Telecosm - Ike Elliott

Why Ted "Tubes" Stevens Should Step Aside

Ted Stevens, U.S. Senator from Alaska, is running for re-election and won the Alaska Republican Senate primary last night.  That's bad news for his Republican party and even worse news for the country.  It's time for the 84-year-old Senator to call it a career and step aside.

Why?

• He's one of the most notorious pork-barrel spenders in the Senate, having long been a staunch defender of the Universal Service Fund regime that redistributes billions of dollars a year to rural areas in support of basic telephone service for rural Americans.  That Universal Service Fund system has been in need of reform for over a decade, but Stevens, representing a state that receives massive subsidies from the fund, has repeatedly helped block attempts at reform.  Even more notorious was Stevens' vociferous defense of the "Bridge to Nowhere," in which he even threatened to resign from the Senate if funding for the bridge was redirected to rebuilding New Orleans after Hurricane Katrina.
• He's under indictment for receiving roughly $250,000 in gifts from Veco, an oil company.  The case goes to trial next month and will almost certainly cripple his chances for reelection.

For a silly sample of the Senator's style, here's an excerpt from a recent speech by the Senator on 'Net Neutrality, in which he attempts to explain how the Internet can become congested, and describes the Internet as a "series of tubes":

Ryan Kane has a hilarious post on the Semi-Politico blog with a music remix of the Senator's speech. 

Bottom line: it's past time for the Senator to step down.

Forbearance: Virtue or Vice?

Dave Rusin over at Telecom Straight Shooter has a series of posts about "forbearance," which is basically a fancy word for the FCC giving regulatory relief to incumbent local exchange carriers so that they don't have to sell wholesale access to their networks at regulated prices any more.  Mr. Rusin lines up firmly on the side that claims forbearance is a good thing.  Even though I usually lean libertarian and against regulation, this is one of a number of cases where I make an exception, and I generally don't favor forbearance. It's a tough call for me because there is some merit in what Mr. Rusin says.

Let's give Mr Rusin's arguments in favor of forbearance the floor first, with some excerpts from his posts:

• "Why I favor granting forbearance is that I believe it will provide an impetus to build out fiber optic facilities to homes and offices."
• "Here we are - it’s 2008, yet after 12 years of deregulation some 90% of business buildings are still served by one provider's infrastructure, that being Ma Bell."
• "Artificially regulating wholesale prices hinders growth, it does not encourage growth or investment."
• "The same FCC that denies forbearance is the same FCC that said cable company infrastructure is closed to competitors and new fiber deployments by ILECs are closed to others."
• "By granting forbearance, in the short term, wholesale prices will and should go up thus generating higher profits.  As higher profits are generated, new capital will flow into the market for a share of this new found profit opportunity."
• "Generating more true facility based competition in the long run will lower the price per bit to the consumer."

Mr. Rusin also makes the argument that the U.S. is falling behind in the global broadband race, and he blames the FCC's forbearance policy for reducing the incentive to invest in new facilities.

I get that...there is some basis for the economic argument for forbearance.  However, I'm still glad that the FCC denied Qwest's latest forbearance petition.  Why? 

Several elements are largely missing from Mr. Rusin's arguments:

