Also, a clear majority believe that the broadband provider should always “deliver the promised speed” — they clearly don’t know that the contract they signed but did not read merely promises a “best effort”.

Only a third of cell phone customers are pleased with the price and speed they get, though a majority are happy with the cell phone as a phone.

It is not clear at this time how or whether the survey will influence FCC policy.

This FCC policy would be wrong, especially since an FCC study just concluded that the FCC should be spending money on fixed wireless.

The Third Way is a phrase made popular by Tony Blair and Bill Clinton. It describes an attempt to navigate a path between socialism and the free market. Given the extent to which the Obama administration’s opponents attack so many things it proposes as “socialism”, it is courageous of the FCC to use this term. (To be fair, the FCC says it’s seeking a middle road between re-regulation of a utility and the unfettered free market.)

The FCC does not want to regulate the internet if the internet is defined as the websites and services that we use when we connect to the internet. The FCC wants to regulate the price that users pay to connect to the internet and to be able to police monopoly power at the access level. To this end, the FCC refuses to abandon the great mistake of 2002 in which the FCC first decided that the internet was comprised of both a telecommunications component and an information service.

The problem with this splitting of the internet atom is that the internet consists of interdependent services.

Take VoIP. You can use it to make a phone call. When you do so, which part is the telecommunications component? You can use VoIP by clicking on a customer service button on a website. When you do so, is VoIP now purely an information service? In either case, an ISP might affect your ability to use VoIP service by blocking ports (or using more complex procedures as Comcast did).

When is VoIP an information service and when is it a telecommunications component? If the ISP blocks VoIP with hardware, is it telecommunications, but if it routes traffic through a third party website to block VoIP, is that an information service that the FCC cannot regulate?

Commentators are cautiously optimistic today, just a few days after a major net backlash. The strength of the backlash against the FCC’s apparent attempt to abandon Obama campaign promises with regard to net neutrality made the FCC of Monday (Obama Abandons Internet Promise) seem very different from the FCC of today (Obama Abandons . . . maybe not so much . . .).

The FCC has more fears than ambitions

In his statement, Genachowski says the FCC will:

• Recognize the transmission component of broadband access service—and only this component—
  as a telecommunications service;
• Apply only a handful of provisions of Title II (Sections 201, 202, 208, 222, 254, and 255) that,
  prior to the Comcast decision, were widely believed to be within the Commission’s purview for
  broadband;
• Simultaneously renounce—that is, forbear from—application of the many sections of the
  Communications Act that are unnecessary and inappropriate for broadband access service; and
• Put in place up-front forbearance and meaningful boundaries to guard against regulatory
  overreach.

The goal of the FCC at this time is to make policy that won’t be overturned by the DC circuit court, and to make policy that won’t upset the monopolies. The FCC statement specifically says that the FCC will not create any new unbundling obligations for the large companies, and Genchowski specifically says that he wants to prevent “regulatory overreach.”

Commentators such as Yankee Group’s Carl Howe want the FCC to ensure that there’s a free and fair market. “Last time I looked, The U.S. was ranked anywhere from 19th to 21st in the world in terms of Internet speeds and costs,” Howe writes (h/t Benoit Felten). That needs to change.

The meaning of Title II in this case

Genachowski refers to six specific provisions of Title II that he wants to apply to the internet.

They are:

Section 201: fees must be “just and reasonable” — this has not harmed the large phone companies at all, but that may be because the law is not usually applied to large phone companies.

Section 202: nondiscriminiation.

Section 208: a complaint procedure that is expensive and rarely used.

Section 222: privacy rules designed to regulate large telephone companies.

Section 254: USF. The FCC is going to face considerable opposition if it seeks to apply USF fees to broadband. One way to gain support for this would be to lower the rates from 15 percent to about 1.5 percent. A broader revenue base should enable lower FCC fees.

A second problem is that this rule, like all of the others the FCC is considering, would impose a heavy compliance burden on small businesses. Many ISPs and WISPs are literally mom and pop operations. They have a lawyer they can call but none on staff. They have a bookkeeping function but not an accounting function. They can handle questions about costs but have trouble with questions about depreciation.

Section 255: Access for those with disabilities. The FCC is concerned about this issue and will hold a hearing on it (.pdf) on May 13, 2010. Vint Cerf was part of a round 1 stimulus proposal seeking $70 million for broadband for the deaf and hard of hearing (personally, I think broadband for those lacking sight would be a more impressive achievement).

