Divided Net Neutrality Comments Arrive at Deeply Divided FCC

The commission itself remains sharply divided, with a three-member majority of Julius Genachowski, Michael Copps and Mignon Clyburn considered likely to ultimately vote in favor of the rules. Commissioners Robert McDowell and Meredith Baker indicated last week they've seen little to change their minds and see no evidence of market failure that would justify new rules.

FCC officials on both sides of the issue told us they are most interested in real world examples of how the rules would affect industry, which go beyond the arguments of traditional advocates and opponents. “I have been going through the record and looking for evidence of systemic market failure. So far I haven’t found any,” McDowell said Friday. Baker said Wednesday she remains “unconvinced” new rules are warranted (CD Jan 14 p1).

An FCC spokeswoman said the FCC comment count includes 98,000 comments filed in one document by CREDO Action, and that all but about 10,000 comments support revised net neutrality rules.

Traditional foes on net neutrality made some apparent progress toward compromise. Verizon and Google issued joint comments highlighting where they agree, and separate comments on where they differ. Jointly, the companies agreed “we need a policy that will ensure openness and preserve the essential character of the Internet as a global, interconnected network of networks and users that is thriving based on a common set of core values.” The Internet must remain “an unrestricted and open platform, where people can access the lawful content, services, and applications of their choice,” but policies should give incentives for investment, they said. Consumers must have control over their Internet experience, and have access to clear information about their service, they said. Communications laws and regulations shouldn’t apply to Internet applications, content, or services, they said. Government should only intervene to address harm to users or competition, and such action “should be surgical, swift and based on a finding of specific facts that establish such harm.”

Amazon said “well-crafted” rules can result in a “win” for all Internet players. The FCC should loosen its proposed nondiscrimination rule to allow ISPs “to favor some content so long as no harm is done to other content … with respect to any users,” it said. The rule should also permit a user to “explicitly choose” to have some content favored over other content, “but only so long as the favoring of that content would not harm other users’ content,” it said.

“While I expect we are headed for a 3-2 vote, I think what we are seeing in the comment process is some narrowing of differences, which will lead the commission’s majority ultimately to take a more moderate, less radical view than the NPRM suggests,” said Free State Foundation President Randolph May. “If you look at the joint Google-Verizon submission, or Amazon’s filing, you see this subtle narrowing of differences concerning the reach of the proposed rules. Remember, Google and Amazon have been the two strongest corporate voices favoring net neutrality from the get-go.”

The rules would be a roadblock to competition, CTIA warned. “The proposed rules’ vague descriptions of ‘reasonable network management,’ ‘managed access,’ ‘content providers,’ and other terms leave access providers and the companies that produce network equipment unable to do exactly what the Commission is trying to achieve: innovate without permission.” Because of the “underlying network infrastructure and its reliance on spectrum resources, the mobility of the customer base and the integration of consumer equipment,” wireless networks are different than wireline and shouldn’t be subject to the same rules, CTIA said. Wireless devices also are on the edge of the network but are part of the network itself, the group said: “The NPRM ignores the fact that mobile devices for licensed wireless services are radios licensed to network operators, not to end users.” CTIA cited Amazon’s Kindle and Barnes & Noble’s Nook, popular e-book readers, as the kind of innovations that would no longer be possible if the FCC adopts non-discrimination rules for devices. Both rely on commercial networks to download books. “The Kindle’s hardware could be used to perform any Internet access function, but Amazon’s Terms of Service require that users limit use of the device’s built-in wireless connectivity for Amazon purposes,” the group said. “The same is true for Barnes & Noble’s Nook. Such innovations have proven extremely popular with consumers, but they are unlikely to continue in the presence of net neutrality regulation, as makers of these devices will no longer have the incentive to provide the wireless connection for their customers.”

CTIA also said the U.S. would set itself off from the rest of the world by adopting rules. “Taking a cue from the FCC’s history of encouraging innovation through market-based policies, regulatory bodies across the world are focusing on competition and investment as a means for deploying broadband and 4G wireless networks,” CTIA said. “The United Kingdom, the European Union, Japan, and Hong Kong have all reached the same conclusion: net neutrality regulation will not provide an environment most conducive to investment and build-out.”

