Network Neutrality Rules Poised to Pass

When it comes to the passing of the Federal Communications Commission (FCC) 's proposed network-neutrality rules, it's all over but the shouting.

The FCC doesn't vote on the proposal until Tuesday, but it was clear by Monday afternoon that FCC chairman Julius Genachowski had the votes required to push it through after two fellow Democratic commissioners -- Michael J. Copps and Mignon Clyburn -- confirmed today that they won't block the item from passing. Robert McDowell and Meredith Attwell Baker -- both Republicans -- are expected to oppose the item. (See Net Neutrality Sweep: Everyone's Ticked.)

As currently drafted, the proposed rules, according to senior FCC officials, will apply "robust transparency rules" to both fixed and mobile Internet service providers, meaning they'll have to be diligent in disclosing information to consumers as well as application, content, and device makers that deploy services on those broadband networks.

Also built in is a rule that prohibits wireline ISPs from blocking lawful applications, content, and devices. However, the FCC will allow those ISPs to use "reasonable" network management.

The proposed rules are less strict for mobile broadband ISPs when it comes to the blocking of some Web sites, but they will be prohibited from blocking competitive voice and video telephony services, such as those from Skype Ltd. Wireless broadband will also be subject to reasonable network management.

If voted in as expected, the rules will codify and (in the case of wireless) extend the FCC's existing Internet Policy Statement. The FCC is taking this new step after a court determined that the Commission didn't have the authority to enforce those principles on Comcast Corp. (Nasdaq: CMCSA, CMCSK), which came under fire for throttling some upstream peer-to-peer traffic (See Net Neutrality Ruling: FCC Loses, Comcast Wins.)

A senior FCC official labeled any notion that the rules would bless pay-for-priority arrangements as "categorically false," noting that the Commission does view them as potentially problematic.

The item will likely allow tiered pricing on broadband, possibly opening the door to usage-based Internet tiers. However, the FCC will monitor this area closely.

The item is not expected to address peering disputes, such as the one that surfaced recently between Level 3 Communications Inc. (NYSE: LVLT) and Comcast. (See Comcast: Level 3 Balks at Trial Offer and Level 3: Comcast Erected Web Video 'Toll Booth' .)

Once the rules are in place, the FCC is expected to review and resolve disputes quickly, since all complaints will go through the Commission's so-called "Rocket Docket." Those in violation of the rules will be subject to moves that prohibit behavior as well as fines.

Because of the expected dissent among the commissioners on the item, the final order won't be released on Tuesday. Because of that standard process, the full order likely won't be released until later in the week.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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paolo.franzoi 12/5/2012 | 4:15:34 PM
re: Network Neutrality Rules Poised to Pass


Let us theorize a "Flash Based Game".  These actually exist and lots of little web games are Flash based.  Can I argue that AT&T is violating the Net Neutrality rules by blocking my Flash Content?  Wait you say they are not doing it, Apple is.  Aha I say, but there it is!  It is a device linked to the AT&T network blocking my legal application from running!  Just cuz it ain't a super smart policy thingie don't mean it don't apply policy.  The policy is that Flash is (playing the Jim Rome clip in my mind) BLOCKED BLOCKED BLOCKED.



somedumbPM 12/5/2012 | 4:15:32 PM
re: Network Neutrality Rules Poised to Pass

In that case your choice of OS is blocking your content.  An Android phone on ATT would play that with no issue.  But a slew of questions could arise.

rjmcmahon 12/5/2012 | 4:15:31 PM
re: Network Neutrality Rules Poised to Pass

re " Still why should it matter whether the router or the phone is doing the blocking?"

It matters because of market power.

In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors. Market participants that have market power are therefore sometimes referred to as "price makers," while those without are sometimes called "price takers."

A firm with market power has the ability to individually affect either the total quantity or the prevailing price in the market. Price makers face a downward-sloping demand curve, such that price increases lead to a lower quantity demanded. The decrease in supply as a result of the exercise of market power creates an economic deadweight loss which is often viewed as socially undesirable.

And per Noam,

These pipes have a long history of monopolistic pricing and restrictions of access. The logic of economic behaviour would lead them to charge content and applications providers as they send out packets, even when these are requested by the end-users. Indeed, the pipes are likely to entice end-users with low subscription fees, and then hit the providers with high charges, because they have other way to reach a particular end-user after he's made his choice of a last-mile pipe. They will then have to charge those consumers for their use. As a result the internet ceases being mostly free to end-users beyond their monthly connectivity fee. Instead, they will often have to pay each time they click on a website, thereby reducing the use and excitement of the internet.

Last-mile pipes. This is the traditional core of market power for the pipes. Right now, there are at most two major pipes – the telecom and the cable pipes. They have significant market power towards the end-users, and even more so towards content providers, for whom they are the only way to access an end-user.

paolo.franzoi 12/5/2012 | 4:15:31 PM
re: Network Neutrality Rules Poised to Pass



I understand what piece of equipment is doing the blocking and why it is doing it.  Still why should it matter whether the router or the phone is doing the blocking?

