The Gig Is Up!

Are current proposed regulations a multi-faceted strategy
to eliminate competition and control the Internet?

When one steps back and looks at various legislative and regulatory changes, either in the pipeline or have already been passed, certain dilemmas become evident.  It appears the lobbying forces and supporting think tanks are on the verge of a legal Internet takeover in cooperation with the US government.  While many people, associations and companies support or criticize individual bills and regulatory actions, most seem to be ignoring the bigger picture.  Well, the gig is up!  In this post, I will feature multiple regulatory or legislative vehicles.  Individually, these actions may seem harmless and/or for the benefit of consumers, however, when taken multi-laterally in context, it is evident the impacts on consumers and competition are dramatically compounded.  

If we look back in the last 25 years of the Internet evolution, one can see numerous volleys by large corporations and the government to eliminate small ISPs.  Thankfully, these attempts tended to be one shot at a time and the smaller more nimble providers were able to adapt to the changing environment rather quickly.  It now appears a new strategy to eliminate competition has emerged.  Gone is the single shot musket.  It has been replaced by a Gatling gun, firing repeated volleys of regulation and legislation until only the strongest and best financed broadband incumbents remain.

Am I fear-mongering?  Maybe.  Creating a mountain from a mole hill?  Maybe.  I just can’t allow myself to observe the current regulatory environment and what I foresee as a critical junction in the evolution of the Internet, competition and our future free market economy and remain silent.

Below, I will highlight some of the important national policy issues I see at this time.  Are these shots from the Gatling gun related?  Are they just a coincidence? Or a strategic ruse developed deep in a dark conference room of an industry think tank?  Maybe I’m crazy or maybe I’m just observant.  Hopefully, I make suggestions below that strike a chord with influential people who define our nation’s future telecom and spectrum policy.

The issues include NetNeutrality, USF/CAF transitioning, Stalling the update of the Communications Acts of 1934 and 1996, Redefining Definition of Broadband, Unlicensed Spectrum, Spectrum Auctions, and Increasing Competition by Eliminating Public Broadband Laws.

NetNeutrality:

                Selling Point:  Insure content providers enjoy a free unlimited highway to consumers by instituting Title II regulation on ISPs.

                Reality 1:  After years of a government “hands off” approach to the Internet, the United States government is set to become the Internet’s regulatory monarchy.  The free, unregulated Internet marketplace, where innovation has flourished; will begin to disintegrate as we know it. 

        Reality 2:  Regulatory burdens created by Title II regulation are predicted to inhibit future investment.  ILECs, accustomed to this regulatory regime, will fare better than smaller providers which have not been previously burdened by Title II encumbrances.  Competition will decrease.

        Reality 3:  Title II regulation will increase consumer Internet cost once Phase II CAF (Connect America Fund) taxes are added to everyone’s bill. 

        Reality 4:  Legal challenges to NetNeutrality and Title II rules will create a windfall for telecom attorneys. 

        Reality 5:  With the increase litigation risks brought on by NetNeutrality, comprehensive Internet insurance will become mandatory for nearly all companies with a presence on the Internet, ISP or not.  This will increase insurance expenses and force companies to raise prices to survive.

        Reality 6:  As with most over-burdensome government regulations, corporations will seek less restrictive environments to conduct business.  This will cause exporting of many US jobs.

        Reality 7:  Decreased competition will result, slowing innovation, increasing consumer cost and decreasing provider motivation to provide higher grade services to consumers.

        Solution:  Protect consumers by outlawing paid prioritization and blocking websites by ISPs by amending Section 706 to do so.  This should be a first step.  Step 2 should be modernizing the Communication Act. Do not regulate the Internet under Title II.  Title II is a sled hammer solution for a rubber mallet problem.  We cannot afford to be so reckless. 

        Risk Summary:  Over regulation will decrease competition and this slow broadband deployment and service improvement.  Consumer demand for an open Internet will be inhibited by lack of competition and slow adoption of network improvements due to burdensome and costly regulations and thus will compound litigation risks.

USF/CAF:

                Selling Point:  The dramatic rise of IP (Internet Protocol) and the decline of POTS based infrastructure (phone lines), have caused USF (Universal Service Fee) tax revenues to decline.  It is evident; revenues created by USF taxes should be shifted to broadband Internet users in the form of CAF (Connect America Fund) taxes in order for the program to survive.  The National Broadband Plan outlined a three step plan to accomplish this transition.  Phase 1, accomplished in 2011, created funding opportunities to expand broadband access to unserved rural Americans.  A Mobility Fund was also established to stimulate mobile broadband service to unserved areas.  Phase II, yet to be accomplished shifts the revenue base to broadband connections.

