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LIVE FROM THE MOBILE WORLD CONGRESS: “The Internet Can’t Exist Without a Referee”

March 3rd, 2015 |  Published in Mobile World Congress 2015  |  1 Comment

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Wheeler at MWC

By:  Gregory P. Bufithis, Esq.   Founder/CEO 

3 March 2015 – Tom Wheeler, Chairman of the Federal Communications Commission (FCC), gave the keynote speech tonight although it was more of a debate with Anne Bouverot, director general of the GSMA. Coming just one week after voting in favor of regulating broadband services as a public utility, his speech was highly anticipated. The one phrase from his speech reverberating across the Congress and across social media: the internet “cannot exist without a referee.”

NOTE: in 2002 the FCC reclassified high-speed Internet access as an information service, which is unregulated, rather than as telecommunications, which is regulated. Its hope was that Internet providers would compete with one another to provide the best networks. That didn’t happen. The result has been that they have mostly stayed out of one another’s markets.

He has only been in office for a year and stated “Obama and I are long-time supporters of net neutrality, it has been an ongoing process that culminated last Thursday.”

His statements today could be seen as an attempt to convince global regulators and telecom operators that the open-door internet rules will not disrupt how the Web works. And the focus on regulation has been a large theme here this year. The place is crawling with telecom and anti-competition lawyers. And there are special sessions just for regulators.

I have a link to the full speech below but just a few points he made:

* “We do not regulate the internet. That’s not what we do. We remain steadfast.”

*  “[We have focused in four key things]: How do you unleash the power of broadband? How do we make sure there is adequate spectrum? What’s the competition like? And national security and public safety.” 

When I discuss net neutrality with clients and colleagues I tell them to look at the airline industry. It has something to teach us. Not a complete and perfect analogy to net neutrality but you’ll see my points.

Paying extra for a service is a quintessentially American idea. That’s just a basic market principle: making a service more valuable comes at a cost. That cost should not only be borne by the consumer, but the creator of the service should be expected to reap a profit for offering that extra value.

In that respect, the airline analogy works. If you want more legroom, better food and high-quality cocktails, you can have them — for a price. It’s up to you whether you want to pay that price, and some people do.

But let’s be clear: paying Internet service providers for the right to serve consumers faster and more smoothly — a concept known as “paid prioritization” — is not like being a customer on an airline. For starters, while you can pay for better treatment on an airplane, everyone on the plane gets to their destination at the same time, whether they’re flying in coach or business class. Paid prioritization is different in that it would actually speed up some types of Internet traffic. So for the airline analogy to hold, the first-class section would have to detach from the rest of the plane in mid-flight and go supersonic. Not part of a plane’s technology.

Some economists have also pointed out that broadband is a “two-sided market” – that ISPs do business with both content companies and consumers. In that sense, content companies are like consumers. But because they’re businesses, they’re not really consumers in the way you or I might think of ourselves, which simply serves to muddle the air travel analogy.

So look at it this way. Air traffic controllers determine who gets to take off and who gets to land, and when. They also help guide aircraft on predetermined routes in between airports. Suppose air traffic controllers were allowed to strike commercial deals with airlines for priority treatment. For instance, you could imagine a scenario where American Airlines and United paid air traffic controllers so that they would always be first in line, and have more of their planes moved. That would be tough for smaller airlines, like AirTran or Southwest, who perhaps couldn’t afford to pay the controllers to leave the airport as quickly as United can.

That situation might also discourage new airlines from starting up. If even AirTran and Southwest were being squeezed, what hope would a new entrant have at surviving?

In this analogy, air traffic controllers are like the ISP – they control who comes and goes, and at what rate. Content companies are like the airlines. They can choose to pay a fee for better service. But crucially, you as the consumer have little control over these business relationships and what they do to shape your air travel choices. That captures the dilemma.

I have read all kinds of reports on the differences in download times across the globe for high-definition movies. The New America Foundation’s Open Technology Institute says: seven seconds in Seoul, Hong Kong, Tokyo, Zurich, Bucharest and Paris, and people paying as little as $30 a month for that connection. In Los Angeles, New York and Washington, downloading the same movie takes 1.4 minutes for people with the fastest Internet available, and they pay $300 a month for the privilege.

But read some more comprehensive reports from UPenn and Akamai and they show that many Americans’ broadband service is slightly better than Europe, and fares well overall.

Moreover, it isn’t simply about speed. Romania has blazing speed but low availability and subscribers, and a virtually unregulated, free for all market with extremely high levels of competition resulting in low price. The South Korean government places restrictions upon content and usage that Americans would not stand for, including restricting juvenile game players to a 6pm – midnight regimen, and requiring users to log in with a national “internet ID” verification. Try that in a Tea Party state. And Zurich, Switzerland’s high-speed is high dollar.

