Tales of the Sausage Factory

A Wide Range of Possible Outcomes In Net Neutrality Case.

The Tea Party/Libertarian/Generally Anti-Net Neutrality Crowd were dancing in the streets after the network neutrality oral argument and declaring total victory! This seems not only premature, but short-sighted. Until the oral argument, the anti-net neutrality crowd had predicted that the court would utterly reject the FCC’s efforts to extend its authority to broadband access on either statutory or First Amendment grounds. But, as I noted previously, the entire panel seemed comfortable with Section 706 providing some level of authority over broadband access. Also, no one seemed terribly interested in the First Amendment argument except Judge Silberman. So – given the usual caveats that one can never really know how things will come out after oral argument – it seems the FCC will come out of this with some authority after all.

 

OTOH, it is certainly fair to say that two of the three judges on the panel indicated the “Common Carrier Prohibition” (aka, the thing Tatel made up in the Data Roaming Case) applied to at least the “no discrimination” rule and possibly the “no blocking rule.” As the two together constitute the heart of network neutrality protections, getting those struck down would certainly constitute a big win for anti-net neutrality folks. It would also create a fine muddle of confusion around the scope of the FCC’s overall authority.

 

There are, however, a range of possible options and outcomes that could still happen, ranging from the unlikely extreme of total affirmance for the FCC (if Rogers persuades one of her colleagues) to total reversal on some other grounds (if Silberman persuades one of his colleagues on First Amendment or Administrative Procedure Act (APA) grounds). I explore these (and what they might mean for the long term) below . . . .

 

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Tales of the Sausage Factory

Is Fear of Wireless Foreclosure “Speculative?” Depends. Is this About Intent Or Effect?

Recently, the Antitrust Division of the Department of Justice  (DOJ) filed these comments with the Federal Communications Commission (FCC) in the proceeding on spectrum aggregation limits (aka spectrum screen v. spectrum cap). The DOJ comments have some good stuff about the economics of the wireless industry and competition (in a theoretical way), and about why it is important to make sure potential competitors have spectrum, particularly low-band spectrum. Mostly, DOJ’s argument rests on the idea of “foreclosure,” that a wireless firm will bid on licenses at auction just to keep them out of the hands of competitors.

Asked about this on a recent earnings call, VZ CFO Fran Shammo basically said that there is no evidence that Verizon is bidding on licenses just to keep them out of the hands of rivals, so DOJ’s argument is “theoretical” and the FCC should not adopt any limits.

VZ basically argues that we should not worry about possible foreclosure unless there is evidence of an actual intent to foreclose. This treats a spectrum screen (and concern about foreclosure) as a precaution against bad actors. As long as bidding on licenses at auction makes sense for reasons other than foreclosure, and there is no evidence of any intent to foreclose, then everything should be just fine even if the outcome has the same effect as a foreclosure strategy (e.g., competitors don’t have enough spectrum to offer viable competing services.)

But the Communications Act does not work this way. Specifically, Section 309(j)(3)(B). Whether Verizon (or any other carrier’s) intent is as pure as the driven snow, or black as any comic opera villain, does not matter one iota. What matters is whether we avoid a “concentration of licenses” and “disseminate licenses among a wide variety of applicants” so that we “promot[e] economic opportunity and competition and ensur[e] that new and innovative technologies are readily accessible to the American people.”

As I will discuss below, the evidence from the 700 MHz auction and subsequent transactions demonstrates that we are feeling the effects of foreclosure, regardless of whether there was an actual intent to foreclose. As a result, the DOJ concern is not “theoretical,” but very real.

 

More below . . .

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Tales of the Sausage Factory

AT&T to FCC: “I double dare you to show you’re serious about wireless competition.”

Rarely do you see companies double-dare the FCC to back up their brave talk about promoting competition. That is, however, what AT&T has just decided to do – with a little help from Verizon. After gobbling a ton of spectrum last year in a series of small transactions, AT&T announced earlier this week it would buy up ATNI, which holds the last shreds of the old Alltel Spectrum. To top this off, Verizon just announced it has selected the purchaser for the 700 MHz spectrum it promised to sell off to get permission to buy the SpectrumCo spectrum. And guess what? The purchaser of the bulk of Verizon’s 700 MHz licenses, which Verizon promised to divest to promote competition – is AT&T!

