However, the VoIP services that exist today are a shadow of what the technology makes possible. VoIP has been choked so that it no longer disrupts telephone service. VoIP has been fenced in by the FCC so that it offers no more than telephone, a move that was intended to protect cellular and wireline phone companies.

I remember that in 2004, we held ISPCON Spring in Washington, D.C. The vendors brought their office phones with them to their booths. They were thrilled to be able to answer their office phones while on the road. While this was a boon to the CEOs of small companies, it was a miracle for road warrior salespeople. All of these businesspeople were using a feature of VoIP that wireline service cannot provide — and that directly competes with cellular too.

In 2005, the FCC ruled that VoIP service must support 911 emergency service (the E911 order). This was the beginning of the end. For nomad businessmen such as those who had been so happy at ISPCON in 2004, there was no need for 911 on their VoIP service. Residential users who had taken their home phones with them on vacations could no longer do so. A key advantage of VoIP technology over traditional wireline phone and cellular services was eliminated by FCC fiat.

At the time, VoIP expert Jeff Pulver said, “It is my hope that the FCC’s E911 rules for Interconnected VoIP providers do not extend to services that no user would expect to offer localized emergency response capabilities, such as a circumstance where a computer has both SkypeIn and SkypeOut downloaded … [the order] might relegate America to a VoIP ghetto, where anyone wishing to use both an inbound and outbound voice application on her computer had better not step foot in America. Should Skype consider turning off either its inbound or outbound service in America?”

In 2006, the FCC attacked VoIP’s inherent price advantage by forcing VoIP providers to pay universal service fees. This rule hit the smallest companies the hardest.

VoIP providers were also required to enable wiretaps (CALEA), a ruling that was reasonable, but which was made unreasonable by the federal government’s unwillingness to certify systems as being compliant. VoIP companies were expected to pay $100,000 or more for a system that might or might not do what it was supposed to do. This hit the smallest companies the hardest.

In 2007, VoIP providers were required to register for a CPNI, another bureaucratic procedure that hit small innovators but provided little encumbrance to the monopolies.

VoIP, caged

The result of these rules is that today, the largest VoIP companies are massive companies, and the largest single VoIP provider in the U.S. is Comcast. As of September 30, 2010, Comcast had 8.4 million VoIP customers, almost half of the VoIP market all by itself (before counting the other cable companies).

The “digital phone” service offered by cable companies today is the result of FCC policies: it is a service that runs over the internet but whose features are restricted to mimic as closely as possible the phone service of the previous century. It competes with wireline voice services on price but, more importantly, it no longer allows its users to roam and therefore no longer competes with cellular service. The phone companies are now selling off their wireline voice services, have stopped investing in internet service, and are spending all of their money on cellular. They do not mind if VoIP competes with wireline phone services; they must be thrilled that it no longer competes with cellular service because “digital phone” cannot move.

Some providers are doing wonderful things with VoIP — the innovators are the smallest companies on whom the burden of regulation falls the hardest. M5 Networks, a business-only VoIP provider in New York City, provided hundreds of virtual phone numbers to real estate firm Coldwell Banker. Every advertisement that the realtor placed that week had a different phone number, so the realtor was able to track, in minute detail, the response rate of every ad. Of course, the FCC has left the rules for business VoIP services more liberal than those for residential. As a result, many of the most innovative local players offer business VoIP services only.

Digium, the business end of the Asterisk project, offers a wide open technology that can be used to do many things. I spoke to one developer several years ago, Professor Brian Capaouch, who set up an anti-raccoon device in his chimney using Asterisk. When a video camera sees a raccoon, it turns on a kitchen mixer that is broken — it’s missing a ball bearing and squeals like murder. The video camera also takes a still photo and e-mails it to the professor. The professor can “call in” to the camera and view the live image on his cell phone.

Capaouch told me that VoIP enabled a completely different kind of collaborative development. Because the calls were free, developers would open a party line and talk to each other for hours while working on code together.

Simple disruptions of the telco business model were also important. You could obtain a phone number in another city or another country and avoid international and long distance phone charges. In the same article cited above, I interviewed Greg Boehnlein who told me, “our operations manager is from London and he was spending $400 per month calling his parents. Now, with VoIP, he pays zero.”

Today, while experts can still do truly amazing things with VoIP, the services that residential consumers see are limited. They compete on price, not features, and deliver something very similar to traditional phone service. Most use phones instead of computer microphones for audio.

