The latest of four New York Times editorials reiterating its support of net neutrality legislation or FCC rules, “Access and the Internet,” raises some simple questions.

First, are the examples in the editorial the best the New York Times can come up with to justify a major legislative overhaul to solve a potential problem that can’t even be defined or documented?

  • After literally quadrillions of Internet transmissions over the last few years without incident, if there was a real problem wouldn’t the Times expect to find more evidence of that real problem?
    • Citing the Verizon NARAL incident, which was not based on Verizon corporate policy and was an admitted and immediately rectified operational mistake, is among the thinnest imaginable justification for industry-wide legislation, especially given Verizon’s speed and effectiveness in fixing the admitted mistake.
    • Considering Apple’s rejection of Google Voice to be evidence of a net neutrality problem is even more far fetched.
      • Apple is a handset manufacturer not an ISP, and Apple has accepted over 65,000 applications for its Apps Store.
      • It understandably rejected Google Voice because it essentially would supplant the form and function of the iPhone’s innovation.
    • Is the New York Times suggesting that it may be a net neutrality violation if a competitor does not directly subsidize Google or volunteer to cede its market to Google when asked? Is that competition?

Second, in suggesting that the Markey-Eshoo bill is a “good bill that would guarantee so-called net neutrality,” did the editorial writer even read the legislation?

  • The legislation doesn’t even define “net neutrality” or “open” or reasonable network management.
    • How can it be a “good bill” if the bill’s drafters can’t even define the problem that they allege urgently needs solving?
  • If the New York Times read and analyzed the bill, they would realize that it is the quintessential example of a “bad” bill in that it:
    • Is completely unworkable,
    • Is much more regulatory than even the strictest monopoly-era regulation of the last 75 years;
    • Would torpedo incentives to invest in universal broadband access; and
    • Spawn incapacitating sector wide uncertainty.
Third, why is the New York Times editorial board so worried about a manufactured political issue, that the Times editorial board has proven is very thin on evidence or understanding, when there are real, pressing, and widely documented problems like Internet security to editorialize about?

  • President Obama declared cyber-security a national security priority.

 

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Analysis of the potential pitfalls of wireless innovation regulation is a necessary complement to the FCC’s upcoming Notice of Inquiries into wireless competition/innovation and the DOJ’s review of wireless competition, in order to ensure policymakers get a balanced view of the big picture.

What are the Top 10 Pitfalls of Wireless Innovation Regulation?

#1 Pitfall: Losing focus on universal broadband access.

“Wireless innovation” appears to be the latest rebranding iteration of “net neutrality” and “open Internet” as the net neutrality movement searches for more mainstream support of their views.

  • That’s because the American wireless consumer understands that the current wireless market in the U.S. is among the most innovative, fast-changing, competitive and consumer-responsive industries in the economy today.
    • Most consumers find themselves trying to keep up with the constant flow of new wireless innovations, not thinking “Gee… the wireless industry isn’t innovative enough.”
  • Having the Government investigate whether the current incredibly vibrant free market of wireless competition needs help from the Government to innovate is akin to the Government asking fish if they need help in learning to swim.
    • The whole premise that slow-moving Government regulation could be the enabling source of fast-paced market innovation defies both common sense and the vast evidence of the last fifteen years of fierce wireless competition in the marketplace.
  • Wireless innovation regulation is an unnecessary and counter-productive distraction from the primary unifying goal of promoting universal broadband access to all Americans.
    • Wireless broadband is among the most cost-effective and fastest methods to bring broadband access to those Americans who don’t yet have it.
    • Why discourage necessary wireless broadband deployment with unnecessary wireless innovation regulation?

#2 Pitfall: Undercutting the current consensus behind the universal broadband access.

Desperate net neutrality proponents appear intent on snatching defeat from the jaws of victory.

