Broadband & Neutrality Regulation

Ready, Fire, Aim: GAO Issues Warning on Broadband Stimulus Grants

by on December 2, 2009 · 7 comments

November was certainly a bad month, public relations-wise, for the Administration’s stimulus program, what with claims that the program had created huge new numbers of jobs debunked.  (Who would have guessed that numbers given for Arizona’s 15th congressional district or Minnesota’s 57th district were wrong?)  But, as pointed out last week by my collegue Meinan Goto, there may be further trouble ahead.    In a report recently released by the GAO, the government watchdog agency warns of possible waste, fraud and abuse in $4.7 billion broadband stimulus grants to be made by NTIA and the Rural Utilities Service.  

The risks stem from a variety of sources, including the speed with which the grants are to be made, and the two agencies near-total lack of any experience with grants of this magnitude.   The GAO  also points out that, in true cart before horse fashion, NTIA and RUS will have to complete its first, and perhaps both, funding rounds before  a  map showing where broadband is needed is completed, and before the FCC completes its congressionally-mandated plan on to make broadband available.

GAO, of course, isn’t the first to point out this cart-and-horse situation, but that doesn’t make it any less serious.  While less headline-grabbing than invented congressional districts, the report is nevertheless worth reading by anyone who thinks $4.7 billion is still real money.

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Genachowski Widens the Net Neutrality Loophole

by on December 2, 2009 · 7 comments

FCC Chairman Julius Genachowski linked spectrum management, universal service and network neutrality in a speech yesterday at the Innovation Economy Conference in Washington, and in the process may have signaled some comprehension of the negative consequences network neutrality regulation may have.

His most significant statement was a concession that network management will be required to keep wireless networks and services economically sustainable. The FCC’s Notice of Proposed Rulemaking on network neutrality seeks to apply a “non-discrimination” principle to wireless—that is, to prohibit service providers such AT&T, Sprint, T-Mobile and Verizon Wireless from using network intelligence from grooming, partitioning or prioritizing data to ensure quality performance of voice, data, gaming or video applications.

Yet yesterday, as reported by Wireless Week, Genachowski acknowledged that the explosion of data use was placing “unsustainable strains” on operators’ wireless networks.

“[There] are real congestion and network management issues that operators must address, particularly around wireless networks, and we must allow reasonable network management…,” he said, emphasizing the importance of developing policies that “encourage investment and the development of successful business models.”

While the NPRM does allow for “reasonable network management,” it never really defines what that may be. In light of this, Genachowski’s injection of “investment” and “business models” into his side of the debate is both startling and welcome.

For one, it acknowledges the rising chorus of critics (examples here and here), who, independent of ideology, have questioned the economic wisdom of barring carriers from recouping their investment in intelligent network technology from large applications providers who generate these necessary costs. A recent conference on Capitol Hill, sponsored by the American Consumer Institute (full disclosure: I was a participant), featured comments a number of economists who said mandated non-discrimination was a recipe for higher consumer prices, lower quality and ultimately, declining investment in broadband infrastructure. Much of the Q&A discussion focused on whether numerous wireless data services and applications that have arisen out of innovations such as the iPhone, because of the continual network management they require, would be possible under a network neutrality regime.

Genachowski also deserves credit for tying the network neutrality issue in with spectrum management and universal service. Previous commissions have tended to pursue these issues separately, as if the policies addressing one had no effect on the others. Contemporary telecom policy must be holistic, understanding how spectrum allocation affects wireless network management, and how allowing the industry greater freedom to formulate the business models and partnerships can yield the investment needed to deliver universal service.

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Who’s Going Mobile (on the Internet)?

by on December 1, 2009 · 12 comments

We all know those “hyper-users” that are constantly connected with their cell phones, smartphones, or other mobile device. Often, they’re the person next to you on the metro or standing in line. Often, they’re young. And according to a new Pew report, most of these young hyper-users are young Latinos and blacks.

NPR had a great segment this morning about the Pew Hispanic Center study. It discussed the “digital divide” and the lack of computers in homes of minority populations. In an interesting twist, the Pew study says that many minorities are just skipping the home computer and upgrading their cell phone plans for data use.

Mobile devices are a great example of leapfrog technology. Who needs a desktop or a laptop when your phone is almost as powerful (and arguably even more useful)?

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The Unnecessariness of Net Neutrality Regulations

by on November 25, 2009 · 17 comments

My PFF colleague Barbara Esbin has a great piece about why “FCC Could Mess Up Internet With ‘Net Neutrality’ Rules No One Needs” in a USNews point/counterpoint debate with  Andrew Schwartzman of the Media Attack Access Project, who claims such rules “Would Keep the Web Free for Speech and Trade.” Here are her two best gems:

The FCC claims that broadband Internet markets are insufficiently competitive today to protect consumer interests. Yet a 2007 Federal Trade Commission report found no market failure and warned regulators to proceed with caution. The FCC acknowledges that broadband service providers face growing traffic volume demands that must be managed but claims that they have the potential—the opportunity, means, and motive—to act in an anticompetitive fashion when transporting Internet traffic across their networks. FCC detectives point to economic theory suggesting providers have incentives to act in an anticompetitive manner against competing providers of content, applications, or services. What is missing from this crime scene investigation is the body—the actual evidence that providers are behaving anticompetitively or are likely to.

