Tying, subsidizing, and IMS
In response to my post a couple of days ago about the possibility that VZ might not plan to comply with the 700 MHz “open platform” rules, someone wrote:
would you have the FCC mandate that every mobile device must be capable of running every operating system? If Verizon sells me a BlackBerry, should the device allow me to install Android, Palm OS, Windows Mobile, or Symbian OS? Obviously, Google believes the answer is yes (they will make the most money if they can install their OS on every device). Is it good for consumers if the FCC starts managing software specifications for computers and mobile devices?
Here’s the problem that the question doesn’t aknowledge: VZ controls its network AND markets devices, and would like to tie the two together. The Google petition suggests that VZ plans to give its subsidized devices exclusive “better” access rights to its network (we don’t know in what way) than other, non-VZ-connected devices. VZ also plans to “cripple” the devices it provides (or “optimize” them) to run only the applications and operating systems and everything else it wants to offer. This isn’t good for anyone other than VZ, and puts VZ in control of innovation in both devices and applications.
Marketing differently-abled devices is obviously fine in the abstract. The problem here is that if VZ can say “only our devices will work well with our network,” “only our devices can be subsidized in the way you’re used to,” and “you can do only X, Y, and Z with these devices, but don’t worry, they’re cheap,” they will have successfully returned us to the pre-Carterfone days. Without Carterfone, we wouldn’t have had modems. Without modems, we wouldn’t have had the commercial internet. That’s why we should be deeply concerned about VZ’s plans.
The problem is that VZ is a dominant, vertically-integrated network operator and device-provider. This isn’t any old new-gadget-maker - it’s Ma Bell, reconstituted.
VZ will say: Trust us. We’re here to provide the best possible consumer experience. Why would we ever do anything that would interfere with all possible uses of our network? Don’t force us to allow all devices to use our network - that will squelch our wildly-innovative nature.
Well, VZ has every incentive to compete with the open internet. They can’t adequately monetize the open internet. So the point of the “open platform” conditions, weak and game-able as they were, was to de-link network provision from both device-provision and application-provision. Now it appears that VZ may argue that those links are necessary in order for their network to work properly.
Now, I’m not saying that government drafting specs is generally a good idea - but to characterize the certification of Part 15 devices (say) as the drafting of specs is unfair. To the extent there is a need for ANY specifications for attachment to internet access, and perhaps there may be for wireless access, there is a role for government to come up (in cooperation with all netops) with a standard set of specs for devices that are permitted to attach to highspeed networks, to work to ensure that those specs don’t allow the network operators to discriminate in ways that serve its revenue plans, and then to police an effective de-linking of devices from network-provision.
Here’s why this is so important: VZ plans to overlay on all of its networks, wired, fiber, and wireless, a cell-phone-like-billing-system called IMS. IMS comes in many guises and isn’t fully baked yet (I believe, but who knows), but it’s a child of the mobile phone system. It allows for discrimination and billing and other “management” efforts that VZ thinks are appropriate. Add IMS together with network-provision and subsidized-device-provision, and you’ve achieved the traditional telephone model: a fully-managed network, where everything requires permission and can be billed for perfectly.
That’s not the internet.
700 MHz Update: Will VZ comply with the rules?
Last Friday (HT: IPDemocracy), Google filed a petition [PDF] asking that the Commission ensure that Verizon understands what those “open platform” requirements for the C Block really mean. Verizon has taken the position in the past that its own devices won’t be subject to the “open applications” and “open handsets” requirements of the C Block rules, and Google says it is concerned that Verizon doesn’t plan to follow those requirements in the future.
This is big. Here’s the background.
In the 700 MHz auction rules, the Commission noted that public advocacy organizations were claiming that “incumbent wireless carriers . . . routinely choke bandwidth to users, cripple features, and control the user experience” in order to protect their highspeed internet access businesses. Verizon had argued strenuously that “imposing an open access business model undermines the auction process and competitive bidding,” but the Commission nevertheless stated that it would “require licensees to allow customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choice.” The nickname for this requirement imposed on the C Block of spectrum (a large 22 MHz block divided into a few regional licenses) was “open platforms for devices and applications.”
