Tuesday, May 14, 2013

ESPN, Net Neutrality, and Helping Consumers

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.