regulation

FCC includes pivotal issue in Net Neutrality NPRM

The FCC isn’t “considering” net neutrality rules as a formal order; they’re “proposing” specific actions. That’s the meaning of what happened yesterday at the public meeting. The FCC approved its net neutrality Notice of Proposed Rulemaking (NPRM) by unanimous vote, but Republicans dissented in part, just enough to keep alive the partisan bickering that’s characterized Washington and to reflect their concern with some of the points.

If you look at the document closely, you find it really consists of four parts. One codifies the original principles of net neutrality that were published in 2005. The second requires that providers treat lawful traffic in a non-discriminatory way and publish any traffic management policies. Both these sections (which are subdivided further in the NPRM) are largely accepted by all. The third element asserts the FCC’s position that these principles be applied across access types, meaning wireline telco, cable, and wireless. This raises some ire in the industry, and also with some Republicans.

The final point, in our view this is the most controversial, asks for comment on the specialized services that are IP-delivered and share the broadband pipe with the Internet. The FCC wants to know how to define these and what rules (including the six defined in the first and second parts we’ve outlined) should apply to these special services.

This last issue is pivotal because should the FCC decide these services are also to be regulated in some way, they could impose access-sharing requirements on telco IPTV offerings. We think it will be months before any order comes out of this process, but just the fact that the FCC is thinking about the third and fourth issues here could force operators to consider what would happen to their mobile and wireline walled-garden services if access connections had to be wholesaled to competitors at a fair price.

Regulatory issues are never covered well in the media, and the public interest in this one will likely make it worse. Make no mistake; the key to the future is in the single issue of those managed or special services!

FCC universal broadband cost estimate doesn’t factor in performance

The FCC said that giving 100 Mbps broadband to every home would cost $350 billion, which is about half what we think it would cost to give every household FTTH and therefore pretty consistent with our own models. The FCC also said you could provide 50 Mbps for $50 billion, and our model says that’s a third of the actual number.

The relationship between broadband cost and service performance is complex, and we suspect that most planners simply haven’t delved into the details at this point. The issue here is that public policy goals in broadband might be aggressive because of intense industry lobbying, but that real progress is unlikely to be made toward universal service unless there are major compromises in performance.

We are covering this issue in depth in October’s issue of our newsletter/journal Netwatcher.

Google Voice, Apple, AT&T and the FCC: The flap continues

Google has released some information that suggests that Apple’s statements to the FCC in July about blocking Google Voice were not correct, and the rumor is that even more damning information is available at Google for release should Apple not reconsider its position.

Apple claimed that its “rejection” of the Google Voice application was for look-and-feel reasons, but the Google release suggests it was explicitly because Google Voice competed with basic Apple/AT&T functionality, something the FCC would likely rule on.

This issue could bite both Apple and AT&T because an actual false statement to the FCC would be bad politics, at the minimum. We say this because it’s not clear whether the FCC really has authority over Apple and handsets. The FCC would have to contend that Apple was simply a stalking horse for AT&T interests in this case, and AT&T is within the FCC’s jurisdictional web.

Regulation in Australia — bellweather for subsidized services

Australia is giving Telstra, its national carrier, an unusual ultimatum: Create a separate subsidiary structure or be barred from further access to spectrum. Needless to say, the move has raised howls of protest from many quarters, and it poses one of the most critical questions in all of telecom today.

One problem with a break-ups like this is the loss of shareholder value, and there has been no satisfactory answer to that problem in the Telstra case. Another more potentially significant problem is the loss of investment incentive in a market where everyone wholesales from a single player. That killed broadband growth in the U.S. for almost a decade after the Telecom Act was passed.

In Australia, a government-subsidized broadband build-out is the proposed solution, but nobody really knows if that will work. The government is presuming that investment can be guaranteed by taxpayer subsidy and that competition will force service prices down. The problem is that competition will then demand perpetual subsidies, since return on investment for service competitors is likely to be minimal, and they won’t contribute to building out a shared infrastructure.

Australia has always had the most pro-competition regulatory bias of all industrial nations, and how they cope with these issues will be the conclusive indictor of whether even subsidization can sustain such a regulatory model. We don’t think it can.

Market pressure could cost AT&T Apple iPhone exclusivity

There’s growing speculation that AT&T’s honeymoon with iPhone may be coming to an end. Pressure from the government on the wireless industry is mounting, and Apple is no longer doing exclusive deals with iPhone. In fact, it can’t afford to.

