Upcoming FCC Decision Expected To Kill Net Neutrality

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News Posted: Wed, Apr 23 2014 7:08 PM
The FCC has confirmed that it will hold a May 15 vote on a new set of policies governing net neutrality and ISP behavior -- but according to the Wall Street Journal, the commission's proposed regulation will effectively kill the idea of a level playing field. The Wall Street Journal reports that the proposed rules would prevent ISPs from blocking specific websites, but would allow them to charge services like Netflix an additional fee for better access to end users. The paper claims that all "commercially reasonable" agreements would be permitted, with deals investigated on a case-by-case basis to ascertain whether the terms are reasonable.

This is the opposite of what the FCC attempted to do in 2010, when it specifically prohibited wired broadband providers from engaging in any kind of discriminatory or preferential behavior. Verizon sued over those restrictions, claiming that the FCC's previous decision not to regulate ISPs as common carriers (conventional telcos) made it illegal for the commission to impose that kind of restriction. The court agreed last year, though it left open the option for the FCC to re-declare ISPs to be common carriers and regulate them appropriately. That's precisely what many public advocates and consumer groups had argued the FCC should do, but its new head, former industry lobbyist Tom Wheeler, has other plans in mind.

The Free Market Myth: 

Wheeler has previously declared himself "a firm believer in the market" and declared himself a supporter of a future in which companies like Netflix say "‘well, I’ll pay in order to make sure that you might receive, my subscriber receives, the best possible transmission of this movie.’ I think we want to let those kinds of things evolve." This argument relies intrinsically on the idea that a market exists in which consumers are free to choose the goods and services that give them the features they want at prices they're willing to pay.


FCC Chair Tom Wheeler

That's simply not the case. According to Susan Crawford, a visiting professor at Harvard Law School, 77% of Americans have just one choice for high-capacity, high-speed Internet service -- the "local cable monopoly," as she puts it. The FCC's broadband availability surveys count 4G LTE and wireless service as equivalent to broadband, but these plans are ruinously expensive for anyone with significant data needs. Satellite providers, like Hughes.net, enforce monthly caps, have very high latencies, and limited performance.

Ask the FCC to show you which US markets have access to fiber-to-the-home, and this is the depressing result.



Executives from Time Warner Cable and Comcast have claimed that they should be allowed to merge because the two companies don't currently compete in any markets. Not only is that contrary to Comcast's testimony from several years past, research suggests that the merger would give the combined company a dominant position in 19 of the top 20 US markets. Again, that suggests a de facto monopoly / duopoly position already exists today. The only way for two companies with no current competitive markets to then hold a dominant position across the nation via merger is if they've purposefully avoided competing to date.

Perverse Incentive Structures:

Given the complete lack of customer choice, this kind of pay-to-play structure rewards ISPs who engage in what's called rent-seeking behavior -- meaning they seek to maximize their own share of wealth rather than creating or fostering innovation. In a highly competitive ISP market, for example, two companies might compete by aggressively rolling out fiber to customers. In the absence of competition, ISPs will pad their pockets by charging Netflix a higher fee to deliver a decent signal to customers and charging customers a fee to receive decent service from Netflix.

If these leaked details are accurate and the Comcast/TWC merger is approved, it means the cable industry will have neatly solved the problem of what to do about so-called cable cutters -- people who have switched away from paying for cable subscriptions and instead watch TV via IP services. If Comcast can squeeze Netflix, Hulu, HBO Go, and even companies like Amazon Web Services for additional income-per-customer, they'll be well on their way to replacing the revenue lost to cable cutters while providing fewer features in the process.

Speaking of Netflix, the company may have agreed to pay Comcast a carriage fee to improve its end-user experience, but it's still formally come out against the TWC/Comcast merger. In a letter to its shareholders, Netflix claimed that the combined company would control broadband access to a full 60% of US homes. Comcast promptly shot back, claiming that it continues to abide by the now voided net neutrality rules the FCC originally proposed, and claiming that cellular data plans and expensive Google Fiber (non-available in the vast majority of the country) serves as an adequate foil to the titan's market power. 
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GuyHolder replied on Wed, Apr 23 2014 7:54 PM

This is obscene - of course these companies should be regulated as common carriers. And why, is a former industry lobbyist in charge of the FCC? Can this thing be any more corrupt and weighted against the poor? Many other countries provide better service for less money - get the crooks out of government.

