The Rate Regulation Difference: A Biden FCC v. A Trump FCC

 I’ve been asked many times in the last days and weeks about the likely differences in communications law and policy between a Harris FCC or a Trump FCC. As Yogi Berra declared, “It’s tough to make predictions, especially about the future!” 

True enough, and a reason to be cautious.

 

Nevertheless, while I hope I'm wrong, I’m comfortable hazarding this prediction: A Harris FCC will likely move to regulate the rates charged by broadband Internet service providers, while a Trump FCC would not. And to my mind, this is a big deal, because rate regulation of ISPs almost certainly will stifle investment and innovation and lead to less consumer choice.

 

“Price controls” – explicitly favored by Vice President Kamala Harris in various market segments – is just another way of saying “rate regulation.” Remember, price controls always lead to a curtailment of supply. In the context of broadband, that means less network infrastructure deployment, less new services made available, and less variety of service offerings from which consumers may choose.

 

The rate regulation may be implemented in connection with innocuous-sounding programs, such as elimination of “data caps” and elimination of “free data” plans, or mandates for “affordable” service options.

Rate regulation, of course, all the same.

Report Touts Benefits of Fiber Broadband Speeds and Pricing for Americans

On August 23, the Fiber Broadband Association released a report titled "A Detailed Review: The Status of U.S. Broadband and the Impact of Fiber Broadband." The report was prepared by Michael C. Render of market research and consulting firm RVA, LLC. It contains several interesting data points regarding broadband Internet access and fiber-to-the-home (FTTH) services in America.  

Relying on data from Pew Research, the report found that about 92% of Americans have Internet access at home, with 77% having wired service and 15% with wireless service. In terms of market share, the report found that about 49% of Americans with Internet access at home subscribed to cable broadbands, 21.3% subscribed to FTTH services, 13.1% still subscribed to DSL services, 11.7% subscribed to mobile wireless services, 3.1% subscribed to fixed wireless services, and 0.9% subscribed to satellite broadband services. Notably, many cable subscribers are actually served by FTTH services. 

 

On a side note, one can expect the market share for DSL to decline and for fiber as well as fixed wireless connections to rise over the next few years. And it will be interesting to see how the future rollout of multi-gigabit 10G cable broadband platform will impact broadband market share in the times ahead. 

 

Additional data points contained in the report include:

• "The average download speed experienced by users as tested in the annual FBA/ RVA random survey of Internet users…has increased from about 4 Mbps download to 121 Mbps from 2009 to 2022." 
• "Average U.S. upload speeds have increased from about 0.4 Mbps to 26 Mbps in the same period. The upload to download ratio was 11% in 2009 and has increased to 26% in 2022."
• Average download/upload speeds for FTTH services clock at 199 Mbps/75 Mbps.
• "The cost per provided Mbps (cost divided by the number of Mbps received downstream) has decreased very dramatically from about $9.00 to about $0.55 since 2010." 

The report is available on the FBA's website. 

Whither Socialist Communications Policy? – Part II

With the growing infatuation with socialism in mind, on February 11, I posted a blog titled "Whither Socialist Communications Policy?"There I said: "I want to focus on what socialism might imply for communications policy, and, more specifically, for control of the channels of communications that enable the American public to connect with their families, friends, and civic groups, to engage in social and political affairs, and to inform and entertain themselves."

Here I want to continue that examination.

In the first postI took as my point of departure the following statement of Robert McChesney, one of the co-founders of the advocacy group Free Press:

"What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don't have to have a password and that you don't pay a penny to use. It is your right to use the Internet."

Professor McChesney said this in an interviewpublished by "The Socialist Project"inThe Bullet.The Socialist Project says this about itself: "The SP opposes capitalism out of necessity and supports the anti-capitalist struggles of others out of solidarity."

In today's environment, it's worth considering what "the socialist project" – not the publication but the project– implies for communications policy. At the least it implies that the Internet would be considered a "public utility" and regulated as such. As practiced in the United States, historically, the notion of public utility regulation may encompass a range of government controls. At one end of the control continuum, it may mean regulating the service provider's rates, terms, and conditions. At the other end, it may mean government ownership of Internet networks, including control of content. Recall that, in Robert McChesney's version, socialism means "an Internet that is not private property."

In any event, a socialist communications policy means considerably more government control over communications networks than currently exists here in the United States. Think countries like Russia, China, Iran, Venezuela, and Cuba with acknowledged socialist models of government communications controls.

But now let's focus on the second part of Professor McChesney's statement: "We want an Internet where you don't have to have a password and that you don't pay a penny to use."

This "want" conjures up an inherent pitfall with socialism in practice, rather than as an ideal postulated breezily in campaign slogans. This is the notion that to satisfy various "wants," certain goods and services should be "free" and, indeed, that somehow they arefree if the government is paying for them, rather than you and me directly. The campaigns for "Medicare for All," "Free College for All," and the "Green New Deal" all rely on the seductive promise that the government itself will bear the burden of the increased societal costs imposed by the distribution of more "free" goods and services. (Note that the "Green New Deal" promises economic security for all who are "unwilling to work." Supporting all those unwilling to work, along with all these other mandatory societal transformations, won't be accomplished on the cheap.)

So, here's the reality with regard to what it means to satisfy the "want" of an Internet "that you don't pay a penny to use." Over the past two decades private sector service providers, wireline and wireless, have invested close to $2 trillion dollars of their own capital.

