Hitting the nails on the head in Canada
In The Deal of the Century, the 1987 classic account by Steve Coll of the breakup of the Bell System, one of the Bell local operating company presidents (pre-breakup) is furious about MCI’s attempts to build microwave private lines for companies. Here he is, arguing to the AT&T chairman that MCI has to be stopped:
There are large amounts of revenues that are vulnerable, which we can preserve if we choke off now. I think you have to hit the nails on the head.
The AT&T Chairman, John deButts, eventually follows his advice - and when MCI comes to AT&T asking for interconnection agreements in major cities so that it can sell private line services, AT&T delays, avoids, and then directly challenges MCI. Coll says deButts “call[ed] for nothing less than a public anointment of Ma Bell’s right to exercise its monopoly in the national interest” in this speech:
The time has come, then, for a moratorium on further experiments in economics, a moratorium sufficient to permit a systematic evaluation not merely of whether competition might be feasible in this or that sector of telecommunications but of the more basic question of the long-term impact on the public.
In other words, AT&T’s deButts was calling for a moratorium on MCI’s efforts to interconnect with AT&T.
The news today is from Canada, where Bell Canada has called for a moratorium on the efforts of independent ISPs to compete across its lines. “Canadian Regulators Deny Relief For Bell Canada Traffic Shaping.”
The argument from Bell Canada is that its throttling of PDP traffic (before it even reaches independent ISP networks) is not creating a disadvantage to competitors - and thus is not violative of its obligation to sell wholesale access to its network. Although the CRTC found that the ISPs had raised serious questions about tariff compliance, the regulator wasn’t convinced that the harm caused by this practice was irreparable, and so didn’t want to grant interim relief prohibiting the practice.
This isn’t over - the argument against Bell Canada’s throttling practice is that it amounts to “an anticompetitive move aimed at ensuring that nobody could offer higher quality service than Bell Canada’s Sympatico unit,” and the CRTC will hear that question. This is just an interim order.
In the meantime, however, Bell Canada is successfully choking off competition and hitting the nails on the head. It’s required by law to open up its DSL network to competitors (just as the old AT&T was required to interconnect), but it is unwilling to do so in ways that might leave revenue on the table.
[update: privacy complaint from the Univ. of Ottowa clinic - all that deep packet inspection is troubling]
The New Clearwire
The new Clearwire could be game-changing, but the rules of the game may not be quite as Clearwire presents them. I have been wondering since last July whether something significant would happen in the Google/Sprint world. The deal announcement earlier this weekseems to be that key development. (Here’s the press release and here are slides describing the transaction.)
In a nutshell, Sprint will contribute its substantial spectrum licenses in the 2.5 GHz range and its WiMAX-related assets and intellectual property. Google, Intel, Comcast, Time Warner Cable, and Bright House Networks will invest a total of $3.2 billion. The idea is that this combination of investment and spectrum will allow the resulting “new Clearwire” to get a jump on AT&T and VZ in introducing highspeed mobile internet access - perhaps a two-years’ lead. Part of this time-to-market advantage will come through Sprint’s agreement to allow the new Clearwire to use its towers, fiber network, and IT support. Plus the new Clearwire is saying that it’s using a standard — WiMAX — that was developed in 1995. (More about that below.) Verizon’s preferred standard, LTE, or “Long Term Evolution,” isn’t as longstanding.
It’s clearly exciting to have a potential competing provider of highspeed mobile internet access out there that could cover 140 million Points of Presence (units of coverage - a POP is an access point from one place to the rest of the internet that has its own unique IP address) by the end of 2010. But there are . . issues.
Money. Not to sniff at the $3.2 billion investment of the cable/Google team, but there is already a prediction that the new joint adventure won’t have enough money to carry out its plans. To get to the 140 million POPs, the venture knows it will need an additional $2-2.5 billion. Okay, maybe that’s easy, but it’s a hole. And some people are even saying that the venture is radically under-estimating the amount of money it needs - they’re asserting that even after the additional $2.5 billion comes in, the new Clearwire will need another $5.5 billion to roll out “a mobile WiMax network with supporting backhaul in 50 markets in the U.S.” (”Backhaul” means the part of the wireless network, owned or borrowed, that allows the communication to travel from a cell tower to a central site - either a switch or a node on an internet backbone. There’s apparently a backhaul bottleneck that doesn’t get talked about enough.) So it’s unclear whether there’s enough actual or potential money in the system to make it work.
