Computer & Communication Industry Association
PublishedOctober 12, 2010

Net Neutrality Issue Predates the Commercial Internet

As the net neutrality debate drags on into another season, perhaps some historical “big picture” context is in order.

AT&T was broken up in the early 1980s under the terms of an antitrust court decree because it had anti-competitively blocked MCI, which was selling alternative long distance phone calling services using new wireless microwave links.   By the late 1980s, the seven local Bell Telephone Companies wanted to escape the terms of the antitrust ruling and get back into the long distance and data transmission businesses where they could regain a competitive advantage over companies without legacy monopoly local networks connecting to homes and businesses.  They wanted the FCC rather than the antitrust court to be in charge.

Before finally passing the Telecom Act of 1996, Congress said “not so fast”… you get freedom from antitrust restrictions only if you provide fair priced wholesale access connections to new local competitors (the ”CLECs”).  The new Telecom Act included pro-competitive rules known as network “unbundling” which were implemented by the FCC in the late ‘90s.

Ironically now, those same telephone companies, reconsolidated into 3 of the largest corporations in America,

(AT&T, Verizon and Qwest) have deployed their hundreds of lobbyists to oppose the FCC’s exercise of Telecom Act, Title II common carrier authority over broadband Internet access connections. Along with a few large cable TV companies, they enjoy duopoly market conditions for Internet access.  They again want Congress to take charge, but this time, they DON’T want the FCC involved.  They say antitrust law is enough, especially while no antitrust ruling actually applies.

The Internet is about 40 years old.  It was founded in the late 1960s and ‘70s as a collaborative project of the federal government and major research universities for the sharing of large volumes of data.  The Internet uses a general purpose computer packet technology known as Internet Protocol.  In the early 90s, a British computer engineer named Tim Berners-Lee invented the world wide web, and the Internet went commercial.

At first, the large telephone companies were not interested in the newfangled Internet.  But they were happy to sell consumers and businesses the regulated “dial-up” phone lines to reach early information services like Compuserve, Prodigy and AOL on the Internet.  Then cable TV companies got in on the action, offering competing two-way digital capability via cable modems to access the Internet.

Internet access has always had an essential two-way underlying communications component.  Broadband Internet access is primarily a basic telecommunications service offered to the public.

Title II of the Communications Act mandates offering telecommunications services to the public in a nondiscriminatory way.  It has been the cornerstone of the FCC’s authority over nationwide telecommunications services since before the Internet was born, applying mostly to monopoly telephone service, but also to competitive long distance calling and cellular phone service.  Title II fully survived the 1996 update of telecommunications law.  At the signing of the Act in the Library of Congress, President Clinton and Vice President Gore fully acknowledged the importance of the emerging “information superhighway.”  The Act itself directed the FCC to ensure universal availability of “advanced services” to all Americans.

From 2002-05, the FCC bought into an argument made by the Bell Companies that their own deregulated information services were so integrated with underlying basic telecom transmission that they could not be separated for policy or regulatory purposes.  So their “Internet access services” would have to be deregulated.  And after all, they said it was only fair to put them on a level playing field with cable TV Internet access, which was not regulated.

In its marketing approach, the phone companies had bundled e-mail and other true information services with basic Internet access.  So they effectively bootstrapped the telecom component into deregulated “information services” status, and thereby deregulated themselves.

They also predicted in 2005 that right around the corner there would be more competition from satellite broadband and broadband over electric power lines.  Do you know anyone who uses such services 5 years later?

What did actually proliferate were competitive options for non-bundled information services such as e-mail, web browsing, search and e-commerce. Now most Internet users understand that we are buying Internet access connection services as a telecommunications link from our cable or telephone provider, with a multitude of competitive choices available for everything else, once we are online.

Even in 2005, the FCC was not fully comfortable with total deregulation under Title II, and so it decided to adopt an Internet Policy Statement which spelled out consumers’ rights to access ANY Internet services or content they wished, using electronic devices of their own choosing.  Widespread industry and consumer consensus developed around this Internet Policy Statement.  The open Internet started to be taken for granted.

However big telecom CEOs started talking about charging companies like Google and Amazon extra for the privilege of making available search information and books and other products to you “through their pipes.”

Then in 2007, Comcast began blocking P2P video file sharing arbitrarily, not during times of peak network congestion, but because services like Vuze offered licensed legal video content that compete with Comcast’s own cable TV subscription services.  The FCC tried to stop Comcast, but relying only on that 2005 Internet Policy Statement,

a federal court said “nice try, but”…the FCC has no actual enforceable rules establishing provider obligations or consumer rights to nondiscriminatory telecommunications services for Internet access.

