunately, every wireless service provider requires additional spectrum. “[P]rojected growth in data traffic can be achieved only by making more spectrum available for wireless use,” according to the President’s Council of Economic Advisers. Congress recently gave the FCC new authority to auction more spectrum, but it failed – in the words of FCC Chairman Julius Genachowski – to “eliminate traditional FCC tools for setting terms for participation in auctions.”
Everyone fears it will take the FCC years to successfully conduct the next round of auctions while it fiddles “in the public interest.” That’s why Verizon Wireless is seeking to acquire airwaves from a consortium of cable companies, and why T-Mobile will do anything to stop it.

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Federal broadband loan program hopelessly duplicative

A hearing tomorrow in the House Subcommittee on Rural Development, Research, Biotechnology, and Foreign Agriculture will examine duplicative rural development programs. The subcommittee should pay particular attention to the Broadband Loan Program administered by the Rural Utilities Service of the Department of Agriculture. Audits have uncovered serious shortcomings and the agency has resisted needed reforms for years. The time has come for lawmakers to brush aside rosy assurances from agency officials and wind the program down. Testifying in February of last year, the Department of Agriculture’s Inspector General briefly summarized a shocking set of audit findings from 2005 that included waste, fraud and abuse, and noted that most of the issues had still not been resolved satisfactorily . Of the Read More ›


Kentucky considering telecom update

Legislators in Kentucky are considering a bill for modernizing Chapter 278, sections 541-544 of the Kentucky Revised Statutes relating to the jurisdiction of the Public Service Commission (Senate Bill 135).
States including Alabama, Florida, Georgia, Indiana, Illinois, North Carolina, Ohio, Tennessee and Wisconsin have all recently revamped their telecommunications statutes, and Mississippi is in the process of considering similar legislation. SB 135 would put Kentucky in a strong position relative to these nearby states in terms of creating a favorable business climate for private investment in advanced networks.
Rates for basic local exchange service would be market-based and not subject to commission jurisdiction beginning 60 months after a telephone utility elects (or has already elected) to adopt price cap regulation. The requirement to file tariffs would be eliminated at that time.

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Telecom reform in Mississippi

Proposed House Bill 825 would update the regulation of telecommunications services in Mississippi. Effective July 1, 2012, the Public Service Commission would no longer be authorized to regulate the rates, terms and conditions of single-line flat rate voice communication service, nor impose other regulation. The bill also clarifies that nothing in Title 77, Chapter 3 (Regulation of Public Utilities) of the Mississippi Code may be construed to apply to video services, voice over Internet protocol services (“VoIP”), commercial mobile services, Internet protocol (“IP”) enabled services, in addition to broadband services. The commission would continue to regulate intrastate switched access service, as well as arbitrate and enforce interconnection agreements between telecommunication providers. Providers of intrastate access and unbundled network elements would Read More ›


House spectrum bill protects taxpayers — and progressives are not happy

Congress is considering a bill which would authorize the Federal Communications Commission to reassign certain electromagnetic spectrum for mobile broadband services through “voluntary incentive auctions.” Speaking at a trade show earlier this month, FCC Chairman Julius Genachowski was critical of provisions in the “Jumpstarting Opportunity with Broadband Spectrum Act” (H.R. 3630, Title IV) limiting the FCC’s power to impose conditions on successful bidders that have nothing to do with maximizing revenue for the Treasury.
One provision would prohibit the commission from unreasonably restricting who can participate in a spectrum auction, such as large firms. Another provision in the JOBS Act would prevent the FCC from requiring a successful bidder to sell access to its network on a wholesale basis.
“It’s a mistake,” according to Genachowski, “because it preempts an expert agency process that’s fact-based, data-driven and informed by a broad range of economists, technologists and stakeholders on an open record.”
Genachowski’s old boss, former FCC Chairman Reed E. Hundt, reportedly criticized the proposals during a Capitol Hill briefing on Tuesday, as well.

