[I]t had excited public optimism at the very moment that public pessimism saw no end to the tyranny of wealth. [Wister]: ‘I think that to make up his mind to take this first step, to declare this war, on the captains of industry, was a stroke of genius; and I more than think - I know - that it marked the turn of a rising tide.’

Oliver Wendell Holmes’s somewhat snide dissent to the Supreme Court decision upholding the railroad trust-busting prompted Roosevelt to say: “I could carve out of a banana a judge with more backbone than that.”

What really got to Roosevelt was J.P. Morgan’s Olympian assumption that creation of an enormous railroad trust - the greatest combination in the world - was something that should have been worked through by business and government as peers.  According to Morris, Morgan could think of the President only as some kind of rival operator with whom a deal could be done:

MORGAN:  “If we have done anything wrong [in our charter], send your man to my man and they can fix it up.”

ROOSEVELT:  “That can’t be done.”

KNOX (Attorney General):  “We don’t want to fix it up, we want to stop it.”

Afterwards, Roosevelt said:  “That is a most illuminating illustration of the Wall Street point of view.”

The Internet is our nation’s common medium, as Reed Hundt recently said - open, expressive of American values, accessible to everyone, an engine for business, an organ for government.  The Plan makes this clear, finally, and begins the task of making sure that high-speed Internet access is ubiquitous and cheap - a commodity input to the rest of the story.

I’ve been reading the Plan, starting at the end (good job outlining the classification issue) and there are many positive difficult issues to point to - more unlicensed spectrum, more competition through better information made available about what providers are actually doing, reform of basic broken subsidy programs, finishing the white spaces proceeding, and on and on.

But the basic move here is crucial:  what’s our industrial policy for providing this commodity input to all Americans?  The Plan starts to answer this question.

The executive summary of the FCC’s National Broadband Plan pulls together all the announcements the agency has been rolling out.

It’s a plan in beta. The idea is that this is a start.  There’s a tremendous amount of work to do and it will take a long time.  We’ve got big problems in coverage, adoption, speed, and prices.

What about competition? The Commission wants to start by collecting and publishing information on high-speed Internet access pricing and competition.  They’re interested in doing a “comprehensive review of wholesale competition rules.” NPR has a good, swift story today about the reaction to the exhaustive Berkman study of how other countries have worked this issue.

Spectrum is key. Broadcasters are already alarmed - and the plan isn’t even out yet. (Didn’t they notice the sentence that said “For example, [incentive auctions] would allow the FCC to share auction proceeds with broadcasters who voluntarily agree to use technology to continue traditional broadcast services with less spectrum”?)  The Commission’s idea is that the overall plan will be revenue neutral because of revenue reaped from spectrum auctions.  There’s a focus on “opportunistic and unlicensed use of spectrum and increasing research into new spectrum technologies,” and the hope that wireless access will fill gaps that expensive wires can’t.

It’s good to have a focus on high-speed Internet access, and great that a plan is rolling out.

According to Wired, the Parliament isn’t saying that there shouldn’t be a treaty covering counterfeiting.  But the text of the proposed treaty should be public, and if it requires ISPs to punish Internet users the Parliament will oppose it.

The US has refused to reveal the text of the treaty on national security and other grounds, citing its need to work with other government representatives on a confidential basis before the treaty is finalized.  (Interesting interview with Michael Geist, the cyberlawyer of Canada, here.) Public interest groups in the US have been allowed to see the text - but only if they agree not to tell anyone about what they’ve read.

There’s a good deal of confusion about what the text of the treaty actually says.  There’s also a great deal of concern about what it could do to harm users’ rights and interests.  Is it a global DMCA?  Does it mandate a global “three strikes” regime?

The cloak of secrecy that the US has flung over the ACTA proceedings has only served to make free-flow-of-information fans around the world more anxious.  Now the European Parliament has put a heavy foot down.  It’s good to see principled parliamentarians worried about civil liberties, and unfortunate that American interests are being presented in such a one-sided way.

1.  In a filing in the FCC’s net neutrality proceeding, Netflix notes the “growing concern that [cable companies] will use their control over programming networks to stifle competition, including the growing competition from online video providers like Neflix” and urges the Commission to take a broad view of discrimination:

There is substantial discrimination and consumer harm if a network operator uses its ownership affiliation with a program content provider, or even its bulk buying leverage with a video content provider, to deny attractive programming to a competing online service.

