Obsidian Wings

RedState Wonkery on Open Networks

by publius

I wasn't expecting the good folks at RedState to endorse open networks.  But RedState's Neil Stevens threw me for a loop with this one: 

[Open network regulations are bad because] [w]ealth will be redistributed, as cash-rich, massive market valued Internet firms will bully and get a free ride on capital-intensive, smaller market valued telecommunications firms.

Ah yes, let's hope gritty upstart AT&T can survive this.  Anyway, I was brave enough to click the link, which led me to his previous post explaining why AT&T is actually David fighting Goliath:

“Amazon.com, EBay, Google, Intel, Microsoft, Facebook, Skype, and Yahoo” are all on their side. Some of those are small companies, but . . . Microsoft’s market capitalization stands at over 220 billion dollars today, and Intel’s at half that, $106 billion. The big, bad AT&T itself is only worth $1.2 billion, or about half of one percent of Microsoft.

Um, ok. 

I'm not exactly an expert, but I do have Google.  And Google tells me you measure market capitalization (i.e., value of equity) by multiplying the number of outstanding shares by share price.  For AT&T, that gets you $153 billion (or $146 billion after you subtract their cash). 

As you probably recognize, $146 billion is bigger than $1.2 billion.  He was close though -- just off by a factor of 121.

And if you really want to determine the value of AT&T, you should also factor in its $76 billion of debt.  That brings you to around $222 billion.

The point is that AT&T is an enormously large and powerful company under any metric you choose (revenues, market cap, etc.).  Stevens, however, is treating it like a new startup company.

More broadly, his argument that a bunch of rich Internet companies are fighting for open networks isn't really true.  Internet companies aren't exactly doing the heavy lifting anyway.  Public interest organizations like Free Press are.

And with the exception of Google, most of the companies actually doing some real work aren't that big.  Microsoft, by contrast, has been virtually useless in this fight.  You'll notice that it's not on the CEO letter that went out earlier this week supporting open networks.

In any event, essentially nothing is correct in either of Stevens' posts.  They are entertaining though.  "Single Payer Internet" is a keeper.

Congressional Democrats Attempt to Sell the Internet

by publius

As I've noted before, it's nothing short of a miracle that the FCC has come out so strongly for open networks.  On its face, it seems to defy the ways of Washington -- and public choice theory in particular.  The FCC's action wasn't the result of lobbying by monied interest groups.  It was a combination of committed efforts by public interest organizations with the (historically contingent) support of the Obama administration.

If the fate of the Internet were up to Congress, they would try to sell it to AT&T.  In fact, they're trying to do that as we speak.  And I'm talking only about the Democrats.

Earlier this week, seventy-two Democrats -- seventy of whom took money from Internet Service Providers like AT&T and Comcasat -- wrote a letter to the FCC criticizing openness requirements.  The gritty populist Blue Dogs were, of course, well-represented.  But what's disappointing is how many members of the Congressional Black Caucus signed on (including Rep. Lee, my own Representative -- who has inspired my first "press inquiry" to a congressional office). 

This isn't terribly surprising -- the Internet Service Providers are a powerful, well-financed lobby with literally a century of experience lobbying Congress and its committees.  Open networks are, by contrast, being pushed for largely by underfunded public interest organizations and activist groups.  Internet companies have provided some help, but most of it has been after-the-fact cheerleading.  They're not actively pushing much.

So let's hope Chairman Genachowski isn't bullied by this effort.  And if one of your Representatives signed this letter (pdf), call their press office and ask them for a statement why the interests of AT&T are more important than the open Internet.

Libertarians and Open Networks

by publius

Mark Thompson had a thoughtful response to my longer post on the Comcast case and the brief.  It's worth reading the whole thing, but I had a few thoughts and comments.

First, I think libertarians like Mark should be siding with the FCC—in this case, siding with the government agency best maximizes liberty.

I’m not exactly an expert on the tenets of modern libertarianism.  I assume, though, that reduced government intrusion is a means to an end rather than an end unto itself.  That is, maximizing liberty is the ultimate goal, and limiting government is—generally speaking—the way to achieve that end.  (I’m assuming most libertarians are utilitarians—my argument doesn’t work if you think government action is inherently unfair).

In the world of Internet access, though, this general principle doesn’t work.  Libertarians are going to have to pick their poison.  Either the government must impose some basic foundational regulations upon the physical network provider, or the network provider will impose its own restrictions on the application layer (content providers, innovators, etc.).  Indeed, if Comcast wins, its market-distorting interventions are just the tip of the iceberg to come.

So pick your poison—the government or Comcast.