  • Currently there is strong bipartisan consensus for promoting universal broadband access to all Americans.
  • However, most everyone that has heard the term “net neutrality” knows that it is one of the most bitterly divisive communications/technology public policy issues in play today.
    • The goals of universal service and net neutrality are near polar opposite goals, because universal broadband is all about expanding “the pie,” and net neutrality is all about dictating allocation of the current pie pieces to ensure that no pie maker could make money off making more pies in the future.

#3 Pitfall: Thinking regulation somehow would put consumers in charge when competition already has.

The evidence shows overwhelmingly that U.S. wireless consumers are already in charge; prices are falling, choices are multiplying and innovation is flourishing.

  • In most every market there is a choice of 4 large, facilities-based national providers (Verizon, AT&T, Sprint, T-Mobile) and in many markets there is another facility-based provider like Leap or MetroPCS. And Clearwire is building yet another national wireless provider facility.
  • There are over 30 manufacturers offering over 630 choices of handsets.
  • There are at least 7 competing mobile operating systems: Symbian, Windows Mobile, Palm, RIM, Apple, Linux, and Android).
  • Ironically, the netopolies (Google with 70+% share of Internet advertising and eBay-Skype with 95% share of online auctions) which face the least relative competition in their market segments by far, are claiming the wireless market is anti-competitive and seeking the most new wireless innovation regulation of their competitors.

#4 Pitfall: Mistaking competitive exceptions as the rule requiring broad regulation.

  • After approving over 65,000 app choices for the iPhone, Apple reasonably denies one, Google Voice, which Apple maintains tries to supplant Apple’s core iPhone software design and functionality, and the FCC launches a net neutrality-related inquiry creating the alarming impression that anything less than approval of all applications may be presumed to be a violation of the FCC’s broadband principles.
  • With ~99% of texting on a unlimited flat rate plan, paying roughly a penny a text on average down from ~3 cents a text a couple of years ago, the text market is characterized by competition and falling prices not the 1% of the al a carte text segment with ~20 cent texts.
  • With over thirty manufacturers offering over 600 wireless handsets in the U.S., only a handful of the most expensive smart-phone handsets have handset exclusivity arrangements which require a particular device be sold only in conjunction with a particular carrier in order to ensure that marketing dollars benefit only the carrier that markets the device in a national campaign.  

#5

Pitfall: Defining consumer choice unworkably.

 

Wireless net neutrality proponents expect the FCC to interpret consumer choice as an absolute when there are always reasonable and legitimate trade-offs in producing a diversity of consumer offerings.

  • If a manufacturer or carrier does not have the business latitude to reasonably restrict applications to ensure they abide with contracted terms of use and a viable business model/offering, then a provider effectively would have no property rights per the U.S. Constitution, nor would a provider have any meaningful design, operating, or business role to differentiate their product or service from other competitors.
    • This app-centric view of consumer choice and wireless innovation would perversely undermine consumers’ diversity of choice by undermining manufacturers and ISPs incentive to innovate.
  • Wireless net neutrality proponents are trying to get the FCC to mandate unlimited app choice as an absolute entitlement and to brand as ‘anti-competitive” any imperfect outcome of a dynamic real-world competitive process.
  • Limitations on consumer choice for reasonable and legitimate economic, innovative, differentiation, and operational reasons are not anti-competitive, just the normal result of everyday competition and economics.

#6 Pitfall: Assuming early adopters are representative of average consumers.

Early adopters and tech elitists bloggers that scream for perfect user or edge control, basically want to be their own integrator, where they can buy most any component part at a wholesale piece-part rate so they can assemble/integrate their perfect personalized device/product/service.

  • Early adopters are already largely, but not perfectly, able to be their own integrators in today’s marketplace.

The problem is that early adopters are not representative of mass-market consumers.

  • Most of the mass-market consumer population wants products/services that are largely integrated and easy to use.
  • Average consumers pay providers to save them hassles and time in using their device/service.
  • The average consumer can then personalize their specific service greatly with easy-to-use integrated features.