With iPhone in the U.S. locked to AT&T, there’s too much of a risk that the U.S. market (the number-one smartphone market) will end up validating a host of iPhone competitors that might have little chance under normal circumstances. AT&T has relied on iPhone to gain some market share, however, and has won some Verizon customers. Since Verizon would be likely to get the iPhone next, the loss could send a bunch running back.

We’re hearing some speculation that Apple and Verizon will do a 4G deal, though, so the opening of the iPhone won’t be imminent.

FCC on wireless: Defining competition is task one

The FCC voted unanimously to move both of its wireless investigations to the formal Notice of Inquiry phase, but it is clear that (as usual) the body is divided along party lines regarding just what might be done.

Democrats think the industry has competitive issues and Republicans do not. Their differences seem to us to come out of the definition of “competition.” Republicans want to define it as having multiple wireless provider choices available, while Democrats define it as having relative freedom and flexibility to exercise handset and service options without being locked into a single provider.

In short, the “mobility” of customers is a concern of Democrats, and that may be a harder point to cover in a regulatory sense.

Internet piracy regulation: The Industrial Revolution evolution

The UK’s regulatory arm, Ofcom, is considering a set of procedures aimed at reducing online piracy, and these include shutting off the Internet services of offenders who ignore repeated warnings.

The move is the latest in a series of European initiatives, some of which have stalled (France comes to mind), and it represents in our view a combination of new pressure from content producers to protect their legitimate rights and concerns that loss of intellectual property protection could be a major threat to evolved economies that can’t rely on industrial production any longer.

How much actual lobbying people like the RIAA have done here is hard to say, but whatever is happening is working—in part because P2P sharing is a major traffic source and financial burden to operators.

Comcast appeals FCC traffic management order

Comcast has decided to appeal the FCC’s order for the cable giant to stop metering P2P traffic, even though Comcast ceased that practice even before the FCC order was issued. The goal of the company is to test the FCC’s net neutrality principles, which since they were not contained in an FCC rulemaking/order, are likely not to have force of law.

The move, which is supported by some other ISPs, may well backfire on the industry because an FCC decision that did not, in fact, have enforceable net neutrality principles (which the agency has long said it did) would certainly result in the introduction of legislation. That might be far more restricting, and it might open other issues as well.

We said when this order was issued that Comcast would be foolish to appeal it, and Comcast appears to have been just that.

Internet regulatory policy and the “middle mile”

The notion of a government-subsidized Internet is enormously appealing to many, and nearly everyone in the media, so it always gets a lot of hype. There are, in fact, some programs to provide broadband subsidies, ranging from the limited U.S. rural subsidy program to the incredibly ambitious Australian new broadband network initiative.

We see few signs of any real trend toward general subsidization, however. Both the U.S and Australian programs are aimed primarily at dealing with the challenging economics of broadband where economic density is low. In the U.S., the FCC’s just-issued Notice of Inquiry (NOI) on the annual broadband report to Congress suggests that while the Commission is looking deeper into what broadband is and who has it, the changes are tiny steps not likely to generate revolutionary results any time soon.

We believe that in any event, the complexity of defining the real performance of broadband Internet services (which depend on access speed, oversubscription in the metro network and Internet peering performance, among many variables) will make it difficult to provide any meaningful subsidies. We wonder if either the U.S. or Australia has considered this “middle-mile” question adequately.

Content trends include emphasis on revenue-sharing

Over a thousand publishers have banded together in an organization aimed at insuring they receive reasonable returns on their publishing investment, particularly from news and editorial content creation. The Fair Syndication Consortium includes giants like The New York Times and The Washington Post, and more than 50% of the top news publishers, according to its spokesperson.

The group will look for places where content is syndicated and “contact” the sites to encourage revenue-sharing, presumably with the goal of then taking legal action if no deal is forthcoming. The formation of a trade group like this is an admission that regulators are unlikely to do anything and that portals and other sites that repurpose content probably won’t do anything voluntarily either.

The question is how effective this can be, given that some content skimming takes place where there are no commercial treaties. It does show that content producers are seeing “aggregators” as being more profit-skimmers than partners, which raises the stakes for online portals and even search engines. Disney is also looking at a pay/subscription plan for online content, so it looks like models beyond ad sponsorship may be finally emerging in video.