To me, this isn’t a remotely close question.  Government action in this context furthers the goals of libertarianism many times over by providing the foundation for a nearly infinite number of free markets that have extremely low entry costs and are perpetually contestable.  In this respect, open networks are analogous to basic foundational property rights that (I assume) most libertarians concede are necessary to market freedom.

I also want to respond to a couple of Mark’s more specific points about the broadband “duopoly.”  He writes that we should try to “remove the regulations that ensure and enforce the duopoly.”  That certainly couldn’t hurt—my recommendations would be to provide strong protections for muni broadband and to buy out broadcasters’ spectrum.

But the duopoly (at the physical layer) has deeper structural causes that go beyond regulation.   It’s impossible to construct entirely new networks from scratch—there are various barriers to entry, such as enormous fixed sunk costs coupled with extremely low marginal operating costs.  In fact, the networks we use today—telephone and cable networks—were publicly subsidized monopoly networks that became broadband networks by accident.  It's not something we can repeat today.

For the foreseeable future, then, cable and phone are all we got.  Wireless is nowhere close to competing as a substitute service, and probably never will be.

For this same reason, I tend to be very skeptical of arguments that rely on “new networks” emerging.  If they were economically rational to build, we’d see them.  But they’re not, so we haven’t.  More broadly, these arguments tend to ignore the massive structural barriers to entry that exist even without incumbent-protecting regulations.

Comcast v. FCC: A Brief Overview, and Why You Should Care

by John Blevins and Marvin Ammori

(I'm using my real name because this piece is both co-authored and will be x-posted at Balkinization.  I'll update with link when it gets posted.  publius).

Yesterday, a group of law professors and public interest organizations (listed below) filed briefs in Comcast v. FCC in the DC Circuit court—a case with potentially enormous implications for the future of the open Internet.  The briefs are available here and here.

For those unfamiliar with the case, here’s a very brief summary:  In 2007, Comcast got caught interfering with applications on the Internet (specifically, it blocked its users’ uploads using peer-to-peer applications like BitTorrent).  After initially denying any blocking—and then after several months of consumer complaints, terrible press coverage, and an FCC investigation with several public hearings—Comcast finally came clean and promised to stop.

In 2008, the FCC concluded that Comcast’s actions were illegal, violating federal policy set out in the Communications Act, and ordered the company to demonstrate that it had (as promised) discontinued these practices.  Comcast then sued in the DC Circuit, arguing that the FCC’s Order was both procedurally defective and beyond the FCC’s jurisdictional authority.

The stakes of this litigation are high. If the DC Circuit vacates the FCC’s Order, the court will give every network provider in the nation the green light to adopt and expand Comcast’s discriminatory practices—a development that would undermine the basic level playing field that we expect on the Internet.

The decision could also undermine the FCC’s recent proposal to adopt rules governing and ensuring network neutrality. Indeed, if Comcast is right that the FCC wrongly claimed jurisdiction over network discrimination, then the FCC would have to return to Congress—where a Senate filibuster would loom large over any attempt to pass new legislation.

The two briefs filed yesterday, then, address different aspects of the overall argument supporting the FCC’s position. 

The first—the Amici Brief submitted by Professors Jack Balkin, Jim Chen, Larry Lessig, Barbara van Schewick, and Tim Wu—illustrated the harmful policy consequences of reversing the FCC’s Order.  In short, Amici explained why you should care about what Comcast did.

One of Amici’s primary arguments was that Comcast’s actions would cause real economic harm by raising the costs of innovating on the Internet.*  In doing so, Comcast’s actions would transform the open Internet into a more “closed” network, closer in spirit to today’s cable network where uses are completely controlled and pre-approved by the network provider.

For background, the reason that innovation is easy and inexpensive on the Internet is because everyone on the Internet has traditionally followed shared, non-secret practices and protocols.  The creators of Twitter, for instance, didn’t have to call network providers like Comcast for permission to introduce their application.  They simply conformed their application to transparent, standard protocols—and then trusted that their new application would work on the network. This ease of innovation allows an extremely diverse set of people (from college students to Fortune 500 companies) to experiment, which paves the way for new markets and economic growth.

Actions like secret blocking would undermine these basic foundations for innovation by raising costs in numerous ways—and we list only a few examples here. In the brave new world of blocking, application innovators would be forced to waste time and resources tailoring their application to multiple networks, and to multiple providers’ idiosyncratic blocking practices. Blocking would also make it harder for new developers to obtain start-up funding, as testimony in the FCC’s record demonstrated. And it would likely trigger a wasteful arms race, as users and application developers focus their efforts on evading network filters.