 

In the last few months, we have seen billions of dollars in new investment as a result of the FCC’s decision to deny AT&T/T-Mo, force Verizon to divest in VZ/SpectrumCo, and otherwise draw some lines in the sand against further consolidation and to promote competition. For reasons I explain below, this transaction crosses just about every single red line the FCC (and Department of Justice (DoJ)) have ever indicated they had about wireless spectrum concentration. The question is — will the FCC (or DoJ) actually do anything about it?

 

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Tales of the Sausage Factory

Lessons From The Derecho 9-1-1 Failure: When Industry Self-Regulation Is Not Enough.

The FCC released a fairly thorough report on the widespread 9-1-1 failure that followed the June 2012 “derecho” windstorm. For those who don’t remember, the derecho differs from most weather events by coming up almost without warning. According to the report, carriers had approximately two hours of warning from the time the derecho started in the Ohio Valley to when it hit the D.C. Metro region.

 

As a consequence of the damage done by the derecho, Northern Virginia experienced a massive failure of its 9-1-1 network, leaving over 1 million people with working phones (at least in some places) but no access to 9-1-1.  West Virginia experienced systemic problems as well, as a did a scattering of locations in other states impacted by the derecho. Verizon maintains the network in Northern Virginia, while West Virginia is managed by Frontier.

 

In both cases, the report concluded that both Verizon and Frontier failed to follow industry best practices or their own internal procedures. To be clear, this was not a massive dereliction of duty. But the accumulation of some corner cutting over here, some poor practice over there, meant that when the unpredicted crisis hit the system suffered critical failures precisely when most needed. Unlike just about every other part of the network, where providers balance the cost of hardening a network against potential events with a number of other factors, the core 9-1-1 system is explicitly supposed to remain operational in even the most extraordinary circumstances.  It is the foundation of public access to emergency services. As long as I can contact the phone network, I should be able to get 9-1-1 service. Public safety responders rely on the public reporting emergencies so that they can efficiently deploy resources as much as the public depends on its ability to contact emergency services through 9-1-1.

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Tales of the Sausage Factory

FCC Authority In VZ/SpectrumCo, or “Real Lawyers Read The Footnotes.”

Many years ago, I taught a semester of law school as an adjunct. I assigned the students to read the FCC’s 2005 Internet Policy Statement. I was dismayed to discover that, after doing the reading, none of them had even heard of the concept of “reasonable network management.” How was that possible? Reasonable network management is not mentioned in the main text, but in footnote 15 which says that the principles are “subject to reasonable network management.” Given the centrality of the “reasonable network management” concept to the net neutrality debate, I was rather irritated. “Understand this before you graduate,” I warned them. “Real lawyers read the footnotes!”

I thought of that after reading Geoffery Manne’s and Berin Szoka’s piece about VZ/SpectrumCo over on CNET.

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Tales of the Sausage Factory

Why Eliminating Handset Exclusivity Drops the Price of Cell Phones; or “How Is A BlackBerry Like A Pill?”

Back in February, I bought a Samsung Omnia and regretted it almost immediately thereafter. So when my touch screen finally died, I resolved to get a BlackBerry Curve 8330, as my wife has one and recommended it. Yes, she is on Sprint and I am on Verizon, but you can get the same model on both networks.

I was totally unprepared for the sticker shock. $450. Why? Because I was not eligible to buy new equipment. Did I want a replacement Omnia? No, I decided I really did hate my Omnia $450 worth. Out of curiosity, I asked how much it would cost if I were getting a new contract. Answer: $150, plus a $100 rebate.

Verizon claims here in policy land that this represents a subsidy, which they can only do if they have handset exclusivity. Mind you, this model is not actually exclusive, but let that go. Could it really be that Verizon subsidizes my phone $400? That seems an awful lot. So I decided I would look on Best Buy, assuming that it would represent the actual unsubsidized retail price. So I went to bestbuy.com and plugged in Blackberry Curve 8330. Sure enough, the price for the Verizon phone was $499, close enough to $450 to make Verizon’s subsidy claim feasible.

Then I noticed something odd. The same model phone, but for Alltel, cost $680, for Sprint, $750, and for MetroPCS, $400. Why should the same model phone, purchased at the same place, have such a wild swing in price? Remember, these are the prices without the subsidies for buying a new contract, so it can’t be the difference in what the companies chose to provide. The Best Buy price should reflect the unsubsidized retail price. The only difference, in theory, is the plan, (unless we are pretending to make the same model available to every provider and really aren’t). How could the wireless plan make such a difference?

Then it occurred to me where else I’ve seen this dynamic. Go to the drug store and you can see three people getting exactly the same prescription. But one pays $10, another pays $120, and the third pays $500. How is that possible?

