2014 September

Netflix Has Some Explaining to Do

Posted by | Broadband Internet | No Comments

I recently explained how Netflix held its subscribers hostage to reduced service quality while blaming Comcast. During a hearing at the Canadian Radio-Television and Telecommunications Commission (CRTC), Netflix “categorically” denied any responsibility for slowing its traffic or otherwise degrading the quality of its service.

Given that Netflix is confident that it bears no responsibility for the slow delivery of its Internet traffic to Comcast subscribers, Netflix should have no problem providing public answers to a few pertinent questions.
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New STELA Bill, Still Not Clean

Posted by | Video | No Comments

Recent news reports indicate that the Senate Commerce Committee has dropped the à la carte and Internet provisions in its STELA reauthorization bill (called STAVRA). But the bill is still not ‘clean’.

It appears that the bill still contains a provision codifying the FCC’s decision to prohibit independent TV stations from jointly negotiating retransmission consent agreements. Like the FCC rule, this prohibition would apply in all TV markets, including markets that lack effective competition among pay-TV providers. Under the bill, TV stations in these markets would be required to negotiate separately with a pay-TV operator who Congress has determined possesses monopoly market power. Pay-TV operators with monopoly market power don’t need government help in their negotiations with broadcast TV stations. Read More

Netflix Secretly Holds Subscribers Hostage to Gain Favorable FCC Internet Regulations

Posted by | Broadband Internet | 11 Comments

A stunning revelation is buried in a lengthy Netflix filing at the Federal Communications Commission (FCC): Netflix used its subscribers as pawns in a Machiavellian game of regulatory chess designed to win favorable Internet regulations.

The filing reveals that Netflix knowingly slowed down its video streaming service with the intention of blaming Internet service providers (ISPs). Specifically, Netflix used its relationships with Internet ‘backbone’ providers (e.g., Level 3, Cogent) to deliberately congest their peering links with ISPs, and at the same time, started publishing ‘ISP speed rankings’ to make it appear that ISPs were causing the congestion. It appears that Netflix cynically held its subscribers hostage to reduced service quality in order to pressure the FCC into adopting favorable Internet regulations that would permanently lower Netflix’s costs of doing business.

Netflix’s plan to frame ISPs for sabotaging its service has been surprisingly successful so far. Some subscribers have blamed their ISPs for the service disruptions Netflix itself caused, which prompted the FCC to open an investigation of the Internet backbone market. Now all Netflix needs is for the FCC to adopt new regulations.

This post attempts to shed some light on Netflix’s hostage strategy before it’s too late. After a brief summary of the Internet backbone market, it describes the origins of the strategy and explains how Netflix succeeded in manipulating public opinion. Read More

CBIT Submits Reply Comments in FCC Net Neutrality Proceeding

Posted by | Broadband Internet | No Comments

CBIT filed the following reply comments in the FCC’s net neutrality proceeding. You can download them HERE.

Executive Summary

The Communications Act of 1934 (the “Act”) was adopted in an environment where there was no significant competition among telephone networks. The absence of competitive alternatives raised significant concerns that the telephone monopoly would charge unreasonable rates or engage in unreasonable discrimination. Congress chose to constrain this monopoly through Title II of the Act, which requires that common carriers provide service at just and reasonable rates subject without unjust or unreasonable discrimination.

In the monopoly era, the “centerpiece” of the Title II regulatory scheme was the tariff filing requirement in § 203, which requires that common carriers file their rates with the Federal Communications Commission (FCC) and charge only the filed rate. The ‘filed rate doctrine’ “forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate federal regulatory authority.” Once a filed rate is approved by the governing regulatory agency, it is reasonable per se and cannot be challenged in court.

Much of Title II and the Act’s procedural and administrative provisions “are premised upon” this tariff filing requirement. Once the FCC began permitting new entry into telephone markets in the late 1960s and early 1970s, however, it discovered that the costs of tariff filings outweigh their benefits in markets that are subject to competition.