On the other hand, all of this buzz and interest in WiMAX, as well as Intel’s involvement, make it a possible trigger for gadgets and devices etc. for WiMAX - whose presence could in turn make the venture into an attractive investment opportunity in the years to come.
Technology. There seems to be a good deal of concern about WiMAX itself. Will it work? It’s supposed to cover long distances, but will those high frequencies travel through walls? Won’t it be awfully expensive to get towers (and their antennas) close enough to users to make coverage adequate? Clearwire talks a lot about its test of WiMAX going on in Portland, but that is still a beta installation and no one seems to have definitive results. Techies seems to think that you need lots of wires to make wireless work - wires to provide adequate backhaul and reach rural users — and that using the investors’ cable systems for backhaul won’t work because of all the slow upload problems we know about. Although maybe this will prompt the cable guys to upgrade. At any rate, lots of dubitante out there about WiMAX itself.
Openness. It’s hard to tell exactly what’s going on from the limited information we have on this transaction, but the press release does say that “Google will be THE search provider and a preferred provider of other applications for the new Clearwire’s retail product.” And”Google will become the default provider of web and local search services, both of which will be enabled with location information, for Sprint.”
How does this fit with Google’s earnest (we thought) efforts in connection with the 700 MHz auction to ensure that VZ and AT&T open their devices and networks to foreign applications? It is true that Google’s own blog posting about the transaction says that the resulting highspeed wireless internet access will “allow consumers to utilize any lawful applications, content and devices without blocking, degrading or impairing Internet traffic,” but how does that square with the assertion of Google-exclusiveness (ex-gloogleness?) for the Clearwire “product” — whatever a “product” is in this context?
So we’re cautiously optimistic, here at the Susan Crawford blog. We hope the thing will fly; we hope we’ll be flying down freeways uploading wildly some day (from the passenger seat), and it’s certainly good to see some disruptive investment in the wireless highspeed access area. But we wish Google hadn’t asked for that excloogle placement as part of the deal.
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.]
Retrograde inversion
Going backwards upside down. That’s what we’re doing with telecommunications policy in the U.S.
The Comcast affair should prompt a re-examination of many decisions the FCC, Congress, and the courts have made over the last few years. When the FCC reports on its reactions to Comcast’s activities, the right response will be “You’re asking the wrong question.”
“What is reasonable network management” isn’t the question we should be asking. Instead, we should be asking ourselves “Why do the dominant network operators always win?” We don’t need retrospective fault-allocation - instead, we need a prospective legislative/structural plan for digging ourselves out of the hole we’re in.
The relevant precedent for the Comcast fracas is not Madison River. Instead, it’s the history of Ma Bell. (Yes, I know Comcast is a cable company. I’ll connect the dots.) AT&T’s enormous market power, vertical integration, skill at using regulation to avoid competition, and opacity (no one could figure out what was actually cross-subsidizing what) led the Department of Justice to investigate and ultimately recommend divestiture of its local phone companies from the rest of its business. In approving that consent decree, Judge Greene made very clear that these local phone companies should continue to be nondiscriminatory, and should not be allowed to be in the business of controlling information — news services — made available across their lines using computers.
The Judge Greene principle (common carriage, no involvement in information provision) has been entirely subverted over the last few years. Assisted by a deregulatory FCC, a quiet Congress, and deferential courts, we’re now moving backwards.
When it comes to highspeed internet access, we’re back in the land of dominant providers (multiple, but dominant), uniform vertical integration, and opacity.
Rather than having proprietary “information services” be the exception to a general rule of common carriage, all forms of access to the internet are now “information services.” The FCC has morphed and stretched (and sometimes ignored - see CALEA) the definition of “information services” to cover all the forms of communication we now care about. Meanwhile, Congress has given almost no guidance and the courts have shied away from interfering (see BrandX). This is neither wise nor efficient.