2.  After today, “The Daily Show” and “The Colbert Report” (owned by Viacom) will no longer be available via Hulu.com, which is 1/3 owned by NBCU.  Six companies (Disney, TW, News Corp., Viacom, CBS, and NBCU) control more than 80% of viewing hours in the US.  These companies have the power to yank all must-see video from online sites and put it behind pay walls.

3.  Comcast’s 2009 10-K (available here via Businessweek) notes at p.69 that about 57% of the company’s cable services revenue comes from video content (including regional sports networks), compared to about 23% from high-speed Internet access - and just about 4% for advertising.

4.  According to Broadcasting & Cable (here), if the deal goes forward as planned Comcast’s advertising revenue will jump to 23% of its overall take.  Comcast is very excited about the possibilities for cross-platform advertising - its ability to provide a one-stop shopping place for advertisers who want to reach, say, all affluent women in their 40s who redecorate their homes.

5.  As Steve Burke of Comcast said at a recent conference, “Now more than ever, content and distribution put together can really change everything as long as you’re willing to lean forward.”  He’s talking about the possibilities of addressable advertising.  (Recent post about this here.) Indeed, he suggested at the same conference that the NBCU merger was “a bet that the advertising business wil remain robust.”

6.  If any of the six content giants combine with any of the four major network providers, the resulting vertically-integrated monoliths won’t be interested in supporting online video that isn’t behind a pay-TV wall.  (See the scrap over the Olympics and Sen. Kohl’s questioning.)  Why?

Maybe these are two reasons:  First, the advertising possibilities are so much greater if the resulting monolith can target ads based on everything they know about the user.  Demographic information based on network-provider information, video viewing information, response to ads - all of this added together makes for a powerful targeting arsenal that will be attractive to advertisers.

Second, moving the cable model online (moving sports and other must-have programming behind online pay walls and tying access to this online content to a cable subscription) makes it more difficult for regulators to bust up exclusive deals, potentially avoids regulatory schemes to which traditional cable systems are subject (like must-carry, retransmission consent, program access, and program carriage), makes it easier to destroy local cable competition, makes it easier to discriminate less visibly, and is generally extremely difficult to unwind once it starts happening.

This isn’t good for independent programmers.  Nor is it likely to be good for the American consumer.

Comcast sells a lot of expensive video services (including those all-important sports channels) to Americans.  How about this performance in a recessionary time:

Our average monthly total revenue per video customer increased to approximately $118 in 2009 from approximately $111 in 2008 and approximately $102 in 2007.

That’s a lot.  Will the merger bring these figures down?

The speech carried me back to Election Night and to the reasons why so many people support President Obama:  he is determined, smart, and straightforward.  He knows there’s bad press about his “message” over the past year.  He’s fighting back, almost lunging for our better angels, using all the powers he can summon to reach and convince everyone within range of his voice.

I believed today, listening to him, that his message was authentic:

[W]hen you’re in Washington, folks respond to every issue, every decision, every debate, no matter how important it is, with the same question: What does this mean for the next election? (Laughter.) What does it mean for your poll numbers? Is this good for the Democrats or good for the Republicans?

And on health care:

Now, since we took this issue on a year ago, there have been plenty of folks in Washington who’ve said that the politics is just too hard. They’ve warned us we may not win. They’ve argued now is not the time for reform. It’s going to hurt your poll numbers. How is it going to affect Democrats in November? Don’t do it now.

My question to them is: When is the right time? (Applause.) If not now, when? If not us, who?

Fear of rocking the boat may lead to the boat actually drifting backwards, in irons, sails flapping uselessly.  There is so much fear in DC.  But - “If not now, when?  If not us, who?”

Essentially, my proposal would change three things about the current health care system. Listen up.

Our current President is a teacher.  That’s a good thing.  He’s commanding attention, and he has fully internalized the details of what he wants to do.

This was my favorite part, the part that made me fully remember what it was like at the beginning:

“So let me remind everybody: Those of us in public office were not sent to Washington to do what’s easy. We weren’t sent there because of the big fancy title. We weren’t sent there to — because of a big fancy office. We weren’t sent there just so everybody can say how wonderful we are. We were sent there to do what was hard. (Applause.) We were sent there to take on the tough issues. We were sent there to solve the big challenges. And that’s why we’re there. (Applause.)”

President Obama reminded us today that “We just had an election.”  It’s not time to worry about the next one.  It’s time to do what is hard.

Here’s the rest of the story.

Back during the Bush(2)-era FCC, the Commission agreed with the cable industry that cable modem Internet access wasn’t a basic “telecommunications” service because pure transport hadn’t been sold separately by them.  By integrating transport with other services (like hosting and caching), the cable industry had deregulated itself.