Both AT&T and Verizon said the rules as proposed would be “unlawful,” indicating a court challenge is likely. “The Commission’s NPRM charts an unwise, unwarranted, and unprecedented reversal in course,” said AT&T, which filed 249 pages of comments. “It proposes sweeping new regulations that would convert the consumer-focused principles in the Internet Policy Statement into provider-specific prescriptive ‘rules,’ add two more to the mix, and extend them to one of the most dynamic, albeit bandwidth constrained, sectors in the Internet ecosystem: wireless broadband services.”

AT&T supports the goals of network openness, said Senior Vice President Robert Quinn in a blog entry. “So, what’s our beef you ask?” Quinn said. “In a nutshell, the Internet has never been healthier or more open, and for more than four years running now, the existing policy framework, has successfully brought us an explosion in innovation, investment, and more and better services and devices.”

Rules like those proposed “will be inevitably vague and ambiguous -- increasingly so as technologies and markets rapidly change,” Verizon and Verizon Wireless said in a joint comment. “The result will be uncertainty and regulatory risk that will deter investment and innovation. That is true both of the Commission’s previous wireline principles and of the significant expansions it now proposes.” Verizon said history shows that “even general rules inevitably result in regulatory creep and produce a massive infrastructure of arcane rules and procedures that flash freeze innovation and impose substantial costs that act as a tax on the consumers who ultimately must bear those costs.”

The proposed rules “appear to presume that traffic prioritization, and perhaps even usage based pricing, are discriminatory,” the Wireless Communications Association said. “If such presumptions are included in the final rules, it likely would limit business model innovation and disrupt existing business models by forcing service providers to ask the Commission for permission to innovate.”

The U.S. Chamber of Commerce also weighed in: “With the telecommunications industry being one of the few bright spots in the U.S. economy and with no evidence of a market failure, the U.S. Chamber opposes the imposition of a whole new regulatory regime on broadband Internet access service providers. … Instead, the Commission should be focused on promoting policies that foster broadband deployment in unserved areas, encourage investment and innovation, and spur broadband adoption.”

The Internet has always been managed, said TIA President Grant Seiffert. “Particularly in light of the lack of any demonstrated harm, TIA is concerned that any effort to develop rules seemingly to enhance the open Internet will in fact hinder investment and innovation in a way that could seriously undermine the continued growth and evolution of the network -- all to the detriment of consumers.”

The proposed net neutrality rules “are both necessary and narrow in scope,” said five public interest groups, led by Public Knowledge. Consumers Union, the Center for Media Justice, the New America Foundation and the Media Access Project joined the filing. They contended that the FCC has a legal obligation to promulgate revised rules, saying the Telecom Act of 1996 “expresses the policy that users should be in control of information received over the Internet. Securing such user control is incompatible with discrimination by ISPs among content, application, and service providers.” Extending the rules to cover wireless “serves the vital policy goal of ensuring that end users can have largely the same expectations and experiences no matter how they access the Internet,” they said.

The rules proposed by the FCC “represent a balanced, flexible, and minimally intrusive approach to safeguarding the Internet’s openness,” Google said. “The open design of the Internet has led to mind-blowing innovation, and more consumer choice than ever before,” Google said. “It has created a steady stream of novel offerings that attract users and usage, and in turn feed the entire Internet ecosystem. The economic and social opportunities created by the open Internet can’t be overstated. It is essential that the Commission take action now to protect this openness.”

Free Press said the debate is “heated and contentious” but asked the FCC to adopt the rules proposed in October. “Simply stated, there is a reason millions of citizens have told Congress to preserve Net Neutrality,” Free Press said. “The importance of the Internet ecosystem exceeds the sum of its parts; its basic DNA of openness must not be destroyed in the shortsighted pursuit of monopoly profits.”