The reason I wrote this example was to push the boundaries of whatever ruling comes out.  People don't think of this as Net Neutrality, but I am trying to challenge folks views of what that term means so that they can each achieve their own clarity.



paolo.franzoi 12/5/2012 | 4:15:30 PM
re: Network Neutrality Rules Poised to Pass


You are completely missing the technical point.  Network equipment is network equipment.  These will be technical rules to enforce social policy.  The question will be the extent and language of the rules.

I agree with Duh and simply want people to think through the broad implications of the ruling. 



Duh! 12/5/2012 | 4:15:30 PM
re: Network Neutrality Rules Poised to Pass

When the Order is released (I expect Thursday or next week), the thing to flip to is the legal analysis, toward the back of the document.  Remember that the Court of Appeals smackdown in Comcast did not follow the plaintiff's argument that the FCC merely tried to enforce a statement of policy as if it were a Rule.  They said that the FCC had not statutory authority to regulate broadband under Title I, and hadn't drawn any nexus from the issues at hand to authority that they clearly did have. 

So the big question is whether these rules are going to be enforceable, and under what legal theory.   The "third way" approach at least pushed the problem into a realm where the FCC had clear statutory authority, but obviously produced backlash from the industry and the Congress.  Maybe by "negotiated regulation", the FCC is  hopes to co-opt future appeals. 

In any event, this is going to be interesting.  Almost makes me wish I'd gone back to law school in the mid-90's... the DC firms that practice communications law are in for some really good times.

somedumbPM 12/5/2012 | 4:15:29 PM
re: Network Neutrality Rules Poised to Pass

Well the phone is not doing any blocking.  You can load Android on an Iphone today and with some further tweaking probably get the flash to work <-this may have already been done I haven't dug much.

Just like if I uninstall IE from my PC, Windows Update no longer works, but it is not being blocked by the PC, a router, or a carrier network.  Actually I have gotten it to work without IE myself, but it was not as simple as keeping IE running natively.

I understand your example and your intent and agree there will be great room for discussion on the issue of interpretation. 

I know you understand the above just as well as I do too, but I think these are all examples of the vast deltas between the FCCs understanding of the old highly regulated telecom and radio operations vs the wild wild west nature of the interwebs.  And the general public consumer will have many more questions and possibly unwarranted complaints headed towards the FCC, which they will have to address by some means.

 Will traffic blocks get you a bad mark like the code5's of old?


rjmcmahon 12/5/2012 | 4:15:29 PM
re: Network Neutrality Rules Poised to Pass

re: "Network equipment is network equipment."

Uhmm, sorry, but another incorrect simplification.  I read somewhere that some try to use their minds to model the world as it really exists while others use their minds to try to preserve beliefs.  Sadly, you're making yet another facetious argument to do the latter.

In reality, a router owned by a last mile provider is not going to behave like a router owned by an enterprise corporation even if these are technically equivalent pieces of equipment.  The enterprise customers' routers will be configured to maximize productivity and will provide bandwidth in excess of user demand while last mile customers' routers will be used to leverage a postion of market power in order to maximize profits despite the issue of dead weight loss.  And the last mile network providers have the fiscal and legal responsibilty to maximize profits regardlesss of dead weight loss.  Hence the need for a regulator in the case of the last mile routers and no need for one in the case of enterprise routers.

OldPOTS 12/5/2012 | 4:15:25 PM
re: Network Neutrality Rules Poised to Pass

rj Why only the last mile provider has marketing leverage??

Maybe I'm lucky, but I have at least a choice of three last mile providers, plus multiple new wireless alternative offerings.


rjmcmahon 12/5/2012 | 4:15:22 PM
re: Network Neutrality Rules Poised to Pass

Hi OP,

The last mile is the natural monopoly.   Here are some observations:

Comcast just proved in the Level 3 so-called "peering dispute" (which really is an access to customer dispute) that Comcast is the price maker and Level 3 is the price taker.  The last mile provider just squeezed a long fiber provider showing which side has the market power.

There really are no substantial last mile fiber overbuilds going on across the country when compared to the initial ISP dial up stages of the late 80s early 90s-ish where thousands of new entrants formed to provide a new technology (packet switching and statistical multiplexing) or compared to South Korea/Japan/HongKong.  This is because the sunk costs are way too high.  This represents the front side of a natural monopoly.

Verizon and SBC leveraged their last mile infrastructure (wired T1 backhaul) to dominate wireless.  (Sprint testified to this issue 5+ years ago about how 96+% of their backhaul was controlled by their direct competitors.)  This has been the obvious place for new entrants/overbuilders to bootstrap themselves but rather these new entrants don't exist have been blocked out by the status quo.

One of the most obvious markets in the world for high speed internet access, Silicon Valley, offers only two providers - Comcast's Xfinity and SBC's u-verse.  Both companies are woefully conflicted when it comes to internet access.  U-verse really doesn't offer a competitive internet access service.

Computers located on the "real" internet (colos with multiple carriers) have been more or less following moore's and metcalfe's laws, pricing drops while i/o has been increasing.  This is where the long fiber is being served by new entrants in a more, though not perfectly, competitive market.

Technology products are deflationary products (again per Moore's law) but as percentage of disposable income the communication access costs to consumers have been increasing significantly.  This comes from govt. data over the last 30 years.

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