Then the Supreme Court deferred to the Commission’s classification of cable modem services in 2005 (Brand X).  Justice Scalia characterized the Commission’s argument for deregulation as “[W]hat the Commission hath given, the Commission may well take away – unless it doesn’t.”

Right after the Brand X decision came down, the Commission announced that it was deregulating DSL access to the internet as well.

For both of these steps, the Commission decided to place internet access under what it called its “Title I” ancillary jurisdiction.  It could have decided not to apply some elements of Title II common carrier jurisdiction instead (”forbearance”), but it didn’t take that path.

These decisions left the providers of high-speed internet access free to discriminate in any way they chose.

Around the same time, there was further consolidation in the telephone services market.  SBC merged with AT&T and took the AT&T name; Verizon merged with MCI.

Internet access, meanwhile, continued to replace telephone as Americans’ general-purpose communications network.

When Comcast in the fall of 2007 started throttling BitTorrent, the Commission declared that this amounted to unreasonable network management.  It said that its authority to issue this kind of declaration came from its ancillary Title I jurisdiction.  Now the DC Circuit has signaled that it is likely to find that the Commission didn’t have the authority it claimed under Title I to say anything about what Comcast had done.

This signal has caused a good deal of consternation in many quarters.  Now what?  Where does the FCC’s authority to say anything about the basic transmission of Internet communications come from?  If the FCC lacks this authority, can it say anything about universal service obligations shifting to support high-speed internet access, or anything else having to do with transmission?

That’s where we are today.  The FCC could re-classify high-speed Internet access as a Title II service.  There is no longer a nondiscriminatory basic network to which Internet access attaches - this basic assumption behind the earlier classification decision has disappeared.  Internet access itself is the basic network.  And internet access is no longer inextricably intertwined with other services, like email, hosting, or domain name lookup services - this second assumption behind the earlier classification has also disappeared.

The incumbents suggest that such a reclassification would necessarily affect all of the online services that use transmission - like nytimes.com, or eBay, or Google.  Responses to the incumbents’ letter say that the FCC could instead leave online services in the “enhanced” nonregulated bucket while being clear that transmission via a general purpose, interactive network is different.  And “forbearance” is an available route to avoid imposition of unnecessary regulation on the transmission layer under Title II.

For lots of reasons, the US government for a hundred years required basic general-purpose interactive networks - you can lable them “telephone” and “telegraph” - not to discriminate.  There’s also been a requirement to interconnect with other networks.

Over the last forty years or so, the US government also made strenuous efforts to require those basic general-purpose interactive networks to be subject to competition.  The government removed barriers the network-owners had created to both non-network-owner equipment (modems, handsets) and non-network-owner transport facilities (microwave networks).  Indeed, the US government went pretty far, breaking up the AT&T monopoly in 1984 and passing the 1996 Act to introduce and support competition.  We had the idea that competitive access to natural-monopoly communications networks could catalyze entry, investment, and innovation. And so the 1996 Act required incumbent local telephone companies to make their lines into peoples’ homes and businesses available to their competitors, to unbundle their services and sell elements separately to competitors, and to allow competitors to co-locate their equipment in the offices of the incumbents.

And, again, we assumed that basic general-purpose communications networks would be subject to nondiscrimination and interconnection obligations.  We eventually allowed providers of general-purpose communications networks into the business of providing “enhanced” services (sometimes now called “information” services, but that’s inside baseball), but only if basic services continued to be provided separately in a nondiscriminatory fashion.

When the commercial Internet took off in the mid/late-1990s, the government wanted to shield the new Internet access providers that were being dialed into by subscribers from heavy universal service charges.  (At that point, Internet access providers were businesses that were separate from the network providers.  They were taking advantage of the carriers’ nondiscrimination and interconnection obligations in order to provide connections to the Internet.)

To protect these Internet access providers from having to pay into the universal service fund, the FCC decided that Internet access was an enhanced, not basic, service.  This determination was based on two assumptions:  (1) that there would continue to be basic service providers that would be providing pure transport to customers, and (2) that ISPs would be providing other services like mail servers, hosting web pages, and operating caches.

At the time the 1996 Act was passed, telephone companies were treated like providers of basic general-purpose networks - common carriers. When they started providing high-speed DSL access to the Internet over their own copper lines (using electronics to enhance the speed of communications), they were still treated like common carriers and required to unbundle this high-speed service for sale to competitors who wanted to resell it.