The FCC’s greatest challenge over the last three decades has been the adaptation of a regulatory scheme premised on anticompetitive tariff filings to competitive markets. This challenge has been greatest with respect to the Internet. The history of Internet regulation is riddled with ‘temporary’ exceptions that never ended, anti-competitive arbitrage schemes, and judicial remands. The still indeterminate regulatory status of voice-over-Internet-protocol (VoIP) is a continuing reminder of the difficulty in regulating services that use Internet Protocol (IP) under the Title II.

Attempting to reclassify broadband Internet access as a ‘telecommunications service’ subject to Title II would likely make an already difficult challenge significantly more difficult. Reclassification would be legally suspect and would almost certainly be subject to a strong challenge in court. The plain language of the Communications Act and regulatory history make clear that the term ‘telecommunications’ refers only to transmissions that are interconnected with the public switched network (PSTN), and does not apply to transmissions over broadband Internet access facilities (e.g., xDSL and cable modem). The Act defines ‘telecommunications’ as a (1) transmission (not facilities), (2) between or among points specified by the user, (3) of information of the user’s choosing, (3) with no change in the form or content of the information sent and received. Broadband Internet access services do not meet all four elements of the definition of ‘telecommunications’: (1) there are no defined points for transmissions over the broadband Internet, (2) broadband Internet access services do not limit the transmission of information to that specified by the user; and (3) broadband Internet access services introduce changes in the form and content of the information sent and received throughout the transmission. Read More

Net Neutrality: FCC Authority Over Non-ISP Gatekeepers Under Title II

Posted by | Net Neutrality Series | No Comments

This is the fifth post in the CBIT net neutrality series.

The previous post in this series explained how sponsored data could promote competition among so-called ‘edge’ companies who provide gatekeeper services on the Internet. In their responses to reporter Howard Buskirk’s coverage of the post for Communications Daily, net neutrality advocates didn’t dispute the critical fact that non-ISP service providers exercise gatekeeper control over other edge providers on the Internet. They merely claimed that concerns about regulatory parity are “silly” and that addressing non-ISP gatekeepers would “muddy” the net neutrality waters.

They thus admitted my fundamental point: That attempting to regulate the transmission component of services that include information processing functions under the ‘gatekeeper theory’ would indeed “muddy” the FCC’s regulatory waters. Avoiding such uncertainty is why the FCC adopted a bright line distinction between basic transmission services (i.e., plain old telephone services) and services that are not in its Final Computer II decision 34 years ago. Even then the FCC was concerned that any attempt to “delineate a distinction between communications and data processing services” would result in a “boundary line . . . [that] can vacillate, and confidence in decisions made based on that distinction would be diminished.”

The bright line approach exempting services that combine transmission and information processing functions from regulation walled off many services from Title II regulation that had been regulated in the context of plain old telephone service. Replacing the bright line approach exempting broadband services from Title II regulation with the ‘gatekeeper theory’ would dramatically expand the FCC’s regulatory authority to cover broadband services that have previously been considered off limits. If net neutrality advocates continue to insist on the reclassification of broadband Internet access services under Title II, they should dispense with sloganeering and engage in a serious discussion about the implications of regulating broadband Internet services as common carriers.

The inability of net neutrality advocates to articulate a meaningful difference between the ‘gatekeeper control’ exercised by ISPs and the control exercised by non-ISP gatekeepers cannot be casually dismissed by the FCC, whose reasoning regarding reclassification would almost certainly be scrutinized by an appellate court. Contrary to popular opinion among net neutrality advocates, Title II regulation — and thus, the gatekeeper theory — is not limited to ‘last mile’ facilities. The Communications Act provides the FCC with broad authority over “communication by wire or radio” and all its “instrumentalities” in order to make available a “nation-wide, and world-wide wire and radio communication service.” There is nothing in the Act to suggest that this authority magically dissipates at some amorphous boundary between the ‘last mile’ and the ‘Internet beyond the wall’, or that ‘last mile’ facilities inherently present “special concerns” with respect to the theory of gatekeeper control. The FCC’s legal authority over communications services has always applied on an ‘end-to-end’ basis, from one communications device to another and everything in between.

The implications of combining the theory of ‘gatekeeper control’ with the FCC’s ‘end-to-end’ jurisdiction over communications services under Title II is discussed in more detail below with regard to mobile operating systems, Internet search engines, and online video distributors specifically, though these implications would likely extend beyond those three particular categories. Read More