Susan Crawford Says That The US Could Become a Backwater In Broadband

Susan Crawford spoke today at NYU at Evan Korth’s Computers and Society class. I was thrilled to attend. She is an enthusiastic speaker, blogger, and activist. A professor at Cardozo Law School, she founded OneWebDay and was recently Special Assistant to the President for Science, Technology, and Innovation Policy. The video is available here.

She warned that key decisions being made about the internet now could harm the U.S. forever.

Crawford opened her speech by recommending the new movie “Inside Job,” which is about the banking industry and about how regulators failed to stop it from taking risks that caused the current recession.

“There is a constant flow of people, a revolving door back and forth between the industry and the regulators. The banking industry, therefore, places key people in DC, as fundraisers as well as regulators.”

“The core problem in any regulated industry is regulatory capture. It’s not corruption. It happens when regulators and the industry have a shared world view and approach to issues. This cultural problem is more powerful than corruption.”

The movie, she said, showcases a key moment when the banking catastrophes that have caused the great recession could have been avoided by regulatory action, but those moments showed instead how powerful the lobbyists are. When one regulator was considering oversight of derivatives, he received a call from the Deputy Secretary of the Treasury saying, “there are thirteen bankers in my office and they say this will cause the worst financial crisis since World War II.”

The irony here, of course, is that the regulator’s failure to act was a cause of the crisis but the primary cause of the worst financial crisis since World War II was those bankers themselves.

“Even now, there is no serious consideration of regulating derivatives, and no attempt to break up the banks that are ‘too big to fail.’”

For the record, here are candidate Obama’s promises on the subject of Wall Street reform.

Crawford noted that working hand in hand with the banking industry’s ideas is the fact that the banking industry offers a seductive lifestyle “particularly in New York City where life is so expensive.”

Recent headlines concerning bankers’ pay include “Love ‘Em or Hate ‘Em, Wall Street Bonuses Buy a Lot of Luxury Cars“.

News coverage of Wall Street is less kind abroad. Scotland’s The Herald writes, “Conspicuous consumption is back on Wall Street, in anticipation of bonuses close to pre-recession levels. Some American companies have just posted the largest quarterly profits ever. Meanwhile, one in five families is relying on food stamps to get by and unemployment remains stuck at around 10% … this year, shameless extravagance is making a comeback. One investment analyst booked hip-hop star Lil’ Kim for his Halloween party. Another paid Playboy bunnies to dance for guests behind a satin screen … The Japanese bank Nomura has estimated that America’s top five financial firms – Goldman Sachs, Morgan Stanley, Citigroup, Bank of America and JP Morgan Chase – have set aside almost $90 billion for bonuses.”

Telecommunications

There have been several telecommunications recessions in the past decade or so, but we have not yet reached the disaster scenario where, Crawford said, the USA becames “an internet backwater without high speed internet or IPv6.”

Crawford pointed to several things the FCC did wrong that have harmed the growth of high speed internet here in the USA, the nation that invented the internet.

The regulators’ first error was the Bush FCC’s decision to deregulate high speed internet. This was a slow motion disaster: cable was deregulated in 2002, line sharing ended in 2003, and then in 2005, the courts ruled that since cable was deregulated, DSL should be deregulated too.

In response to one of these errors in 2003, then-FCC Commissioner Copps declared, “I fear this decision will result in higher prices for consumers and put us on the road to re-monopolization of the local broadband market. As harmful as this decision is, it may not be the last battle this year in the headlong rush to deregulate broadband. Shortly, we may be considering whether to deregulate broadband entirely by removing core communications services from the statutory framework established by Congress.”

Crawford commented, “it makes sense to share facilities that require a massive initial investment. That ended under the Bush FCC.”

The lobbyists were aided by surveys bolstering their position.

All of this could have been undone with the election of Barack Obama. Crawford noted that the Obama Campaign released an impressive technology policy statement. Had it been implemented, we would be better off today.

It included the statement, “Barack Obama supports the basic principle that network providers should not be allowed to charge fees to privilege the content or applications of some web sites and Internet applications over others. This principle will ensure that the new competitors, especially small or non-profit speakers, have the same opportunity as incumbents to innovate on the Internet and to reach large audiences.”

She noted, however, that some have said that while Obama won the election, Clinton won the transition, as experienced hands were favored in the rush to tackle important problems. She did not say, but implied, that the experienced hands tried old answers to pressing problems. One of the NYU students pointed out that in financial regulation, Obama even retained many Bush administration personnel.

Obama had promised fact-based decisions and the end of lobbyists.

Obama’s FCC, however, has tried a position that reminds Crawford of trick shots in ESPN’s billiards show and that the FCC’s current Chairman calls The Third Way.

The Bush FCC had claimed that the FCC had no authority to regulate the internet because, it said, the internet is an information service, not a telecommunications service. The FCC was saying, in effect, that it still did not believe that it had the authority to regulate the internet, except that it retained six specific powers.

“This set off a firestorm. The telcos, who really stop at nothing, put pressure on regulators, Congress, and the White House.”

“73 confused Democrats signed a letter that was drafted by Gene Green.”

In the other camp, the tea party took a stance on broadband regulation that was “likely provided by the telcos.”

