Is FCC violating process again with Net Neutrality action? Or just being Shortsighted and Stupid?

The first two FCC attempts to impose some "network neutrality" rules were vacated by the Federal Courts because the rulemaking was based, in large part, on imputed authority that the FCC did not statutorily have (see earlier post here), further supported by evidence that the FCC had violated its own procedures for rulemaking.  At the time of the second Court decision, many policy folks (myself included), commented that if the FCC wanted to move forward with Net governance and regulation, the best approach was to base a claim for regulatory authority under Title II of the Communication Act - which does cover telecommunication networks.
With the FCC deciding that it will issue a rulemaking addressing Network Neutrality this Thursday, without publicly releasing the actual rules being considered, the FCC would again be clearly violating the spirit, if not the letter of its own (statutory) rules on due process.
The FCC, when considering new rules and regulations, is supposed to undertake a multistage process that starts with a public Notice of Inquiry, a period to allow public (and industry comment), then a Notice of Proposed Rulemaking that outlines the proposals, followed by more opportunity for public comment.  Normally, if the FCC wants to consider substantive changes to proposed rules and regulations, it posts a Further Notice outlining the changes, and offers an additional period for public comment.
Tom Wheeler, the current head of the FCC, argues that the FCC has already gone through several NOIs, NPMs, and public comment periods.  However, the proposed regulatory framework for those appears to be totally different from what is to be acted on this week.  While the FCC doesn't have to refile Further Notices for every little change in the rules, because the proposals that had been discussed are substantially different from those to be voted on, this case clearly violates the both the spirit of the rulemaking process in that it hasn't allowed any time for public review and comment on what seems to be a wholly different set of rules and arguments than what had been previously proposed and discussed.  In addition to tossing claims of being "transparent" onto the growing dustheap of broken promises of transparency by this administration.  (In fact, as a Senator in 2007, Obama called the FCC's attempt to pass rules without full public disclosure and opportunity for public comment "irresponsible.")  Furthermore, the FCC is supposed to be an independent regulatory authority, not one that would toss aside several years of proposed rulemaking and public discussion to (allegedly) adopt - in full and without review, discussion, or amendment - a plan written by political operatives in the White House.

Regardless of the ethics of the current Chairman's behavior, and the potential authority Title II provides for regulating telecommunication networks, bringing the Internet under Title II is not necessarily reasonable or appropriate - in large part because of the statutory language in the 1934 Communication Act and the 1996 Telecommunication Act.
The 1934 Communication Act gave the FCC regulatory authority in two areas: Title I dealt with radio transmissions (including broadcasting), and Title II dealt with, basically, telephone networks.  More specifically, it was designed to deal with the existing local monopoly wired, switched, telephone system.  (The FCC was granted oversight of cable systems - redefined as multichannel video delivery services - by the 1984 Cable Act).
With the rise of the first use of wired telecommunications for computer communications in the late 1950s and 1960s, the FCC examined the question of whether computer networks should be regulated under Title II.  They reached a conclusion that it would not fall under Title II for several reasons: the computer network (later expanded to information) services typically did not own and run the actual wired networks they employed, but rather leased lines from telephone companies (the separation of service from network is explicit in FCC definitions of those terms.

There is a hard and fast statutory line separating the information services that utilize telecomm networks, and the telecomm-based distribution networks that deliver those services.  The current language would seem to explicitly exclude Information Services from falling under Title II. Also, on the technological side, the developing computer networks and information services used quite different technologies than telephony, and so the part of Title II that deals with technical standards would be largely irrelevant (if not applied) and inappropriate (if applied).  But most importantly, the FCC felt that trying to set standards and apply Title II regulation to computer networks and information services would restrict developments and innovations by imposing a governance structure that favored certain uses over others.

The main philosophy of Title II's network regulatory approach is that networks should act as common carriers (a regulatory philosophy borrowed from railroads and freight services). The essence of common carrier status is that the network should not discriminate among its users - that they shouldn't give favored treatment to one user over another. 