Conclusion: questions remain

1) Is the FCC serious about supporting competition? As David Isenberg wrote, “we’ll see.” The FCC just lost a major legal battle to NBC-Comcast. Will it be willing to fight such a battle again?

2) Will the burden of complying with new rules fall on small businesses but not on large businesses? Madison River paid the fine, but Comcast-NBC sued the FCC and won. In this way (and many others) FCC regulations restrict only what small companies can do.

2a) Will broadband providers have to justify their prices every year or only if the FCC audits them? Will the FCC ever investigate deceptive advertising or falsified charges? Would it investigate small companies only or would it actually investigate Verizon’s phantom data fee or its fee for not using long distance service?

3) How will the USF apply to broadband. There will be no cash for broadband without a tax on broadband. Implementing it in a fair way will be difficult.

4) What does the FCC intend to do about people with disabilities? What about the enforcement of non-discriminiation rules?

All of these questions explain what David Isenberg and others mean when they say, “we’ll see.”

The key difference between then and now is that through 2002, the ISPs still had control of the market, but today, the phone and cable companies rule.

Here are snapshots of the market from Q4 2002 and Q3 2008.

In 2002, the top 5 ISPs were AOL, MSN, EarthLink, United Online, and Comcast. Together, the top 5 ISPs controlled just over 50 percent of the market, which was already too much.

In 2008, the top 5 ISPs were SBC, Verizon, RoadRunner, Verizon, and AOL (representing 4 companies). Together, these four companies controlled about 56.2 percent of the market.

In 2002, I estimated that independent ISPs had about one third of the market and comprised three of the top 5 U.S. ISPs.

In 2008, I estimated that independent ISPs had none of the top spots and that EarthLink, ranked sixth, was doomed. I estimated that independent ISPs had much less than one quarter of the U.S. market.

Today, independent ISPs have an even smaller share of the market.

What the new administration is doing right

The Obama administration aims, through the stimulus, to fundamentally change the ISP business. The ideal depicts a local business serving a rural community and helping it thrive in the face of negligence from the large monopoly internet providers.

The data that the FCC is using ignores the fact that the phone companies are ditching landlines by selling them to entities that will surely go bankrupt.

AT&T has already filed for permission to shut down its copper network. AT&T believes that the future is VoIP, which explains why AT&T has tried to prevent a free market in VoIP services.

What the FCC is doing wrong

Small businesses are harmed more by regulatory uncertainty than by any actual action of the FCC. In an environment in which investors and entrepreneurs do not know whether they will have permission to run their businesses, conspiracy theories are running rife.

The FCC appears to be embroiled in chaos of the worst kind. It is preparing to try to enact rules that were just ruled illegal by the DC Circuit Court.

The FCC should take this an opportunity to change the way the internet is regulated. The internet should be regulated as one entity — as today’s Waxman Rockefeller letter (.pdf) so rightly notes. The false splitting of the internet baby into an information service and a telecommunications component dates back to a disastrous anti-competitive finding from 2002.

A bold FCC would articulate a vision for how the internet should be regulated and then proceed to figure out how to get there. A bold FCC would define the internet as a utility over which the services of the 21st century flow in an unprecedented, connected manner.

One such vision was articulated in 2002: take away the monopoly protections and let the legacy networks fail fast. Current policy is to allow these legacy networks to lie and to pile debt on the backs of companies that will soon fail. Current policy is the opposite of fail fast — it is a constant bailout in which ever more government cash is devoted to businesses that could not survive a genuinely competitive and free market.

The New York Times called for clear regulation of the internet (Verizon opposes the idea). The most popular comment on the editorial said, “The giants controlling the market have no interest in ensuring that everyone has access at all, much less equal access. And they certainly have no interest in competitive pricing.”

I agree.

The ISP business just needs honesty and sanity

The ISP business should be a reliable and dependable business. Customers pay the same fee every month (or pay up front for six months to a year) and the ISP delivers the same reliable service to customers day after day.

Uncertainty in the ISP business comes not from customer behavior — ISPs with a sufficient number of customers can generally predict customer behavior in a manner similar to that employed by insurance company actuaries. Instead, uncertainty comes from the behavior of the monopolies. Every price change affects the industry.

All too often, independent ISPs advertise the actual price of service while the monopolies do not. Cellular pricing is even more opaque than wireline, though a few are working hard to decode prices every time they change.