So even if the Commission says something sharp to Comcast about what practices amount to reasonable network management, that will not be a victory. It will just be a beginning. We need a thoroughly revamped approach to communications law: a revised statute that treats internet access as the general communications network it was supposed to be (as the framers of communications law thought telephone networks should be); a revised approach to judicial review, embedded in that statute, that revitalizes the role of the courts in telecommunications law; and far better information about what network operators are actually doing.
The next Administration could make bipartisan progress on telecommunications policy, given how much interest there is in this subject around the country. I know, it isn’t the Iraq war, but a better approach to this subject could conceivably help this country’s economic growth.
And at least we won’t be going backwards upside down.
Comparative internet law
Alan Davidson visited Yale Law School today, speaking to my Internet Law class and to a large lunchtime group. Key takeaway for me: the center of gravity of internet policy is not so much in Washington any more. Discussions of Issues like ISP filtering and data retention are taking place in Europe with enormous energy. There things we might take for granted here - like avoiding online content regulation, or the undesirability of using ISPs as private police - are actively considered.
At the same time, Alan points out, architectural constraints that we also used to take for granted, like “it’s too difficult to look at the packets that are crossing our networks,” or “we can’t know with any reliability where people are coming from who visit our sites” are melting away.
So it’s a time of tremendous upheaval in internet policy, and storm clouds are gathering over Europe (not to be too bombastic, but it does feel like that from here).
It was absolutely wonderful to have Alan here. We need more comparative internet/telecommunications experts - I’m hoping that some of these terrific students will take up that challenge.
Weird boxes
With the help of one of my colleagues, I’ve been going through the history of the Computer Inquiries and all of the regulatory muttering that goes into the “information services”/”telecommunications services” dichotomy.
What a strange story of subversion.
We started off, back in the 60s, with a real fear of dominant telephone companies manuvering/leveraging their way into data processing businesses. So we (basically) cordoned off data processing as a separate business and kept the telcos out.
Then, about 20 years later, the telcos pointed out that they needed to use computers to run their managed networks, and so we let them into the (unregulated) data processing business on the condition that they operate these businesses using separate subsidiaries - at about the same time, we set up a distinction between “basic” transmission services and “enhanced” everything else, and solemnly declared that everything was either one or the other. (That same distinction gets enshrined in the Communications Act as the “information”/”telecommunications” dichotomy.)
Then, about 20 years after that, we decided that internet access was an “information” service and so not covered by any nondiscrimination obligations.
What?
The entire early history of this basic/enhanced distinction was based on the premise that of course there would be common carriage transmission services - they’d always be around - and all we were doing was making sure that those carriers wouldn’t be able to leverage their position in society (and their market power!) into new markets.
Now we’ve got carriers with enormous market power, none of which provides naked internet access. They’re all selling bundles of services. So competition for this access is mild at best - no one can compare prices and speeds across varying bundles. The telcos are getting rid of copper. There’s no regime of common carriage. We have no nondiscrimination rules for any form of internet access at this point.
We took a distinction designed to retain the key role of common carriage and subverted it - all carriage is now proprietary and discretionary, because everything has been jammed into the “information service” box. That box was created to shield a new industry from the depredations of an older one. Now the older one has managed to get into the box itself!
The “data processing”/”new market” idea is completely lost. The definitions in the 1996 Act of “information services” etc. are now construed with care as magical/determinative language, with zero context or history.
It would be good to start over.
Google and the white spaces
The white spaces proceeding is the next big opportunity for experiments in alternative ways of providing wireless highspeed internet access. I’ve written about this here, here, here, and here.
When the DTV transition happens in Feb. 2009, channels 2 through 51 will remain allocated for television transmission. Few of the nation’s television markets actually use 49 channels. Indeed, most use less than half of that number. The “white spaces” are these unused television channels, which amount to approximately 300 MHz of frequencies. According to Blair Levin, “[e]stimates vary, but most of the population (between 73% and 97%) lives in areas with access to 24 MHz or more of white space. Rural areas in particular, have a great deal of white space as they generally have fewer television broadcasters.” Rules for the “white spaces” are now on the Commission’s agenda.