And:

Lacking evidence that regulation is now necessary to combat either market failure or other consumer harms, the FCC is left to postulate a dystopian world without network neutrality rules. It claims that unless it acts now, we risk losing what we value most about the Internet. In other words, it creates what economists would call a “counterfactual.” But we don’t need economic theory to tell us what a world without network neutrality rules would look like because we already live in that world. And in the real world, the fact is that the Internet ecosystem we have is functioning quite well to satisfy customer needs without the ministrations of the FCC. In fact, one might go so far as to say it functions as well as it does because of that.

Of course, regulatory advocates would insist that broadband providers aren’t really behaving themselves today, citing a handful of vastly exaggerated examples. But they would probably fall back on the argument that broadband service providers are just waiting to start behaving even more anti-competitively until the threat of net neutrality regulation has been removed.

It’s certainly true that government disciplines markets as much by the threat of regulation as the actual exercise thereof, but that’s especially true of antitrust laws: Even if we never see an antitrust suit brought against an ISP for anticompetitive behavior towards applications and content providers, antitrust laws would still play—indeed, have already played—a vital role in discouraging companies from engaging in the kind of behavior Andy Schwartzman worries about. That’s why PFF proposed relying on case-by-case antitrust enforcement rather than preemptive regulation with its 2005 DACA project.

Given the dangers of inviting further proscriptive government regulation of the Internet: “All we are saying, is give love antitrust a chance…”

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The Wireless Bandwidth Crunch: Where Will We Find More Spectrum?

by on November 21, 2009 · 612 comments

It’s truly amazing how fast mobile broadband demand is expanding. A couple of things caught my eye yesterday that really drove that home.  First, I was reading Bernstein Research’s weekly (subscription-only) newsletter and Craig Moffett, one of America’s top media and communications analysts, summarized the growing mobile bandwidth crunch as follows:

To fully grasp the challenge facing wireless providers as we make the transition from wireless voice to wireless data, it is helpful to put some ballpark numbers around current usage levels. Today, the average voice-only customer consumes something like 50 megabytes of data every month. For that, they pay about $40, or about $0.80 per megabyte. That’s 70% of wireless industry revenues. Text messaging generates another $10 per month for a minuscule amount of data (in fact, arguably no throughput at all, since text messaging travels in a signaling band rather than in the carrier band itself). Let’s call it $1,000 per megabyte. That’s another 15% of industry revenues. On a blended basis, then, that’s $1.00 per megabyte for 85% of industry revenues. And then there’s the iPhone. By some estimates, the average iPhone user consumes as much as 800 megabytes per month. Take out their 50 Mb for voice and you’re looking at 750 Mb of data… for an additional $30. For the mathematically challenged, that’s a princely sum of… wait for it… four cents per megabyte. Worse, we noted that the FCC’s wireless net neutrality policies posed the risk of “bandwidth arbitrage,” where low bandwidth services (at $1.00 per megabyte) would be replaced with free or almost free applications that ride on $0.04 per megabyte data plans, and where carriers’ hands would be tied to prevent it. Taking a business that is currently getting $1.00 per megabyte down to just $0.04 per megabyte is, well, hard. And lest anyone think that this threat is idle fear-mongering, Google’s acquisition last week of Gizmo5, a wireless VoIP specialist, should give one pause.

Those are stunning numbers. And then I saw this new filing by CTIA listing some other statistics about growing mobile broadband demand:

Continue reading →

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New York and Net Neutrality

by on November 20, 2009 · 6 comments

This morning, the Technology Committee of the New York City Council convened a large hearing on a resolution urging Congress to pass a robust Net Neutrality law. I was supposed to testify, but our narrowband transportation system prevented me from getting to New York. Here, however, is the testimony I prepared. It focuses on investment, innovation, and the impact Net Neutrality would have on both.

“Net Neutrality’s Impact on Internet Innovation” – by Bret Swanson – 11.20.09

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Is the FCC Becoming the Federal Cloud Commission?

by on November 19, 2009 · 32 comments

Federal Cloud CommissionHmmm… What am I missing? I cannot lay my finger on a single line in the Communications Act of 1934, the Telecommunications Act of 1996, or any statute in between that gives the Federal Communications Commission (FCC) the authority to regulate cloud computing.  And yet, like any good stickler for jurisdictional authority, my PFF colleague Barbara Esbin keeps bringing to my attention little FCC chirps here and there which suggest that the agency is slowly positioning itself to become the Federal Cloud Commission. For example, back in September, Barbara brought to my attention this passage in the Commission’s recent Wireless Innovation and Investment Notice of Inquiry, (paragraph 60, pg. 21):

As other approaches, such as cloud computing, evolve, will established standards or de facto standards become more important to the applications development process? For example, can a dominant cloud computing position raise the same competitive issues that are now being discussed in the context of network neutrality? Will it be necessary to modify the existing balance between regulatory and market forces to promote further innovation in the development and deployment of new applications and services?

