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.
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.
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.
Freedom to Connect — remarks today.
Many thanks to David Isenberg for inviting me to speak today. Here is a copy of my notes for today’s talk.
Life is short, so I have put on the screen an image of a clock whose hands are close to midnight.
It’s always good to have a sense of urgency, both in movies and in talks like this one. And to face the big questions.
Here’s one: What makes a life significant? There’s an essay by William James with this title that I look back to. James says that some inner ideal is necessary - and that the ideal should be a product of the intellect somehow, and be the subject of conscious reflection, and be novel rather than everyday.
An ideal by itself doesn’t make a life significant. It has to be joined with active will - courage - endurance.
These kinds of ideals, and that kind of will, are present in each of us, and in the people we deal with (no matter what company they work for). And so it is never a good idea to have disdain for the person you meet based on his/her affiliation; that person probably has ideals of his/her own, and a significant life.
Here’s another image of that clock whose hands are close to midnight. My father’s life is slowly drawing to a close, not this month, not next month, but someday. When I visit we listen to music together - Mahler’s 10th symphony, or Beethoven piano sonatas, or Bach organ pieces. He is a composer, and for him the ideal is music - pure human expression.
So I’d like to try to draw together (1) music as an ideal and (2) the great subjects of this conference, while making my short talk as human as possible. There is nothing more human than music; every culture has it.
The key questions on which people here often focus are prompted by the fact that access to the logical architecture that is the internet is now provided in this country by very large companies that we broadly call “network operators.”
It’s well known that there is inadequate competition for network access, but it’s also pretty clear that there is no single provider of these services in the U.S.
Instead, we have a condition of oligopoly. This means that there are few sellers of this access, and all of them act while considering the profits of their industry as a whole. Any one firm may cut its prices slightly, and all the other firms will likely follow, but we will never see real price competition, or price wars, because that would destroy this industry.
There are two unspoken conventions that exist: never use price as a weapon, and ensure that there are significant barriers to entry for new competitors. So the prices they charge don’t reflect the ebb and flow of user demand. Also, the access products of these oligopolists are not completely substitutable - their bundles are not exactly alike. Nonetheless, even oligopolists want to extend their market share, and so we see a great deal of emphasis on persuasion and advertising to make users choose their product.
These actors have enormous market power, different in degree only from that of a true monopolist. It is the same kind of power.
What do we do about this? Well, an antitrust remedy probably would not work; we would be indicting the entire fabric of the U.S. economy, which relies on many sets of oligopolistic players. And these particular network operators are not colluding in classic antitrust fashion; instead, they are merely acting with the interests of the entire industry in mind. Their prices are different enough to withstand antitrust scrutiny; they adhere to the letter of the law.
So what other actions could we take? Perhaps we have been too stuck on the competitive model. We have been too convinced that other companies will constrain these network operators to act in socially appropriate ways.
We need to think differently, and this is where both music and John Kenneth Galbraith come in.
He pointed out that although in the competitive world we think that other lateral competitors will ensure that action of market-dominant actors will ensure that behavior is socially desirable, instead in this oligopolist world restraint on private power comes from the opposite side of the market. From retailers of the “product” (here, internet access is the “product,” so retailers are ISPs) or consumers or users of that product. His name for this constraining power was “countervailing power.”
So let’s explore countervailing power. Could it come from retailers?
No, not really. In the network operator’s world, they are sufficiently vertically integrated, and have been sufficiently assisted by regulation in this vertical integration, that the retail level of ISP no longer exists.
So where should such countervailing power come from to protect all of us from oligopolist providers?
Whatever direction we end up going, be it structural separation or a nondiscrimination rule enshrined in a statute, we will need the countervailing power of users/consumers.
User power needs to be organized in response to the network operators’ power. It needs to be aggregated and made visible. Without it, we’ll have no votes, no policy changes, and the oligopolists will be able to continue to act with unfettered discretion.
We can be as smart as we want to be, but without user power we will have nothing.
How do we gather together this user power? We need to have users tell their own stories — not about technology, not about gadgets, but about how their own ideals have been joined to action (facilitated, made possible) by access to the internet. Each of us has these ideals. Our challenge is to show the world how access to the internet has made significant lives even more significant.
And here is the music tie-in - Galbraith, our friend with the countervailing power, always led the singing on New Year’s Eve.
Again, life is short. And because it is, if I get hit by a bus tomorrow I want to have asked you to do some local act on OneWebDay. OWD came out of a meeting much like this one. It came from Isenberg, Weinberger, and Searls as well as me. We’re now in the third year of OWD. It’s out of character for me to be working on this. It’s a simple idea, a soft idea, an idea that takes a lot of sales - and I am terrible at sales. I’m not naturally suited to leading a movement, and I am unsure of everything except the idea that people are basically good. Which is why I need your help.