 One of the widespread fallacies in Network Neutrality discussions is that common carriers can't treat users differentially (thus everyone should have the same rate for internet connectivity). Actually, there's a long history of permissible differential treatment, as well as a long history pointing out the social benefits that can be acheived through appropriate cross-subsidies. Telecomms can treat users in different localities differently, and more critically, can differentiate on the basis of level of service. All they need to do is show that the costs of providing a particular type of network connection are different (a content-neutral rationale). The FCC has even allowed differential treatment for certain general classes of services (911, toll-free numbers, added-charge numbers). Furthermore, the 1996 Telecommunications Act removed many aspects of telecomm regulation from FCC oversight.

 In addressing the Title II approach, policymakers and pundits need to recognize that i) Title II is largely limited to telecommunication network operators, and the existing statutory language is not readily, or easily, extendable to Information Services and most ISP operations; ii) many of the aspects of the 1934 Act that regulators want to rely on for the new Internet rules have been superseded by the 1996 Act; and some issues are addressed by other laws and statutes (for example, copyright and privacy laws that expressly address ISPs, Information Services, and digital network operators). Many of the areas and concerns that Network Neutrality proponents are primarily concerned with may not be covered by a simple extension of Title II regulatory authority to the Internet.

While Title II can be a better foundation for asserting regulatory authority, just claiming that "We've changed our minds, information services and ISPs fall under Title II" is not likely to pass judicial review - because what they do doesn't fit the existing statutory language. Doing a sweeping assertion of authority is what got the FCC in trouble in previous attempts, and going the Title II route without serious review - if the action isn't quickly overturned - is going to create a virtual minefield of implementation problems and legal challenges - with the FCC and the Courts having to then decide which of the 100+ pages of telephone regulations should apply to the Internet, its backbone network providers (who already effectively act as common carriers anyway), ISPs (many of which are a mix of network operators and information services), and the Information Services that provide the content and services to users.  Should Universal Service apply to ISPs? Should ISPs be subject to the specific taxes applied to telephony (including one designed to help retire the Spanish-American War debt - which was paid off about 100 years ago - but still shows up on your telephone bill). Should the FCC's authority over pricing in the Internet apply only to interstate and international connections (the only price authority the FCC has over telephone rates under Title II in the 1934 Act, and which was sunseted out in the 1996  Act - leaving the FCC without statutory authority to regulate telecomm (ISP) rates and services)?

In other words - going the Title II route really needs extensive discussion of the proposed rules and policies to work out the problems and kinks that would be associated with that approach.  But the current FCC Chair and Democratic Commissioners seems determined to take the easy and quick approach of simple proclamation and promulgation of a massive set of new regulations, rather than doing the smart thing of working out the details and gaining some consensus from the various stakeholders that would be impacted by the new rules.  Or even considering if there is really any need for a massive overhaul and imposition of governmental (possibly politicized) oversight and control of a significant, and efficient major sector of the economy, and an increasingly vital source of information by both private and public sectors.

As I said with the last two FCC attempts at grabbing Internet oversight - this is too important, and too critical, to take short cuts.  If the FCC is going to do this, they need to do it the right way - with true transparency and plenty of opportunity for the public to point out the problems and pitfalls that always comes with trying to set uniform rules for very complex systems.  And first asking the most important question - do we really need to impose any kind of regulatory structure on the an efficient, innovative, and highly flexible Internet and Information Services sectors?

FCC's Net Neutrality Rules Vacated - Are They Needed?

A Federal appeals court has vacated the FCC's most recent attempt to impose "Net Neutrality" rules, ruling that the FCC overstepped its formal authority in creating the rules in the first case.  While some public interest groups expressed shock and outrage, the ruling was hardly unexpected.  After all, the Federal courts had made essentially the same ruling on the FCC's first set of "Net Neutrality" rules, which the FCC promptly ignored in pushing forth the second set, using essentially the same argument despite some language changes.