The FCC should adopt net neutrality rules because “vertically-integrated broadband providers have the incentive and ability to discriminate against competitors like” Dish Network, Dish said in comments on the agency’s proceeding on proposed open Internet rules. Hurting DBS providers’ ability to compete will help vertically integrated providers -- Verizon, AT&T, Comcast, and Time Warner - increase their share of the TV market, Dish said. Such providers can also sabotage competitors with hard-to-detect technology that can degrade services, it said. Dish also hopes the agency requires network operators to post network management practices on a publicly available website. Automated monitoring should be placed at national headends to detect discrimination, it said. Dish will rely on broadband connections to provide DishOnline content, it said. Sling Media, a subsidiary of Dish sister company EchoStar, also filed comments in support of the rulemaking, saying network operators should not be permitted to deny subscribers access to applications “under the guise of network management.” Sling used the rejection of its application for use on the iPhone by Apple and AT&T as an example.

National Organizations Weigh In

The National Association of Telecommunications Officers and Advisors and the Benton Foundation jointly filed comments urging the commission to guarantee net neutrality “because major private providers have demonstrated their ability and willingness to interfere with communications … for reasons that are unrelated to legitimate network management needs.” Referring to the commission’s current litigation with Comcast, the groups said Comcast deceived users by sending packets with RST flags, which made users think a session was terminated by the user they communicated with. Comcast’s argument “that it did nothing illegal and the commission thus cannot impose any sanctions speaks volumes about why we need strong, enforceable protections,” the groups said. They said without network neutrality rules “owners of the broadband infrastructure will be in a position to pick winners and losers … without the knowledge of American consumers.”

The National Association of State Utility Consumer Advocates proposed that the commission apply neutrality rules across all platforms, “because the public communications network is now a unified interconnected network.” It also suggested a functional or full structural separation to secure an open and neutral network. The separation deters discrimination in that “where the network operator is confined to providing wholesale-only network transport, selling to third-parties and its own affiliates on the same terms, its affiliates will by definition pay the same price and abide by the same terms and conditions as third parties,” the group said.

USTelecom expressed concern that the neutrality rules will stifle innovation and investment throughout the Internet ecosystem, “while at the same time failing to achieve its principal goal of ensuring an open Internet.” Broadband providers invest about $60 billion a year and can provide Americans with a choice of multiple broadband platform providers, as a result of a “pro-competition and pro- investment environment,” it said in its comments.

States Say Proceed With Caution

Some states support the proposed neutrality rules, but want the commission to clarify terms to avoid loopholes. While the Texas Office of Public Utility Counsel backed a free and open Internet, it expressed concern for the impact of rulemaking on innovation, and called for free market principles to be balanced against government intervention. “The potential exists that the pace of technology and innovation may leapfrog proposed government action on specific technological issues.” The counsel supports the commission’s proposed principle on transparency, saying “consumers should have accurate and informative information about the services being provided to them.” However, it disagrees on “reasonable network management” because the NPRM doesn’t make clear what such practices “would override the need for consumers to have access to accurate information about products and services,” the counsel said.

Clarifying “nondiscrimination and “reasonable network management” is necessary for effective neutrality rules, the Nebraska Rural Independent Telephone Companies said. The commission’s focus should home in on “discerning discriminatory actions that are harmful to the consumer,” the group said. Also, the commission ought to limit its findings regarding reasonable network management practices to those practices that it has “investigated and determined that actually do not undermine the usefulness of the Internet to the public as a whole,” it said.

The NCTA urged the commission to refrain from adopting any rules changes. “The proposed rules would be particularly intrusive and inappropriate,” the group said. The codification of the four principles of the commission’s Internet policy statement would be unwarranted, but if adopted, “should be construed only to prohibit practices that deny or substantially and materially prevent customers from accessing and using lawful Internet content and applications,” NCTA said: Codification shouldn’t prohibit “temporary, occasional or insignificant delays” that don’t aim to make content or applications “permanently inaccessible or unusable.” The NCTA also criticized the proposed non- discrimination rule, saying it’s a “rule foreclosing business arrangements between ISPs and content and application providers in which the ISP is compensated, regardless of whether it is discriminatory and regardless of whether it has any anticompetitive purpose or effect.”

CompTel, however, said a codification of the Internet policy statement is sure to eliminate “ambiguity about the commission’s authority to enforce the existing net neutrality principles.” It also agrees with the commission’s nondiscrimination rule as it applies to “the broadband transmission connection between the end user and the Internet,” and its effect on managed or specialized services, like facilities-based VoIP services.