Before elaborating below, I will first make it clear that I am rather short on critical data because most of the critical data is proprietary. So what I’ve got is a tentative hypothesis based on observed facts rather than something I can say with certainty. But it is enough for me to say: “Hey! FCC! Go and use your regulatory powers to get the providers to fork over the necessary data to see if I’m right.”

More below . . .

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Tales of the Sausage Factory

Proposed Wireless NN Rule “No Block, But Not No Lock?”

An interesting tidbit from Washington Post Reporter Celia Kang’s interview with Ruth Milkman, the FCC’s Wireless Bureau Chief. Of interest, Milkman states that the application of network neutrality to wireless would still allow cellular companies to lock cell phones to wireless providers.

How are the proposed rules different from conditions on the C block during the 700 MHZ auction? There, net neutrality rules were put in place that allow any device to attach to the network and prevent Verizon Wireless, who won the spectrum, from blocking Web content.

The difference between what we are thinking about in the general NPRM (notice of proposed rule-making) and the C Block is that we are not proposing a no-locking rule. So I guess it’s no block but not no-lock. If consumers can get an unlocked device and not harm the network, the consumer ought to be able to attach that device to a network. Does a service provider have to unlock the device it provides to the consumer? The draft doesn’t go that extra step.

This is an interesting twist on the application of the third principle of the 2005 Internet Policy Statement:

To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to connect their choice of legal devices that do not harm the network.

(emphasis in original). This is generally taken as the application of the “Carterfone” principle (and the Internet Policy Statement cites the Carterfone decision in case anyone misses this point). This is the decision that held that AT&T could not refuse to allow you to connect any device, like and answering machine or a phone you owned or a dial-up modem, to the phone network.

Milkman is right that the freedom to connect to a network is not necessarily the same thing as the freedom to move a device that comes locked from one network to another. In the old days, it wasn’t necessary to say it that way because there weren’t other networks to attach your device. The question was whether somebody other than Ma Bell could make something and attach it to the phone network. By the time we got to multiple wireline networks serving the same neighborhood, the consumer electronics market was so well developed that the idea of trying to lock particular laptops or wireless routers to specific network providers did not make much sense. Indeed, even in the never ending fight over set-top boxes and cablecard, the fight is over the ability to attach to an MVPD network, not the ability to unlock a device and move it from one MVPD network to another.

Most of us have always assumed that network neutrality applied to wireless would include both “no blocking” of content and applications and “no locking” devices to networks. But I suppose it doesn’t have to be that way. And, of course, this does not stop the FCC from dealing with handset exclusivity separately.

Still, it comes as a bit of a surprise. Nice to have the heads up, and tip ‘o the hat to Celia for doing this series of interviews with important folks at the FCC.

Stay tuned . . . .

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My Thoughts Exactly

Hey Verizon: You hijack my url, I hijack your customer support

If you get Internet from Verizon (as I do) you’ve probably mistyped an URL from time to time and been redirected by Verizon to their “did you mean” spamo site. If you’re like me, this has probably pissed you off.

Well, Dennis Jerz is like me, and over on his Jerz’s Literacy Weblog he’s written an amusing account of how he got rid of the Verizon intruder, and cost Verizon a few dollars for so doing, just to make things fair.

The blog is generally interesting on other topics as well. Check it out.

Posted in I Fear These Things, My Thoughts Exactly | Also tagged | 1 Comment (Comments closed)

Tales of the Sausage Factory

Fairpoint Flare Up, Next Net Neutrality Flare Up Or Another Misunderstanding?

I am seeing in a few places such as App Rising and Slashdot that Fairpoint is planing to force subscribers to use its webmail portal even if they get Yahoo, MSN, or AOL email. This would, of course, be a major violation of the FCC’s “Four Freedoms” by preventing users from accessing the legal content or services they want to access. Which makes me somewhat skeptical that this is actually what Fairpoint intends.

For those just tuning in, Fairpoint acquired most of Verizon’s high-cost rural systems in Maine, NH and VT. Leaving aside the underlying logic and value of the deal to the various parties and local subscribers, the critical point is that Fairpoint will complete its take over of these systems and cease operating them as part of the VZ network on January 31, 2009.