Accordingly, . . .we will require only C Block licensees to allow customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choosing in C Block networks, so long as they meet all applicable regulatory requirements and comply with reasonable conditions related to management of the wireless network (i.e., do not cause harm to the network.).
Specifically, a C Block licensee may not block, degrade, or interfere with the ability of end users to download and utilize applications of their choosing on the licensee’s C Block network, subject to reasonable network management.
The rules explicitly say that C Block licensees may not “disable features on handsets it provides to customers,” and “shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice.”
When this rule was released I expressed skepticism about the “reasonable network management” and “regulatory requirements” wiggle room provided. I also noted that Verizon had insisted on retaining the ability (1) to privately “certify” applications and devices for use on its network (a process during which a great deal of mischief is possible, as we know from the pre-Carterfone days), (2) to sell heavily-subsidized handsets of its partners in its retail stores (which will make it unlikely for competing, full-price handsets to be popular), and (3) to prioritize its proprietary or charged-for content over “ordinary” Internet traffic.
But even I didn’t imagine that Verizon would actually claim that the handsets *it sells* for use on its 700 MHz network would not be subject to these limitations, weak as these limitations are. That’s what Google’s petition says:
Notwithstanding the clarity of the rule, Verizon has taken the public position that it may exclude its handsets from the open access condition.
Apparently VZ plans to treat customers using non-VZ handsets differently from VZ-handset customers, by giving them different access rights. And maybe VZ plans to not allow *its* handsets to download particular applications. In a nutshell, it’s unclear what VZ’s plans are in detail, and for this reason Google wants to make sure that VZ will adhere to the rules.
This petition appears to be designed to smoke out the truth: did the Commission draft these conditions so loosely (”regulatory requirements”) that VZ’s reading is tenable? Or is VZ simply playing fast and loose, hoping that it will be too difficult for any single actor to challenge it, given the Commission’s comfort with ambiguity? Or were the rules actually designed to be unambiguous?
My own opinion is that VZ will do anything it can to retain discretion over use of its networks, both wired and wireless, and that there likely is at this moment a strongly-held belief inside that company that no reasonable regulator could possibly require VZ to operate an “open platform.”
“Where’s the revenue in being a commodity transport provider? VZ is a broadcaster!” Watch for First Amendment claims from VZ in response to the Google petition.
[My article on the auction is available here.]
700 MHz and the D block
I want to applaud Harold Feld for writing energetically about what has happened to the planned public-private partnership for creating a dedicated public safety network. Key post is here.
The FCC paired the upper band D block (a single 10 MHz nationwide license) with 10MHz of public safety spectrum located next to the D block, and conditioned the D block license on an obligation to negotiate with public safety representatives towards the construction by the D block licensee of a nationwide public safety network. The idea was that a robust, dedicated public safety network would be built to the specifications of the public safety community, and in exchange the commercial licensee of the D Block would be permitted to use the public safety spectrum (in addition, of course, to the D Block spectrum) when it was not otherwise needed. Absent this private participation, funding for a shared public safety network was unavailable.
Frontline Wireless, a privately held company headed by former FCC Chairman Reed Hundt, submitted a proposal along the lines eventually adopted by the FCC for the upper band D block. In the event of an emergency, Frontline proposed that public safety would have immediate, preemptive use of the entire network. Frontline won a substantial victory when the FCC decided to allow the D Block licensee to obtain “designated entity” small business bidding credits even if the licensee planned to operate on a wholesale basis. Frontline dropped out before the auction, however, apparently unable to convince investors of the certainty of the enterprise.