                Reality 1:  Funds collected from the outgoing USF program provided funding for Phase 1 CAF programs.  To qualify for funding, providers need to be an ILEC or an ETC (Enhanced Telecommunications Corporation).  ILECs therefore have dominated CAF and Mobility Fund disbursements thus far.

                Reality 2:  Antiquated statutory policy created in the Communication Acts of 1934 and 1996 badly needs to be amended or completely rewritten.  Incentives need to be created to reward all telecommunication entrepreneurs investing in advanced broadband infrastructure regardless of the transport medium. 

                Reality 3:  Telephone companies have enjoyed a distinct financial advantage from government subsidies over other forms of ISPs.

                Reality 4:  With the dawn of Internet Protocol, telecommunications is no longer limited to phone companies.  IP networks can and are built by nearly anyone.  Services such as voice, video, teleconferencing and many, many new services created every year are nothing more than applications running on IP networks and should be treated as such.

                Reality 5:  Goals outlined in the Telecommunication Act of 1996 are still valid and just.  The funding mechanism is changing.  

                Solution:   One of the previous goals of Universal Service stated, “Provide equitable and non-discriminatory contributions from all providers of telecommunication services to the fund supporting universal service programs”.  This should be amended to read as a goal of the Connect America Fund, “Provide equitable and non-discriminatory contributions from all providers of broadband services (at the current definition of broadband) to fund supporting Connect America Fund programs.  Provider disbursements shall be made in an equitable and non-discriminatory method on a tiered schedule based on Internet speed capability and capacity.”  In other words, create incentives for providers to advance Internet infrastructure reach, speed and capacity.

                Risk Summary:  Discriminatory financial incentives will increase competitive disparity.  IP technology, as previously stated has opened the doors to competition and competition should not be ignored financially by our government.

Stalling the update of the Communications Acts of 1934 and 1996:

                Selling Point:  Updating the Communication Act is not as high of a priority as NetNeutrality.

                Reality 1:  It seems the government would rather create new regulation on top of old rules than exacerbate disruptive forces which impact incumbent status quo relationships and their future.

                Reality 2:  Complex legal policy in outdated Communication Acts, allow plenty of room for legal disputes and maneuvering. 

                Reality 3:  Internet technologies are so dynamic; new government policy is outdated before the sausage is even made.

                Reality 4:  Relying on outdated Communication Act doctrine has slowed down broadband deployment and adoption by limiting subsidies to one segment of the telecom industry. 

                Solution:  As previously stated; amend Section 706 with necessary measures to satisfy current consumer protection needs and then get to work updating the Communication Act.  Leave Title II Internet regulation alone!

                Risk Summary:  Face it, the Communication Act is ancient.  A world class Internet infrastructure regulatory environment cannot be based on laws created 80 years ago.  Not updating the Communication Act would be a discredit to our nation’s future.

Redefining Definition of Broadband:

                Selling Point:  (Chairman Wheeler) “A 25 Mbps connection is fast becoming “table stakes” in 21^st century communications”

                Reality 1:  Raising the broadband speed threshold stimulates innovation by raising the bar.

                Reality 2:  Advanced wireless technologies, cable and fiber can currently reach these goals given proper network deployments.

                Reality 3:  Limited access to current and alternative funding incentives, slow progress in the quest to increase broadband speeds.

                Reality 4:  Lack of tiered speed level incentive programs open to ALL ISPs.  If we want 25 Mbps, 100 Mbps or 1 Gbps networks, we need to create funding incentives to reach these goals. 

                Reality 5:  Infrastructure obstacles such as pole attachment rights, tower approval timelines, right-of-ways access, local zoning issues and limited access to affordable contiguous spectrum; are all factors which aggravate providers’ quest to reach broadband speed goals for their customers.

                Reality 6:  Content demand and technology are outpacing broadband infrastructure delivery potentials.  Broadband improvements are frustrated by build-out limitations, financing opportunities and regulatory uncertainty.

                Reality 7: Rural demographics differ dramatically from urban demographics.  These differences change return on investment time frames immensely.  Rural areas have primarily been served by entrepreneurial WISPs, due to the low cost of entrance and associated technology.  These WISPs are now incorporating fiber technologies into their hybrid networks at an increasing rate. 

                Solution:  Create carrier neutral construction and infrastructure improvement incentives which will enhance competition, embrace entrepreneurship, speed up network improvements, lower deployment costs and ease investment risk.  Also, maintain a light regulatory touch to encourage investment in the ISP industry.

