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H Block Spectrum Highlights Risk of No Shows at FCC Incentive Auction

by on November 18, 2013 · 0 comments

I recently prepared a paper for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association that provides empirical data regarding the costs of restricting the eligibility of large firms to participate in FCC spectrum auctions (available in PDF here). The paper demonstrates that there is no significant likelihood that an open incentive auction would substantially harm the competitive positions of Sprint and T-Mobile. It also demonstrates that Sprint and T-Mobile have incentives to constrain the ability of Verizon and AT&T to expand their network capacity, and that Sprint and T-Mobile could consider FCC restraints on their primary rivals a “win” even if Sprint and T-Mobile don’t place a single bid in the incentive auction. (Winning regulatory battles is a lot cheaper than winning spectrum in a competitive auction.)

Some might think it is implausible that Sprint or T-Mobile would decide to forgo participation in the incentive auction. However, the recent announcement by Sprint that it won’t compete in the H block auction highlights the difficulty in predicting accurately whether any particular company will participate in a particular auction. Sprint’s announcement stunned market analysts, who had considered Sprint a key contender for the H block spectrum. Until recently, Sprint had given every indication it was keen to acquire this spectrum, which is located directly adjacent to the nationwide G block that Sprint already owns. It participated heavily in the FCC’s service rules proceeding for the H block (WT Docket No. 12-357) and even conducted its own testing to assist the FCC in assessing the technical issues. But, by the time the H Block auction was actually announced, Sprint decided its business would be better served by focusing its efforts on the deployment of its trove of spectrum in the 2.5 GHz band. Continue reading →

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Yes, Net Neutrality is a Dead Man Walking. We Already Have a Fast Lane.

by on November 15, 2013 · 1 comment

“Net neutrality is a dead man walking,” Marvin Ammori stated in Wired last week, citing the probable demise of the FCC’s Open Internet rules in court. I’d agree for a different reason. Net neutrality has been dead ever since the FCC released its net neutrality order in December 2010. (This is not to say the damaging rules should be upheld by the DC Circuit. For many reasons, the Order should be struck down.) I agree with Ammori because we already have the Internet “fast lane” many net neutrality proponents wanted to prevent. Since that goal is precluded, all the rules do is hang Damocles’ Sword over ISPs regarding traffic management.

The 2010 rules managed to make both sides unhappy. The ISPs face severe penalties if three FCC commissioners believe ISP network management practices “unreasonably discriminate” against certain traffic. Public interest groups, on the other hand, were dissatisfied because they wanted ISPs reclassified as common carriers to prevent deep-pocketed content creators from allying with ISPs to create an Internet “fast lane” for some companies, relegating most other websites to the so-called “winding dirt road” of the public Internet.

Proponents emphasize different goals of net neutrality (to the point–many argue–it’s hard to discern what the term means). But if preventing the creation of a fast lane is the main goal of net neutrality, it’s dead already. Consider two popularly-cited net neutrality “violations” that do not violate the Open Internet Order: Netflix’ Open Connect program and Comcast not counting its Xfinity video-on-demand (VOD) service against customers’ data limits

Both cases involve the creation of a fast lane for certain content and activists rail against them. Both cases also involve network practices expressly exempted from net neutrality regulations. The FCC exempted these sorts of services because they are important, benefit the public, and should be encouraged. With Open Connect, Netflix scatters its many servers across the country closer to households, which allows its content to stream at a higher quality than most other video sites. Comcast gives its Xfinity VOD fast-lane treatment as well, which is completely legal since VOD from a cable company is a “specialized service” exempt from the rules.

“Specialized service” needs some explanation since it’s a novel concept from the FCC order. The net neutrality rules distinguish between “broadband Internet access service” (BIAS)–to which the regulations apply–and specialized (or managed) services–to which they don’t apply. The exemption of specialized services opens up a dangerous loophole in the view of proponents.

BIAS is what most consider “the Internet.” It’s the everyday websites we access on our computers and smartphones. What are specialized services? In the sleepy month of August the FCC’s Open Internet Advisory Committee released its report on what criteria specialized service needs to meet to be exempt from net neutrality scrutiny (these are influential and advisory, but not binding):

  1. The service doesn’t reach large parts of the Internet, and
  2. The service is an “application level” service.

The Advisory Committee also thought that “capacity isolation” is a good indicator that a service should be exempt. With capacity isolation, the ISP has one broadband connection going to the home but is separating the service’s data stream from the conventional Internet stream consumers use to visit Facebook, YouTube, and the like. This is how Comcast’s streaming of Xfinity to Xboxes is exempt–it is a proprietary network going into the home. As long as carriers don’t divert BIAS capacity for the application, the FCC will likely turn a blind eye.