Now Harold tells us that the leader of a competitor to Frontline may have scuttled Frontline’s chances by (in his capacity as a contractor to the public safety entity) purportedly telling “Frontline’s investors that it would cost $500 million over ten years as a flat fee to access the [public safety] spectrum.” That appears to have driven Frontline away.
So now we have an auction in process. How’s the D block doing? Nothing going on. Apparently there is no one even approaching the reserve price for that D block, and no other bidders in the offing. All that planning is down the drain, and Harold’s position is that the auction should be stopped by the Commission while staff investigates what happened.
Meanwhile, two bidders appear to be fencing over the much-discussed C block. Maybe it’s Verizon and Google. We won’t know for a while. I still think Verizon will win in the end, but it would be fine to be proved wrong.
The D Block plan always seemed a distant prospect at best, and both Frontline’s plans and rhetoric were high-flown. But surely it shouldn’t have been blocked in this particular way from the auction - if indeed that’s what happened. And we’re facing a lot of questions: if this block is re-auctioned, what rules will govern it? what will be the basis for those rules if indeed a public-private partnership is unworkable?
700 MHz auction time
There was a mock auction today just to test the equipment for submitting bids. The real thing is on Thursday beginning at 10am.
Chairman Martin has been urged to let the auction for Block D (the public-private partnership) play out. Given the roiling stock markets around the world and the high reserve prices that the FCC set, it’s unlikely that the reserve prices will be met - particularly the $4.6 billion reserve price for Block C, the block for which mild no-locking, no-blocking requirements were drafted. If that block doesn’t command that reserve price, we’ll be back to smaller paired blocks of 5 or 6 MHz each, much reduced geographic areas, and no open platform limitations. (As for the D Block, the Commission set a reserve price of $1.33 billion. If that reserve isn’t met, the FCC will decide whether or not to re-auction it on the same or different terms.)
It seems like an uncertain week during which to bid a few extra billion for the privilege of a world in which the C Block conditions exist. Frontline is already out of the picture for the D Block. If you’re one of the big incumbents - Verizon or AT&T - you’d be happy for those restrictions to go away.
And our own government doesn’t care much about infrastructure (did you see this story in the Post?) - even infrastructure that makes new ideas possible.
I’ll still be following the auction results closely (not that we’ll hear much until it’s over), but I have a sinking feeling that we won’t see much that’s newsworthy. Brough Turner thinks otherwise. We’ll see. Maybe I’m just affected by the weather these days.
Three developments
1. More passive content from network providers. Comcast announced that it’s going to be providing 3,000 high-definition video-on-demand programs for subscribers to its highspeed Internet access services.
“Comcast is the largest purchaser of TV content and now we are bringing that content over to the Internet” [Comcast CEO Brian Roberts, at CES today]
Comcast is also confidently predicting that the PC will become “a full cable TV client” in the future. Dirk van der Woude pointed me to a Wall Street analyst, Douglas McIntyre, who doesn’t think Comcast’s plan makes any sense.
Why not buy some more content? According to The New York Times “Comcast is already the world’s largest buyer of content, and it is spending about $4.5 billion a year to assemble content from around the world to offer on demand.” But, all of that content, even delivered via cable and the internet, may not get Comcast any new customers and may not be the magic bullet that kills new products from the telephone companies.
A wide range of video is already available on the internet. YouTube to Hulu, AOL to MSN. The largest content firms are already pushing TV and films across dozens of delivery portals. The new Comcast online product would not seem to have much advantage here.
On the TV, VOD has always been an attractive product, but the reason most companies do not offer huge film libraries is that no one wants them. Consumers watch the most popular movies. Having an extra 5,000 films that 1% of the subscriber base wants to see is hardly a solution.
Well, we’ll see. Comcast’s plan is to create a platform of its own, a one-stop shop that you can drive from your PC - checking mail, making phone calls, and watching hi-def video. That could be quite attractive to users, particularly if they don’t have any easily-available alternatives.
2. The Chairman promises to look into Comcast’s blocking practices. FCC Chairman Martin says he wouldn’t mind investigating what Comcast was up to.