So here we are in 2010 and consumers, small businesses and nonprofits lack any recourse at the FCC if their Internet Access Provider (IAP)  1) slows, blocks or degrades their Internet traffic,  2) intrudes on their privacy 3) charges them double what their neighbor pays for the same bandwidth and service, or 4) cuts off their service entirely.

Customers are totally vulnerable even if the only reason for the problem is that a lucrative commercial customer’s traffic has been given higher priority.  This is how IAPs can act as “gatekeepers” in the absence of any FCC safeguards.

It is noteworthy that small rural telephone companies offer broadband Internet access voluntarily as Title II carriers.  The same is true for cellular mobile carriers.  They’re not complaining, because Title II does not actually mandate rate regulation or limit innovation as the big companies fear.

While everyone knows how difficult it is to reach a live customer service rep who can actually resolve your current concerns, why isn’t this lengthy “parade of horribles” with respect to Internet access actually happening?

Because your IAP is smart enough not to engage in bad behavior while there is an active debate in Washington on net neutrality rules. They know regulation could be much worse for them than this state of uncertainty. So they just say “trust us”, we would never do these bad things, because our customers might actually (pay our penalties and) switch to the ONE other provider in town who would also never do these bad things.

The big telephone and cable companies enjoy business certainty about the most important thing: nobody out there can possibly challenge their massive market dominance and local access monopolies and duopolies.  Even Sprint and T-Mobile must depend heavily on legacy phone networks owned by their largest competitors, for much of their transmission needs.

And no third local network will be built.  It has not happened anywhere in the world because of stubborn basic network economics.

CCIA isn’t the only one recognizing a better understanding of the history of the net neutrality may help the debate. Those who run Broadband Census offered this history on their blog this week.

Net Neutrality 2010

Home, school and business Internet access is now just as important as home telephone service once was, and perhaps more so, because mobile phones are universally available alternatives for text messages and voice calling.  Broadband networks are critical telecommunications infrastructure.

The April 2010 Comcast decision invalidated the FCC’s 2005 Policy Statement as enforceable rules under Title I of the Telecom Act.  The court decision left a total void in terms of regulation to protect the public interest in broadband Internet access.

So to clarify FCC authority over broadband network gatekeepers, the FCC Chairman in May proposed a new approach in which the Commission will rely on Title II to restore the consensus of the 2005 Internet Policy Statement, without reinstating 20th century rate of return regulation or even wholesale unbundling requirements on IAPs.

AT&T and Verizon and the cable industry overreacted and caused a summer long political frenzy.  They spent tens of millions of dollars on lobbying in the first half of this year alone.  Like banks and insurance companies, these big businesses naturally want to hang on to total deregulation as long as possible, and will pay handsomely out of healthy profits for the privilege.

To be sure, broadband telecom deregulation is “business friendly” to a half dozen of the largest Fortune 500 companies …but NOT to everybody else:  from your favorite browser or search engine, to DISHNetwork and Netflix, from eBay to Facebook to your favorite retailer, website, university, charity, small business, or sports team.

Americans are weary of being victimized by Wall Street, mortgage banks, health insurers, and oil companies.  They deserve some minimal protection for what has become their most basic economic and cultural lifeline — their broadband Internet access connection.

We might not need FCC safeguards at all if there were robust competition for broadband Internet access connections.  But two market realities severely limit American household and small business choices for broadband connectivity.

First, cable TV broadband companies do not compete with other cable companies; they’ve divided up the geography of the U.S. into exclusive markets.   Similarly, telephone company IAPs like AT&T and Verizon do not compete with one another for wireline access service.  They too have carved up geographic markets.   The result of all this is the typical duopoly market consisting of one cable provider and one telco provider in each community.  This situation is actually predicted to get worse as the telcos focus more heavily on enterprise or big business customers and cede more of the less profitable smaller users to cable providers.

Secondly, as the Economist magazine recently pointed out, US broadband operators are not required to open their high speed networks to rivals on a wholesale basis.

Almost everywhere else in the industrialized world including Canada, France and the U.K, telecoms must sell wholesale to rival Internet providers.

In the U.S., our Internet Access Providers want to sell commercially prioritized “fast lane” connections to the highest bidders…including content providers.  This would create a two-sided market where IAPs would charge both 1)end users for access to the Internet’s websites and applications, and 2)content providers for the privilege of making all these same websites and applications available to you on a priority basis.

