two-sided markets

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

Net Neutrality: FCC Gatekeeper Theory Applies to Google, Apple, and Netflix

Posted by | Net Neutrality Series | 3 Comments

This is the second post in a series addressing fundamental questions presented by the prospect of applying per se net neutrality rules under Title II. The first post is available HERE.

The first post in this series concluded that the logic of the gatekeeper theory the FCC used to justify the imposition of per se net neutrality rules extends to any Internet intermediary that is capable of blocking, degrading, or favoring particular Internet services, applications, or content. This post presents a brief analysis of some intermediary services to which the gatekeeper theory would apply if the FCC relies on it to impose per se net neutrality rules under Title II.

The analysis demonstrates that Internet companies must also ‘ask permission’ to pass gates erected by Google, Apple, and Netflix (non-ISP gatekeepers) in order to obtain access to end users:

  • These non-ISP gatekeepers routinely use their gatekeeper control to block, degrade, or discriminate against upstream edge providers (far edge providers);
  • End users may incur significant costs in switching from one non-ISP gatekeeper to another; and
  • These non-ISP gatekeepers provide services in market segments that are highly concentrated.

It would thus be arbitrary and capricious for the FCC to impose per se net neutrality obligations only on ISPs under Title II.

To be clear, I’m not suggesting that reclassification of broadband Internet access services as ‘telecommunications services’ under Title II is necessary or that the FCC should otherwise regulate non-ISP gatekeepers. The analysis in the post is intended to illustrate that the FCC’s theory of gatekeeper control is radically over-broad under Title II and inconsistent with the competition theory of communications regulation set forth by Congress in the Communications Act. Read More

Net Neutrality: FCC Theory Would Extend Beyond ISPs Under Title II

Posted by | Net Neutrality Series | 5 Comments

This is the first in a series of net neutrality posts that will address fundamental questions presented by the prospect of applying per se net neutrality rules under Title II.

There is more at stake than net neutrality in the reclassification debate at the Federal Communications Commission (FCC). Imposing per se prohibitions against business-to-business arrangements involving ‘paid prioritization’ under Title II would be a radical departure from the core principles embodied in our communications laws. Yet the nature of this departure and its predictable consequences have received little attention thus far. That must change.

By its own logic, the theory of ‘gatekeeper control’ the FCC relied on to justify its imposition of per se net neutrality rules extends to any Internet intermediary that is capable of blocking, degrading, or favoring particular Internet services, applications, or content. If the FCC were to apply this theory under Title II, it would be required to impose net neutrality obligations on a host of Internet companies that have not been subject to common carrier regulation, including Google, Apple, and Netflix.

Summary of Regulatory Theories Governing Communications

A brief review of the prevailing theories of communications regulation in different eras is helpful in understanding why many companies that are considered ‘edge’ providers today would inevitably be subject to common carrier regulation if the FCC imposes per se net neutrality regulations under Title II. These theories are either embodied in the Communications Act or, with respect to net neutrality, in an FCC order.

cbit-theory-chart-08-12-14-v3
Natural Monopoly Era. The Communications Act of 1934 presumed that telephone service was a natural monopoly. As implemented by the FCC, the 1934 Act subsidized uniformly low rates for residential telephone service through tariff filings.

Competitive Era. The Telecommunications Act of 1996 presumes that removing barriers to entry enables competition among communications services and envisions an era in which market-based competition completely supplants Title II regulation as the means of protecting consumers. The 1996 Act promotes competition and reduces regulation by removing barriers to entry.

Net Neutrality Era. The Open Internet Order presumes that Internet companies must have ‘neutral’ access to all end users on all Internet platforms at all times in order to survive, irrespective of competition. Per se net neutrality rules regulate gatekeepers in order to subsidize access to end users for upstream Internet companies, who are presumed to pass their resulting benefits on to all end users. Read More

Does Senator Thune Embrace the Underlying Principle of ‘Strong’ Net Neutrality?

Posted by | Broadband Internet, Video | One Comment

Last Friday Broadcasting and Cable reported that the Senate Commerce Committee is proposing to replace market negotiations for retransmission consent with mandatory à la carte pricing for broadcast programming. The ‘local choice’ proposal would require TV stations to either (1) provide their programming to pay-TV operators for free or (2) offer their programming to pay-TV subscribers for a set per-subscriber price on an à la carte basis.

By eliminating any potential for market negotiations between pay-TV operators (who transmit the video content to subscribers) and TV stations (who provide the video content), the proposal would have the effect of separating content from distribution. It just so happens that this is the same goal that pro-net neutrality groups seek to achieve. Read More

CBIT White Paper: The Mission to Kill Broadcast Television Stations

Posted by | Video | One Comment

Click HERE to download the complete white paper in PDF.

THE MISSION TO KILL BROADCAST TELEVISION STATIONS

Analyzing Pay-TV’s Bid to Control the Video Marketplace

EXECUTIVE SUMMARY

Cable and satellite TV distributors (MVPDs) have secretly declared a regulatory war on TV stations. MVPDs have marched into battles over the obscure regulatory territories of “retransmission consent”, “compulsory copyright licenses”, “broadcast exclusivity agreements”, and “basic tier” using a free market flag as their standard. But that flag is merely a cynical smoke screen for their real mission: To kill broadcast television stations altogether.