Rather than being sold at auction to the highest bidder, unlicensed spectrum is useable by anyone with wireless equipment that has been certified by the FCC for unlicensed frequencies. A key advantage of unlicensed spectrum is that experiments in new technology can be carried out without asking the permission of spectrum licensees. To date, we have made very little spectrum available for unlicensed use and experimentation.
The FCC has the discretion to decide whether the digital television “white spaces” may be used on an unlicensed basis. Its own Spectrum Policy Task Force recommended in 2002 that such a step be taken. Indeed, in trying to stave off an auction rule in the 700 MHz proceeding that would have dedicated non-built-out spectrum to unlicensed uses, Verizon affirmatively argued that the Commission would be opening up the white spaces on an unlicensed basis – thus making such a rule for the 700 MHz auction unnecessary.
Beginning in 2004, the FCC asked for comments on uses of the white spaces, itself suggesting that unlicensed uses of these white spaces would be appropriate. The Commission recognized that the “significant growth of and consumer demand for unlicensed wireless broadband applications” supported opening up the white spaces for broad ranges of unlicensed use. Two years later, the FCC backtracked somewhat from its earlier wholehearted endorsements of unlicensed uses of the white spaces, saying (1) that, at the most, only “fixed” (non-portable) unlicensed uses should be allowed, and, even more disconcertingly, (2) that it is not confident any unlicensed uses are appropriate in the white spaces. The FCC is concerned about the possibility of interference among the transmissions of various users of the white spaces.
So this is a proceeding about almost 300 MHz of spectrum (and all the fighting over the C Block concerned just 22 MHz). It will be in “swiss cheese” (non-contiguous) form, but there will be a great deal of it. Using white space spectrum as a way to provide last-mile connectivity to wired Internet access nodes would be especially valuable in rural areas where those wired nodes are scarce and there is a great deal of vacant TV spectrum.
Today’s update is that Google is making concrete statements about its plans should the FCC allow for unlicensed use of some portion of the white spaces. (Here’s the company’s filing with the FCC.) Google suggests that there should be allocations for both portable and fixed unlicensed uses. (We need portable devices - they’ll be cheap and there’s a huge market for them. Without portable devices, this market just won’t take off.)
Google suggests that *all* devices for unlicensed use of the white spaces should be required to receive an “all clear” signal for the particular channel where they wish to operate, by using geolocation, checking a database of licensees in that location, and getting permission in advance. Wireless mics could send a signal (called a “beacon”) saying “don’t transmit here” that would be adhered to by these unlicensed devices. Google further suggests that no unlicensed device would be permitted to transmit at all in channels 36-38. The company makes the rural argument, pointing out that Android-powered handsets would be a good way of providing low-cost mobile broadband coverage for everyone. And it’s promising to provide technical assistance to people and manufacturers who want to exploit unlicensed white spaces.
Interestingly, the company is suggesting that this combination of geolocation, beacons, and databases will allow the FCC (eventually) to be comfortable with unlicensed devices that just use spectrum sensing. They’ll have so much data about interference successes etc. that they’ll see that interference can be dealt with just by spectrum sensing.
Once we’ve done all this experimentation with the white spaces, we may be in a better position to use *licensed* spectrum more wisely without causing interference. Google points out that they could use dynamic auctions to allocate spectrum on a real-time basis - the idea is that the licensee could grant the right to transmit an amount of power for a specified unit of time, subject to a cap.
Bottom line: This is a compromise proposal designed to assuage objectors and nudge the country down a path towards more efficient use of spectrum, both licensed and unlicensed. It will be interesting to see how the Commission responds. I’ve heard that there’s a welcoming mood over there for unlicensed uses.
Why Block C matters
Today the FCC announced the winners of the 700 MHz auction - and you can see from pp. 62-63 of this document that Verizon won Block C. (Block C was set up in two nationwide paired blocks of 11 MHz each, which were auctioned off in very large geographic areas—12 licenses, each covering a “Regional Economic Area Grouping”. Verizon won seven of the twelve licenses, covering all of the US except Alaska, Puerto Rico, American Samoa, Guam, and the Northern Mariana Islands.)
Why does this matter?