IAPs sometimes say they just want to sell quality of service guarantees to their business customers.  But what about the quality of Internet access for consumers, small businesses and websites that cannot afford to pay premiums?  The duopoly doesn’t offer many alternatives.

The band OK Go has testified in Congress that it would never have become popular and successful if it had to first get a deal with a major record label or production studio or pay for priority Internet access.  Likewise even Google would never have taken off unless it were able to “innovate without permission” on the open Internet, as Tim Berners-Lee first intended.

CCIA thinks the FCC has a huge responsibility to protect Internet freedom here in the U.S. and quality of service for the average individual and small business customer.

Further, the U.S. must set an example for the rest of the world if global Internet freedom is to have half a chance.

We cannot have government or private Internet networks censoring gambling, adult porn and other unsavory material and yet expect other countries not to ban whatever it is they dislike — including political dissent.   The Internet as we know it will cease to exist if blocking runs rampant.

So “www” then really stands for “wild wild west”?

No, we just need to leave the policing to law enforcement authorities.  We have federal laws against everything from child pornography (the only content absolutely illegal by its very existence) to the serious, but very different problem of piracy and copyright infringement.  Legal due process is established for dealing with all of this and IAPs have a strong record of co-operating with law enforcement in these matters.  But that is different from taking the law into their own hands.

Net neutrality has never been about the FCC policing content or meddling in free speech.  Rather, it is about the FCC preventing your Internet access provider from meddling in your free speech or choice of applications and content.  If IAPs wish to sell subscription content services over which they have editorial First Amendment discretion, that is fine, as long as they “leave room” without discrimination on your Internet access connection for other apps and content you may choose.

This week, the FCC is took comments on “two under-developed issues” in its year-old Open Internet proceeding: “specialized services” and wireless broadband.

Internet Access Providers have proposed an exemption from any FCC open Internet safeguards for a category called “specialized services” which neither they nor anyone else can define with any clear boundaries.  Unfortunately, that’s the idea.  It’s an exemption that’s intended to be broad and open-ended enough to swallow the new rules.  IAPs refer to anything offered separately from Internet access service that involves “enhanced quality of service” and prioritization or customization.  This is a good description of the premium Internet access IAPs want to provide their best customers (aka the highest bidders).  If standard retail Internet access is neglected in the process, the FCC would be powerless to remedy the situation.  So CCIA does not support this exemption.

We also believe that net neutrality safeguards, including users’ rights to nondiscriminatory Internet access, should be technology neutral.  Wireless customers increasingly expect to be able to access all the same online applications and content as they can access from a wired connection, especially if their wireless connection is fixed.  But even mobile broadband should be an open platform.  It’s true that wireless networks serving millions of mobile devices have greater network management challenges not faced by wired cable or telco broadband networks.  Coordinating mobile handsets with cell towers, or the need for mobile connections to “follow’ devices is a whole layer of complexity not encountered in the wired world.

In particular, smaller wireless carriers with more modest spectrum resources and no wireline infrastructure to fall back on, should certainly get maximum leeway on the definition of “reasonable network management.”  But these special challenges do not mean we should give up on the principle of nondiscriminatory access for mobile broadband users.

Tiered pricing plans that include capacity tiering are all well and good to a point. “Bandwidth hogs” should pay more.   But there is still the risk that all available wireless capacity might be used up by the highest tier of customers.  Given the financial resources, you can almost always build out more fiber optic networks, but spectrum constraints are real limitations.

IAPs insist net neutrality rules will inhibit their network investment, yet they claim to be investing unprecedented billions under today’s regime of de facto open Internet operations.  The investment issue is more of a strategic policy threat than it is a real concern.  They get away with such a threat because everyone knows there are only a very few companies who can actually deliver retail broadband Internet access on a national scale.  Competition is lacking.

And further, without FCC open Internet rules, the IAPs are free to concentrate on innovations for their best customers, neglect maintenance and expansion of standard public Internet access (which may involve just as many jobs), and manage the resulting scarcity of capacity and network congestion by raising rates for anyone who needs “quality of service.”

CCIA is an association of businesses large and small that opposes overreaching government regulation.  The FCC this year has proposed the barest essentials of protection for open Internet access, which is critical economic infrastructure in the 21st century.  The network owners’ response has been to ask Congress to prevent the FCC from adopting ANY rules at all on broadband Internet access.  If you think the FCC should follow through on its plans to protect the public interest in continued quality Internet access, please contact your elected representatives without delay.

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