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the more illegal and amoral laws these bastards make the more good people become criminals, and when you think everyone BUT yourself is a criminal...

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Boo! Classify it as common carrier service and that'll solve all the problems.

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Dave_HH replied on Wed, Apr 23 2014 8:29 PM

Wheeler is nothing but an Obama lacky looking to further government regulation, stifle innovation and control the population... More of the same. Can't wait until Obama's term is over. Disturbing... all of it.

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Dave_HH:
Can't wait until Obama's term is over. Disturbing... all of it.

If Hilary is elected it will be more of the same, IMO, only worse.

 SPAM-posters beware! ®

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Joel H replied on Wed, Apr 23 2014 9:49 PM

I really don't see how this furthers government regulation.

If the government had declared ISPs to be common carriers originally, we wouldn't be in this position. Ok, fine, that ship has long-since sailed. But what Wheeler is proposing is that the FCC *won't* attempt to guarantee net neutrality, instead giving companies free reign to charge for access (so long as that access is reasonable).

Why was Comcast allowed to buy NBC / Universal? Because regulators allowed it. If Comcast is allowed to buy Time Warner Cable, it'll be because regulators don't stop it. Why was net neutrality destroyed? Because courts ruled that the FCC had overstepped its bounds by regulating the markets.

Now, you could argue that the government still imposes too many regulations on the telcos and cable companies (guarantees of service, right-of-way, a bunch of other stuff), but I don't see how you look at these developments and declare them the result of a regulatory push. They're just the opposite.

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well this is just great...

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Dave_HH replied on Wed, Apr 23 2014 11:10 PM

Good points Joel. I just don't trust it. Do you not think the government has a hand in the till with all of this?

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Joel H replied on Thu, Apr 24 2014 12:30 AM

Oh, I absolutely think they do. Ars Technica just did a story on this. Look at the revolving door between the FCC and the wireless industry -- it's much, much bigger than Wheeler:

http://cdn.arstechnica.net/wp-content/uploads/2014/04/fcc-round-robin.jpg

But you see this at all branches of government and across both parties. Chris Dodd, former Democratic career Senator, now heads the MPAA. Karl Rove goes from Deputy Chief of Staff to prominent Super PAC leader and unofficial lobbyist. Newt Gingrich may call himself a political consultant, but I'd argue that's a matter of semantics. Run through the lists and you'll find plenty of examples from *both* parties.

What's really striking about this is that the entire system didn't used to exist. Up through the 1970s, very, very few politicians went into lobbying after they retired. It was seen as shameful -- you spent your life trying to work to build government, not lobbying for particular special interest groups.

I think this is a problem that extends past questions of political affiliation. Cronyism is cronyism.

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So let's create a worst case scenario in support of net-neutrality because you can bet any net-neutrality regulation will also apply to all better scenarios. OK. So some company sets up a data network service in your area and because no other company did, you think the government is entitled to regulate that company's pricing structure?

Please, Joel. Please provide a moral argument for this.

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Joel H replied on Thu, Apr 24 2014 3:29 AM

Net neutrality doesn't mean the government sets price for a company providing a service. It means, in its simplest form, that your ISP can't decide that Netflix pays one rate, while it's partner ComcastVideo pays nothing at all. It means ISPs are prohibited from using their own position as gatekeepers to decide which services do and dont get gouged.

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That's a summary of net-neutrality's alleged purpose from the POV of an avid supporter, not a moral argument for net-neutrality. I'm asking you if a company sets up a data network service where none other has done so, what's your moral argument for having the government regulate its price structure, e.g., charging Netflix one rate and ComcastVideo nothing? After all, people have invested their time, effort and money creating the service. Not you, not me and not the government. The data network service would not exist in the region but for them.  It is their private property, so what principled argument do you have in support of the government stepping in saying "You are not allowed to charge Netflix one rate while charging Comcast a lower rate or nothing."?

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To all americans: call your representitives! This aint acceptable. Big companys won't fight it, they would be happy to pay for a competition advantage..

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Joel H replied on Thu, Apr 24 2014 3:36 PM

Fierce Guppy,

"I'm asking you if a company sets up a data network service where none other has done so, what's your moral argument for having the government regulate its price structure, e.g., charging Netflix one rate and ComcastVideo nothing?"

