FCC Open Internet Ruling: A First Reaction

By Alex Pournelle

fccThe FCC finally released its “Net Neutrality” rules, a good three weeks after the vote. The ruling is over 300 pages, including commentaries and dissenting opinions (About which more later). There will be longer, more knowledgeable and in-depth commentary on the entire ruling; consider this my first take.

Officially titled “In the Matter of Protecting and Promoting the Open Internet, GN Docket No. 14-28”, the online version is here, download here. Unfortunately, a first read suggests it’s the full employment act for communications lawyers, a great opportunity for lobbying, lawfare and rent-seeking by large corporations, looking to gain unfair advantage—the very groups to be regulated.

In general, the FCC regulates best when it regulates least, and when a thousand ideas can elbow their way into the marketplace, then succeed or fail on their own merits. Let’s illustrate how.

AWS-3 and CMRS: (Mostly) Good Examples of Federal Regulation

The run-up to the FCC’s “Net Neutrality” ruling completely overshadowed Auction 97. Better known as the Advanced Wireless Spectrum 3 (AWS-3) auction, this was the biggest offering of radio spectrum in over a decade, with 31 bidders obtaining 1,611 licenses. AWS-3 was a big deal, and a good example of how government can work well, and not so well.

The Commercial Spectrum Enhancement Act (CSEA) mandated the study and (seven years later) reuse/shared use of various radio bands, particularly for cellular-type services. Marketwatchers thought final proceeds from AWS-3 would be in the low billions, but final receipts hit almost $45 billion, for radio frequencies around 1700 MHz, formerly the sole domain of Federal agencies. Timing was good; wireless data usage was already exploding and projected to rise quickly.

The friction, regulatory burden and overhead of government compliance for AWS-3 has been quite low, by design. And it looks like these licenses will be put into use just as fast as the legal difficulties and spectrum-sharing (Some Feds will continue to be co-users) can be worked out. Cell sites will have more capacity to connect calls, surfers, texters and video uploaders.

Commercial Mobile Radio Service (“CMRS”) is the regulatory classification for mobile telephone services, consolidating PCS, cellular and most of SMR. This light touch also let innovation fly: CMRS licensees can (and have) implemented CDMA, straight GSM, WiMAX and LTE, as technologies improved and the market responded. It would have been very difficult or impossible for the FCC to respond to each signaling standard in depth, but fortunately it didn’t have to.

Not every product succeeded: Qualcomm thought they could broadcast television to handsets as a separate product (MediaFLO), discovered they could not, then sold the spectrum to AT&T, who now uses it as straight cellular spectrum. Qualcomm didn’t give up; it’s pushing LTE-Broadcast to, well, broadcast video to dozens or hundreds of simultaneous viewers, this time within the LTE standard, with help, and with live demos.

Market Forces, Market Innovation

None of these innovations could have happened (or not as quickly) with a much stricter, permissions-based governmental approval cycle, instead of the lassez faire regime for CMRS. Adam Smith’s invisible hand works on the Internet, and it works in RF re-use. (Arguably, it hasn’t worked in terrestrial radio, a discussion for another day.)

LTE-Broadcast did need approval, not by the FCC but the 3GPP. The 3GPP sets standards for LTE communications (currently in Release 13). But the 3GPP isn’t a governmental group; it “unites seven telecommunications standard development organizations”, developing worldwide standards without direct governmental involvement. Approval is less political and certainly more market-savvy than the bad, old, per-market RF technology approvals of the PTT era, or pre-Judge Greene AT&T. The sort-of open-market, engineering-centric approach of the various 3GPP working groups have served the public—both US and global—well.

And that’s the lesson: More freedom, particularly fewer governmental regulations, have allowed a rapid advance in communications standards, capital investment in cellular infrastructure, and the battle between Android and iPhone. This let-the-nerds-loose approach set the stage for such astounding improvements as Artemis’s claimed 35X more efficient pCell cellular demonstration, Alcatel’s lightRadio, and SpiderCloud Wireless, just to name three.

Government Rules, Corporate Shenanigans

On the other side: Government regulation. During AWS-3, bidder DISH Network used tiny subsidiaries to obtain small business discounts for their bids, a clever bit of regulatory jujitsu that did not go unnoticed by their competitors.

That bit of rent-seeking illustrates the bigger problem: Corporations, especially in markets with large sums of money at stake, will use every tool they have to gain unfair advantage. They’d much prefer spending a few million on lobbying to a few billion on competition, which is not good for consumers. The more opportunities in the law, the more they will. There are many in this ruling, especially compared to the truly light regulation under CMRS.

That’s the key issue with the FCC “Open Internet” ruling: If a camel is a horse designed by committee, the FCC Trojan Camelid clearly is nosing open the tent flap. The FCC forbore certain regulations on the Internet, but claims the power to regulate as they see fit under Title II. Many commentators have, incorrectly, said “over 700 rules [under Title II] aren’t going to be applied.” That’s incomplete and inaccurate. The current commissioners cannot bind future ones; what’s to say future commissioners—or the bureaucracy—will stop forebearing?

I’m not the only one to say this—there have been many and many a counter-argument made. FCC Commissioners Ajit Pai and Michael O’Rielly voted against the proposal for good reasons. Pai’s legal objections are summarized here; his policy objections here. Verizon released a “Throwback Thursday” response in Morse code, and another one from a vintage 1930s typewriter, in protest to using old law in this brave new world. There has even been buyer’s remorse (Sort of) from Netflix. Frontier Communications (Who’s buying Verizon’s wireline services in three states) says it’s happy with the reclassification, but that was before the regulations were published. It’s also unsurprising, coming from a company used to (Or maybe counting on) Title II regulation for wireline services. Remember, AT&T was perfectly happy with the regulatory climate before divestiture; it took a big sledgehammer to crack open actual telecom competition.

The Big Show Continues

This is just the first inning. There will be lawsuits, stays, further arguments and court cases. In a future article, I’ll dig deeper into what I see as the fundamental flaws in this ruling (including some I don’t see others discussing). I’ll discuss the “Bright line” rules against blocking, throttling and paid prioritization. I’ll suggest better remedies (Spoiler: Competition) and two Modest Proposals for improving the current Internet. I also welcome your thoughts.

Editor’s Note: Comments are open for this page.

One comment on “FCC Open Internet Ruling: A First Reaction

  1. “In general, the FCC regulates best when it regulates least”

    That’s only true in the absence of monopoly or duopoly or oligopoly markets. Since this is exactly the market we live in, your premise is invalid.

Comments are closed.