#7 Pitfall: Innovation chauvinism, that one industry’s innovation is, and will always be superior to another’s.

  • The netopolies (Google/eBay-Skype) maintain that the application market is where most all the innovation occurs and:
    • Not in devices (ignoring Apple’s iPhone/iPod innovations for instance);
    • Not in ISPs (ignoring Verizon’s MiFi innovation for instance); and
    • Not content providers (ignoring Time Warner/Comcast’s TV Everywhere innovation for instance.)
  • The reality is that the market and consumers want/need innovation throughout the ecosystem not just from one favored market segment.
  • A policy that favors innovation in one segment at the expense of other technological segments is by definition a zero-sum innovation policy, not a growth policy.

#8 Pitfall: Wireless innovation regulation is a slippery slope.

Does wireless net neutrality mean that application design trumps device or network design?

  • If the FCC somehow determines that Apple does not have the property-right to own and design wireless handsets or software — if it limits any third-party application — the FCC will chill manufacturing innovation, entrepreneurship and risk-taking resulting in a big net loss in innovation and growth in the economy.
  • As more and more smartphones, netbooks, notebooks and laptops are wireless broadband enabled, where would the line logically be drawn where FCC’s wireless innovation regulation would stop?
    • If Apple cannot prevent a competitor like, Google-Android, from effectively taking over the design and functionality of the iPhone by supplanting the iPhone’s proprietary innovation with Google’s Google Voice innovation, why should any investor invest in building in any device if the FCC expects the value from the manufacturing innovation can only be harvested ultimately by application providers or Google?

#9 Pitfall: Little regulatory humility about the limits of Government wireless regulation.

Government wireless innovation regulation has had a humbling track record.

  • Even though cellular phone technology was invented in 1960, it wasn’t allowed by the FCC to be effectively commercialized until over twenty years later.
  • Serious FCC errors in the PCS auction implementation meant Nextwave’s licensing of 30Mhz (1/4 of the prime PCS spectrum that was supposed to be auctioned and put to work in the marketplace) laid fallow in legal limbo for several years.
  • Eight years after 9-11, the FCC has not been able to get workable interoperable spectrum implemented so first responders can seamlessly communicate and coordinate during an emergency.
    • The FCC’s over-regulation of the “D” Block auction of 700 MHz spectrum for Public safety failed to attract the minimum bid because the FCC’s model was deemed unworkable by the marketplace.
  • And municipal WiFi mesh networks have consistently proven to be more technically and operationally difficult to operate than Governments’ have routinely thought.
  • While well intentioned, Government, like competition, has a less than perfect record in keeping up with or meeting consumers’ evolving wireless demands.

#10 Pitfall: Thinking Government somehow can pick technologies consumers want better than consumers can.

Why the current technology-neutral innovation policy has been so successful is that innovation flourishes best in a consumer-driven market without Government economic or technology-specific regulation that tries to pick technology winners and losers far in advance.

  • The Government learned the hard way that slow-moving government processes generally are antithetical to creating an innovation environment, and that allowing consumers to choose the best technologies — by voting everyday with their pocketbooks in the fast-paced marketplace — fuels the most innovation.
  • One of the surest ways to undermine innovation is for Government to stand on the competitive scales to favor one technology over another; lessening free-wheeling competition lessens free-wheeling innovation.
  • Moreover, examining wireless innovation outside of the context of other competitive broadband technologies is not technology neutral.
  • Furthermore, picking winning technologies by favoring application innovation over device/bandwidth innovation… and picking de facto winning “National Champions of innovation,” by favoring the vocal netopolies, Google and eBay-Skype, over other competitors or technologies… runs the risk of an international trade war with other countries who may feel compelled to pick and protect their own “national champions.”

Conclusion:

Just like fish don’t need the Government to teach them to swim, the current vibrantly competitive wireless marketplace does not need the Government to teach it to innovate.

  • Universal broadband is simply too important to the nation’s future to ignore the many pitfalls of regulating broadband under the guise of “innovation regulation.”