So what does this mean?  Well, the special interest group "FreePress" says this could be the end of the Internet as we know it.  But what the end of the current "Net Neutrality" rules (which were largely stayed and unenforced during court proceedings) means is that we're back to the Internet as we know it - the goal of the rules was to change how the Internet worked, after all.  But "FreePress" is right in its call for the FCC to do it right the next time - to actually work within its existing authority, or to seek additional authority from Congress if needed, rather than creating a regulatory framework by administrative fiat (sadly a widespread habit within this administration).

As I've posted before (here and here), I've been skeptical of the need for the currently expressed vision of "Network Neutrality" as preventing ISPs, operators, etc. from discriminating against content (thus sticking it to the "evil" and "greedy" cable and telecomm operators).  Under the historic common carrier regulatory framework for telecommunications, operators could not refuse to offer services or discriminate among users on a content basis.  But the FCC had identified ISPs as information services, which were not subject to common carrier regulation.  While common carrier status was, strictly speaking, a basis of telephone FCC regulation and not computer communications (or information services), I think the common carrier argument is easily extensible since the two networks are essentially converged today.  Redefining ISPs as telecomm common carriers may well take some time and a fair bit of legal wrangling - but would provide the regulatory authority that the FCC needs to prevent unfair discrimination in service.

That may not be enough for some Net Neutrality proponents, who would like to also prevent operators from offering additional services (guaranteed speeds, etc.) at different prices.  That's more problematic in my mind, limiting exploration and diffusion of new services and content - not to mention making it impossible to cross-subsidize services and enable additional infrastructure investment, things that have helped users.

And you also have to worry about the end game of absolute equality - which inevitably can be achieved only at the lowest common denominator.  Do we want a rule that insists that all ISPs and telco operators can only offer one level of service at low prices - at whatever speeds are universally available in the national grid?

So FCC, if you're going to push for Internet regulatory authority and actually try to regulate normal operations, please try to do so correctly.  With proper authority, and with due consideration of that the actual impact of your regulations will be (rather than the political goals you hope to achieve).

Sources -  Verdict: Net Neutrality is Dead... for now,  FreePress.net
Federal appeals court strikes down net neutrality rules, Washington Post

CBS-TimeWarner battle continues - people notice

CBS and Time Warner Cable (TWC) have yet to reach an agreement on retransmission consent, and people are noticing.
  To recap, CBS and TimeWarner (as a cable operator) are required to regularly reach an agreement on the terms under which CBS's owned-and-operated (O&O) local broadcast stations are carried on cable systems in their broadcast areas.  During the last round of retransmission consent negotiations, reports indicate, CBS insisted on more money for carriage than Time Warner was willing to pay.  Under the 1996 Telecommunications Act, if agreement isn't reached within a certain time frame, the cable system is required to stop carrying the local station's signal.  As part of CBS's negotiating strategy, allegedly, was to also force Time Warner to pay higher carriage fees for CBS cable-only channels, Time-Warner dropped all of those channels as well.  CBS responded by cutting access to cbs.com (and the programs it provides access to) to all Time-Warner internet service customers.

The programming blackout extends to some 3.5 million homes in some of the largest TV markets in the US, and will inevitably have an impact on ratings as well as the value of the CBS and TWC brands.  CBS trumpeted that it remained in first place in Nielsen ratings for the first full week of the blackout, despite a small decline in total viewers.  But CBS shouldn't crow too much, it's top prime time show only grabbed a 1.4 rating and saw a 30% drop in viewing. (I'll note that August is traditionally a low viewing month, and that the ratings don't include the estimated 5 million people who get their programs online).

The impact on local station ratings - particularly for their local news programs - has been much more significant.  At LA's KCBS, viewership for their main local news programs fell 25-33% from the previous week; NY's WCBS saw 17% declines, and Dallas-Ft Worth O&O KTVT saw their news numbers fall 13-19% (depending on which news broadcast).  The declines are enough to trigger make-goods and is impacting last-minute ad sales.  Their is significant concern at the local level about continuing impacts, particularly if the blackout continues into the fall sweeps period (which traditionally determine local advertising rates).