It is no coincidence that the “reforms” MVPDs seek are entirely one-sided. MVPDs want to repeal regulations that make free over-the-air television possible without repealing regulations that require TV stations to provide local programming to consumers for free. Eliminating only the regulations that benefit broadcasters while retaining their regulatory burdens is not a free market approach — it is a video marketplace firing squad aimed squarely at the heart of broadcast television.

Advertising revenue is the primary motive for this war. The compulsory copyright license prevents MVPDs from inserting their own ads into broadcast programming streams, and retransmission consent prevents them from negotiating directly with the broadcast networks for available advertising time. If these provisions were eliminated, MVPDs could negotiate directly with broadcast networks for access to their television programming and appropriate a substantial portion of TV station advertising revenue, which was approximately $19.6 billion in 2013.

Adopting the MVPD version of video regulation “reform” would not kill broadcast programming networks. They always have the option of becoming cable networks and selling their programming and advertising time directly to MVPDs or distributing their content themselves directly over the Internet.

The casualty of this so-called “reform” effort would be local TV stations, who are required by law to rely on advertising and retransmission consent fees derived largely from national broadcast network programming for their survival. Policymakers should recognize that killing local TV stations is the ultimate goal of current video “reform” efforts before they make piecemeal changes to the law. If policymakers intend to kill TV stations, they should not attribute the resulting execution to the “friendly fire” of unintended consequences. They should recognize the legitimate consumer and investment-backed expectations created by the current statutory framework and consider appropriate transition mechanisms after a comprehensive review. Read More

Retransmission Consent Complaints Don’t Withstand Market Analysis

Posted by | Video | No Comments

It appears that Federal Communications Commission (FCC) Chairman Tom Wheeler is returning to a competition-based approach to communications regulation. Chairman Wheeler’s emphasis on “competition, competition, competition” indicates his intent to intervene in communications markets only when it is necessary to correct a market failure.

I expect most on both sides of the political spectrum would welcome a return to rigorous market analysis at the FCC, but you can’t please all of the people all of the time. The American Television Alliance (ATVA), whose FCC petition wouldn’t withstand even a cursory market power analysis, is sure to be among the displeased.

The ATVA petition asks the FCC to regulate prices for retransmission consent (the prices video service providers (VSPs) pay for the rights to provide broadcast television programming to pay-TV subscribers) because retransmission fees and competition among VSPs are increasing. Though true, this data doesn’t indicate that TV stations or broadcast television networks have market power — it indicates that legislative and policy efforts to increase competition among VSPs are working. Read More

How Cable and Satellite TV Providers Are Using the Net Neutrality Playbook to Regulate Broadcast Television Content

Posted by | Broadband Internet, Video | 4 Comments

“The decision to forgo distribution is referred to as a ‘blackout’ in the cable context and ‘blocking’ in the Internet context, but the economic considerations affecting such negotiations are substantially the same.”

The American Television Alliance (ATVA), a coalition comprised primarily of cable and satellite TV operators, is using the playbook of net neutrality proponents in a bid to convince the Federal Communications Commission (FCC) to regulate prices for broadcast television content. The goal of ATVA’s cable and satellite members is to increase their profit margins by convincing the government to artificially lower the cost of programming they resell to consumers. I suspect the goal of ATVA’s non-profit memberse.g.Public Knowledge and New America Foundation, is to solidify the FCC’s flawed rationale for adopting net neutrality rules in 2010, which imposed restrictions on market arrangements between Internet Service Providers (ISPs) and Internet content providers without finding a market failure.

Many of ATVA’s cable members are also ISPs that have routinely argued against the imposition of net neutrality regulations in the market for Internet services. By supporting ATVA, these same companies appear to have abandoned the intellectual foundation for opposition to net neutrality. Are they now signaling their intent to embrace net neutrality regulation of the Internet?Read More

What Does Netflix’s Decision to Block Content Tell Us About Innovation and Investment in Internet Infrastructure?

Posted by | Broadband Internet, Video | One Comment

The Netflix debate tells us there is a yawning gap between the reality of current network architecture and the outdated theories supporting our regulatory policies. This gap is the single biggest threat to the virtuous cycle of invention, investment, and growth that have characterized the Internet over the last decade.

I’m having my own case of Cassandrafreude after reading the responses to my posts on Netflix’s decision to block consumer access to its new Super HD service. One commenter says it is a “great thing” that Netflix is relieving Internet congestion (a tacit admission that Internet congestion actually exists) by deploying computing power inside ISP networks. Another commenter suggests Netflix is attempting to “vertically integrate (from just content provider to content provider + CDN)” because “existing CDNs may not be equipped to handle the new traffic Netflix wants to push over them.”

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What Does Netflix’s Decision to Block Internet Content Tell Us About Internet Policy?

Posted by | Broadband Internet | 2 Comments

I posted an analysis of Netflix’s new Internet blocking strategy last week. I concluded that Netflix is attempting to leverage net neutrality regulations to gain an anticompetitive price advantage in the marketplace. In my view, this harm is an unintended consequence of the FCC’s decision to abandon its free market approach to the Internet and adopt net neutrality rules that enhance the market power of so-called “edge” companies. As Neil Stevens said in his Tech at Night column: “Told you so.”

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