The idea behind OneWebDay is that it is an Earth Day for the internet. We are trying to create a global constituency that cares about the future of the internet. We’re emphasizing the positive impact of the internet on human lives, and reflecting on the threats to the internet around the world (censorship, controllers of different kinds) and what we can do about them. It is a day for local concerns to be paramount, but there are events around the world and online.
Each talk can have only one idea in it, and here is the point of this talk. We need to create countervailing power, and that power will come through users. OneWebDay gives us a chance to build the countervailing force that is needed. We are lucky to have our work and our lives so intertwined; and in our short lives, there is a great debate about the future of the internet going on. The key source of countervailing power that has not yet been called on yet - called to itself - is a kind of human music. I am asking you to assist in drawing out those stories.
Needed: Votes
I’m at the Tech Policy Summit. There was a particularly good panel yesterday that included Tod Cohen and Ken Kay talking about what it takes to do effective policy work. Tod’s quite blunt: “Do you vote?” That’s the question he asks people who want to do policy work with Ebay. You have to love politics, he says, to be in this business. It’s all about incremental advances and relationship-building.
Without votes, nothing happens. Just being smart or persistent won’t make any difference.
It’s sobering. Who has votes for an open internet?
I certainly believe in my side of the argument, and I even think that we’ll have all kinds of economic data that shows that having private gatekeepers with power over a general-purpose network won’t be good for the rest of us. But sometimes I feel like I’m part of the Folk Song Army. Do you remember that Tom Lehrer song?
We are the Folk Song Army
Everyone of us … *cares*
We all hate poverty, war and injustice
Unlike the rest of you squares/ D - G - / A7 - D - / B7 - Em - / D A7 D A7 /
. . .
If you feel dissatisfaction
Strum your frustrations away
Some people may prefer action
But give me a folk song any old day/ F#m - C#m - / / G - D - / Em - F#7 - /
….
Remember the war against Franco
That’s the kind where each of us belongs
Though he may have won all the battles
We had all the good *songs*/ C# - D - / - - C# - / :
So join in the Folk Song Army
Guitars are the weapons we bring
To the fight against poverty, war, and injustice
Ready, aim, sing!
To avoid being a kind of Folk Song Army, we need leadership, votes, and constituents telling stories. FreePress, PublicKnowledge, and SaveTheInternet work at this very hard.
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.
Meta moment
I did a short segment on NPR’s Bryant Park Project with Rachel Martin this morning - for broadcast tomorrow, Tuesday. The plan had been to talk about the Cuba OFAC story from last week. But when I got there they had switched gears - they really wanted to talk about net neutrality instead.
So we did an interview about everything. We talked about registrars freezing web site registrations at the direction of the Treasury Department, about a judge knocking Wikileaks off the internet, and about network access providers filtering/managing internet access. All in about eight minutes.
What’s the meta story? Well, all three of these vignettes involve gatekeepers of various kinds whose direct or indirect control over private assets within the U.S. gives them the power to affect how we use the internet. The Wikileaks judge understood that he had inadvertently blocked a lot of innocent speech, and so he reversed himself. But OFAC and the network access providers aren’t backing down. Sites/protocols/uses go on lists of various kinds, we sometimes can’t see the lists, we don’t know what the process is for changing the lists or getting off them, and users are stuck - without adequate choices in many case.
When it comes to net neutrality, it seems to me this is a constitutive moment in American communications. When we have created general-purpose communications networks in the past, we have designed liberty into them - think about the post, the telegraph, and the telephone - even though they have often been controlled by private parties. We don’t allow private parties to use their own commercial interests to decide how we’ll use these general-purpose networks. Charging for use is fine, and charging for heavy uses is fine too - but picking and choosing among letters or telegraphs or phone calls based on their content is something we haven’t allowed.
And ISPs shouldn’t want to be in the position of picking and choosing because they’ll lose their conduit protections from liability, be treated as a kind of private police, and set the precedent for being a hammer-for-hire for all kinds of various content-related desires.
One judge at a time
So you can educate a judge. Bravo to EFF, ACLU and their colleagues for reminding Judge White about the First Amendment and persuading him that a take-down order for an entire bulging web site when you’re worried about a few pages isn’t constitutional. (EFF press release, Judge Dissolves Wikileaks.org Injunction: First Amendment Rights of Internet Users Upheld in Today’s Hearing.) And bravo to the judge for having the grace and judgement to learn and back down.
Media coverage said that Judge White’s initial order was a “prior restraint.” I have to say that this puzzles me. What’s a prior restraint once something has been posted online? EFF and the ACLU had to educate this judge about the impracticality of his order - the Wikileaks.org material was echoed, copied, cached in hundreds of places. Yes, Wikileaks.org itself may have gone dark, but the substance was everywhere. The order was a post restraint and an unconstitutional adventure, but we’ve got to come up with some internet-specific language that adequately expresses our distate for censorship while recognizing the futility of the Wikileaks move.
Maybe the shorthand can simply be “Remember Wikileaks.”