For starters, it's not that simple. I would suggest you start here: http://www.huffingtonpost.com/bruce-kushnick/the-great-verizon-fios-ripoff_b_1529287.html

While this is a description of the particulars of Verizon's behavior, it illustrates how telcos made promises regarding services and rollouts as justification for tax breaks and discounts, then utterly failed to deliver on those promises. The premise of your question is that cable and telco companies built these networks entirely on their own without making agreements, promises or misrepresenting their own level of investment.

But since you ask, specifically, for a moral argument I'll give you one: Any communication system partly financed through fees, taxes, or tax breaks levied on the citizens of a country should be required to serve the citizens of that country. The United States' approach to this admittedly complicate problem (a mixture of government oversight and a hands-off approach) has kept pace with the rest of the developed world.

American buyers pay more and get less. Depending on the metric you choose, we end up in the middle to the bottom-middle.

http://newamerica.net/sites/newamerica.net/files/policydocs/The_Cost_of_Connectivity_2013_Data_Release.pdf

When we built the phone network, Americans collectively decided that the *moral* argument was to provide service to everyone, even those communities so remote and off the grid that phone companies would not otherwise provide service. While I do not clamor for a return to the days of Ma Bell, Verizon has again distinguished itself in this category -- multiple states are investigating verified reports that Verizon shoves people to get off copper wire by refusing to repair line damage for weeks, firing the staff it has on hand that are capable of repairing the damage, tearing out the wire from customer homes when told not to do so, and then refusing to replace it when certain functions (like active house alarms) cannot function over fiber.

The company has papered this over by referring to this deployment as FiOS, but FiOS now includes a low-end service at ADSL-equivalent speeds. The days when FiOS always meant a 50Mbps or faster connector are over. Then it goes to Congress and claims that customers are "choosing" copper, and it should be released from common carrier regulation as a result.

If Verizon, AT&T, Comcast, or Time Warner would like to make the "It's our network, we should be allowed to do anything we want," I will agree with that morally -- provided they agree to refund every cent they received from governments and municipalities, pay back all previously extended tax breaks, and sign agreements certifying that they will now operate as entirely independent commercial enterprises with absolutely no support of any kind extended by tax payers or communities.

Further, I expect agreements that they will no longer sponsor legislation designed to prevent local municipalities (or entire states) from funding their own broadband deployments or working with other companies to create those deployments ala Google Fiber.

When the telecommunications firms are willing to actually PLAY by the rules of a so-called free market, then we can talk about what the morality of *that* would look like.

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Joel, if any telco is reneging on promises made in contractual agreements with local bodies, then it can be sued with justification. That's a separate issue from a moral argument in support of net-neutrality *unless* net-neutrality was agreed to by both parties before putting their lipstick to the contract. Was this the case with any U.S. telco?

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Joel H replied on Fri, Apr 25 2014 1:18 AM

Funny you should bring that up. No, they can't.

http://consumerist.com/2014/04/24/new-jersey-thinks-4g-and-wired-broadband-are-the-same-lets-verizon-off-the-hook/

The state of NJ just threw customers under the bus by agreeing to release Verizon from its obligation to build out fiber to the state and agreeing that 4G broadband is equivalent -- when 4G broadband service is 30-50x more expensive on a per-GB basis. Consumers have no recourse.

And that ties together why the moral argument can't be separated from the question of whether or not net neutrality was a valid point of agreement when the original Verizon/NJ agreement was passed. Verizon did not fulfill the terms of that agreement. The HuffPo article points out, quite clearly, that Verizon did not make the additional investments into fiber construction that it claimed it made, but instead used subsidies to defray costs and nothing more. Now, thanks to cronyism at the state level, Verizon faces no penalty and customers who cannot buy decent service from the company at a reasonable price have no recourse.

The moral argument for net neutrality rests on the fact that these networks were built partially with public funds and are (or should be) treated and managed as public goods to a greater degree than they have been. The fact that the situation looks the way it does today is evidence of moral failure and mismanagement on the part of both the government and the corporation. Enforcing a comprehensive version of net neutrality (no perverse pricing incentives levied against companies like Netflix or their subscribers) would be one way to repair the damage that's been done.

Of course on a practical level that's obviously not going to happen.

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