That both parties are concerned about the impact of the blackout can be seen in some recent deals between CBS and TWC to temporary lifting of the blackouts - to carry the NY mayoral and comptroller campaign debates in New York, and offering the Tennis Channel during the U.S. Open Tennis championships.

This week, current FCC interim chairman Mignon Clyburn weighed in, expressing frustration that CBS and TWC haven't reached a settlement.  The FCC, though, has limited authority to intervene in negotiations or to order interim carriage of the signals in violation of current law.  Former FCC commissioner Michael Copps weighed in, arguing that CBS's actions may violate the FCC's Network Neutrality provisions.

“CBS is perpetrating an audacious violation of the FCC Open Internet ('net neutrality') rules... These rules guarantee consumer access to lawful content. They are designed to prevent just this sort of corporate censorship.”

Time Warner didn't go quite so far as to allege CBS wrongdoing, but in a filing with the FCC (which is looking into retransmission consent rules), they argued that CBS attempted to use the retransmission consent rules to "leverage the must--have nature of its broadcast network programming to force a multichannel video programming distributor (“MVPD”) to accept massive and unwarranted fee increases and oppressive carriage terms."

As I posted earlier, this ought to be fun to watch, unless you're a Time Warner customer and like CBS programming.

Sources - CBS tops ratings, but don't declare victory over Time Warner yet, Los Angeles Times

CBS stations' ratings drop as Time Warner Cable blackout continues, Los Angeles Times

Former FCC Commisioner Bashes CBS For Web Blackout, Daily Online Examiner

FCC filing on behalf of Time Warner Cable, FCC website

edited - fixed some language and grammar issues.

Data Rate Shenanigans?

It's being reported that the U.S. Department of Justice (DOJ) is investigating allegations that some multichannel video programming distributors  (MVPDs - cable MSOs and DBS systems - who are also broadband data suppliers are discriminating against online video providers.
  The allegations are that the MVPDs are using data caps, data plan pricing, and artificially slowing data streaming rates that put online video providers - particularly movie and TV program HD streaming services like Netflix and Hulu+ at a competitive disadvantage.  Since these services can be considered substitutes for TV networks and pay channels that are the MVPDs primary business, any such actions may be considered to be anticompetitive and violations of antitrust law.  Justice is also said to be looking at the ownership relationship of some networks with some MVPDs and concerns that they might also lead to anticompetitive behaviors with respect to both data services, and other networks.

These actions follow on FCC concerns that MVPDs and other broadband data service operators are violating new Network Neutrality rules limiting practices that arguably discriminate among data sources and services.  Comcast, in particular, has put a cap on customers ability to download content through their broadband service, and has allegedly engaged in slowing data speeds to high-demand customers.  Two other recent Comcast moves have also caused some concerns - their decision that Video On Demand streaming through their newly-launched Streampix service would not count against the cap, while video streamed from competitors would, and Comcast's decision to deny customers the opportunity to get Netflix bundled with other OTT services.  Other major MSOs, like Charter, have been more open to integrating OTT video streamers Netflix, Hulu, and Amazon in their TV Everywhere service portals.

Comcast's attitude, while understandable from a short-term business perspective (sheltering it's start-up from competition and limiting broadband use to delay network upgrades) - but it does appear to be clearly anticompetitive and violations of the FCC's network neutrality rules.  I'd also suggest that it's not good long-term business strategy in a world where there are strongly competitive alternatives.  Comcast's moves would seem to make their service less valuable to customers who increasingly have alternatives for Comcast's MVPD and broadband services - their behavior here will push heavy video and data consumers to shift to some of those competitors.


Sources - Feds launch antitrust investigation into online video competition,  FierceOnlineVideo
Netflix CEO: Comcast flouts 'net neutrality' principles,  FierceCable