“Sure, we’re going to investigate and make sure that no consumer is going to be blocked,” Martin told an audience at the International Consumer Electronics Show.
The insouciance, the blitheness of that “Sure” tells us that “blocking” is going to be looked into. But so much happens short of blocking - so much can get in the way that doesn’t amount to an outright ban of particular applications or activities or devices. And Martin will make, and the network providers will make, huge exceptions for “reasonable network management.” Undefined. Surely we can do better. Maybe Obama would do better.
3. All Quiet at Frontline. I understand that Frontline didn’t make a required downpayment to bid in the 700 MHz auction. That means it’s even less likely that we’ll see any experimentation with internet access business models - even more likely that Verizon or AT&T will win what they want in the auction. What they really want, perhaps even more than the spectrum itself, is freedom from the specter of wholesale open access requirements. Like Comcast, they want to continue to be in the business of managing a vertically-integrated network of content.
All three of these developments point in the same direction: putting the broadcast model of the internet on a firmer footing. Yes, the Commission may look out for adequate disclosure of what that management consists of, but because there isn’t any competitive pressure to provide an unmanaged internet environment, we won’t expect one. And we won’t get one, unless different leadership emerges in this country.
The self-regulatory two-step
Self-regulation is a great move to forestall legislation. “Here,” you can say, “we’ve solved your problem. We don’t have all the details yet, but we’re making progress. Don’t try to write rules for this markeplace - you’ll just make mistakes and embarrass yourself. Let us help consumers by doing it ourselves.”
The second step of this particular dance is enforcement - in the form of results that real people can understand.
We don’t have all the details of the first Verizon self-regulatory step yet. A lot will depend on how reasonable Verizon’s certification standards are and what testing VZ requires from application and handset developers.
Notwithstanding Verizon’s announcement yesterday, the issues surrounding internet access via wireless handsets (and any other modality) remain. The fact is that granting network providers the right to exclude (or degrade) unwanted uses of their systems will very likely interfere with unanticipated, as-yet-unborn, and socially valuable developments. The default rule that grants that right is still in place, and can only be removed by legislation. It’s undeniable that network owners will tend to systematically undervalue the social/economic benefits of open access.
VZ’s statements make clear that customers will be able to stick any application they want to on their devices. But will it work? Will some applications be prioritized over others? On what basis? The ability to price by tiers carries with it enormous power to define the tiers in the first place - and then to decide what fits within a particular tier. The right to degrade communications carries with it the right to — effectively — exclude and can be exercised in an anticompetitive manner.
The Verizon move is well-timed to signal intent to dominate the upcoming auction. Will it lead to real openness? We can’t tell. The move also may be intended to forestall legislation along “no-locking, no-blocking” lines.
But we know that the risks of non-neutrality haven’t gone away. The second step of this particular move isn’t part of today’s story.
Verizon Volte-face
So this morning my communications law class was earnestly discussing the 700 MHz auction rules when, suddenly, one of the students lifted his head from his screen and said, “Verizon just announced they’re opening everything up!”
(I’m always a fan of internet access in the classroom, and this gives me a good story to use with other teachers. “See, it’s useful, not just a distraction.”)
We immediately started discussing why Verizon is doing what it’s doing. And the context was clear, because it was the subject of the class: it’s the auction. The short form applications are due on Monday, and the rules for the C Block (limited as they are, see yesterday’s despairing post) require some form of openness to applications and devices. VZ probably doesn’t want to see Google win that C Block, so it will need to be in there acting open. So it might as well actually try some openness.
So far, the blogosphere is cautiously optimistic. Om Malik, Harold Feld, Public Knowledge - they’re all weighing in. There’s some suspicion, deep-seated suspicion, about how this will all play out in practice. We may get cheap phones but expensive network access. Verizon may still be providing a very-non-neutral network. Who knows if you’ll actually be able to use the applications you want to on that network - will the packets be transmitted?