Business services are somewhat more sophisticated, but for the truly nifty things that VoIP can do, even a knowledgable business IT department usually needs to hire a consultant like M5 Networks to get elaborate things done. Many IT departments also pay consultants whose job is simply to get them the telephone services they need and make sure they’re not paying for anything they don’t need.

VoIP technology is widely deployed, even within the phone company, but it has been prevented from fundamentally changing the phone business, largely through the intervention of the FCC.

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.

Thanks to Joly MacFie for the video.

Text of the speech:

Today, on OneWebDay, we want to urge the FCC to assert its right to protect the three key principles of the internet, principles that have made it friendly to innovation and competition. We want the FCC to insist that the internet be open, that computers be connectible from end to end without interference, and that internet management be open and transparent — not secret and in the service of the companies who pay for it to be the way it is.

OneWebDay was founded in 2006 to celebrate the internet, a uniquely organized piece of infrastructure that has become critical to all of our lives, directly for those who use it, and indirectly for those who use the services that now depend on it, such as education and banking and healthcare.

When I first read about the internet, in Ed Kroll’s book, the Whole Internet User’s Guide and Catalog, published in 1993, it was described as a cloud. The reason it was described this way is that the internet was not built from the top down. It was built by network administrators at military institutions and at universities, who built local networks and allowed those local networks to connect to each other.

This is the first principle of the internet, the End to End principle. It says that any machine must be able to connect to any other machine, and that any machine can use any application. There can be no internet gatekeeper to decide what can and cannot be done.

Not everyone likes this. The internet receives many of the criticisms that are leveled at democracy. The internet is less efficient than it could be, if it had managers. The internet is less secure than it could be, if we could police it by reading everyone’s mail. The internet will be brought down by the weight of the people that make it up, because they will inevitably act against the interests of the internet, and you only have to destroy democracy once for it to never return.

The internet when it began was an American thing. It was built by our military and the educational institutions that work with it. It was built on American principles and one of those is openness. Another is that the whole world wins when science and technology advance.

The internet was built on the principle of openness. The second principle is that users should be allowed to know how the internet works. Many technologies are secret. There are parts of your cell phone, if you have one, that you’re not allowed to change. But the internet is open, and that means that it can be changed not just by an institution with a big research budget, but also by two guys like Sergey Brin and Larry Page (and some California venture capital). It can be changed by the guy who built Facebook who, if the latest Hollywood movie is at all accurate, may not be a nice guy.

It can be changed by you and me. Any of us can build a web page, start a blog, and participate in an internet community. It can be changed by a speech at NYU by Professor Eben Moglen who inspired the Diaspora open source challenge to Facebook with a speech that included the phrase, “I’m not suggesting [Facebook] should be illegal. It should be obsolete. We’re technologists, we should fix it.”

Not everyone agrees that the internet should be this way. Some might want users to take a test to qualify to build a web page. In South Korea, they want a crackdown on celebrity gossip and internet suicides. Here in the U.S., a recent comment post to the FCC blog says that the internet should be illegal because it contains pornography, and many around the world might agree with that. In some parts of the world, they want to make defaming a specific religion illegal.

As long as there is free speech in a democracy, there will be speech that is abhorrent to some people. But if you forbid that free speech, that you shut down a key component of democracy.

Perhaps the most startling aspect of the internet model is the cloud itself. In reality, there is some management within the cloud, such as DNS servers and internet registrars, and ICANN itself, on whose board Susan Crawford once served.

But although the internet is managed, it is owned and maintained by its constituents. It is built out by internet service providers large and small, and run by an international community of network managers who can, when the need arises, fight problems such as organized crime together but who for the most part spend their days making sure that their piece of it runs well.

Sharing, openness, and local ownership are not really big on the agenda of most companies and governments today. But they’re what makes the internet work and what keeps it unique. We’re here today to say we want to keep it this way.

Cases:

story:
http://www.dslreports.com/shownews/60996

FCC:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-05-543A1.pdf

FCC Identifies, Fines VoIP Blocker
Madison River Communications pays $15K
(old news – 12:40PM Friday Mar 04 2005)

These issues have not just cropped up this year. They have been with us for a long time. In the past five years, however, there has been one big change. Until 2005, the internet mostly served to disintermediate non-telecoms businesses, such as bookstores, the postal service, and other intermediaries who worked between businesses (B2B) or who connected businesses to consumers (B2C).

