Friday, April 25, 2014

Common Sense at the F.C.C.

Federal Communications Chairman Thomas Wheeler (Brian Fung/The Washington Post)

After a few months of comments by the Chairman of the F.C.C., Thomas Wheeler, that the Commission would consider allowing companies to pay for special arrangements for access to their customers.  They will propose a new set of rules in their May meeting that will allow content providers to pay broadband carriers for better access to customers.  In this statement they included another proposed rule that would prevent any carrier from inhibiting, limiting, or denying access that would limit the openness of the Internet.  The Commission was not specific on how the details of this so-called fast lane could be implemented, but most likely it will be increased bandwidth at peering points, improved content caching, and traffic prioritization (i.e. Quality of Service).  The F.C.C. was specific in stating that broadband providers “may not act in a commercially unreasonable manner to harm the Internet, including favoring the traffic from an affiliated entity.”

The F.C.C.’s action is based on a January decision by the U.S. Court of Appeals for the District of Columba Circuit that struck down the FCC’s 2010 net neutrality rules.  This still left the commission with the authority under the Telecommunications Act of 1996 to regulate broadband services.  The F.C.C. would still have to look at each agreement on a case-by-case basis as required by the D.C. court.  Also they will act on any broadband company that engages in harmful conduct that threaten the openness of the Internet.

The F.C.C. has properly covered its’ bases here by preserving the value of the Internet that allows any device to freely connect to any other device, but they also wisely recognize that all bits are NOT created equal.  Since the arrival of Thomas Wheeler at the commission, the analysis and reports from the staff engineers have triumphed over the politics of the bureaucrats and outsiders.  They realize that best-effort Internet access is not sufficient to promote true content competition.

Since divestiture we have strived for a competitive telecommunications market in this country, but we have been unable to achieve it because the business case is untenable for each service provider to build high bandwidth fiber networks to homes and small businesses.  It is affordable to run fiber to business customers that spend thousands of dollars a month on services which is why we have approximately 40% of all businesses now served by fiber.  For the residential subscriber that spends less that $50 per month the cost is prohibitive. This fact is why we now have triple-play services offered by a duopoly with an ARPU over $100 per month offered by the incumbent broadband carriers.  Service providers need at least a 40% market share to provide a reasonable ROI to build a network which is why you don’t see small start-ups building alternative networks.  Investors are smart enough to realize that it takes too much capital to build these networks and it is a losing proposition to take on the incumbents.

Fledgeling startups like Vonage or Netflix could never afford to build their own network, but they can leverage the Internet to provide competing services to the incumbent carriers.  The incumbent carriers control the quality of their services by utilizing bandwidth outside of their Internet service to deliver their voice and video services.  Over-the-top (OTT) service providers do not have any ability to control the quality of their services since currently the Internet is a best-effort where all bits are created equal.  Before delay and jitter critical services like voice and video traversed the Internet, best-effort was good enough because no one really tell if their web page or e-mail was arriving a few milliseconds later than it did last time. Slow performance was usually related to the last-mile access bandwidth.  Throw a few more Mbit/s at a customer and the problem was gone. 

Now that video dominates the Internet, the backbone frequently becomes saturated at peering points and access;  thereby, affecting all traffic.  Customers of OTT companies are complaining that the quality of the service is poor, and they eventually go back to the incumbent service provider.  The OTT loses while the incumbent wins.  The customer loses too because there is less competition in the market.

The conclusion is that best-effort packet delivery is not good enough for services like voice and video.  Businesses have known that for over a decade which is why they purchased managed Ethernet services where they can prioritize their voice traffic over video over web surfing and e-mail.  There are two standards by which traffic can be prioritized end-to-end and several implementation agreements that the industry uses for interoperability.  These same mechanisms can be applied to the Internet to level the playing field for OTT service providers.

The F.C.C. is smart to recognize that true service provider competition will take a few more decades to come to the residential market.  Of course open-access municipal broadband could deliver true competition as I have written about many times, but allowing content providers to negotiate special peering arrangements and traffic prioritization will offer consumers a real choice in services other than that forced upon them by the duopolies.  OTT service providers like Netflix, Hulu+, Amazon, Google, Vonage, etc. will soon be able to deliver the same quality of service as the incumbent carriers at competitive prices.

Unfortunately this common sense technical solution to enable capitalism has been extremely politicized.  Many of the articles written over the past few months are vehemently against this proposed change in policy, but their fears are fueled by their ignorance and vested interests.  Surprisingly The New York Times and PC World each wrote very good and non-biased articles on today’s announcement that accurately presented the F.C.C.’s proposed new rules.  The usual tripe was spewed by outlets such as The Verge, NPR, The L.A. Times, and CBS’ own CNET decrying the end of the Internet and quoting any number of Soros funded front groups.

Their arguments are based on the egalitarian philosophy that all bits should be treated equal.  They trot out anti-capitalist rhetoric and class-warfare arguments.  What they do not realize that while they think they are sticking up for the little-guy (the consumer and OTT providers) they are actually supporting the big guy (the incumbent).  Maybe I am not giving them enough credit and their support is intentional. 

A prime example of the the misinformation that is propagated was on today’s The 404 Show hosted by CNET.  Bridget Carey (@BridgetCarey) incorrectly states that the little guy cannot afford to pay the toll to Comcast that the large companies could easily pay.  Well Netflix was and still is a little guy compared to companies like Comcast, but they charge an order of magnitude less than the big guy so adding a couple of bucks a month for superior quality of service insignificantly impacts their value.  She leaps to the conclusion with the support of her cohort Jeff Bakalar (@JeffBakalar) that there will be an Internet ghetto for those companies and people that cannot afford to pay. What they are missing is that only companies with time-sensitive content will want to pay for prioritization, and that companies just serving up web pages like Amazon, Facebook, LinkedIn, etc. can still survive on a best-effort service.  Jeff believes that the Internet should be free and that all service and content providers are inherently evil.  Their arguments were thinly veiled slams at Comcast which is no surprise since they are paid by Viacom/CBS.  This is the problem when you have journalism majors applying their political philosophies to the technical domain.  They certainly should not be issued a journalism license.

The problem is that arguments like these will be presented as opposition to the common sense rules proposed by the F.C.C.  They will be guided by emotions and fear and not facts which seems to dominate today’s political domain.  Thomas Wheeler is the first Commissioner in more than a decade that actually understands the industry that he is attempting to regulate.  Let’s hope that the rest of the Commission understands reason so we can have a truly competitive content market.

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