Tuesday, December 08, 2009

A Single Pipe to Rule Them All

The FCC is now seeking comment on the transition from the legacy circuit switched voice network to a future all-IP network. This announcement is the beginning of a long and arduous process that will have profound financial and regulatory implications for, if history is any guide, the next 50-100 years.

The elephant in the room in any discussion of upgrading or replacing the old publicly switched telephone network (PSTN) to an IP network is Universal Service. Universal telephone service has long been a political sacred cow for the simple reason that running telephone cables to rural areas is expensive and under basic economic principles the cost could not be recovered at the price for service. The Universal Service Fund (USF) was established to compensate rural telephone companies for their costs. If you pay a phone bill, you pay into the USF in addition to your carrier. Rural telcos can then keep the prices down, at levels deemed acceptable by state public utilities commissions. Since most Senators and many Representatives have rural constituencies, messing with the USF is political kryptonite.

Since IP networks carry digital data which may be used for voice services (VoIP), but are not dedicated to telephone service they do not currently qualify for Universal Service where an existing voice circuit currently exists. When we hear of the need for Universal Broadband, this is why we don't have it. The economic costs are too high for the price and the internet isn't covered under the USF. However, many rural carriers are providing IP services to their customers at sustainable costs. They can do this by running fiber optic cable subsidized by the USF as a telephony service to homes where they are the local exchange carrier. They can then provide these homes with broadband internet over fiber optic cable at market prices without losing money. However, once the data network is in place, the homeowner can use an phone service they want, not necessarily the local providers. They pay the provider for the broadband only.

The end game here is twofold.

1) Because of both the politics and the fact that data can be anything - a phone call, a TV show, a web page - the USF provision will need to be transferred from the telephone "pipe" to the "data" pipe.

2) Applying the USF to data pipes, will create a subsidy and subsequent price regulation for Universal Broadband, something that many policy makers have been hoping for, for a long time.

I agree. We can no longer view the wires (or wireless signals) that come in to our homes as service-specific. They are all just data and capable of being any of the services we might subscribe to. Just as at the beginning of the twentieth century, the cost of running cables to sparsely populated rural areas, can not be recovered in the prices charged for their usage. Therefore, these new data pipes should be built and regulated under the USF or similar newly constructed mechanism.

Friday, December 04, 2009

The FCC Starts Wondering What Granddad's Beach Cottage Might Be Worth...

Is the FCC ready to look at renovating the beachfront property? The folks at the CommLaw Blog think so. They are daring to ask the question "What is more in the public's interest? Using the beachfront spectrum for more broadband internet or for free over-the-air broadcasting?." Their vehicle for gauging the public interest is in the economic value to society in the form of jobs, growth and innovation. By casting their net in this manner, the FCC appears to have front-loaded the argument in favor of the innovation bringing broadband over the buggy-whip driven local television broadcasts.

Once this debate gets outside the walls of the FCC, expect the hand-wringing, flag-waving and the tea-partying to begin. Although, yet again we will undoubtedly find some strange bedfellows. After all, what would be more libertarian and free market driven than letting the use of these airwaves find their highest value on the open market?

Thursday, December 03, 2009

Comcast/NBC is Good for Net Neutrality Because It's Bad for Net Neutrality

The Comcast/NBC partnership is good for Net Neutrality. Why? Because it provides the clearest possible example to the greatest number of people of the dangers of a walled internet without the neutrality principle. Owning NBC, Comcast now has a clear incentive to charge other internet providers like ATT and Verizon for the right to provide access to NBC/Universal content over the internet or simply to provide better, faster or higher definition content to Comcast subscribers, providing a switching incentive.

The high visibility of the NBC/Universal content in the public's eye will ensure that this does not happen. Acting as Congress's agent for the public interest, the FCC or FTC in conjunction with the Department of Justice will not permit this merger to move forward without a binding agreement that non-Comcast users will receive both the same full access and equal treatment as Comcast customers. With these conditions in place, it will set a clear precedent for the first time for internet video content, echoing the FCC's Madison River decision which protected VoIP content.

Perhaps, the clearest precedent to the current case, though, lies in the FTC's handling of Time-Warner's 1995 acquisition of CNN. As a condition of the merger, the FTC required Time-Warner to carry a second 24 hour news channel in order to provide competition to its own CNN. Time Warner chose to carry a fledgling joint venture between Microsoft and NBC - MSNBC. Rupert Murdoch took issue with this choice, made over his equally young 24 hour news channel - Fox News. Several lawsuits later Time Warner settled and agreed to carry Fox News in the New York City market. This event ultimately led to the prominence and reach that Fox News has today.

Comcast customers currently have equal and non-discriminatory access to content from NBC, Disney, Viacom and countless other providers. This merger will not occur unless Comcast agrees to preserve this status quo, which will provide the highest profile real world affirmation of the doctrine of Net Neutrality to date.
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