What are some examples? Specialized service is marked by higher-quality streams that typically don’t suffer from jitter and latency. If you have “digital voice” from Comcast, for example, you are receiving a specialized service–proprietary VoIP. Specialized service can also include data streams like VOD, e-reader downloads, heart monitor data, and gaming services. The FCC exempted these because some are important enough that they shouldn’t compete with BIAS Internet. It would be obviously damaging to have digital phone service or health monitors getting disrupted because others are checking up on their fantasy football team. The FCC also wanted to spur investment in specialized services and video companies like Netflix are considering pairing up with ISPs to deliver a better experience to customers.

That is to say, the net neutrality effort has failed even worse than most realize. The FCC essentially prohibited innovative business models in BIAS, freezing that service into common-carrier-like status. Further, we have an Internet fast lane (which I consider a significant public benefit, though net neutrality proponents often do not). As business models evolve and the costs of server networks fall, our two-tier system will become more apparent.

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A Nice Illustration of The Law of Disruption in Action

by on November 13, 2013 · 0 comments

My friend and frequent co-blogger Larry Downes has shown how lawmaking in the information age is inexorably governed by “The Law of Disruption” or the fact that “technology changes exponentially, but social, economic, and legal systems change incrementally.” This law is “a simple but unavoidable principle of modern life,” he said, and it will have profound implications for the way businesses, government, and culture evolve going forward. “As the gap between the old world and the new gets wider,” he argues, “conflicts between social, economic, political, and legal systems” will intensify and “nothing can stop the chaos that will follow.” This has profound ramifications for high-tech policymaking, or at least it should.

A powerful illustration of the Law of Disruption in action comes from this cautionary tale told by telecom attorney Jonathan Askin in his new essay, “A Remedy to Clueless Tech Lawyers.” In the early 2000s, Askin served as legal counsel to Free World Dialup (FWD), “a startup that had the potential to dramatically disrupt the telecom sector” with its peer-to-peer IP network that could provide free global voice communications. Askin notes that “FWD paved the way for another startup—Skype. But FWD was Skype before Skype was Skype. The difference was that FWD had U.S. attorneys who put the reigns on FWD to seek FCC approvals to launch free of regulatory constraints.” Here’s what happened to FWD according to Askin: Continue reading →

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The Coming Fight Over the IP Transition

by on October 31, 2013 · 0 comments

Last week, the House held a hearing about the so-called IP Transition. The IP Transition refers to the telephone industry practice of carrying all wire-based consumer services–voice, Internet, and television–via faster, better fiber networks and not on the traditional copper wires that had fewer capabilities. Most consumers have not and will not notice the change. The completed IP Transition, however, has enormous implications for how the FCC regulates. As one telecom watcher said, “What’s at stake? Everything in telecom policy.”

For 100 years or so, phone service has had a special place in regulatory law given its importance in connecting the public. Phone service was almost exclusively over copper wires, a service affectionately called “plain old telephone service” (POTS). AT&T became the government-approved POTS national monopolist in 1913 (which ended with the AT&T antitrust breakup in the 1980s). The deal was: AT&T got to be a protected monopolist while the government got to require AT&T provide various public benefits. The most significant of these is universal service–AT&T had to serve virtually every US household and charge reasonable rates even to remote (that is, expensive) customers.

To create more phone competitors to the Baby Bells–the phone companies spun off from the AT&T break-up in the 1980s–the Congress passed the 1996 Telecom Act and the FCC put burdens on the Baby Bells to allow new phone companies to lease the Baby Bells’ AT&T-created copper wires at regulated rates. The market changed in ways never envisioned in the 1990s however. Today, phone companies face competition–not from the new phone companies leasing the old monopoly infrastructure but from entirely different technologies. You can receive voice service from your cable company (“digital voice”), your “phone” company (POTS), your wireless company, and even Internet-based providers like Vonage and Skype. Increasingly, households are leaving POTS behind in favor of voice service from cable or wireless providers. Yet POTS providers–like Verizon and AT&T (which also offer wireless service)–must abide by monopoly-era regulations that their cable and wireless competitors–Comcast, Sprint, and others–don’t have to abide by.

