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New Title II Will Choke Optical Investment

February, 2015

The logical presumption associated with the madness of the FCC’s planned takeover of the Internet will be that service providers should be expected to cut back on fiber optic network investment to an absolute minimum, at least until litigation in the courts has been completed. It is also reasonable to conclude that the impact on purchasing of equipment by these carriers of net traffic will be even worse than what happened with the Telecommunications Act of 1996 in which the incumbent carriers were forced to unbundle their infrastructure. The expected Title II ruling is more detrimental because it is a demonstration of a federal agency, reflecting the overall plan of the current administration, which is behaving as if it has virtually boundless legal authority over Internet service providers.

Up until fairly recently, there was bipartisan support in the US for a more or less of a hands-off policy when it came to the Internet. In early 2014, an appellate court with the exception of the rather innocuous transparency rule affirmed knocking down a couple of the major tenets of the FCC’s Open Internet Order. Yet, even today, there would be universal support for no blocking legislation as part of an effort to deliver “net neutrality.”

However, while the rhetoric is about protecting the rights of consumers, the current effort is about the nationalization of the Internet based purely on ideological grounds. It is also about setting the stage for the US government to start taxing the web resulting in billions of dollars in new revenue because living within its means is never an option for Uncle Sam.

The idea that moving ISPs to Title II is in the interest of consumers is laughable. In not being allowed to charge large content companies a big premium, including in prioritizing their heavy amount of traffic, residential customers would be subject to much higher rates and their level of service would suffer greatly with real-time video transmission potentially becoming very difficult.

Certainly, it is no secret that many lawyers have no problem with advocating anti-discrimination policies on the web because they lack the understanding of the network engineering intricacies involved in making sure that packets do not get lost. Another commonly argued point is that extending Title II is unjustified because the Internet does not involve a situation with a natural monopoly as was the case with the old Ma Bell – there is widespread access across the country to several choices including cable, DSL, wireless, and satellite.

As an aside, it is not hard to realize why companies like Sprint and Charter Communications are showing some support for the new regulations. It will be a means of undercutting the progress of their much bigger competitors.

As if the US were led by a repressive regime, the 332-page document will be not be released to the public until the vote by the FCC commissioners takes place on February 26th. Critics of the new regulations accurately describe it as a massive power grab by the federal government in order to solve non-existent problems. Providers of Internet service will simply not stand for being told how their networks should be built and managed.

Combined with the effects of cyberattacks addressed in our last blog article, the fiber optic industry faces a double whammy that is historically unprecedented in its negative impact. The amazing aspect is that in a representative democracy, it only in effect takes one person, the Chairman of the FCC, to put a policy into place that will significantly undermine the Internet economy, which has by and large been a tremendous success story.

[written by Mark Lutkowitz]

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Mark Lutkowitz
February, 2015
Chris,

If the ILECs even came close to the draconian tactics you are mentioning, there would be a need for regulations. These companies have hardly been saints and have been certainly far from being perfect, but they have always realized that unreasonable blocking or prioritization of content would invite such policies. It would have also been irrational to alienate two major classes of customers -- content providers and consumers. Nevertheless, the carriers are being punished anyway because some folks currently in power believe that you cannot ever have enough government control over markets as well as people's lives. At the same time, I do believe that the federal government can continue to play an essential role in cases in which the free market falls short in meeting the needs of the entire population, such as in high-cost rural areas and in the very expensive task of providing fiber to everyone's home.

On your point about "providers," respectfully, you lack sufficient intimacy with the "Bellhead" culture that still is prevalent with the incumbents. While there may be a few technology exceptions, the tendency is to reach a high level of agony before they will buy new equipment.

Also, your concern about consumers should take into account that with the concentration on the "all-you-can-eat" approach, limited users of bandwidth will subsidize even more the major utilizers of capacity -- such as the video game players.

Concerning Wheeler, if he has nothing to hide, why will he not release the 332-page report before the vote takes place? You may want to look at:

http://www.fcc.gov/document/comm-pai-press-stmt-president-obamas-plan-regulate-internet

in order to get a better idea of the authoritarian measures that will come into play.