By contrast, the FCC had never regulated cable operators like common carriers. Instead, they were subject to a very light-touch regulatory regime – they were viewed essentially as entertainment broadcasters who were not broadcasting using public airwaves and thus were not subject to the full range of broadcaster “public trustee” obligations.  Cable system operators (initially) were also not providers of general-purpose two-way communications networks and thus were not subject to common carriage non-discrimination requirements drawn from telegraphy and telephony.

When cable operators got into the business of providing Internet access via cable modems, these regulatory wires (or traditions) crossed. The FCC was initially unwilling to say how this service would be treated as a regulatory matter. From the “level playing field” perspective, what cable operators were doing was exactly like what DSL providers were doing: providing physical transport for high-speed connections to the Internet over the “last mile” between their offices and the user’s home or business. This perspective would argue for treating cable operators just like telephone companies with respect to their Internet access function.

But the FCC decided in 2002 that because telephone companies had been required to offer pure transmission (general-purpose, basic transport) historically, they were telecommunications (basic) providers even when what they were selling was DSL access to the Internet. But because cable operators had never been subject to the pure transmission requirement, they could avoid regulation by continuing to refuse to provide pure transmission services – effectively deregulating themselves.  Cable got treated differently as a result.

Make sense?  We’re not even halfway through this story.  More tomorrow.

The FCC’s excellent survey, Broadband Adoption and Use in America, conducted at the end of 2009, shows that 35% of Americans do not use broadband at home.  Of that group:

“➤ Gender: 57 percent of non-adopters are women versus 49 percent of home broadband adopters.
➤ People with disabilities: 39 percent of non-adopters have a disability, compared with 15 percent of adopters.
➤ College graduates: Just 11 percent of non-adopters have college degrees versus 37 percent of broadband users.
➤ Age: 32 percent of non-adopters are age 65 or older versus 9 percent of adopters.
➤ Nearly two-thirds (65%) of non-adopters who are senior citizens are women.
➤ Income: 43 percent of non-adopters live in households with annual incomes of $20,000 or less, compared with 17 percent of home broadband users.
➤ Rural: 24 percent of non-adopters live in rural areas versus 13 percent of broadband adopters.”

56% of non-users cited at least three reasons why they weren’t adopters.  Here are some of the top reasons:

Monthly cost is too expensive  47%
I am not comfortable using a computer  46%
I am worried about all the bad things that can happen if I use the Internet  45%
The activation and installation fee to get service is too much  42%
I cannot afford a computer  40%
There is nothing on the Internet I want to see or use  35%
The Internet is just a waste of time  33%
I can access the Internet all I need to at work  14%
It’s not available where I live  13%

In general, the three most important reasons for non-adoption were related to cost (36%), “digital literacy” or comfort using computers and the Internet (22%), and relevance (19%).

Lower percentages of African-Americans - particularly older African-Americans - use high-speed access at home compared to all Americans (59% v. 66%).  Just 49% percent of Hispanics have adopted broadband, again with older Hispanics at lower adoption rates. Cost is the big reason for both of these groups.

The Joint Center for Political and Economic Studies also released a report this past week.  Called National Minority Broadband Adoption:  Comparative Trends in Adoption, Aceptance and Use, the report also noted lower adoption numbers for low-income, older, and less-educated African-Americans and Hispanics.

Higher-income minorities are the fastest-growing groups of broadband adopters.

As compared to whites, minorities are more likely to use the Internet at community anchor institutions (libraries and schools) and more likely to use it to search for jobs.

According to the Joint Center, “For non-adopting minority respondents, a general lack of interest, followed by lack of accessibility and then high cost, are the primary barriers to acceptance and use.”

For all groups, comfort with computers and networks seems to grow with time online.  Lack of interest may be based on lack of knowledge - and relevance may only be demonstrated by use.

Both of these reports demonstrate that there are deep and continuing demographic/cost reasons why adoption numbers remain stubbornly low in this country.

2.  FCC also reminds us that there’s a looming spectrum crisis.

Let’s assume mobile phones providing high-speed Internet access require additional spectrum.  But they’re also going to need much more deeply-available fiber - mobile communications need to jump quickly to a wire in order to provide true high-speed access.  More infrastructure is needed.

Berkman reminds us that having much more deeply-available, open access fiber will also lower the price of high-speed Internet access connections.  Competition is generally agreed to have a favorable impact on price.  Lower price, greater adoption.

All of this seems to point to a serious focus on the provision of Internet access, and on the pro-competitive conditions under which this access is provided.

Meanwhile:

3.  General-purpose transport providers are joining together to fend off any potential regulatory focus on any of this.