Comcast’s discriminatory practices—if more widely adopted—would also distort competition among new applications and content. Traditionally, user-driven market forces have determined the success of failure of new applications. Comcast’s practices, however, foreshadow a troubling trend in which network providers start picking the “winners and losers” on the Internet based on their own individual motives.

Unfortunately, market competition is insufficient to address these problems because network providers have incentives to discriminate against certain applications, and because the Internet access market is extremely uncompetitive.

In short, the stakes of reversing the Order are high—indeed, a reversal could undermine, at a fundamental level, the features of the Internet that have made it so valuable.

The second brief was filed by public interest groups Free Press, Consumers Union, Consumer Federation of America, Public Knowledge, and was joined by technology start-up Vuze, Inc. and a group of for-profits and non-profits in favor of network neutrality called the Open Internet Coalition (which includes companies such as Google and Skype, among others). Media Access Project acted as counsel to some of the groups.

This brief focused on the (admittedly less sexy) issues at the core of the appeal—whether the FCC had the jurisdiction to act against Comcast and whether the FCC followed appropriate procedures.

For jurisdiction, the brief emphasized that, under Chevron, the FCC receives deference for interpreting the Communications Act, including interpreting the scope of its jurisdiction under that Act. This deference provides some certainty to industry and consumers. The FCC, for instance, has spent the last several years claiming to have jurisdiction over network neutrality issues. If those conclusions are entitled to no judicial deference when challenged, industry and consumers will be subject to increased uncertainty over the legal regime and who will enforce it.

Regarding procedure, Comcast essentially argues that that the FCC improperly enforced an administrative policy statement as though it were a rule. Agencies, however, have the discretion to choose to make policy through either rules or adjudications—here, it chose adjudication.

In acting through adjudication, agencies usually try to give notice to parties through a policy statement. That is exactly what the FCC did here and it’s pretty basic administrative law.  The FCC, in fact, gave Comcast far more than enough process.  In these respects, the brief complemented the FCC brief (pdf), filed two weeks earlier, which soundly refuted many of Comcast’s arguments.

For those interested in the fuller versions of these arguments, we’d encourage you to check out the briefs, which provide a lot more detail.

*The innovation arguments relied extensively on Professor van Schewick’s work and forthcoming book. The other scholars have also written on innovation and the Internet, notably in Lessig’s book The Future of Ideas.

(John Blevins is an Assistant Professor of Law at South Texas College of Law in Houston, and also writes here at Obsidian Wings. He was Counsel to Amici. Marvin Ammori is an Assistant Professor of Law at the University of Nebraska-Lincoln where he teaches cyberlaw and telecommunications law. He was Free Press’s first lawyer and the architect of the consumer case brought against Comcast at the FCC, now on appeal.)

Suderman's Misguided Attacks On The FCC

by publius

I apologize for being a broken record this week, but this week's FCC decision is an incredibly important one.  And it's important to stand up for it now, in the immediate aftermath, while opinions are being formed. 

So that said, there is a great deal wrong with this Peter Suderman critique of the FCC's decision (a critique far less nuanced and informed than Julian Sanchez's).

First, there's the ahistorical view that government had little to do with the Internet's successes:

Rather than see the Internet's growth and integration into everyday life as evidence that government intervention isn't necessary, the Web's chief regulator took the opposite view[.]  . . . Innovators and entrepreneurs may have been responsible for making the Web great, but care, oversight, and access are now up to the government.

I mean, I'll say it a million times if I have to -- innovation at this scale happened because of the government.  I'd encourage Suderman to read up on the Computer Inquiries proceedings -- particularly Computer II in 1980.  Specifically, in this proceeding, the FCC protected new data/Internet services by regulating the physical networks of monopoly providers (e.g., AT&T).

That regulation played a huge role in protecting the Internet's openness, and openness is the reason the Internet has generated such enormous levels of innovation.  Without Computer Inquiries, the Internet would have developed as a giant iPhone App Store -- with AT&T pre-approving everything.  That would have created enormous transaction costs, barriers to entry, the whole nine.  (See also Hush-A-Phone for a sense of what AT&T would have done if allowed).

Second, there's this:

Government's chief contributions to broadband access have been a slew of wasteful city-run wifi networks[.]

Again, just wrong.  These networks faced relentless legislative attacks (spurred entirely by big incumbent carriers) from Day One.  Check out the litigation against the Lafayette fiber network, the attacks on the Bristol fiber network, Verizon's attack on the Philly Wifi network, Qwest's attack on UTOPIA in Utah, etc., etc.  Muni Wifi didn't fail -- it was strangled in its cradle.