 

I love to learn and I learned a lot of new information and insights from George Ou’s great new post on understanding how usage caps really affect broadband throughput.

  • It is a must read for anyone that considers themselves knowledgeable about broadband.
  • Some of it is counter-intuitive, but all of it is illuminating if you are interested in how broadband speeds and their relative usage limits affect international broadband comparisons.

I certainly hope fellow broadband experts at the FCC, NTIA, RUS, OSTP and on the Hill are reading George, and this post in particular, because George’s insightful and illuminating analysis can help take the National Broadband Plan analysis to another more substantive level of understanding.

 

 

 

The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions; this is contrary to the assertions of net neutrality proponents: the Markey-Eshoo Bill, FreePress, the Open Internet Coalition, and Google’s Internet Evangelist Vint Cerf, among others.

Why is broadband not a public utility?

First, it is a competitive service, not a natural monopoly service.

A public utility presumes “natural monopoly” economics where economies of scale and scope preclude the possibility of competitive facilities/services.

  • The roughly $200b in private risk capital invested in financially-successful U.S. competitive broadband facilities over the last several years is incontrovertible evidence that broadband does not enjoy natural monopoly economics.

Second, users have choice of access providers.

  • Public utilities exist where consumers have no alternative or choice.
    • However, in broadband Internet access, the vast majority of Americans have a diversity of choices of broadband providers, technologies, services and features: free WiFi; pay-for-service: cable modem, DSL, fiber, wireless broadband/WiMax, and satellite.
    • Consumers can choose between stationary access or mobile access and can choose among different speed and price offerings.

Third, utilities are based on single-use-facility economics.

  • Broadband provider facilities inherently have multi-use-facility/bundle economics; e.g. the converged telecom plant offers phone, wireless, high-speed and video; the converged cable plant offers video, phone, high-speed, and increasingly wireless; the converged wireless plant offers wireless, high-speed and video; and the converged satellite plant increasingly offers video and high speed.

Fourth, utilities deliver uniform units, whereas broadband delivers completely variable units.

  • Since electric utilities only transmit electricity, water utilities only transport water, and gas utilities only transport gas, they all only require availability management.
  • Broadband is intrinsically different. Whereas electricity, water, and gas are all uniform transmissions, broadband bandwidth is inherently variable requiring network management.
    • Without network management, different commingled services sharing bandwidth cannot be assured their expected or contracted for quality-of-service.
    • Unlike utility services, broadband network congestion can cause latency problems for voice or real-time services and jitter quality problems for video or high bandwidth applications.
    • Unlike utility services, broadband networks must contend with outside contamination and disruption of most all parts of their networks — most all of the time. Broadband networks are intrinsically different than utilities in that they must continuously, and throughout the network, manage and combat: viruses, worms, malware, bot nets, denial-of-service attacks and spam, among other harmful intrusions and infections.

Fifth, utilities are inherently “dumb” networks, while broadband networks are inherently “smart” networks.

  • Electric, gas and water utilities are “dumb” networks in that a central utility manager does not know if an area has or does not have functional electicity, gas or water — unless someone is at the distant location to confirm it — either a customer or a service person. Moreover, these utilities’ transmissions also largely cannot be prioritized to either help first responders or aid particular areas suffering from an emergency.
  • On the other hand, broadband networks are inherently “smart” networks in that they: can detect when an edge connection is functioning or not; and can be managed to prioritize to help first responders in an emergency.

Sixth, utilities are characterized by standard uniformity and glacial rates of change.

In contrast, competitive broadband facilities are characterized by diversity, differentiation, and innovation because they operate in a continuously-changing competitive environment.

  • While utilities seldom innovate, competitive broadband providers must constantly innovate and promote “smart” network innovation: i.e. ever increasing compression with copper-based DSL; ever-increasing bandwidth optimization with cable via the DOCSIS process, currently in the 3.0 iteration; ever-increasing bandwidth with fiber and optical management; and competing wireless broadband technology standards in LTE and WiMax.