In all of this, “the FCC was only trying to roll back the clock eight years to 2002.”

The telcos produced studies predicting disaster.

She said that watching this was like watching Lucy pull the football away from Charlie Brown, even though both were, in theory, on the same team. The statement reminded me of a comment by Rep. Markey in 2003: “By endoring the policy of ‘new wires, new rules’ the Bells say what we will now get is ‘no new hires, no new investment.’ Do you feel betrayed? You guys look like Charlie Brown after Lucy pulls the football away. The Bells pulled it right out from under you.”

“The commercial internet began in 1995. It was delivered by companies that we used to call ISPs.”

Today, due to the failure of the FCC’s “Third Way,” the FCC’s power to regulate the internet at all is in doubt.

Comcast-NBCU merger

To understand the cable industry, you have to understand the cable industry’s 1997 summer of love: “No one would consider Leo Hindery a hippie, but he is often remembered as the architect of the cable industry’s ‘summer of love.’ As president of Tele-Communications Inc. in 1997, Hindery orchestrated a series of mergers, partnerships and system sales that created geographic clusters making it easier and more cost-effective for operators to do business.”

Earlier this year, Verizon began ceding cities to cable. In particularly ironic timing, Alexandria, Va. was told it might never get FiOS one week before the release of Obama administration’s National Broadband Plan.

The National Broadband Plan (NBP), Crawford noted, did not discuss market structure or competition.

The phone companies cannot use DSL to compete with cable broadband, Crawford noted. To the extent that video streaming is the primary activity of broadband users — cable supports it and DSL simply lacks the necessary speed. “Only about 10 percent of Americans will have access to FiOS,” Crawford said.

When Comcast merges with NBCU, one pipe will be a media company, the largest broadband provider, the largest cable provider, and the nation’s third largest phone company. As it is, there are few media companies.

“When Verizon stops competing with Comcast, net neutrality is no longer an issue,” Crawford said.

Obama’s campaign statement said, “Barack Obama believes that the nation’s rules ensuring diversity of media ownership are critical to the public interest. Unfortunately, over the past several years, the Federal Communications Commission has promoted the concept of consolidation over diversity.”

“Comcast will use popular programming, especially sports programming, to make it difficult to compete,” Crawford said.

ISPs are worried about being asked to pay for ESPN360.

Today, ISPs are even more worried by Comcast’s charging fees to Level 3.

Level 3 said today, “On November 19, 2010, Comcast informed Level 3 that, for the first time, it will demand a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast’s customers who request such content. By taking this action, Comcast is effectively putting up a toll booth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content. This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access markets as the nation’s largest cable provider. On November 22, after being informed by Comcast that its demand for payment was ‘take it or leave it,’ Level 3 agreed to the terms, under protest, in order to ensure customers did not experience any disruptions.”

Crawford wrote in her blog that the Level 3 incident coincided with an action by Comcast against modem maker Zoom that appears to be designed to ensure that cable customers cannot buy a cheaper modem at Best Buy than whatever Comcast is offering.

Comcast is building a massive moat of comparitive advantage around its cable system, a monopolistic position that is contrary to the public interest. “They have influence and they have armies,” said Crawford.

“I think the merger is a fight over the future of the internet. The FCC is supposed to be an apolitical expert but at the moment the internet is operating without supervision.”

She contrasted the business as usual in the USA with Australia’s vision and leadership. The government of Australia is building a fiber network (aided in part by the fact that the largest companies in Australia are mining companies that are poorly served by the ILEC Telstra). Australia is also ordering the structural separation of Telstra, a historic advance that cannot even be imagined in the U.S. today.

Crawford said that in the U.S. policy advisors can pretend that there is competition between the three ILECs and between the phone and cable companies,

Crawford said that she hopes that the example of Australia, and local fiber such as that on offer in Chattanooga, may represent a true paradigm shift, a really new way of doing things in the original meaning that Thomas Kuhn imparted to the phrase.

But those hope-filled words cannot hide the fact that the Federal government lacks leadership. Instead, innovation and vision will need to come from other countries and, within the U.S., from local government and rural private ISPs.

A student asked why companies that would be harmed by this state of affairs, such as Google and Microsoft, don’t stand up to Comcast, but Crawford noted that it’s difficult, when you’re a large company that could be accused of being a monopoly, to ask for more regulation of a company that’s not you.

Joly MacFie, who was filming the speech, asked why the leaders of left wing organizations such as Crawford and Columbia professor Tim Wu are arguing for structural separation when the organizations they advise, Free Press and Public Knowledge, are still fighting about net neutrality. Crawford noted that as professors, she and Wu can argue for what should be, while the activist organizations have to work with what seems possible.

2 Comments

  1. [...] In a speech at NYU, she added that in the worst case scenario, with all internet subscriptions paying royalties to content companies, the USA becomes an ignored and out of date internet backwater. [...]

  2. [...] Copps had other — in my opinion, more interesting — suggestions for the FCC too. The most important, in my opinion, is that the FCC should assert Title II authority to regulate the internet. This would undo the largest error of the Bush FCC and allow FCC Chairman Genachowski to directly assert authority over the internet instead of trying legal strategies so complex that law professor Susan Crawford compared them to ESPN’s trick billiards. [...]