• Network construction is a capital-intensive business, so there is a large barrier to entry for any would-be facilities-based competitor: how do I raise the capital necessary to construct a network to compete with the incumbent, expecially when that incumbent has a network that has already been bought and paid for during the monopoly era?  That's the real reason why facilities-based competition has been largely limited to cherry-pickers that mostly target large office buildings for fiber optic deployment, or cable companies that originally paid for their networks with non-telephony services like cable TV, or wireless access options.   It has been hard to cost-justify new wireline network deployments when your incumbent competitor has already paid for their network. 
• Today, regulated wholesale access to the ILEC networks is largely focused on yesterday's technologies:  twisted pair copper and circuit switches.  Competitors who want to advance into today's technologies (fiber optics and routers) have to deploy their own facilities or buy wholesale access on an open and unregulated market, for the most part.  In many cases, regulated wholesale pricing on the old copper plant is not stifling investment in new fiber optic infrastructure. Rather, many companies are investing in fiber optic deployments where they make economic sense.
• The reason the Telecom Act of 1996 and the FCC mandated wholesale access to the copper plant was because the plant itself was built on the backs of American consumers and businesses through a government-granted monopoly.  This is quite different from the cable plant (which was built by private entrepreneurs) and the newer consumer fiber optic deployments such as Verizon FiOS.   The government should not mandate wholesale access to cable networks or to the newer fiber optic networks because they were not built based upon monopoly economics.  However, the old copper plant was built on a government-granted monopoly and it remains the only ubiquitous phone network in the country, for the time being.  Wholesale access to this national resource is necessary while alternative neworks are constructed and deployed.
• The FCC's test for whether to approve a forbearance petition is based on the development of significant competition in the market for which forbearance is requested.  The objective is to make sure that consumers and businesses are protected against the kinds of price increases that result from monopoly economics.  In the recent Qwest case, the FCC rightly found that insufficient competition had developed to provide adequate consumer and business price protection.

In the end the root of the problem is this:  if you've got one circuit of limited capacity connected to a building, then there is often insufficient incentive for a competitor to deploy a second circuit to that building, because the competitor will have to either charge less than the incumbent (usually not enough to pay for the network deployment costs) or provide a much better service (usually more capacity) in order to win the customer away from the incumbent.  In order for the competitor to change their minds and deploy a second circuit, they need one of two things to happen:

1. Prices need to go up enough to justify the new circuit deployment, or
2. Demand needs to go up enough for the customer to want a newer and higher capacity circuit (for which we presume the customer would have a greater willingness to switch providers and pay a higher price)

While providing forbearance relief will result in higher prices, I don't think the prices will be sufficiently higher to suddenly justify a new fiber optic deployment to just about any building. That's why Verizon's FiOS isn't being deployed over the entire Verizon footprint...Verizon knows that they will never get an appropriate return on investment by deploying to some locations. 

Instead, I think it is the relentless increase in bandwidth demand that will cause more and more buildings to merit fiber optic deployment... and we are seeing this happen, with Verizon's FiOS deployment as exhibit A.  These kinds of new fiber optic deployments will continue, with or without the FCC granting forbearance.   

Meanwhile, why continue to deny forbearance? 

• It encourages the development of competitive service providers, some of whom have gained enough critical mass to raise the necessary capital to invest in their own facilities.  I hope more competitors reach that critical mass.
• It ensures low-cost access to basic telecommunications services for consumers and small to medium sized businesses.
• It prevents incumbents from reaping an economic windfall from a network that was paid-for by the monopoly telecom era.
• It does not impede deployment of new fiber optic networks in any significant way.

No doubt, the day will come, and should come, when forbearance petitions will be customarily approved.  That day should wait until competition has a stronger foothold, in my view.   

Wall Street Journal Dumps On FCC's Kevin Martin

In a scathing editorial, the Wall Street Journal threw FCC Kevin Martin under the bus this morning.  The Journal called Martin the "one of the bigger disappointments" in a Bush Administration that has been "haunted" by "bad personnel decisions." 

Of course, this is all in reaction to the news that the FCC is about to act against Comcast for violating Net Neutrality rules.  Maybe a public backlash against Martin will get him to back down, as he did late last year when he used faulty statistics to claim that Cable had achieved enough market share to justify additional regulation. 

The End Of The Unregulated Internet?

Adam Thierer, of Technology Liberation Front fame, has announced the end of the Internet as we know it.  Mr. Thierer says that with the FCC's impending 'Net Neutrality action against Comcast, the executive-branch FCC has taken a legislative role and formed the nation's first Net Neutrality law, and the 'Net Neutrality fanatics have won the war.

I completely agree with Adam that the FCC's action is wrong-headed and beyond its current mandate.  However, I don't think that all is lost.