Third, Suderman says competition is actually not that bad:

Meanwhile, the market has been successful at providing access: The FCC's own data shows that 98 percent of zip codes have at least two broadband providers and 88 percent of zip codes have four or more broadband providers.

The catch though is that FCC's is extremely flawed.  It treats an entire zip code as being served if one person in the zip code is served.  Also, "broadband" means 200 kbps download -- which isn't even enough to watch YouTube.  The larger point is that the access market is extremely uncompetitive.

Next:

Genachowski seems oblivious to the fact that that the regulatory regime he is promoting would implicitly require innovators to get permission for their innovations from his agency.

Honestly, I just don't follow this one.  I think maybe he's not understanding the idea of network layers.  The FCC's actions are primarily about protecting the "bottom" physical layer -- it has nothing whatsoever to do with higher-level application layer services where innovation lives.  The separation of the two layers (the traditionally government-imposed separation) is what allows innovation to occur so cheaply -- without access negotiations, etc.

That's why he's offbase when he's talks about the need for innovators to have stability.  Yes, they need stability -- they need to make sure they have access to the network.  That's the very stability, though, that Comcast threatened by secretly blocking traffic, and then lying about it.  And that's the stability that the FCC is protecting. 

He tries to fudge the issue at the end by saying network owners' traffic management innovations will be threatened.  But he's being a little tricksy here.  Earlier, he invokes lofty rhetoric of protecting all innovation and entrepreneurs.  But that argument doesn't really make sense, so he hedges here by talking about network owners' innovations, which is a different beast (I guess Comcast's secret blocking of BitTorrent would qualify in this category?) 

In any event, the FCC's decision has essentially nothing to do with higher-layer innovation.  And this last bit about "network owners" innovation makes me suspect he might know that.

It's a disappointing, uninformed piece from I writer I greatly enjoy.

Risky Business

by publius

Julian Sanchez wrote a thoughtful critique of the FCC's decision yesterday.  There's a lot there, but his main theme is simply that we should be skeptical of adopting rules like these because of the potential unknown consequences (on investment, network construction, etc.).  A few thoughts...

First, it's a small point, but I don't think his analogy to constitutional avoidance works.  The reason that judges avoid constitutional questions has less to do with pragmatic fears of messing up the basic "architecture," and more to do with legitimacy.  Constitutional decisions can't be changed by Congress.  But anyhoo...

The main argument is that rules cause unintended consequences.  That's certainly true in many contexts.  It's less true, however, in the open networks debate.

I mean, it really just depends on where you're starting from.  Sanchez argues that we should be skeptical of big change.  I would respond that the FCC is merely protecting a successful -- a wildly, ridiculously, and insanely successful -- status quo.  It is Comcast who is playing dice with the Internet's basic architecture.  If anyone is causing unknown risk, it's them.

One benefit of Internet openness is that you don't have know anything about the underlying physical network to introduce new services.  The founders of Twitter, for instance, didn't have to call Comcast and say "Hey, if I launch this, will you block it?"  They also didn't have to coordinate with Comcast's network engineers.  This openness -- and ease of entry -- is one of the Internet's greatest virtues.  (Professor Barbara van Schewick has a forthcoming book that lays out these economic and architectural arguments in detail).

Comcast threatens these traditions in a very fundamental way.  For instance, if you have a new service that uses peer-to-peer protocols, things are much different if you have to worry about it getting blocked.  This behavior triggers all sorts of negative consequences -- higher negotiation costs, higher cost of startup investment, encryption arm races, etc.  In fact, it may have already triggered all these consequences -- thus the need for a very forceful stand by the FCC right now.

In short, the FCC's action is less risky because we've seen these rules in action for decades.  And they have -- to say the least -- been very successful.  I have no idea what a world of secret blocking will look like.  And I don't care to find out.  The negative consequences of this hypothetical world seem far more tangible than Sanchez's fear of duplicative network facilities.

(And as I've said before, I'm helping with briefs adverse to Comcast on these issues).

Et Tu, NPR?

by publius

I'm pretty sure I have never -- before today -- yelled at NPR's Robert Siegel in my car.  But his intro to the segment on the FCC ruling left me no choice (audio):

The Internet has gone largely unregulated since it came into being more than 30 years ago[.]  But today the Chairman of the [FCC] announced his intention to change all that. . . .

No no no no.  The FCC is changing nothing.  It is preventing change. 

As I've argued before, the Internet succeeded because of regulation.  It's true, of course, that higher-layer content services (email, videos, browsing, etc.) have always been unregulated.  But these services have traditionally relied upon an underlying regulated open access regime that allowed them to flourish.