Shortly before 2005, VoIP went mainstream. It had been around for a long time. Jeff Pulver had built his VoIP-centric career on the technology starting in 1999 and even earlier. In 2005, a local phone company called Madison River Communications was fined by the FCC for trying to keep Vonage phone calls off its network.

(There are persuasive conspiracy theories, such as Fred Goldstein’s, about the fine.)

What concerns us here is that the FCC could have asserted a general principle. It could have said that the internet must remain open, that any machine on the internet must be able to connect to any other machine on the internet, and that management of the internet must be open and collaborative.

The FCC made no such assertion.

In the consent decree , the FCC said it investigated in order to allow customers their choice of VoIP provider: “the Bureau inquired about allegations that Madison River was blocking ports used for VoIP applications, thereby affecting customers’ ability to use VoIP through one or more VoIP service providers.”

Madison River settled, for a mere $15,0000, and the FCC was therefore able to avoid spending money investigating Madison River and Madison River avoided potentially high legal expenses: “To avoid the expenditure of additional resources that would be required to further litigate the issues raised in the Investigation, and in consideration for the termination of the Investigation in accordance with the terms of this Consent Decree, Madison River agrees to make a voluntary payment to the United States Treasury, without further protest or recourse to a trial de novo, in the amount of fifteen thousand dollars ($15,000.00) within ten (10) business days after the Effective Date of the Adopting Order”.

Madison River promised not to do it again: “In order to resolve and terminate the Investigation, the Bureau requires, and Madison River agrees, that Madison River shall not block ports used for VoIP applications or otherwise prevent customers from using VoIP applications.”

The FCC could have asserted its right to regulate the three core internet principles. It could have argued that its role is to protect the consumer and the internet. Instead, it argued the narrowest of principles and achieved the narrowest of goals. It asserted the right to police competition among VoIP providers on privately-owned networks.

FCC vs. Comcast

This is the most important net neutrality case in the USA to this day because Comcast fought the FCC and won, fundamentally challenging the FCC’s power to regulate the internet.

DSL Reports reported in August of 2007 that Comcast was using an internet traffic management device from Waterloo, Ontario-based Sandvine to throttle BitTorrent users who were sending more traffic outside of Comcast’s network than they were bringing in. The Sandvine device specifically targeted sharers and did not target downloaders, according to DSL Reports forum members:

“The Sandvine application reads packets that are traversing the network boundary. If the application senses that outbound P2P traffic is higher than a threshold determined by Comcast, Sandvine begins to interrupt P2P protocol sequences that would initiate a new transfer from within the Comcast network to a peer outside of the Comcast network. The interruption is accomplished by sending a perfectly forged TCP packet (correct peer, port, and sequence numbering) with the RST (reset) flag set. This packet is obeyed by the network stack or operating system which drops the connection.”

For internet users, the key phrase here is “perfectly forged TCP packet” because it meant that Comcast was intervening in their use of the internet without telling users. It was choosing which machines users could connect to. It was not being open and transparent in its network management.

In 2008, the FCC said that this behavior was illegal, and the Electronic Frontier Foundation (EFF) released a neutral tool called Switzerland to help users determine whether their own ISP was doing the same.

Note that the Sandvine device had been on the market for some time. Equipment makers — not just Sandvine — had been developing products that could do this. They had been marketing them openly. Had the FCC been concerned about fundamental internet principles it (or Congress) could have intervened. They chose not to.

In 2010, the Comcast won a lawsuit against the FCC in which Comcast argued that the FCC had overstepped its authority.

This was huge news. It threatened the National Broadband Plan. It fundamentally challenged the FCC’s power to regulate the internet. The challenges raised by this case have not been resolved by the FCC, although Google and Verizon are eager to solve them for the FCC, which is an issue we’ll discuss next.

The New York Times calls current FCC policy “the struggle for what we already have.”

“Since that ruling came down in March, the agency has been going down two tracks at the same time. It has been desperately trying to find a way to re-establish jurisdiction over broadband services, while at the same time continuing to push for net neutrality. It has become a very complicated dance.”

The Times thinks that “consumers have come to expect an open Internet, and companies will violate net neutrality at their peril. That is just the way the Internet has evolved,” but such a statement ignores the growing market power of the largest ISPs.