Most telling: the cities with the fastest Internet in the United States, according to New America and the FCC: it ain’t the incumbent companies. In Kansas City, it comes from Google. In Chattanooga, Lafayette and Bristol, it comes through publicly owned networks. But it brings up the numbers again: in each case, the networks are fiber-optic, which transfer data exponentially faster than cable networks. The problem is that installing fiber networks requires a huge investment of money and work, digging up streets and sidewalks, building a new network and competing with the incumbents. That explains why super-rich Google has been one of the few private companies to do it.

But one big issue on the reason the United States lags many countries in both speed and affordability, according to people who study the issue, has nothing to do with technology. Instead, it is an economic policy problem – the lack of competition in the broadband industry. Tim Wu … who coined the phrase “network neutrality” and who is a professor at Columbia Law School who studies antitrust and communications and was an adviser to the Federal Trade Commission … says it is all very simple economics. The average market has one or two serious Internet providers, and they set their prices at monopoly or duopoly pricing.

So for relatively high-speed Internet at 25 megabits per second, 75 percent of homes have one option at most, according to the FCC – usually Comcast, Time Warner, AT&T or Verizon. It’s an issue anyone who has shopped for Internet knows well, and it is even worse for people who live in rural areas. It matters not just for entertainment; an Internet connection is necessary for people to find and perform jobs, and to do new things in areas like medicine and education.

And for the U.S. there’s the rub: three-quarters of American homes have no competitive choice for the essential infrastructure for 21st-century economics.

So the net neutrality debate was framed: left alone, will companies compete, or is regulation necessary?

In many parts of Europe, the government tries to foster competition by requiring that the companies that own the pipes carrying broadband to people’s homes lease space in their pipes to rival companies. And that policy is based on the work of Jean Tirole, who won the Nobel Prize in economics last year for his work on regulation and communications networks. His work is fascinating and for those of you involved in the telecom industry, regulation and anti-trust issues he deserves a detailed read. Here is a short blurb on what his work is all about click here.

Before I provide the link to the full Wheeler/ Bouverot chat, a few points about the Netherlands as a case study of what could await American consumers and companies. The Netherlands was the second country in the world to adopt so-called open Internet rules, after Chile. I have worked on several Dutch telecom issues.

Again, not a perfect comparison. The Netherlands, with a population of about 17 million, is geographically about the size of Maryland. That makes it far easier and cheaper for operators to provide high-speed Internet access compared with carriers trying to serve all of the 50 states. The Dutch rules also allow for some premium deals between operators and services like Netflix, the online video-streaming company. Such agreements are supposed to be tightly restricted under the new regulations by the FCC.

Still, the Dutch experience – at least in the short term – could be instructive. As with the American plan, Dutch carriers cannot discriminate among types of content, say by putting the brakes on data-hungry services like movie streaming. Nor can they charge extra for faster speeds and more reliable connections to the Internet’s pipelines, which could give deep-pocketed technology companies an advantage over fledgling start-ups.

And Dutch net neutrality opponents had made all the same arguments in the Netherlands as they have been in the United States. Local telecommunications providers, including the country’s former monopoly KPN, had wanted to charge Internet and media companies like Google and WhatsApp, the messaging service, for premium access to their networks. Companies warned that the price of consumers’ monthly contracts would rise if they could not levy additional fees. Otherwise, telecommunications companies said they would not be able to invest in technology and infrastructure – and the networks could grind to a standstill.

It was the standard mantra: if you over regulate through net neutrality, there’s a risk you reduce the levels of investment because the rules become too onerous.

Proponents countered that such deals would potentially limit what content could be used online, giving carriers and broadband companies too much control over how people surfed the web. As more people worldwide rely on high-speed Internet access, the net neutrality debate has become a rallying call for advocates who consider unobstructed online access akin to a human right. There was a lot of pressure to pass these rules. People didn’t want to be told which online services they could and couldn’t use.

And now, two years later? The Internet business in the Netherlands is still humming along. Consumers have not cried foul en masse over the costs. Dutch consumer groups say cellphone and cable packages in the last two years have remained relatively stable, with contracts priced at as little as $25 a month for the ability to stream online content. The average cellphone contract in the Netherlands is about one-third the price of an equivalent plan in the United States.

In part, that comes down to competition. While rivalry among broadband providers remains relatively limited in much of the United States, there is fierce competition in the Netherlands between wireless and broadband providers to attract customers. To give consumers greater choice, regulators have limited efforts to consolidate the number of cellphone carriers, while KPN and Ziggo, a cable provider, fight doggedly to sign up customers for superfast home broadband.

Analysts say this competition, more than net neutrality, has forced companies to compete solely on price and speed – and not on which services come bundled with monthly cellphone or broadband packages.

Lesson learned? You don’t need net neutrality if you have healthy competition. The U.S. has less competition than in Europe. The U.S. needs net neutrality a lot more than the Dutch do.

Now, to watch the entire Wheeler presentation click here.


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