The FCC has never enforced truth in billing rules.

The recent national broadband plan made some positive recommendations for forcing the monopolies to stop lying about broadband speeds, but failed to do anything about pricing lies. Doing nothing about the problem is not a plan. The rip offs continue.

This distorts the market. Customers have to compare the real prices posted by independents with fake heavily advertised price points set by the monopolies. Few are able to do so.

The decision throws into focus the muddle that is current internet law in the United States.

“America needs competition among its high-speed internet providers. Open access has proved to be an effective way to do this elsewhere. Barring that, the FCC’s now-voided rules on net neutrality would have been a poor, but adequate substitute,” wrote The Economist, which is not a radical lefty ragsheet, in its response to the decision. The magazine recommended that Congress clarify the distinction between the internet and telecommunications.

All of this is necessary only because of a mistake the FCC made in 2002.

In February of that year, the FCC ruled that internet services are “information services, with a telecommunications component, rather than telecommunications services” which essentially deregulated the internet. Perhaps the real question is why it took so long between then and now for the internet to be deregulated, as it was by the DC Circuit court’s decision.

My colleague at the time Roy Mark quoted Jeffrey Chester, the executive director of the Center for Digital Democracy, as saying that the proposed rule changes should be called the “Cable and Bell Internet Monopoly Act of 2002. By declaring that broadband is an information service, the FCC is giving gatekeeper control to a handful of cable and Bell super-monopolies.”

Competition shrank. The number of ISPs in the US was estimated at 8,000 in 1999, 6,000 in late 2002, and about 2,000 today. As 75 percent of the competition sold out or went out of business, investment stagnated and consumer prices rose. This changed somewhat when the FCC gave ISPs full ownership of fiber builds.

But now, in 2010, Verizon has more or less stopped rolling out fiber. In recent earning releases, the focus has been on wireless (and the same is true with acquisitions, such as Alltel). Back in 2003, I wrote:

It’s too bad the FCC did not investigate any actual deployments, because the final irony of its new rules is that the RBOCs are not deploying and have not deployed fiber, and the FCC will not be able to get them to do so (and spend money on the equipment makers who lobbied so hard for this section of the ruling).
In a comment buried in footnote 809 [of the triennial review order], the FCC acknowledges, “Corning estimates that competitive LECs have deployed FTTH loops to 44,890 homes, that small incumbent LECs have deployed FTTH loops to 3,600 homes, that the BOCs have deployed FTTH loops to some 400 homes, and that municipalities have deployed FTTH loops to about 18,100 homes.”

It looks like 2010 will be like 2003 — the majority of fiber deployments this year will, once again, be projects from comeptitors and municipalities. If that’s what happens, will the FCC once again decide to give the ILECs whatever they want? I hope that this FCC is different from the FCC of 2003. I hope that this FCC is willing to make it easier for municipalities and competitors to deploy fiber. (I wonder whether there’s a regulatory capture playbook somewhere. Mining companies are threatening not to invest in Ghana if the government raises royalty rates from a paltry 3 percent. The monopolies here will threaten something similar.)

Reactions to the Decision

The ILECs’ fans, such as FCC Commissioner Robert McDowell, felt that everything was fine. McDowell got a prominent place in that right wing ragsheet The Washington Post to say that the FCC needs to not regulate the internet.

The people I agree with thought otherwise. Susan Crawford, who I think of as a defender of the free internet (previously at ICANN), wrote in the ragsheet that tries to be centrist, The New York Times, that the FCC must take back the power to regulate the internet.

I believe that the FCC needs the help of Congress if it chooses to take back its power to regulate — and that somebody (the FCC or Congress) has to refute the flawed decision in 2002 that created this mess in the first place.

I worry, however, that we’re entering a period of uncertainty that would be as disastrous for competition now as it was in 2003.

Nevertheless, there is a real opportunity to modernize laws and to recognize the internet for what it really is. Internet lawyer Eric Cecil wrote recently, “There is no longer any such thing as telecom, cable or broadcast except in regulatory silos gamed by business-driven technology models whose resulting incentives are to prevent and stall evolutionary change while nations like China make fools of our incessant fighting over who subsidizes which buggy whip.”

The phone and cable companies are not standing still. Comcast just disabled VCRs in order to force customers to buy its DVR service.