Understanding the significance of the IP Transition requires (unfortunately) knowing a little bit about Title I and Title II of the Communications Act. “Telecommunications services,” which are the phone companies with copper networks, are heavily regulated by the FCC under Title II. On the other hand, “information services,” which includes Internet service, are lightly regulated under Title I. This division made some sense in the 1990s. It is increasingly under stress now because burdened “telecommunications” companies like AT&T and Verizon are offering “information services” like Internet via DSL, FiOS, and U-Verse. Conversely, lightly-regulated “information services” companies like Comcast, Charter, and Time-Warner Cable are entering the regulated telephone market but face few of the regulatory burdens.

Which brings us to the IP Transition. As Title II phone companies replace their copper wires with fiber and deploy broadband networks to compete with cable companies, their customers’ phone service is being carried via IP packets. Functionally, these new networks act like a heavily-regulated Title II service since they carry voice, but they also act like the Title I broadband networks that cable providers built. So should these new fiber networks be burdened like Title II services or deregulated like Title I services? Or is it possible to achieve some middle ground using existing law? Those are the questions before the FCC and policymakers. Billions of dollars of investment will be accelerated or slowed and many firms will live or die depending on how the FCC and Congress act. Stay tuned.

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Assessing the New America Foundation’s Broadband Report

by on October 28, 2013 · 3 comments

Jon Brodkin at Ars Technica and Brian Fung at The Switch have posts featuring a New America Foundation study, The Cost of Connectivity 2013, comparing international prices and speeds of broadband. As I told Fung when he asked for my assessment of the study, I was left wondering whether lower prices in some European and Asian cities arise from more competition in those cities or unacknowledged tax benefits and consumer subsidies that bring the price of, say, a local fiber network down.

The report raised a few more questions in my mind, however, that I’ll outline here. Continue reading →

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Why Did the FCC Adopt an Unusually High Reserve Price for the H Block Spectrum Auction?

by on October 3, 2013 · 0 comments

It could be argued that the exact match between the DISH bid commitment and the H block reserve price is purely coincidental. To actually believe this was a coincidence would require the same willing suspension of disbelief indulged by summer moviegoers who enjoy the physics-defying stunts enabled by computer-generated special effects. When moviegoers leave the theater after watching the latest Superman flick, they don’t actually believe they can fly home.

The FCC’s Wireless Bureau recently adopted an unusually high $1.564 billion reserve price for the auction of the H block spectrum. Though the FCC has authorized the Bureau to adopt reserve prices based on its consideration of “relevant factors that could reasonably have an impact on valuation of the spectrum being auctioned,” it appears the Bureau exceeded its delegated authority in this proceeding by considering factors unrelated to the value of the H block spectrum that have the effect of giving a particular firm an advantage in the auction. Specifically, the Bureau considered the value to DISH Network Corporation of amendments to FCC rules governing other spectrum bands already licensed to DISH (e.g., the 700 MHz E block) in exchange for DISH’s commitment to meet the $1.564 billion reserve price in the H block auction – a commitment that is contingent on the FCC Commissioners amending rules governing multiple spectrum bands no later than Friday, December 13, 2013.

No matter what the FCC Commissioners decide, if the reserve price stands, the only sure winner would be DISH. If the FCC Commissioners  don’t endorse the DISH deal, DISH need not honor its commitment to meet the artificially inflated reserve price, which could result in the spectrum auction’s total failure. If the Commissioners do endorse the DISH deal, the artificially inflated reserve price could deter the participation of other bidders and lower auction revenues that are expected to fund the national public safety network. Neither option would result in an open and transparent auction designed to provide all potential bidders with a fair opportunity to participate.

The FCC would be the only sure loser. The appearance of impropriety in the H block proceeding could compromise public trust in the integrity of FCC spectrum auctions. To ensure the public trust is maintained, the FCC Commissioners should thoroughly review the processes and procedures implemented by the Wireless Bureau in this proceeding before auctioning the H block spectrum.

The following discussion provides background information on the purposes of spectrum auctions and reserve prices. This background information is followed by a more detailed analysis of the terms of the DISH deal and the advantages it would bestow on DISH, the lack of analysis in the Wireless Bureau’s order, the role of the Commissioners, and the potential damage to the integrity of FCC auctions. Continue reading →

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Net Neutrality Returns – As Farce

by on September 11, 2013 · 0 comments

Over on Forbes today, I have a very long post inspired by Monday’s oral arguments in Verizon’s challenge of the FCC’s Open Internet rules, passed in 2010

I say “inspired” because the post has nothing to say about the oral arguments which, in any case, I did not attend.  Mainstream journalists can’t resist the temptation to try to read into the questions asked or the mood of the judges some indication of how the decision will come out

But as anyone who has ever worked in a court or followed appellate practice  well knows, the tone of oral arguments signals nothing about a judge’s point-of-view.  Often, the harshest questioning is reserved for the side a judge is leaning towards supporting, perhaps because the briefs filed were inadequate.  Bad briefs create more work for the judge and her clerks.