To be grossly general, just imagine roads.  The world today would be much different if the Ford Motor Company owned the interstate highways and could block Hondas from using it.  In short, you could imagine a "closed" interstate highway system.  But that's not how the interstates work.  They're "open."  Anyone can use them.  Any "device" with wheels will work on them.  

The Internet could have very easily evolved into a "closed" network, but it didn't.  Instead, the Internet is open because we adopted policies in the 1960s and 70s that required it to be open (namely, we prevented AT&T from strangling it).  The FCC today is merely protecting what has always been.

The point of confusion is that the Bush Administration -- an ongoing gift to the world -- adopted new legal labels for "the roads."  In short, the Bush FCC started deregulating the physical transmission facilities by legally equating them with content services like Google.

In sum -- the Bush FCC expanded the definition of "the Internet" to include things that have always been regulated.  The FCC today merely reaffirmed these traditional protections.  And so it's only an "unprecedented" regulation if you ignore the entire history of the Internet.  Come on NPR -- you're NPR.

Kudos to the FCC

by publius

I've only scanned the speech, but on first glance, it looks pretty solid.  It hits the right notes on the value of open networks -- it expands substantive protections.  It's good.  Also, one particularly nice and unexpected touch -- very Obama/Genachowski-ish -- is that the FCC launched a new website today called openinternet.gov. 

But back to the speech, this passage seems to be the key, for the reasons I mentioned last night:

I will soon circulate to my fellow Commissioners proposed rules prepared by Commission staff embodying the principles I’ve discussed, and I will ask for their support in issuing a notice of proposed rulemaking. This notice will provide the public with a detailed explanation of what we propose to do and why.

It looks like the FCC is going with rules rather than adjudications.  It's a good day for the Internets.  Rejoice and be glad. (And more to come).

An FCC Win -- Probably

by publius

In further evidence that elections matter, the FCC is taking an aggressive step tomorrow toward protecting open networks (a more accurate term than "net neutrality").  The WSJ reported on Saturday:

The U.S. government plans to propose broad new rules Monday that would force Internet providers to treat all Web traffic equally[.]

The FCC has four "net neutrality" principles . . . .  Mr. Genachowski is expected to propose the agency clarify its current principles and turn them into formal rules. He will also tack on a new one, which would require carriers practice "reasonable" network management. The agency will ask for guidance on how to define "reasonable."

A few points here.  First, this is obviously good news.  Even if the final measures are ultimately more modest, part of this battle is simply about establishing norms.

Second, the issue to watch is whether the FCC actually puts these "principles" into formal rules.  The WSJ suggests that they will, but it's not entirely clear.

Right now, the FCC has an informal "Policy Statement" protecting open networks.  This Policy Statement isn't itself binding -- the idea is that the Policy Statement clarifies how the FCC interprets other sources of legal authority.  It's sort of like a signing statement in that respect -- it doesn't technically create authority, but it effectively does so by indicating how the FCC interprets and applies its powers.

One question then is whether the FCC will simply add to this Policy Statement, or whether they'll actually put the whole thing into formal rules. 

I much prefer rules.  The reason is that Republicans will (sadly) once again rule the FCC one day.  And it's much harder to reverse formal rules (for you law dawgs, it requires notice-and-comment proceedings, etc.).  As long as these principles remain in the informal Policy Statement, however, it means that the FCC is enforcing these policies only through adjudication.  And adjudications can be easily changed at any time.

Third, arguably the best part about the FCC's announcement is that they're applying these principles to wireless carriers too.  That's huge -- regardless of whatever else happens.

Anyway, it will be interesting to hear what the FCC actually says tomorrow.

The Need for Speed

by publius

I mentioned earlier that expanding bandwidth capacity (i.e., speed) should be one of our primary communications policy goals, and that requiring open networks furthers those goals. 

Many people don't realize, though, just how much societal value faster broadband would create.  It's about a lot more than simply downloading stuff faster.  Greater speeds will create new services -- and markets, wealth, jobs, expression, etc. -- that we can't even conceive of yet.

Think about YouTube.  In a dialup world, a site like YouTube (and embedded video more broadly) couldn't exist.  And so, when people started shifting to broadband, it didn't merely improve their download speeds.  It created the necessary conditions for brand new services and innovation to emerge -- services like YouTube.  And think about all the tremendous value (economic and social) we get today from YouTube -- heck, we have Jim Webb because of YouTube. 

So that's the point.  As our country moves to next-generation networks with significantly higher speeds, lots of new services (particularly video services) will emerge that we can't even imagine.  Higher speeds (plus openness) will enable this innovation.

[On an aside, people interested in this stuff should read AppRising.  It's a great telecom blog, and it's a big believer (like me) in promoting fiber for precisely these reasons).