Stressing the many choices of IP-enabled applications and services for consumers, the Voice on the Net Coalition is against applying the commission’s proposed rules to such applications and services. The market for IP communications has seen tremendous growth and has been “largely left to its own devices, with consumers choosing winners and losers,” the coalition said. The commission is urged to regulate “only when it must to correct demonstrated market failures or consistent with its public safety mandates.”

Support for adoption of the neutrality rules was granted by Skype and Vonage, with Vonage urging the commission to ensure that enforceable rules are established. Competition in the broadband industry is insufficient in ensuring that “broadband network operators do not engage in conduct that would put the tremendous economic and social benefits generated by the open Internet at risk.” Vonage also suggested changing the first three principles of the policy statement to ensure that users aren’t hindered by broadband Internet access service providers from “obtaining lawful content or applications or attaching lawful devices to the network.”

The American Cable Association supports the commission’s nondiscriminatory rule proposal, and it must extend to “all participants in delivering the broadband experience,” the ACA said. Neutrality regulations will impact small and medium- size entities and they will also force broadband service providers to meet certain obligations. Some of them are to “employ specific network management practices, impose affirmative obligations dealing with unlawful content or the unlawful transfer of content,” and to accommodate lawful devices that are not supported by a broadband provider’s network,” the ACA said.

With proposed net neutrality rules, the commission “runs the risk of driving innovative business models from the marketplace,” and could eliminate competitors, said MetroPCS. The company said it supports a “pay-for-priority” business model, “since it provides pro-competitive benefits in other industries.” Because the broadband Internet market has adequate competition to spur innovation, “the commission need not resort to command-and-control regulation which has proven to be ill-suited to the rapidly changing marketplace for broadband services, applications and content.”

Rural Telcos Urge Caution

Small rural telcos backed codifying the four existing Internet principles and adding a new transparency principle, but conditioned support for the nondiscrimination rule. The National Telecommunications Cooperative Association said “strict prohibitions against all forms of price and service discrimination will hamper the development of broadband services.” Any nondiscrimination rule should include the “unjust and unreasonable” standard found in Section 202 of the Communications Act, said the National Exchange Carrier Association. And the rule “should be carefully limited in [its] application and scope,” it said.

The nondiscrimination rule should apply not only to broadband providers, but also to content and application companies, and Internet backbone and transport service providers, said the Organization for the Promotion and Advancement of Small Telecommunications Companies. “These providers often possess greater market power than most rural ILEC broadband providers.” OPASTCO backed a “general and flexible definition of reasonable network management” that permits traffic prioritization as long as it’s “done in a competitively neutral manner.” And rules should allow prioritization for managed services, and pricing based on bandwidth usage, it said.

But mid-sized rural carriers rejected any additional regulation. “The Commission’s Broadband Policy Statement already establishes reasonable guidelines by which carriers can operate, and the competitive nature of the market, coupled with existing consumer protection and business practices laws, render additional layers of Commission regulation at best unnecessary, and at worst a threat to the successful evolution of the broadband Internet marketplace,” said the Independent Telephone & Telecommunications Alliance.

The Rural Cellular Association said the FCC should extend the rules to cover wireless, but not to include the small carriers it represents. “The Commission should apply its non-discrimination requirement only in circumstances in which broadband Internet access service providers have sufficient market power to engage in pricing and service quality discrimination that will have socially harmful effects,” RCA said. “Thus, the requirement should not be imposed on small and regional mobile wireless broadband Internet access service providers, because these providers lack sufficient market power.”

Public Safety Concerns

The National Emergency Numbers Association praised the NPRM for recognizing that discrimination may be needed for law enforcement, national security and public safety purposes. But the FCC should clarify that the term “emergency communications” includes 911 communications “of any type from a consumer,” NENA said. “It may also be a useful exercise to explore the ability to identify and prioritize specific types of packets at all times (e.g. a 9- 1-1 communication) and whether allowing for such a capability is ‘reasonable network management.'” The FCC should also “seek to understand the impact on 9-1-1 of an open applications world and proactively address the issue to the extent possible,” NENA said. Neutrality rules could mean more VoIP choices for consumers, and consumers should know not all such services work with 911, it said. - Howard Buskirk, Kamala Lane, Adam Bender