What started the current rumor about Fairpoint’s plans is this article in the Rutlan, VT Herald detailing changes for local subscribers. In particular, the article notes that as a result of the change, users will get Fairpoint.net addresses rather than Verizon.net addresses, and will need to reconfigure their mail clients to pull mail from Fairpoint rather than VZ. Then comes this quote:

Web-based e-mail users can continue to access their e-mail at the Verizon Web site until Feb. 6. After that date, Fastiggi said users will need to log on to www.MyFairPoint.net. Customers then click on Web mail and type in their existing user name@myfairpoint.net and existing password.

AOL, Yahoo! and MSN subscribers will continue to have access to content but will no longer be able to access their e-mail through the third party Web site. Instead, Yahoo! and other third party e-mail will be accessed directly at the MyFairPoint.net portal.

Most folks are reading this as saying that Fairpoint plans to require all users of these services to use the Fairpoint mail portal. But I notice that these are all companies that have various sorts of co-branding agreements with Verizon. This suggests a different interpretation.

Right now, as I understand it, if you are a Verizon-Yahoo customer (or other third party customer) than you have certain access privileges that integrate email to either Verizon or the third-party email service seemlessly. Our VZ-Yahoo customer logs into mail at either VZ or Yahoo’s portal and sees all mail addressed either to xxxx@verizon.net or xxxx@yahoo.com. I should stress that as I am not a VZ subscriber, I am not entirely clear on the details. But it boils down to the fact that VZ has negotiated certain application deals to make itself more attractive and that these deals are seemless to the subscriber. Fairpoint, obviously, does not have these thrid party deals.

What I think the article is trying to say is that whetver special value-add services you got from being a VZ-AOL or VZ-MSN or VZ-Yahoo subscriber, these disappear when Fairpoint takes over on January 31. Rather than have an integrated mail platform for both email addresses, you will need to go to AOL.com and go to their mail portal, which will provide only the mail addressed to xxx@aol.com, and go to the Fairpoint web portal separately to get your email addressed to xxxx@fairpoint.net. But Fairpoint is not planing on interfering with you going to AOL.com and using their website to read your email.

This explanation would make much more sense than the idea that Fairpoint will force you to read any third party email through the Fairpoint web portal. For one thing, it really doesn’t make sense to force all email users to give up their web-based third party emails to use Fairpoint. Nor does it make sense that they would give you access to the entire third party website except their email portal. They could, but why do it? Finally, given what happened to Comcast when they interfered with applications in a much more subtle way that was arguably linked to network management, I can’t imagine what would prompt Fairpoint to court an FCC complaint — especially when state regulators had previously voiced concern about Fairpoint’s ability to provide broadband service for local subcribers.

In any event, I await clarification before going ballistic or engaging in another round of breathless “network neutrality violation” stories. If I’m right and this is just a notice that Fairpoint cannot honor deals made between Verizon and third-party service providers, all well and good. If it is Fairpoint for some reason trying to force customers to abandon third-party email providers and use only Fairpoint, then we have another NN complaint and, most likely, a user revolt and angry letters from various members of Congress and state officials.

Stay tuned . . . .

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Tales of the Sausage Factory

Why Did AT&T Get Left Off The Cable Investigation List — A Very Boring Answer.

While killing time waiting for the Nov 4 meeting to start FCC Chair Kevin Martin discussed the recently opened investigation into cable pricing. To the surprise of those who conceive of Martin as simply having a “vendetta” against cable, the list of companies getting notices about the investigation included Verizon. OTOH, it did not include AT&T. Needless to say, the “Martin can do no good because he is EEEEVVVVVIIIIIIIIIIILLLLLL!!!!!!!!!!!” crowd hit on this as proof that Martin is merely doing the bidding of his telco masters (Verizon having been added to the investigation merely for protective coloring).

Well, I’ve given my views on Kevin Martin repeatedly. As I have said time and again, I may disagree with him a lot, but I don’t think he is an industry shill. He does what he thinks is right and the devil with the consequences. While this has its disadvantages, notably his managing to piss off the other four Commissioners and thus secure for himself a series of policy set backs and rack up a record of number of votes actually lost by the Chairman, it does mean I tend to look for an explanation that goes beyond “Martin is a bastard 24/7 and therefore this is part of an evil plot.”

Here, I think the non-AT&T conspiracy theory answer is fairly straightforward. It has to do with the particular practice the FCC is investigating — forcing customers to migrate to digital. As AT&T does not seem to be behaving in the same way as the named cable operators that got letters from the Enforcement Bureau, they are not being investigated.

OTOH, even if the FCC does find evidence of deceptive advertising practices or anticompetitive conduct, it may lack authority to act.

Thoughts below . . . .

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