I use the occasion of the hearing to take a fresh look at the net neutrality “debate,” which has been on-going since at least 2005, when I first started paying attention to it.  In particular, I try to disentangle the political term “net neutrality” (undefined and, indeed, not even used in the 2010 Open Internet order) from the engineering principles of packet routing. Continue reading →

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Aereo: Congress’ Rescuer?

by on August 15, 2013 · 1 comment

Aereo LogoThere are few things more likely to get constituents to call their representative than TV programming blackouts, and the increase in broadcasting disruptions arising from licensing disputes in recent years means Congress may be forced to once again fix television and copyright laws. As Jerry Brito explains at Reason, the current standoff between CBS and Time Warner Cable is the result of bad regulations, which contribute to more frequent broadcaster blackouts. While each type of TV distributor (cable, satellite, broadcasters, telcos) is both disadvantaged and advantaged through regulation, broadcasters are particularly favored. As the US Copyright Office has said, the rule at issue in CBS-TWC is “part of a thicket of communications law requirements aimed at protecting and supporting the broadcast industry.”

But as we approach a damaging tipping point of rising programming costs and blackouts, Congress’ potential rescuer–Aereo–appears on the horizon, possibly buying more time before a major regulatory rewrite. Aereo, for the uninitiated, is a small online company that sets up tiny antennas in certain cities to capture broadcast television station signals–like CBS, NBC, ABC, Fox, the CW, and Univision–and streams those signals online to paying customers, who can watch live or record the local signals captured by their own “rented” Aereo antenna. Broadcasters hate this because the service deprives them of lucrative retransmission fees and unsuccessfully sued to get Aereo to cease operations. Continue reading →

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CBS, Time Warner Cable & TV Blackouts: What Should Washington Do?

by on August 12, 2013 · 0 comments

over-the-topCBS and Time Warner Cable have been embroiled in a heated contractual battle over the past week that has resulted in viewers in some major markets losing access to CBS programming. When disputes like these go nuclear and signal blackouts occur, it is inevitable that some folks will call for policy interventions since nobody likes it when the content they love goes dark.

While some policy responses are warranted in this matter, policymakers should proceed with caution. Heated contractual negotiations are a normal part of any capitalist marketplace. We shouldn’t expect lawmakers to intervene to speed up negotiations or set content prices because that would disrupt the normal allocation of programming by placing a regulatory thumb too heavily on one side of the scale. This is why I am somewhat sympathetic to CBS in this fight. In an age when content creators struggle to protect their copyrighted content and get compensation for it, the last thing we need is government intervention that undermines the few distribution schemes that actually work well.

On the other hand, Time Warner Cable deserves sympathy here, too, since CBS currently enjoys some preexisting regulatory benefits. As I noted in this 2012 Forbes oped, “Toward a True Free Market in Television Programming,” many layers of red tape still encumber America’s video marketplace and prevent a truly free market in video programming from developing. The battle here revolves around the “retransmission consent” rules that were put in place as part of the Cable Act of 1992 and govern how video distributors carry signals from TV broadcasters, which includes CBS.

But those “retrans” rules are not the only part of the regulatory mess here. Continue reading →

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How much do FCC tethering rules matter?

by on July 30, 2013 · 6 comments

Over at The Switch, the Washington Post’s excellent new technology policy blog, Brian Fung has an interesting post about tethering and Google Glass, but I think he perpetuates a common misconception:

Carriers have all sorts of rules about tethering, and sorting through them can be like feeling your way down a dark alley. Verizon used to charge $20 a month for tethering before the FCC ruled it had to allow tethering for free. Now, any data you use comes out of your cellular plan’s overall data allowance. AT&T gives you a separate pool of data for tethering plans, but charges up to $50 a month for the right, much as Verizon once did.

Fung claims that due to the likely increase in tethering as devices like Google Glass come to market, “assuming the FCC didn’t require all wireless carriers to make tethering free, it’d be a huge source of potential revenue for companies like AT&T.”

In fact, the cost of tethering on AT&T is not very different from the cost of doing so on Verizon, which means by definition that AT&T is not likely to get a windfall from increased use of tethering. It’s also evidence that the FCC tethering rule for Verizon doesn’t matter very much.

Continue reading →

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