Why is the FCC off the ranch on this one?  FCC Commissioner Robert McDowell puts it best:

"If we choose regulation over collaboration, we will be setting a precedent by thrusting politicians and bureaucrats into engineering decisions. Another concern is that as an institution, the FCC is incapable of deciding any issue in the nanoseconds that make up Internet time. And asking government to make these decisions could mean that every few years the ground rules would change based on election results. The Internet might grind to a halt in such a climate. It would certainly die of clogged arteries if network owners had to seek government permission before serving their customers by managing surges of information flow."

(Many thanks to TLF's Jim Harper for digging up this quote.  This is yet another example of why Robert McDowell is my favorite Commissioner).

Hance Haney, who also blogs at the Technology Liberation Front, elaborates on the central problem of Net Neutrality regulation:

"So it will be interesting whether the FCC bans network management which prohibits file sharing, in which case cable and wireless networks could become congested to the annoyance of millions of ordinary users.  Or whether it allows broadband providers to practice network management so long as they clearly disclose it, in which case file sharers may discover they can’t use a broadband wireless or cable connection to share files, ever. Or maybe the brilliant politicians at the commission will require disclosure in sufficient detail to enable hackers to defeat network management altogether, permitting congestion to reign but ensuring that providers, not the commission, will be blamed."

You can read the rest of Mr. Haney's excellent post here.

Under the FCC's new regime, service providers may be damned if the do and damned if they don't.  Bad precedent, for sure.

To be clear, I'm not saying that service providers should be allowed to do whatever they want without consequence.  For example, it would sure be wrong if Comcast blocked any VoIP traffic but their own.  Comcast's recent deal with Vonage was probably aimed at heading off that kind of fear.  Comcast also should be required to live up to their terms of use and their advertising, so that their customers get what they pay for.  However, it seems that these kinds of issues are in the Federal Trade Commission's domain, and not in the FCC's domain. 

Net Neutralitarians have surely won a battle, though.  I get worried whenever politicians start thinking they are network engineers. 

But the game is not over yet.  The FCC's coming ruling will certainly be challenged in court, and Congress will have a say in it, too.  So take heart, Mr. Thierer, and continue to fight the good fight.   

 

FCC Rejects Qwest Forbearance Petition

Nothing like leaving it to the last minute.  The FCC waited all the way to an extended deadline to deny regulatory relief to Qwest in Phoenix, Denver, Minneapolis, and Seattle. 

"Although significant competition exists in Denver-based Qwest's markets, particularly in Phoenix, the commission determined based on the specific market facts provided to us, that Qwest's petitions did not provide sufficient evidence to conclude that regulatory relieve like that afforded the company in Omaha was warranted," said FCC Chairman Kevin J. Martin.

If Qwest had succeeded in their quest for regulatory relief, they would have been free to charge whatever prices it wanted for wholesale access to their networks, within the bounds of what the market would bear.  This had Qwest's wholesale customers in those four markets pretty worried, of course, because when Qwest was granted relief in Omaha, Nebraska, wholesale prices there reportedly shot up 30% in pretty short order.

Of course, a rise in wholesale prices would also translate into a rise in consumer retail prices, so  politicians in all four markets were against the forbearance petition.  But competitive carriers in these markets were still anxious, because the FCC had granted a Verizon forbearance petition last year.

The original deadline was 90 days ago, when the FCC extended the deadline.  At the time, I argued that the FCC shouldn't need an extra 90 days to say no, since it was clear that competition in these four markets was weak.

Kudos to the FCC for making the right call this time, even if it did take them too long to do it. 

Comcast & BitTorrent Sitting in a Tree...

...you know the rest of the rhyme.  Golly, you take a week off on vacation, and you come back and the wind has been taken out of the sails of the 'net neutrality push.  Who'd-a thunk it.  Reminds me of that Peaches and Herb song from growing up:

Reunited and it feels so good
Reunited 'cause we understood
There's one perfect fit
And, Comcast, BitTorrent's it
We both are so excited
'Cause we're reunited, hey, hey

...okay, so maybe that's just a little over the top.  Must be the vacation still messing with me.