Mark
Chris Green
February, 2015
Mark,
Just one question, would an ILEC, ATT, Verzion prefer to kill Vonage or see it flourish? Or for that matter OTT(Netflix, Hulu), Skype, Facetime, “Internet only” cell phones, anything that would stop the consumer from “consuming” the providers services? Allowing them(providers) freedom to dictate data flows and priorities without consequence, and that is exactly what will happen.

With all due respect, your statements are just false. ILEC's don't “loath” spending money. They want an return on investment(ROI). If the customer is willing to spend, they(ILEC's) are willing to provide/upgrade, hence the term “provider”.
Why do you think regulation will mean FCC dictated pricing? Have you read anything from Wheeler at the FCC?? Do me one favor and just read this piece. It's short and very straight to the point. I'm not a government fan either.....but your better off with an evil you know.

http://www.fcc.gov/document/statement-fcc-chairman-tom-wheeler-fccs-open-internet-rules

Just one last point, the bigger picture here is that now that the government(you and I) have funded a very large share of cost for Internet infrastructure in this country through subsidies such as E-Rate, USF, the Broadband Initiative...etc, private companies that have long enjoyed the fruits of tax payers labors, NOW want to impose their priorities to the traffic flowing across these links in a way that will stifle innovation and directly cause costs to the consumer and it's competitors to soar. That, is what Wheeler is talking about.

http://www.huffingtonpost.com/2015/01/07/fcc-net-neutrality_n_6433510.html

They are both very short reads.

So...maybe that was 2 or 3 questions.
Mark Lutkowitz
February, 2015
Hi Chris,

Thank you for responding to our blog post. In general, just about all incumbent service providers loathe spending a penny more than necessary on network infrastructure. If they cannot reasonably determine their return on investment, they will really cut back on purchases as much as possible. Your assumption that "[i]f your customer is using more data than they are subscribed for, they will want more and pay for it" is simply fallacious. The original notion of "net neutrality" has always been based on the belief that everybody should pay the same regardless of quantity or prioritization. At a bare minimum, the FCC will be able to regulate any service package that does not have a fixed price.

I am not an apologist for any company in the telecom market. For example, I have been critical of incumbent local exchange carriers in their resistance to innovative solutions. I have also been quite outspoken over the years about Verizon putting up smoke screens to cover up its their desire to totally get out of the residential wireline business. However, it has been over 30 years since the Ma Bell divestiture and for the most part, Verizon, AT&T, and CenturyLink have a right to be treated as independent companies without government interference.

Packets get lost all of the time. If there is a failure in the transmission of anything sent that is not time-critical, one can ask to have a packet resent. Yet, it should not be hard to understand that the reassembly of packets on the consumer side for a Netflix movie or a video game sent in real time with a high level of quality is a much greater engineering feat that requires a tremendous amount of costly software and hardware than to reassemble a Twitter text message.

Mark
Chris Green
February, 2015
Mark,
So, if I understand you, you are saying that, IF the FCC DOES NOT allow providers to discriminate/kill/que traffic based on whatever prerequisites the provider deems fit, it is going to hurt fiber network expansion as well as limit expansion/investment in their own networks, cost the consumer more and cause cats and dogs to begin living together?
I hope I'm just not understanding you correctly, because the very idea that remaining "unbiased" or as the FCC/Everyone else in the world, likes to call it "Net Neutral" would somehow hurt or cost the consumer more money is asinine. Providers will continue to expand, because that's what they do....expand and offer more bandwidth intensive services.
One more thing, packets don't "get lost". You should do a little more homework about Network Engineering before you go speaking for us. For the provider, there are no more "intricacies" involved with transporting packets from Netflix than there are with say http(web pages). To a provider, it SHOULD be a transparent(neutral) flow of data. If your customer is using more data than they are subscribed for, they will want more and pay for it, plain and simple.

"Big Provider" Hype is the killer for Net Neutrality not FCC intervention or regulation...but, I figure, you know that. ;-)

Chris Green