Lastly, and maybe most importantly, current law, policy and precedent have already politically, regulatorily and legally decided that broadband is not and should not be a public utility.

  • The Clinton-Gore Administration decision to privatize the Internet backbone via the National Science Foundation in the early 1990s was high consensus and had strong bipartisan support.
  • Passage of the 1996 Telecom Act signed by the Clinton-Gore Administration was nearly unanimous in Congress. It changed U.S. law and policy to move away from monopoly utility regulation and towards competition. It also established that “it is the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet… unfettered by Federal or State Regulation…”
  • Furthermore, all of the FCC’s decisions to declare broadband an unregulated information service for DSL, Cable, wireless and BPL, were all unanimous/bipartisan. Finally, the FCC’s authority for these broadband decisions was upheld by the U.S. Supreme Court in the Brand “X” decision.

In closing, The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions.

  • Lastly, there are two particularly interesting and significant ironies/contradictions behind the net neutrality position that broadband service should be considered a public utility.
    • First, many of the same proponents who seek to turn the current “dumb” electrical grid into a “smart” electrical grid, want to turn the current “smart” broadband grid into a “dumb” end-to-end network grid.
    • Equally confounding and contradictory, many of the same proponents who seek that broadband be regulated as a public utility, don’t want broadband to be usage-priced like public utilities are. Broadband-as-a-public-utility proponents want broadband usage to be free. That is actually less of a public utility model, and more akin to a government program.
 

 

 

FreePress launched another effort to discredit my views and those of others in a new “Unmasking Astroturf” campaign where they called me the “Astro-turfer-in-chief.

I have some questions for FreePress on “astro-turfing.”

1. How is it “Astro-turfing” when I am fully disclosed and routinely communicate NetCompetition.org is a pro-competition e-forum funded by broadband interests?

It is not news that I work for company interests or that I philosophically believe, like broadband companies do, that competition is better for consumers and the economy than government regulation.

  • My mission and purpose are fully transparent and public.
  • My views are authentically my own and not synthetic as the epithet “astroturf” implies.
    • Why would it be surprising that I would work for entities whose core positions I agree with, just like people work for FreePress because they agree with FreePress?
    • A great thing about America is that one has constitutional rights to free speech and to assemble with whom one wants to.
  • Given that FreePress is often loose with policy facts it does not surprise me that FreePress is loose with process facts as well.2. Why does FreePress shoot the messenger rather than the message?

    Often ad hominem attacks are employed to distract focus from the substance and merit of a debate. It appears FreePress does not want people to be “open” to hearing my analysis or arguments that:

    3. How is it “astro-turfing” to be accurate?

    FreePress called me the “Boy who cried socialism” to imply that, like the “boy who cried wolf,” I have somehow not been truthful about what I have said about FreePress’ views.

    • Well I haven’t commented on a recent interview by FreePress’ co-Founder, Mr. Robert McChesney in the Bullet, the Socialist Project newsletter, but since FreePress was the one which raised the subject in an inaccurate effort to discredit my truthfulness, McChesney’s interview confirms that I was indeed accurate — given how unabashed FreePress’s co-founder is about FreePress’ socialist views and agenda in his most recent public interview.

    4. How transparent is FreePress about its backing?

    It seems fair that if FreePress is questioning and disparaging the transparency of groups who promote views in opposition to theirs, that FreePress would be interested in bending over backwards to be transparent about their funding and supporters.

    Who are FreePress’ biggest donors?

    Does FreePress accept significant in-kind contributions of any kind from corporations?

    Does FreePress consider large individual contributions from employees of companies to be just individuals for transparency purposes?

    Does FreePress believe its allies should also be transparent about their funding and supporters? e.g. New America Foundation, Public Knowledge, Open Internet Coalition, etc.

    In closing, I am thankful to have the opportunity to systematically counter FreePress’ spurious charges.