Verizon is a major cell phone company as Verizon Wireless. It provides regular telephone service as Verizon. With Verizon FiOS, it is the largest fiber optic provider in the U.S. and offers television service on its fiber lines.

Comcast is a major cable company. It also is one of the nation’s largest telephone companies with its Digital Phone offering. It competes with Verizon to be the largest ISP in the U.S. Comcast wants to buy NBC.

Commissioner Copps noted in a Washington Post editorial that the FCC could retain authority to regulate the internet if it asserted that the internet is “Title II” (common carrier telecommunications) rather than “Title I”.

He wrote:

This was a predictable outcome of FCC actions during the Bush administration that consciously moved broadband Internet access from Title II, which would have supported the commission’s authority, to a murky place that invited court challenge.

This was a major flip-flop from the historic — and successful — approach of forbidding discrimination on our communications networks. Now is the time to put broadband back under Title II, where it belongs — and under which many smaller companies continue to offer Internet access to the public.

Nor is this debate about regulating the Internet. It’s about whether consumers or a few huge Internet service providers will control consumers’ online experiences.

Today, on OneWebDay, we want to urge the FCC to assert its right to protect the three key principles of the internet, principles that have made it friendly to innovation and competition. We want the FCC to insist that the internet be open, that computers be connectible from end to end without interference, and that internet management be open and transparent — not secret and in the service of the companies who pay for it to be the way it is.

Case: Google and Verizon

In August of this year, Google and Verizon posted a joint proposal for the regulation of the internet.

There were many great responses, but I want to highlight that of Susan Crawford, the founder of OneWebDay. She called her post “Leadership,” highlighting a vacuum at the FCC. She wrote:

I don’t blame them for trying. These are profit-making companies, not regulators and not advocacy groups. I’m sure Google, in particular, is tired of the multi-year slog that has gone into the net neutrality debate – and tired of being made the poster-child for the issue as other major online companies have steadily backed away.

The key takeaway from today’s announcement is that it underscores the urgency of FCC action to ensure that it has jurisdiction to speak to American companies about high-speed Internet access. As someone told me today – snappy line – the agency is being disintermediated.

Funny, but not good for the American economy. These two giants have found a policy vacuum and they have, understandably, filled it. A private deal – even a private deal aimed at suggesting legislation – is not the same thing as acting in the public interest. That’s the FCC’s charge.

The key tradeoff being made here is between the treatment of wireless services, on the one hand, and the treatment of nondiscrimination, on the other. Google gave on wireless, and so there’s no policy suggestion for wireless net neutrality that has been provided by the companies. That’s a huge hole, given the growing popularity of wireless services and the recent suggestion by the Commission that we may not have a competitive wireless marketplace. Verizon gave on nondiscrimination, and so there is a suggestion that paid prioritization of services over the Internet would be presumed unlawful (something that AT&T would not have agreed to).

Both companies left “managed services” (or “other services”) off the table for regulation. That’s a giant, enormous, science-fiction-quality loophole. It means that Verizon could decide what bits reach consumers more quickly; it means they’ll be able to favor particular uses of Internet access for exclusive deals. It’s the exception that swallows the rule, as lawyers like to say. It’s prioritization using another label. There’s a save in there that suggests that the “other service” has to be distinct in scope and purpose from Internet access (something cable would not have agreed to), but that’s a long way from an enforceable standard.

What’s needed now is leadership. Here’s a quote sent to me yesterday – from LBJ to regulators: “Let the venal and the self-seeking and the tawdry and the tainted fear to enter your building.” You need backbone to regulate a giant industry, and this one is too important to our economic, social, and cultural future to ignore.

Susan Crawford is devoting most of her blog time (and, I assume, much of her real world time) to opposing the merger between NBC and Comcast, an issue we can discuss if you’d like to.

Case: AT&T Censors Pearl Jam’s Anti-Bush Lyrics During Live Webcast

http://gizmodo.com/287775/att-censors-pearl-jams-anti+bush-lyrics-during-live-webcast

http://arstechnica.com/old/content/2007/08/pearl-jam-censored-by-att-calls-for-a-neutral-net.ars

How bad could it be? Net neutrality advocates’ worst fears were realized in late 2007 when AT&T censored anti-Bush lyrics in a performance by Pearl Jam. When the band transitioned one of its songs into “the melody from Pink Floyd’s ‘The Wall,’ … Eddie Vedder served up a pair of anti-Bush lyrics to the tune. ‘George Bush, leave this world alone,’ he sang. ‘George Bush, find yourself another home.’ ” People at the concert heard the lyrics. People listening in online heard only silence.