But those trying to reign in the monpolies aren’t resting either. The House recently passed a law aimed at preventing copper monopolies from unloading massive amounts of debt as they sell off copper assets that they no longer care about — that were built with taxpayer funds and subsidized the ILECs’ new businesses, the cellular and fiber lines of business that represent the Bells’ future.

In the long run, the monopolies’ businesses rely too much on the complexity of current regulation. If we can simplify that regulation, we can stimulate competition and make the country that invented the internet one of its leaders, as it was in the past, and as it is not now.

While much FCC policy has been inward looking, refusing to treat the world as a laboratory in which alternate polcies are tested, some failing and some succeeding. Both failures and successes provide useful lessons.

Two representatives of successes were present, Herman Wagter of citynet.nl in Amsterdam and Johan Henæs Norwegian equipment maker INS Communications.

Lessons from Europe

Wagter pointed out that up to 90 percent of the U.S. populations lives in areas that are at least as densely populated as Europe, and therefore that the same economics of density that favors high speed deployments there should favor high speed deployments in the urban and suburban areas of the U.S.

Wagter also pointed out that middle mile deployments can be repurposed to other customer while last mile deployments can serve only the one home to which they connect. This makes middle mile projects safer to build, in theory.

Finally, Wagter said that fiber would be a good stimulus project because it delivers jobs. “10 percent of the cost of a fiber project is the fiber, 10 percent is the equipment, and 80 percent is the labor (although labor costs decrease in rural areas).”

In his experience, it costs about 900 Euros to connect each home, far lower than the $3,000 estimate common in the U.S.

Henæs said that a lesson learned in Europe is that nobody can predict what broadband will be used for. The fiber builders expected to deliver a specific set of services but could not imagine apps like YouTube.

He agreed with Wagter that fiber builds should be open. “Fiber builds should not only support FTTH,” he said. They should also support wireless backhaul, business-to-business service, and enable the consolidation of COs. I would add that fixed wireless, not just cellular, should be part of any fiber middle mile project.

Benoit Felten, Yanke Group’s fiber analyst, contributed to the global perspective by showing the panel where 100 Mbps service is available — and the three places in the world where 1 Gbps service is available (Japan, South Korea, and Hong Kong). He predicted that in the future, 1 Gbps service will be available across the world.

Of course 100 Mbps service is available in the U.S., from Cablevision, but it is asymmetrical and not widely available — and it costs more than the same service anywhere else in the world.

Lessons from the U.S.

Tim Nulty, project director of the Eastern Vermont Community Fiber Network said that fiber could be deployed nationwide across the U.S. now.

He pointed out that the Universal Service Fund (USF) spends about $7 billion each year — equivalent to the broadband stimulus. “With it, we could wire the entire rural America, 40 million people,” he said (I think he was excluding Alaska).

He said (and Felten backs me up on this extraordinary quote) that anywhere where you can get 10 subscribers per mile, you can build fiber. At 20 people per mile, each fiber node supports 6,000 to 8,000 subscribers. At 10 per mile, each node supports about 30,000 pepople.

He added that if you build fiber properly, the network is transparent to the technology you hang on it. He said that EC Fiber is able to upgrade.

Joanne Hovis, of NATOA, said that there are 57 municipal FTTP networks in the U.S., mostly in rural areas, plus countless county networks that serve the government and educational and utility providers.

Craig Settles tweeted a link to 10 profiles of community fiber networks.

The lesson from the U.S. is this: it is possible to build fiber anywhere (except maybe Alaska).

John Cioffi, the DSL professor, noted that many fiber deployments use DSL for the last mile, and that fiber deployments are small compared to the number of customers served by DSL.

David Reed of MIT said that Wi-Fi MIMO (802.11n) is far superior to 4G cellular. I agree that for the past decade, cellular interests have unfairly presented themselves as the sole providers of wireless broadband, when cheaper, easier to deploy systems were available and are still available — and the cheaper fixed wireless systems are also better.

“Wireless is much more than just a third pipe,” said Reed.

Reed also made a complex point about personal mobility. He said that he believes the application of the future will be the “amulet” by which he meant the applications that use your identity — your contacts, you location, you activities.

Fiber’s business model should be the support of local wireless networks, according to Reed.

Here’s his blog post on the matter:

http://isen.com/blog/2009/11/i-joined-fcc-national-broadband-plan.html

More here from the FCC’s broadband blog.