Of course, I'm talking about last week's news that BitTorrent and Comcast are working together to change the way Comcast does "traffic shaping" on its network, so that certain apps like BitTorrent aren't singled out anymore.  Instead, bandwidth hogs will be singled out.  Of course, it will take Comcast most of this year to do some experimenting and change its traffic-shaping policies, but there it is.  BitTorrent is no longer the mortal enemy of Comcast.

Hance Haney, over on the Technology Liberation Front, says the 'net neutrality fight is over, and I tend to agree with him, at least until another major violation is discovered.  However, FCC Chair Kevin Martin continues to fire warning shots at Comcast.  Martin wants to take credit for progress at Comcast, and it does appear that the threat of regulation had some positive effect, so Martin won't relent 'til Comcast follows through on their public statements.

Of course, 'net neutrality proponents are still begging the FCC to regulate, as with this post from Jef Pearlman at Public Knowledge:

Much like Verizon’s announcement that they would open their wireless network to anyone’s devices, this news has the potential to do a lot of good, but the devil will be in the details.

...and later in the post

We know that service providers are discriminating against certain technologies. ISPs have denied everything, they have failed to release the details of their activities, they argue that there’s no problem with their behavior, and they claim that the FCC has no authority to stop them. None of these is acceptable.

There's more than a little truth in that.  Still with Comcast recanting and working with BitTorrent, it will be hard to make as much political progress with the FCC petitions or in Congress, with the Markey bill. 

Meanwhile, I'm glad that Comcast is on a better path, and that it got there before anybody had to get heavy-handed with regulation.  I hope we can continue to self-regulate in the Internet space, even if threatening regulation is what it takes to keep it unregulated.

700 MHz Auction is Over

At long last, The FCC ended the 700 MHz auction yesterday, after 38 days and 261 rounds, and after raising $19.592B.  It took 38 days to get here, but will take up to ten more days for the FCC to make its announcement about the spectrum winners. 

The auction exceeded the FCC's expectations in terms of dollars raised, but the D-block did not reach the minimum bid and in the end had to be "de-linked" from the auction in order to close the bidding out.  The FCC needs to consider whether to re-auction the D-block under different rules.

Harold Feld has a good summary of the auction over on WetMachine, calling the auction a success despite the D-block failure.

Of course, my main interest is in learning if Google won C-block!

FCC Extends Deadline for Qwest Forbearance Petition

The FCC was due to make a decision this month on a Qwest forbearance petition that would have granted "dominant carrier" tariff relief and would have lifted some price caps on local loops in four markets: Denver, Phoenix, Seattle, and Minneapolis.  The FCC extended the deadline to July 26th, according to a Phone+ report.

The FCC denied a similar request from Verizon last fall, and should deny this Qwest request as well. I'm not sure why the FCC needs another 90 days to say "no."

FCC Chair Kevin Martin Under Fire

Ars Technica reports that FCC Chairman Kevin Martin is the subject of a congressional investigation over his alleged manipulation of study data to support his policy viewpoints.  Representatives Dingell and Barton sent a letter to Martin requesting tons of records, and they seem to be focusing on:

• Martin's support of a la carte video programming and how Martin ignored the findings of a 2004 study that questioned the benefits of a la carte video programming.
• Martin's contention that the cable industry had reached the 70% market penetration number despite evidence to the contrary, and therefore should now be regulated.
• The FCC's recent controversial position on media ownership rules.

Some chickens might be coming home to roost for Chairman Martin.

Kevin Martin Turns Up Heat on Comcast

There's an article on page B5 of this morning's Wall Street Journal, "FCC's Martin Faults Comcast", describing a speech that FCC Chair Kevin Martin gave at Stanford on Friday.  In the speech, Martin talked about the FCC's 'Net neutrality probe into Comcast's traffic shaping practices, and said:

"A hallmark of what should be seen as a reasonable business practice is certainly whether or not the people engaging in that practice are willing to describe it publicly."

It sounds to me like Martin would like the FCC to at least enforce one of the four freedoms...that buyers of Internet service have a right to know what they are buying, so Internet service providers should disclose their network management and traffic shaping/blocking policies.  That is the one freedom that is the least controversial, so I think that would be a good first step.