Context. The 700 MHz auction happened at a particularly interesting time in communications history. Traditional telephone use is shrinking and the cultural sway of broadcasters is diminishing, while Internet use and cellphone use are growing quickly. Although the telecommunications industry has long been divided up into different silos (cable, broadcast, telephony, data), all of these segments are arguably converging into one packet-switched communications realm. Highspeed packetized communications are becoming the key communications medium.
The central question is which model of packetized communications will prevail: Will we converge on a set of proprietary, walled-garden networks, in which the network provider acts as a gatekeeper by deciding which communications (in terms of content, application used, protocol used, how expensive they are) move easily across its network and onto the (authorized) handsets of users (the cellphone model), or will we converge on the Internet model, in which the network provider makes available an interconnected, commodity, nondiscriminatory transport service (essentially, a utility connectivity product) on which competitive communications travel that can be introduced without the knowledge or permission of the network provider and can be accessed via any handset?
The answer. Verizon’s victory in obtaining the C block in this auction means that, for a while at least, the “cellphone” model of Internet access will hold sway - particularly as we move in greater numbers to experiencing Internet communications via mobile handsets.
More background - Verizon was already an almost unbeatable oligopolist. Verizon already had national spectrum licenses before this auction began. The commercial wireless industry in this country began in 1981 when the FCC issued two free cellular licenses in the 800 MHz range for each “cellular marketing area” (or “CMA”) in the country. There are 734 CMAs in the U.S., and this regulatory limitation to relatively-small geographic areas for the licenses (and to only two competitors for each geographic area) meant that cellular technology remained expensive and not widely used. But the operators that were handed these early free “beachfront” 800 MHz licenses retained them, and now (through mergers and sheer staying power) Verizon Wireless and AT&T have most of them.
The most important service attribute for experienced cellphone users is coverage – the availability of reliable signals. Verizon Wireless and AT&T offer the best nationwide coverage, because they held onto those “beachfront” 800 MHz licenses and snapped up smaller carriers. As a result, Verizon Wireless and AT&T experience both much lower “churn” (dropped subscriptions) and much higher rates of “net adds” (new subscriptions) than the third largest carrier, Sprint. Indeed, Sprint is rapidly losing customers. The enormous barriers to entry involved in providing nationwide service, their vast spectrum holdings, and the substantial economies of scale of wireless service generally, make Verizon Wireless and AT&T almost unbeatable oligopolists.
The myth of the “third pipe.” When it comes to highspeed Internet access, current wireless offerings from Verizon Wireless and AT&T do not compete directly in terms of speed or cost with the dominant wireline (DSL, fiber, and cable) transport offerings – which explains why 96% of all residential highspeed Internet access connections are sold by regionally dominant DSL or cable companies. Existing (pre-auction) wireless highspeed Internet access connections cost at least twice as much as a DSL or cable connection, and operate at only a fraction of the speed. Residential highspeed Internet access subscribers simply do not cancel their subscriptions in order to sign up for wireless highspeed access via handsets, because these services are not (currently) substitutable.
At the same time, the dominant existing national wireless carriers, AT&T and Verizon, (1) are controlled by the same incumbent actors that control DSL access through regional monopolies across the country and (2) offer wireless services as part of packages that tie together traditional phone services, Internet Protocol Television (IPTV) access, and internet access. In a nutshell, the leaders in mobile wireless are owned by the same companies who control the DSL marketplace and are, like their corporate parents, choosing to avoid direct competition for highspeed Internet access by bundling three or four services together (voice, video, data) and differentiating their offerings based on their voice or video elements.
Given this situation, in which 96% of residential wireline highspeed internet access is provided by regionally dominant DSL or cable companies, and wireless communications are largely provided by two oligopolist players who are in turn owned by wireline companies, the dominant providers of internet access services in this country, both wireline and wireless, have ample market power to nudge users towards the proprietary, cellphone, managed model of packetized highspeed communications. These carriers, just like all makers of potentially-commodified information goods, have substantial incentives to both lock their customers in with high switching costs and to differentiate their informational offerings from those of other companies running across their network. They obviously also have great incentives to avoid cannibalizing their own wireline highspeed internet access market dominance.