In my earlier essay about this, I noted that these questions should serve as a wake-up call for Google and other cloud-based providers who think that “neutrality” mandates will end at the infrastructure layer of the Net.  As Berin Szoka and I argued in our paper on “high-tech mutually assured destruction,” regulatory regimes grow but almost never contract.  And I’m even less optimistic about the FCC limiting its regulatory aspirations after the latest thing Barbara Esbin brought to my attention.

Today, as part of the Commission’s ongoing effort to develop a National Broadband Plan, the FCC released a request for information “on data portability and its relationship to broadband.”  (NBP Public Notice #21) “The Commission seeks tailored comment on broadband and portability of data and their relation to cloud computing, transparency, identity, and privacy,” the notice says.  Here was the second item on the list of things the Commission said it was investigating: Continue reading →

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Net Neutrality Regulation: Consequences for Investment and Consumer Welfare

by on November 19, 2009 · 5 comments

The American Consumer Institute has released a collection of essays addressing the likely consequences of “‘Net Neutrality” regulation for investment in broadband and for consumer welfare. These are important things to consider, in case it needs saying.

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Mobile Blogging: WordPress on Android

by on November 13, 2009 · 10 comments

I’m VERY impressed with my Droid, particularly its browser capabilities. I can even run the backend of Wordpress inside the browser (“Look, Ma, no app!”) to blog! (The WPtoGo app helps, as there are a few things that don’t work quite perfectly inside the browser.)

My Droid is a pretty darn good substitute for a desktop PC. In fact, since my desktop’s motherboard died the other day, the Droid is all I have at home right now–and it satisfies most of my computing needs, at least for home use. So… that means every wireless carrier with a strong android/iphone-class device is a substitute, meaningfully, but of course not perfectly, for traditional ISP options like DSL, cable, fiber, etc. So why don’t 3G networks get counted at all when assessing whether broadband markets are so uncompetitive that only net neutrality regulations can save us from corporate abuse?

Oh, and did I mention that, if my thumbs get tired, I will soon be able to tether my Droid to bring Verizon’s data network to my PC?

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Odlyzko on Net Neutrality, Price Discrimination, PrivacyFail, Search & Cloud Neutrality

by on November 12, 2009 · 20 comments

by Berin Szoka & Adam Thierer

The latest call for “search neutrality” and “cloud neutrality” comes from Andrew Odlyzko of the University of Minnesota’s School of Mathematics & Digital Technology Center—and probably among the top ten most influential academics in Internet policy. In his latest Review of Network Economics article “Network Neutrality, Search Neutrality, and the Never-ending Conflict between Efficiency and Fairness in Markets,” Odlyzko shows (discussed by Ars) just how slippery the slippery slope of Net neutrality regulation will be—exactly as we predict in our recent paper “Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction.” Odlyzko concludes:

for pervasive infrastructure services that are crucial for the functioning of society, rules about allowable degrees of discrimination have traditionally applied, and are likely to be demanded for the Internet in the future. Those rules have often been set by governments, and are likely to be set by them in the future as well. For telecommunications, given current trends in demand and in rate and sources of innovation, it appears to be better for society not to tilt towards the operators, and instead to stimulate innovation on the network by others by enforcing net neutrality. But this would likely open the way for other players, such as Google, that emerge from that open and competitive arena as big winners, to become choke points. So it would be wise to prepare to monitor what happens, and be ready to intervene by imposing neutrality rules on them when necessary.

Odlyzko identifies search and cloud computing as the next most likely targets of “neutralization” and explains how calls for regulating these virtual “networks” would flow logically from the current arguments for neutrality mandates at the infrastructure layer:

The net neutrality debate is often pictured as a contest between the two most prominent corporate champions of the opposing sides, AT&T and Google. But the underlying issue predates both companies by centuries. It was never resolved completely, since it arises from a conflict between society’s drives for economic efficiency and for fairness. There is no reason to expect that this conflict will lessen, and instead there are arguments that suggest it will intensify. Should something like net neutrality prevail, the conflict would likely move to a different level. That level might become search neutrality. (And allegations about discriminatory behavior of a web search provider have surfaced recently in China, Tschang (2009).) Or, to take another currently popular concept, if “cloud computing” does become as significant as its enthusiasts claims, it could lead to dominance of a single service provider. The effective monopoly of that dominant player could then become perceived as far more insidious than any of the “walled gardens” or “intelligent network” that telcos would like to build.

There is, of course, an entirely different approach to the issue that does not involve the sort of across-the-board cyber-meddling that Odlyzko suggests: Freedom for all players at all layers of the Net to invest and innovate in the “networks” or “platforms” that offer content, connectivity and services. Continue reading →

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