The Wall Street Journal ran a story
late last week to the effect that ESPN might be considering some form of
arrangement with a broadband wireless provider to compensate the wireless carrier
if the carrier's subscribers accessing ESPN’s website exceed certain data plan
limits. In effect, ESPN would be paying the carrier a fee of some sort so consumers
would not avoid visiting ESPN’s website for fear of incurring additional data
usage charges.
Predictably, Public Knowledge and other “consumer” interest
groups raised alarms, such as in this piece: “FCC:
This Is What a Net Neutrality Violation Looks Like.” Just as predictably,
these alarms are exaggerated. And they are misguided.
Not surprisingly, the alarms, as the lawyers say, “sounded”
in net neutrality. I say “sounded” in net neutrality because, when read
closely, the Public Knowledge piece does not actually claim the hypothesized
ESPN-wireless carrier arrangement would constitute a violation of the FCC’s
rules.
This is wise because the FCC’s
net neutrality order specifically exempts wireless providers from the
neutrality mandates except in ways not relevant here. So, the Public Knowledge
piece more aptly might have been titled, “This Is What a Net Neutrality
Violation Might Look Like If the Net Neutrality Rules Actually Applied to
Wireless Providers.” Rather awkward for a title, I admit, but more accurate.
In its net neutrality order, the FCC declared that it
would not apply the prohibition against discrimination to wireless because “[m]obile broadband is an earlier-stage platform than fixed
broadband, and it is rapidly evolving.” According to the Commission, “t]he
mobile ecosystem is experiencing very rapid innovation and change, including an
expanding array of smartphones, aircard modems, and other devices that enable
Internet access; the emergence and rapid growth of dedicated-purpose mobile
devices like e-readers; the development of mobile application ('app') stores
and hundreds of thousands of mobile apps; and the evolution of new business
models for mobile broadband providers, including usage-based pricing.” And the
agency referred to operational constraints that typically differ from those
that fixed broadband providers encounter.
The FCC certainly had
good reasons, including those enunciated above, not to apply its net neutrality
restrictions to mobile broadband providers. So, in one sense, I am tempted to
say, “end of story” or “no story.”
But in another sense this
is too easy and misses the broader, more fundamental point. Too easy because I
have no doubt that Public Knowledge, Free Press, and other pro-net neutrality
advocates will continue arguing that the arrangement that ESPN supposedly is considering,
or similar-type arrangements, ought to be banned by net neutrality rules, even
if they currently are not. These pro-regulatory net neutrality advocates will
continue to urge the FCC to adopt more stringent anti-discrimination
prohibitions, and to interpret the existing ones in the most restrictive manner.
If the Internet service
provider were not wireless but wireline, the anti-discrimination prohibition
that Public Knowledge might claim to be violated is the supposed restriction
against the ISP charging a content provider a fee for some form of priority
treatment. In paragraph
76 of its net neutrality order, the Commission
explained that what it called “pay-for-priority services” potentially are problematical
because they might disfavor edge providers which may not be able to pay, or
want to pay, for priority treatment.
Read paragraph 76 the
Commission’s order (and most of the rest of the order as well) and observe the conjectural
nature of the possible harms the agency seeks to guard against by questioning
“pay-for-priority” services. Moreover, as far as I can tell, the Commission’s
order or its regulations don’t actually prohibit all “pay-for-priority”
arrangements. Rather, the Commission simply says that such arrangements “would
raise significant cause for concern.”
My own "significant
cause for concern" regarding the consumer groups’ reaction to the ESPN
story runs like this. First, as already established, the net neutrality
regulations don’t apply (in respects relevant here) to wireless carriers. But
that doesn’t stop the net neutrality advocates from raising alarm bells
“sounding” in net neutrality-like claims.
Second, there is no
indication that in this instance, based on what we know, that by considering paying
a wireless carrier some amount to compensate for a subscriber’s overage charges
that ESPN will receive, or expects to receive, any kind of priority treatment.
There is no indication that a wireless carrier’s subscribers will receive
faster, or otherwise preferential access, than others accessing the web.
Of course, it is
certainly likely that with ESPN agreeing to pay for the excess usage charges
that consumers will be more inclined, rather than less, to continue visiting
the ESPN site. This is exactly what ESPN wants, and it is not unlike merchants
who provide toll-free 800 numbers to encourage consumers to call their
businesses.
Finally, and most
fundamentally, were the Commission ever to change its rules, or interpret its
existing regulations, to definitively prohibit the type of two-sided
compensation arrangement that ESPN reportedly is exploring, this likely would prove,
especially over time, a distinctly anti-consumer move in both the wireline and
wireless spheres. Despite any protestations to the contrary, this is because
the FCC will be presuming it possesses the knowledge to allocate payments for
recovery of investment in scarce network capacity resources more efficiently
than the private providers which made the investments with their own capital.
In doing so, it is likely that all consumers, not just those heavy users that
wish to stream two ballgames or two movies a day, will be forced to pay higher
charges than otherwise would be the case.
In the dynamic, still
evolving Internet environment, the FCC doesn’t possess such superior knowledge
concerning the most efficient allocation of scarce network resources and
methods of recovering invested capital. Rather, the Internet service providers,
along with the content and applications providers that may wish to enter into
voluntarily negotiated compensation arrangements, surely must be attuned to –
and responsive to – evolving consumer demand and needs. Otherwise, of course,
in an economic sense, their networks, websites, and applications will be
underutilized. And consumers will be required to pay more than they otherwise
would to compensate for such underutilization.
So, in its professed
concern for “edge providers” – of which ESPN is an example – the FCC’s supposed
(possible) prohibition against content provider compensation likely harms all
consumers.
A final note: In
exempting wireless providers from the general nondiscrimination mandate in its
net neutrality rules, as noted above, the Commission referred to “an early
stage platform” that “is rapidly evolving” and is “experiencing very rapid
innovation and change.” This is true, of course. But it is also true of the
entire Internet ecosystem, including the wireline segment. It is somewhat of a
conceit for the agency not to acknowledge this.
In my view, until a court
invalidates the FCC’s net neutrality regulations, or Congress or the FCC
repeals them, they will be a continuing source of regulatory uncertainty and
potentially costly mischief. Almost any new innovative business arrangement likely
will be met with claims of violation "sounding" in net neutrality.
Unfortunately, those who suggest otherwise are almost certainly deluding themselves.
In the meantime, perhaps
the best that can be hoped for, short of repeal, is for the Commission to
summon the wisdom to interpret the regulatory restrictions sufficiently
narrowly so that the agency does not unduly stifle new investment and
innovation.