But it’s a move in the right direction, and my class is confident that it was done all for them.
The Auction, the Cops, and Comcast
The 700 MHz auction is just ahead. Bidders will soon be filing their applications, and the auction itself is supposed to start by Jan. 24.
This is the big event for telecommunications policy in the U.S. One recent online story says that “it’s almost like the powers-that-be decided to auction off the land in the Grand Canyon or Central Park in New York City.” It could affect the competitive landscape for U.S. wireless providers and change the way broadband reaches rural areas in this country.
Re-reading the final rules [warning: enormous PDF] in light of recent events, though, makes for a little less optimism. You’ll remember that Chairman Martin at the last minute succeeded in slipping in limited “no locking, no blocking” elements into the rules.
In particular, as long as the reserve price for the C Block is met the first time it is auctioned, “a C Block licensee may not block, degrade, or interfere with the ability of end users to download and utilize applications of their choosing on the licensee’s C Block network, subject to reasonable network management.” And the FCC “will require only C Block licensees to allow customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choosing in C Block networks, so long as they meet all applicable regulatory requirements and comply with reasonable conditions related to management of the wireless network (i.e., do not cause harm to the network).”
The Cops
The Department of Justice has filed a “deficiency petition” (explanation here) in connection with CALEA compliance. This deficiency petition is likely to become an FCC document requesting comments (an NPRM). This NPRM will cover providers of any type of broadband internet access service (phone, cable modem, wireless, whatever) - the entities that the FCC has already said are covered by CALEA.
It will also cover “interconnected VoIP services,” which include any applications that are capable of connecting to the traditional phone networks.
The NPRM, if it follows the DOJ’s request, will suggest (among other things) that all of these providers should build their routers and network hardware to provide “packet activity reporting” for all packets crossing their networks, and physical location information for all of their customers at all times. It will also suggest that very fine-grained timing information is needed - something that the internet and its applications don’t provide at the moment. “Packet activity reporting” means that the broadband provider will need to know the destination IP address and port number for everything happening on its network.
The idea is that these designs will help law enforcement when they want to carry out a request for call-identifying information.
Here’s the tie-in to the auction rules: if these CALEA requirements are adopted by the Commission, there will be at least two consequences for the C Block auction winner. First, the winner will need to allow for the cost of the upgraded routers/switches etc. that are capable of providing this CALEA information as part of their bid. For a new entrant, this will be a big deal. Second, the winner will be able to say that it cannot permit any applications or devices to be used on its network that frustrate the network provider’s ability to provide this information to law enforcement.
(This is clear in the auction rules: “Wireless providers [subject to the C Block conditions] are not required to permit attachment of any device or application that would interfere with the provider’s obligations to comply with applicable regulatory requirements…” - at paragraph 216.)
So much for lowering barriers to entry for a new wireless competitor - and for making the platform truly “open access.” If the network provider has to be completely answerable to law enforcement for detailed information about everything that travels across its wireless network, then nothing will be done without the network provider’s permission. That’s where we are today, and that’s the situation that the open access rules have been touted as changing.
Comcast
Apologies to Comcast - everyone else is probably doing it too - but “reasonable network management” can cover a host of activities. We’re seeing that right now. The auction rules say that “C Block licensees cannot exclude applications or devices solely on the basis that such applications or devices would unreasonably increase bandwidth demands,” but there may be many other reasons for applications or devices to be degraded or mistreated. The use of the word “solely” makes that sentence provide slim (or no) protection. Here’s another sentence from the auction rules: “Wireless service providers may continue to use their own certification standards and processes to approve use of devices and applications on their networks so long as those standards are confined to reasonable network management.”
Through the skillful use of ad hoc, one-off certification standards and “reasonable network management,” a lot of openness can be avoided.
===No great conclusions here - just watching the threads knit together. With any luck, any CALEA and “reasonable network management” opining will be done by the next FCC, not this one.