Convergence 2.0

With the notable exception of video programming, the FCC has traditionally focused its regulatory efforts on certain portions of our communications infrastructure: The public switched telephone network, the coaxial cable plant, the cellular network, broadcast towers, and satellite space and earth stations. To the extent computing capability and devices (though arguably inappropriate, let’s call computing capability and devices “nodes”) have been considered by the FCC at all, it has targeted the treatment of nodes by the operators of certain portions of the Internet’s infrastructure rather than the manufacturers and distributors of nodes themselves. The FCC has also regulated various portions of the Internet’s infrastructure using separate regulatory regimes based on their technical characteristics.

Convergence 1.0 – the convergence of communications and computing capabilities – began disrupting this “stovepiped” regulatory model in 1966 when the FCC began is Computer Inquiries. Convergence 2.0 – the complete integration of computing, networks, nodes, software, services, and content – is now rendering the model hopelessly obsolete:

• Computing capabilities have become inseparable from network infrastructure;
• Different network infrastructures (e.g., mobile and fixed) are beginning to provide integrated services;
• A single type of node can access different network infrastructures (e.g., a smartphone can access a fixed or mobile network);
• Multiple types of nodes can use the same operating systems and software (e.g., a converged OS X and iOS are expected to power the Apple iPhone, iPad, Apple TV, Apple laptops, and Apple desktop computers with in the next two years);
• Multiple network and node types can provide the same type of services; and
• Content can be created and distributed by anyone using any combination of service, software, node, network, and computing capabilities.

The convergence of networks, nodes, software, services and content into platforms offering seamless communications experiences is already driving disruptive competition in the communications sector. I expect it will soon be driving disruptive regulatory change as well.

Cloud Computing

Cloud computing isn’t new. It’s on the list because it is only now beginning to impact end-user behavior – the issue at which the FCC tends to target its regulation.

As cloud computing matures, it is making users truly node and location independent. Services like Dropbox and Evernote synchronize all of a user’s files across all their nodes and the nodes of others with whom they wish to share. Automatic syncing of files and preferences is making it easy for families to share nodes. If I need to work with image files, I might take my 17-inch laptop on the road while other family members use the desktop and iPad. When I return and want to use the desktop, they can use the laptop knowing that all the files and preferences they’ve changed while I was away will be there waiting for them. Although smartphones are still generally tied to particular users based on phone numbers, services like Google Voice are rendering this limitation on node sharing less relevant. All nodes are becoming capable of providing both phone and computing capabilities that differ primarily in form factor rather than use.

Cloud computing is also proving to be one of the “killer apps” driving the mobile data explosion and spectrum crunch. When the “need for speed” was debated in the National Broadband Plan proceeding, many assumed additional capacity would be needed to accommodate future applications with high peak or sustained throughput. Greater capacity is needed right now due to the use of existing applications that are leveraging the capabilities and convenience of the cloud. “Applications” that once required little or no Internet bandwidth at all – e.g., transferring a file from home to the office using a thumb drive – now generate Internet traffic multiple times per day to access the cloud’s enhanced capabilities. Cloud computing also generates traffic by making current applications more convenient to use. Recent reports indicate that Apples’s cloud-based Siri application has already doubled data use on the iPhone.

As these shifts in usage become more prevalent, the FCC’s current approaches to many issues will have to shift as well. I never thought I’d say this, but it’s time the FCC put its head in the cloud.

Hotspot 2.0

Wi-Fi is increasingly being used to offload data traffic from mobile networks, but generally doesn’t provide as seamless an experience as a mobile network, primarily due to authentication and security issues. Hotspot 2.0 promises to bring the mobile network’s end-user experience to Wi-Fi through a standards-based approach. A complementary initiative, the Next Generation Hotspot, is addressing interoperability between Wi-Fi and mobile network operators and service providers on the backend. Together, these two initiatives could break down the walls that currently divide licensed and unlicensed networks.

The integration of unlicensed spectrum into mobile networks raises several questions at the FCC. If these initiatives are successful, should unlicensed spectrum be included in spectrum aggregation analyses (i.e., the spectrum screen)? If enterprise vendors of unlicensed networks using new Wi-Fi technologies are able to successfully compete with licensed mobile network operators, should the FCC attempt to address the potential regulatory disparities between licensed and unlicensed networks? I expect these questions won’t be easy to answer.

Small Cells

Small cells are like Wi-Fi hot spots that use licensed spectrum and are already integrated into mobile networks. Some argue that the spectrum crunch can be solved by increasing capacity with small cell deployment. However, there are both economic and regulatory barriers to widespread deployment of small cells. According to a Gartner report, global mobile data traffic is expected to grow 26-fold between 2010 and 2015, while revenue is expected to double. The gap between data revenues and traffic will tend to limit the availability of capex for extensive small cell deployment.

The regulatory barriers are actually more daunting. Operators often are required to reach agreements with municipalities before deploying small cell networks. AT&T initially submitted an application to the City of Palo Alto on January 14, 2011, to build a small cell network, but is still awaiting a decision more than a year later. The availability of backhaul is also a significant problem. Laying fiber to thousands of small cells mounted on light poles is cost prohibitive and impractical. Wireless backhaul solutions will likely work in many situations but may be unable to handle large numbers of small cells. Cable plant may offer the most practical solution in many instances, but now that cable is entering the mobile space through its relationship with Verizon, cable may not be willing to share its plant with potential competitors. The FCC has taken steps to lower regulatory barriers to antenna siting, but it may need to move faster and go further before we see widespread deployment of small cells.

Jack: What for?

Annie: Speeding.

Speed (1994).

Yesterday the FCC released its “Measuring Broadband America” report, “the most comprehensive and rigorous assessment ever of broadband performance in the United States.” (See FCC Chairman Genachowski’s statement here.) The report debunks one of the most widely believed broadband myths with actual data.

Myth: “[C]onsumers aren’t getting the service that they are paying for.”

Fact: “DSL, cable, and fiber-to-the-home are all delivering quality service generally consistent with what they advertise.” (Chairman Genachowski’s statement.)

In fact, consumers are sometimes getting service that is faster than that for which they are paying even when measured during periods of peak usage. The report found that, on average during peak periods, fiber-to-the-home services delivered 114% of advertised speeds (DSL-based services delivered 82% and cable delivered 93% of advertised speeds).

It’s refreshing to see an FCC report based on actual data that sets the record straight.

Unfortunately, Representative Blackburn is right. As I’ve noted before, the only sensible explanation for the FCC’s failure to fulfill its congressional responsibility is the FCC’s “desire to increase its regulation of the mobile wireless industry.” There is no other sensible explanation for an expert agency’s declaration that, in an area of its core expertise, “the complexity of the various inter-related segments and services within the mobile wireless ecosystem” (15^th Report at paragraph 2) are too great for the FCC to make a finding.

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?

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.