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I Say Tomato and You Say Tomato, but We Don’t Mean the Same Thing

Updated on May 27th, 2011

I blogged yesterday about the FCC’s new conclusion in its seventh 706 report that “availability” and “deployment” mean “adoption” in addition to physical access to the Internet. But did anyone notice that the FCC’s National Broadband Plan used the word “availability” as the header for its section discussing physical deployment and the words “adoption and utilization” as the header for its section discussing, well, “adoption”?

The American Recovery and Reinvestment Act (ARRA) (pdf available here) required the FCC to develop a National Broadband Plan that contained “an evaluation of the status of deployment of broadband service,” which the FCC thought was synonymous with “availability” and did not include “adoption.” (Emphasis added.) But now the FCC has decided that the words “availability” and “deployment” do include “adoption” as used in Section 706. Did Congress intend that “deployment” mean something different in Section 706 than in the ARRA? What do you think?

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The Fiber-To-The-Premises Dream

Updated on May 27th, 2011

The web lit up this week with stories about the FCC’s Seventh Report on the availability of broadband capability to Americans. (A pdf of the report is available here. See Ars Technica here for a typical story.) Commenters have repeated the same old complaints about slow speeds and slow deployment. It reminds me of commenters in the FCC’s national broadband plan proceeding who demanded minimum broadband throughput of 100 mbps. Some commenters imply that broadband service providers are “evil” for not deploying fiber-to-the-premises (FTTP). Other commenters think government should build fiber networks. Neither is very realistic.

The performance of Verizon’s FIOS service demonstrates that the business case for deploying FTTP just isn’t very attractive. Verizon apparently invested $23 billion in FIOS. Unfortunately for Verizon, it appears it’s losing money on that investment. Although Verizon denies losing money on FIOS, it has stopped investing in it. Despite its very high throughput and reliability, consumers aren’t subscribing to FIOS in large numbers, and only a small portion of Verizon’s revenue comes from FIOS. The vast majority of Verizon’s revenue and subscribers come from Verizon’s wireless business. Let’s take a look at the numbers from Verizon’s Q1 2011 earnings results. Read the rest of this entry »

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The FCC’s New Interpretation of Section 706(b) Opens a Pandora’s Box of Internet Regulation

Updated on May 26th, 2011

D.A. Jack McCoy: “I hear Pandora’s box slowly creaking open.” Law and Order (1990)

Last Friday the FCC released its Seventh Report on the availability of broadband capability to Americans. (A pdf of the report is available here.) For the second time the FCC found “that broadband is not being deployed in a reasonable and timely fashion to all Americans.” (Report at ¶ 1.)

This is not surprising. As I’ve noted before, the FCC is now using its reports to pursue a more regulatory agenda. The FCC’s rationale, however, is very surprising. Its new interpretation of Section 706 is so broad it empowers the FCC to regulate virtually every aspect of broadband and the Internet.

Its new interpretation of Section 706 is so broad it empowers the FCC to regulate virtually every aspect of broadband and the Internet.

The relevant statute (section 706(b)) requires the FCC to determine whether broadband is being “deployed” to all Americans in reasonable and timely fashion. The FCC complied with that statutory mandate by analyzing actual deployment. The FCC concluded that, because broadband is not currently deployed to all Americans and there may be areas where there is no commercial business case to do so, broadband is not being deployed in a reasonable and timely fashion to all Americans.

The FCC should have stopped there. Whether or not one agrees with the FCC’s conclusion, the FCC had complied with its statutory duty based solely on the extent of actual broadband deployment. There was nothing more the FCC was required to do, and more importantly, nothing more it should do.

But the FCC did not stop there. It separately analyzed whether broadband is “available” to all Americans. Section 706(b) does say the FCC must “initiate a notice of inquiry concerning the ‘availability’ of advanced telecommunications capability to all Americans.” When this phrase is read in context, however, it’s obvious that “availability” is synonymous with “deployment.” But the FCC heard the lid of Pandora’s box creeping open and concluded that “availability” and “deployment” are broader than physical deployment.

Why would the FCC adopt such a tortured construction of an unambiguous statute? The answer is in the FCC’s analysis. The FCC’s analysis of availability focuses primarily on adoption rates, which the FCC uses as a proxy for availability (presumably because the statute doesn’t use the word “adoption”). Defining adoption rates as an issue over which the FCC has jurisdiction, rather than merely physical deployment, gives the FCC an opportunity to regulate virtually every aspect of broadband, including prices and service quality.