        Risk Summary:  We need to move from the historic elitist subsidy handout program to one based on performance incentives.  Money talks when incentives to receive it are specified up front.  Past broken promises should not be rewarded any longer.

Unlicensed Spectrum:

                Selling Point:  Once considered useless and interference prone, these slivers of unlicensed spectrum primarily were used for in-building Wifi and WISP entrepreneurs. Recently cable and cellular companies have embraced these limited unlicensed spectrum assets for data offloading. 

                Reality 1:  Unlicensed spectrum is the most efficiently used spectrum available when it comes to number of devices per MHz.

                Reality 2:  Unlicensed spectrum spawned great innovations due to its free availability to innovators and entrepreneurs.

                Reality 3:  Advanced wireless technologies proven to deal with interference and spectrum reuse in unlicensed spectrum have discredited licensed spectrum holders erroneous myths.

                Reality 4:  While unlicensed spectrum does not contribute auction revenue to the nation’s treasury, it contributes to the nation’s economy and daily lifestyle in many other ways that are too intangible to calculate.

                Reality 5:  A large portion of rural America is served by the WISP industry using unlicensed spectrum and has been beginning in the mid-1990s.

                Reality 6:  School systems, electric cooperatives, oil/gas companies and many other industries have lowered telecommunication expenses by using unlicensed wireless backhaul between facilities.

        Solution: Legislation is needed to reserve 10% of all spectrum allocated for auction to unlicensed use.  As a nation, we should leverage our limited spectrum resources efficiently and not put all of our eggs in one basket.

        Risk Summary:  It is often said that the people own our nation’s spectrum resources, which are managed by the government.  Therefore, a portion of the spectrum should remain a public resource. It should not entirely be auctioned to the few companies that can afford to purchase lease rights to the limited resource.  Doing so will stifle innovation and competition.

Spectrum Auctions:

                Selling Point:  Spectrum auctions creating licensed spectrum opportunities produce windfall revenue for the nation’s treasury.  Case in Point: Recent AWS-3 auction has reached nearly 45 billion in revenue.

                Reality 1:  Cellular Market Areas and Economic Areas are geographic tracts generally too large for many potential bidders to afford.  Case in Point: AWS-3 Auction has only 80 qualified bidders.

                Reality 2:  FCC has historically avoided auctioning smaller geographic areas due to “auction complexity reasons”.

                Reality 3:  By eliminating potential bidders, potential auction revenue may be left on the table.  In other words, if a CMA were divided into census tracts, the sum total of winning bids may be larger than one large CMA with fewer bidders.

                Solution:  After 10% of a spectrum band to be auctioned has been reserved for unlicensed use (previous suggestion), 20% of the remaining spectrum should be laid out in census tracts, 40% in CMAs and 40% in EAs.  This will create entrepreneurial opportunity, competition, increase revenue and will promote efficient use of all spectrum nationwide.

                Alternatively, proposals such as the three tier access approach in the CBRS 3.5 GHz band proceeding, which incorporates Incumbent Access, Priority Access and General Authorized Access should be considered for all new spectrum allotments to be auctioned.

                Risk Summary:  A major duopoly stage has already been set by previous auctions, monopolistic ILEC profit making and evident spectrum warehousing to eliminate competitive threats.  We must be efficient with the little spectrum we have left. The American consumers should not be held hostage to a couple dominate mobile providers.

Increasing Competition by Eliminating Public Broadband Laws:

                Selling Point:  President Obama recently promoted the elimination of state laws prohibiting publicly owned broadband networks. He states his goal is to enhance competition and give communities and consumers more choice.

                Reality 1:  Government owned competition in a free market economy is disruptive.

                Reality 2:  Government owned competition is taxpayer funded.

                Reality 3:  Government owned competition is often too slow to adapt in a dynamic industry such as broadband.

                Solution:  Government owned networks, if created, should be open to wholesale private operators in an equitable fashion at a reasonable cost.

                Risk Summary:  Improved Internet infrastructure should be a goal of every community, but community owned networks should not compete against private enterprise.  Community owned networks should enhance competition between private enterprises who lease the right to ride on community network infrastructure.  Public/Private relationships can be so much more effective, profitable and current from a technology perspective than any community owned network itself.

Well there you have it.  Can you see the devastating effects these issues may have on small businesses, competition, consumer choice, consumer Internet costs, network improvements, etc?  We must embrace the changing IP environment.  We must stimulate competition.  We must use our spectrum resources wisely. We must limit regulation of the Internet.  We must create incentives rather than corporate welfare at the tax-payer expense.  Not doing so is only robbing the American consumer.