The band called for net neutrality. “What happened to us this weekend was a wake-up call, and it’s about something much bigger than the censorship of a rock band.”

As far as I know, the FCC did not interfere or even investigate. Any regulator concerned about core principals would have at least looked into this. FCC Commissioner Copps did state, “nobody should have that power to do that and then be able to exercise … control over the distribution and control over the content too.”

AT&T weaseled out by blaming a contractor that it hired to produce the streaming video.

Censorship around the world

We in the U.S. set the standards for freedom from censorship and right now we’re not doing very well. The internet around the world is becoming more filtered. Nation states are trying to build walls to keep parts of the internet out, and it’s not just repressive regimes.

The United States itself, under George Bush, created the Total Information Awareness system that may have recorded every internet voice call and e-mail sent in or through the USA.

As recently September 10th, the ACLU called on President Obama to disavow the program. He has not done so.

Meanwhile, Google warns that almost every nation is asking that content be taken down. Here is a list of takedown requests. Note that the majority of the takedown requests come not from dictatorships but from the democracies.

Australia plans to go ahead with a futile but intrusive filter. Australia’s communications minister Stephen Conroy says that the filter will protect citizens from child porn. Australia’s opposition says it will only give parents a false sense of security and will slow down the internet.

Perhaps the most famous internet censorship operation is China’s. Google was nearly kicked out of the country but has been allowed to stay for another year after redirecting its China website to Hong Kong. A one-click redirect displeased Chinese authorities, but a redirect requiring two clicks has satisfied them. The censorship involves the government and the nation’s ISPs, according to Human Rights Watch.

Pakistan has blocked YouTube and Facebook over what it calls “sacrilegious images”.

Censorship of the Blackberry:

Nations as diverse as the United Arab Emirates and India have asked Blackberry to set up a server in their country so that all messages could be read by the government. “The BlackBerry, then, offers a way to get information to a server outside a country without having anyone inside that country read it. The key here is the location of the server; a country is generally happier when it has all servers in its own warm jurisdictional embrace,” noted The Economist.

Case: Comcast – NBC Merger

http://scrawford.net/blog/comcast-nbcu-forum-today-in-chicago/1372/

http://scrawford.net/blog/sports-just-the-most-obvious-indicator/1392/

The history of internet regulation is a history of regulators trying — and failing — to catch up with what’s actually happening. It’s like the Sandvine box that was in development for years before the FCC noticed the results and tried to stop it. Susan Crawford appears to think that the most important challenge to the internet today is epitomized by the potential merger of Comcast and NBC.

She argued: Comcast’s market power in distribution currently gives Comcast control over programmer behavior and will allow it to protect the leading sports, business, and entertainment brands it gains from this transaction

Comcast’s current relationships with programmers, enhanced by its pricing and bundling control over key NBCU cable channels and online properties, may allow it to raise the costs of its online and offline distribution rivals

High-speed Internet access prices paid by Americans may get higher

But most importantly: Experience with prior mergers for which FCC exacted conditions demonstrates that DOJ should be involved in enforcement. Examples include failures to enforce fiber commitments in SBC-Pacific Telesis, SBC-SNET, and NYNEX-Bell Atlantic; competition commitments in SBC-Ameritech, Bell Atlantic-GTE (Verizon; and promised cost savings in AT&T-BellSouth.

Here’s a detailed example from Crawford: “Comcast has 61% of the Chicago market; 63% of Philadelphia; 58% of San Francisco; 59% of Miami. This power will be increased by the addition of NBCU content – particularly sports content.”

Many argue that monopoly power and pricing power can be exercised by any company that has at least 40 percent of market. As you can see, Comcast is far beyond that, especially in its home base of Philadelphia.

Conclusion

Defending these abstract principles: openness, end to end architecture, and transparent management, requires that we watch the marketplace with vigilance, as Susan Crawford is doing. Today, on OneWebDay, we celebrate the internet for what it is. This is the age of the internet. But the internet may change, and not for the better. Powerful companies want to control it. Stay informed and stay active.

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.