That opportunity derives from the last sentence of Section 706(b), which says that, if the FCC finds broadband deployment is not reasonable and timely, “it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.”

There are a lot more “barriers to infrastructure investment” for the FCC to “remove” once adoption rates are read into the statute. According to the FCC, removing barriers to infrastructure investment now “requires the Commission to identify and help reduce potential obstacles to deployment, competition, and adoption.” (Emphasis added.) The FCC’s new list of barriers based on these criteria is astonishing in its scope. It includes: (1) costs and delays in building out networks and offering service; (2) low broadband service quality; (3) lack of affordability of broadband (i.e., broadband prices); (4) consumers’ lack of access to computers and other broadband devices; (5) lack of relevance of broadband for some consumers; (6) poor digital literacy; and (7) privacy concerns.

This set of issues is so broad it’s hard to see any limitation at all on the FCC’s jurisdiction over broadband. With its new interpretation of Section 706(b), the Commission has in a single stroke gone from an agency that had little to no authority over broadband to an agency that can regulate broadband in every particular. The FCC has fully lifted the lid off the Pandora’s box of Internet regulation. It’s now up to the courts or Congress to close it.

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FCC Should Get a Failing Grade on Broadband Deployment

Updated on April 26th, 2011

It’s ironic that the FCC is planning on giving the industry a failing grade again this year on broadband rollout (see Electronista article here). While the FCC points its finger at industry, the FCC has been busy adopting policies that discourage broadband deployment. Let’s take a look.

Net Neutrality: Last December, the FCC adopted net neutrality regulations (see order available here). These rules shift potential Internet revenue from service providers – the companies that actually deploy broadband infrastructure – to software companies and device manufacturers. The obvious result is to discourage investment in costly broadband infrastructure.

Incentive Auction Authority: Making more spectrum available through incentive auctions would promote significant broadband deployment. The FCC is now working toward this goal, but in 2010, the FCC made net neutrality its top priority rather than incentive auctions. Had the FCC focused on the need for more spectrum in 2010, the FCC might have obtained incentive auction authority already by striking a deal with Congressional Republicans opposed to net neutrality. Instead, the FCC is fighting with broadcasters over incentive auctions in 2011, with the election cycle looming ahead.

Universal Service: Universal service reform is one of the most important regulatory actions the FCC could take to promote broadband deployment. But, while the FCC was busy working on net neutrality regulations last year, universal service reform languished, and another opportunity to promote broadband deployment now was lost.

Roaming: The FCC found in 2007 (see order here), that mobile wireless roaming regulation discourages infrastructure-based broadband deployment if roaming is required in markets in which the requesting service provider holds spectrum licenses. In 2010, however, the FCC changed its mind (see order here), and in 2011 (see order here), it imposed new roaming requirements on broadband service providers. It’s difficult to see how allowing one provider to use another provider’s infrastructure rather than build its own network will promote more infrastructure deployment.

If broadband deployment is lagging, the FCC should point the finger at itself. The FCC needs to get back to the task of implementing policies that promote broadband deployment rather than imposing heavy handed regulation. For starters, the FCC can focus on making more spectrum available and reforming the Universal Service Fund. That would go a long way toward reversing the FCC’s troubling trend of discouraging broadband deployment.

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The open Internet order and the existential crisis at the FCC

Updated on February 16th, 2011

Today’s House Commerce Committee hearing highlighted the current existential crisis at the FCC. Market analysis has been the primary driver of FCC decision-making. Although there has often been sharp disagreement among the Commissioners, that disagreement has typically centered on the reliability of the market analysis supporting regulatory action. In the open Internet order, the FCC didn’t rely on market analysis to reach its decision (or at least, not one that any reasonable economist would view as reliable). At today’s hearing, some said that market analysis isn’t necessary to regulate.

If market analysis isn’t necessary, then what is the empirical basis for imposing regulation? What provides a limiting principal for framing the debate? When asked for evidence of a problem with the Internet justifying regulation, Commissioners relied on the opinions of commenters who expressed concern in the proceeding. But nobody said whether these commenters offered any empirical evidence for their opinions (i.e., any market analysis) or whether these commenters constituted a statistically relevant sample.

This is the crux of the FCC’s existential crisis: the reliance on subjective perception to impose regulation. Reliance on anecdote is the antithesis of a data-driven approach. This is in part why nobody knows what a “net neutrality” violation looks like. “As Eliza Krigman said in a recent PoliticoPro article (no link available), “Internet service providers and consumer watchdogs disagree on what constitutes a net neutrality violation.” Without some empirical framework for analysis, it’s anybody’s guess.

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