It wouldn’t have been possible to create a “third pipe” competitor through the 22 MHz available in the national C block. That much spectrum just can’t carry enough data to compete with DSL or cable. But this 700 MHz spectrum might have been able to support long-range provision of wireless highspeed Internet access in (1) areas where faster “wired” DSL or cable Internet access is not available, or (2) for personal, portable wireless uses. And it might have been able to do this while requiring far less capital expenditure for the building of transmission towers than for higher frequency bands.
Most importantly, if someone other than Verizon or AT&T had won this auction, we would have seen a test case for non-cellphone model Internet access.
But we won’t. During the wrangle over the auction rules, Google and others proposed that this spectrum be made available on a wholesale basis - so that the licensee would be obliged to sell access to its network on a wholesale basis at commercial rates. This would mean that any ISP could come and buy bandwidth and build its own business. Everyone would share the same transmitter and neutral connection, but ISPs would compete on price and the services they offered to their customers.
This kind of approach has led to dramatic competition for the provision of highspeed Internet access in Europe.
But even though the incumbents (Verizon and AT&T) could have accepted this limitation, won the auction, and then priced wholesale access at a high level (thus discouraging anyone from using it), avoiding the precedent of wholesale access – and retaining the cellphone model of access – was their central goal. And they achieved that.
Now, the FCC did mandate that any winning licensee have in place “no locking” and “no blocking” provisions conditioning its use of this spectrum:
Licensees offering service on spectrum subject to this section shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice on the licensee’s C Block network, except:
(1) Insofar as such use would not be compliant with published technical standards reasonably necessary for the management or protection of the licensee’s network, or
(2) As required to comply with statute or applicable government regulation.
As I’ve said here before, these no-locking, no-blocking requirements are hedged in by substantial limitations: Verizon will be able to lock and block devices and applications as long as they can show that their actions are related to “reasonable network management and protection,” or “compliance with applicable regulatory requirements.” We’ve already seen how loosely “reasonable network management” has been interpreted in the Comcast fracas.
Verizon has said that all of its wireless operations will be “open” and that it will allow any device to attach to its network. But. Verizon has also 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.
The bottom line. Verizon has won spectrum it arguably didn’t even need, given its existing spectrum holdings. It retains the discretion to act as a traditional cellphone-model company - picking and choosing among applications and devices, underselling “open” devices, and discriminating against traffic that undermines its business model. This isn’t great news for the Internet model of access.
On the other hand, openness is more popular and more talked-about than it used to be. It may be that the pressure of consumer preferences makes Verizon provide a truly open Internet and truly open devices to the rest of us. (The pressure of competition won’t be doing that - AT&T and Verizon have divided the U.S. between them, and the other players in the wireless space are far behind.) The Android project, Verizon’s own words about openness, and concerns about the place of the U.S. in the international race for innovation may all push towards a more open future.
We’ll see. The results of this auction don’t suggest that we’ll be seeing such a move any time soon.
Thursday links
The House Commerce committee investigation of the FCC continues. According to the Washington Post, a detailed letter signed by Rep. Dingell has gone out to the FCC asking for a host of documents that (among other things) relate to “management practices that may adversely affect the Commission’s ability both to discharge effectively its statutory duties and to guard against waste, fraud, and abuse.” This is serious - business as usual at the Commission must be under severe pressure, and the idea of real structural reform of the Commission (and perhaps a new telecommunications act) can now be talked about with some confidence. This won’t happen now, but it could be happening a year from now.
According to CDT, the House should approve H.R. 3773, the FISA Amendments Act. It requires prior FISA court approval of surveillance procedures (if not of actual surveillance), ongoing judicial oversight of compliance with those procedures, does not grant retroactive immunity to the carriers, and has a Dec. 31, 2009 sunset.
I’m feeling prescient (or maybe just trend-aware) about yesterday’s post - today, WIRED has a substantial article covering a music industry notion of charging highspeed internet access subscribers a levy for access to music. Never mind that it’s impossible to figure out who’s doing what - particularly if everyone starts encrypting their communications. Never mind that the network access provider may not be shielded from liability if it starts looking at every transmission. As the article concludes, the music industry’s feeling is:
Pay up. . or we’ll sic Washington on you — and London and Paris and anybody else we can find.