He worried that the bill would allow the largest wireless carriers to buy up all of the spectrum at auction, expanding their dominance of the airwaves. He said the carriers might not even plan to use some of the spectrum but could buy it just to kill off competition.
He argued that Congress should rely on the FCC to use its technical expertise to set the conditions of the auction.

These guys apparently will never learn.
The FCC has a poor track record of trying to improve on the free market, and the Reed Hundt era is recent exhibit “A.” Seeking to promote competition in local telephone service during Hundt’s tenure in the late 1990s, the FCC required incumbent local telephone companies to provide below-cost wholesale access to their networks while preventing them from competing in the long-distance market. According to Hundt, in You Say You Want a Revolution? (2000),

The Clinton administration had the conviction that astute and sharp-edged rules could open markets to competitors … some firms would succeed, others fail. But the competition would create choice for consumers, and the diversity of the competitors would weaken the political influence of the big, established (and typically Republican-leaning) firms. The new competitive markets would stimulate investment in new technologies and lead to fair prices for consumers. All five lanes of the information highway would converge in a race to tomorrow (which we would not stop thinking and talking about).

The FCC’s “pro-competition” framework was an abject failure which led to overinvestment in the core of the network and underinvestment in the local connections at the network’s edge. According to Robert W. Crandall of the Brookings Institution,

For the most part, these policies simply transferred billions of dollars from incumbent telephone companies to fund marketing campaigns required to sell the same services under a different name [that of an unaffiliated retail competitor].

While Reed Hundt and other idealists were busy helping to precipitate an investment bubble that burst in 2000-02, meaningful voice competition was emerging, unbeknownst to the FCC, from the wireless and cable industries which are not subject to active FCC oversight.

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Private Company Could Pay Off 8 EU Nation’s Debts

John Cook, of Seattle-based GeekWire, reports that Apple has enough cash reserves to pay off eight EU countries’ debts–if it wanted to, which, of course, it doesn’t. This story, based on an infographic from MBA Online the day before, puts Apple’s big quarter in prospective. GeekWire characterizes their revenue as “Three Yahoos, two Googles and a Microsoft”. It’s also interesting, and worth noting, that 2/3 of it is stored overseas. Here we have a company that makes trinkets, bought voluntarily by free people, produced willingly by free people. Yet even after giving billions of dollars to the governments they labor under, they still make more money than even the most irresponsible governments can lose. Consider: Governments take money from people Read More ›


Opponents overreact to online piracy legislation

Showdowns are likely in the Senate and House of Representatives later this month on legislation combating online piracy. The House Judiciary Committee is expected to vote on the Stop Online Privacy Act, H.R. 3261 (SOPA), and the full Senate on the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act, S. 968 (Protect IP Act). These measures have generated some overheated rhetoric.
A recent column in Roll Call by Stephen DeMaura and David Segal, entitled “All Candidates Should Be Concerned About SOPA,” for example, suggests that SOPA could be exploited by political opponents to restrict free speech.

Here’s a plausible campaign scenario under SOPA. Imagine you are running for Congress in a competitive House district. You give a strong interview to a local morning news show and your campaign posts the clip on your website. When your opponent’s campaign sees the video, it decides to play hardball and sends a notice to your Internet service provider alerting them to what it deems “infringing content.” It doesn’t matter if the content is actually pirated. The ISP has five days to pull down your website and the offending clip or be sued. If you don’t take the video down, even if you believe that the content is protected under fair use, your website goes dark.

Another recent column in Politico by Tim Mak entitled “Bloggers: SOPA’s the end of us” makes a similar claim and implies a tidal wave of opposition is forming (we shall see).

The conservative and liberal blogospheres are unifying behind opposition to Congress’s Stop Online Piracy Act, with right-leaning bloggers arguing their very existence could be wiped out if the anti-piracy bill passes.

There is no way these bills would permit an opposing campaign or campaign committee to pull down websites harboring “infringing content,” nor would they authorize censorship of lawful speech.

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