Thanks to this private sector investment, according to the FCC’s 2018 Communications Marketplace Report, at the end of 2017, about 94% of the U.S. population had access to fixed broadband Internet access services offering speeds of 25Mbps/3Mbps for downloads and uploads, and 70% had access to two or more providers offering such speeds. Indeed, the FCC's most recent broadband deployment report shows that, at the end of 2017, the number of Americans with access to 100 Mbps/10Mbps fixed broadband increased by nearly 20%, from 244.3 million to 290.9 million. At the same time, there was more than a 25% drop in Americans lacking access to fixed broadband.Moreover, as prices have declined,speeds have steadily increased. For example, according to a recent report from Ookla, broadband speeds, on average, increased by more than 35% in 2018.

According to a January 2017 report by Accenture, the build-out of next-generation 5G wireless broadband networks is projected to create 3 million new jobs and $500 billion in gross domestic product throughout the United States. The new 5G networks, requiring the deployment of 800,000 new small cells, are expected to deliver broadband speeds from 10 to 100 times faster than current wireless 4G networks, spurring innovations such as autonomous vehicles, smart cities and homes, and a variety of "Internet of Things" applications.

But guess what: The build-out of new 5G wireless networks won't be "free" either. Private sector wireless companies are expected to invest an additional $275 billion in 5G infrastructure, above and beyond existing investment. And, of course, the other broadband providers – cable, telephone, and satellite operators – will continue to invest relentlessly in their own high-speed broadband networks in order to try to maintain their positions in a competitive marketplace.

There should be no dispute that it should be a national objective to ensure, to the extent possible, that all Americans have access to broadband, as the Telecommunications Act of 1996 put it, "on a reasonable and timely basis." As the above figures show, achieving this important national objective is a costly endeavor – and costly on an ongoing basis as the demand for ever higher speeds and greater bandwidth continues to accelerate.

In sum, socialism wrongly implies the government itself should undertake the expenditure of the hundreds of billions of dollars required to deploy, own, and operate advanced broadband networks – and then control them – so you don't "pay a penny to use" them.

But surely this is not the best way to benefit American consumers or taxpayers as a whole. Rather, the best way is to continue to allow private sector firms to invest their own risk capital in a free marketplace as they seek to earn a return on their investment. In the current competitive broadband environment, in a technologically dynamic Internet ecosystem, these private firms, absent heavy-handed government controls, have every incentive to meet present and evolving consumer demands in the most efficient, effective, and least costly manner. They will do this at considerably less cost to American consumers and taxpayers than will government-controlled networks. That is the virtue of free market enterprise.

FINAL NOTES: No, I am not for a moment suggesting, in choosing capitalism over socialism, that there does not need to be any governmental oversight over Internet service providers. Such oversight, properly calibrated to match the need to protect against consumer harm to the extent marketplace competition is lacking, is consistent with a free market system.

And, no, I am not suggesting that despite the remarkable accomplishments of private sector broadband providers over the past two decades at deploying broadband networks ever more ubiquitously at ever higher speeds that there is not a proper role for the government in helping to close remaining digital divides. There is. For example, as readers of this space know, for well more than a decade I have been a steadfast advocate of a properly-run Lifeline program to support access to affordable communications for low-income persons. Government support for this "safety net" program is also consistent with a free market system.

Comcast's Internet Essentials Program's Milestones and Enhancements

Congratulations to Comcast on the new milestones reached in its Internet Essentials program, the nation’s largest and most comprehensive high-speed Internet adoption program. Today Comcast announced that it has now connected more than four million low-income Americans, in one million households, to high-speed Internet service at home. This is a significant contribution by Comcast to efforts by it and other private sector companies, to contribute resources and expertise to help close whatever digital divide remains.

Comcast also announced three key program enhancements:

• For the fourth time in six years, Comcast will increase the program’s Internet service speeds, this time from 10/1 Mbps to up to 15/2 Mbps. More speed was the number one requested enhancement from Internet Essentials customers, and this latest increase will improve streaming quality in the home (15 Mbps is three times the speed necessary to view a high-definition video), especially when multiple devices are connected to the Internet at the same time.
• To help family members connect to the Internet on the go and save money on their wireless bills, Internet Essentials customers will now enjoy 40 hours of free out-of-home WiFi access per month to the company’s growing network of 18 million Xfinity WiFi hotspots. This WiFi access is being offered in addition to the free in-home WiFi Internet Essentials customers currently enjoy.
• Comcast is also expanding its pilot program for low-income senior citizens from five cities and metropolitan areas to 12, including today in Miami-Dade County.

The milestones announced by Comcast today, along with the Internet Essentials program enhancements, are certainly worthy of note.

Court Decision Supports FCC Proposal to Define Title I Internet Service

At its May 18 public meeting, the FCC voted to propose rolling back public utility regulation of broadband Internet access services. The FCC’s Restoring Internet Freedom proposal argues that broadband Internet access service fits within the statutory definition of a lightly-regulated Title I “information service.” A May 8 U.S. District Court decision in Charter Advanced Services v. Lange (2017) supports the legal rationale for the FCC to define Internet access service as an “information service.”

The most egregious aspect of the FCC’s Title II Order (2015) is that it imposed public utility regulation on Internet access service providers. It did this by force-fitting Internet access into the Telecommunications Act of 1996’s definition of a Title II “telecommunications service.” To achieve that strained result, the order excluded Internet access service from the 1996 Act’s definition of a Title I “information service.

By reclassifying broadband service under Title I, the Restoring Internet Freedom proposal would return to an accurate reading of the 1996 Act. Quoting Title I’s definition of an information service, the FCC’s proposal states:

We believe that Internet service providers offer the “capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.” Whether posting on social media or drafting a blog, a broadband Internet user is able to generate and make available information online. Whether reading a newspaper’s website or browsing the results from a search engine, a broadband Internet user is able to acquire and retrieve information online. Whether it’s an address book or a grocery list, a broadband Internet user is able to store and utilize information online.  Whether uploading filtered photographs or translating text into a foreign language, a broadband Internet user is able to transform and process information online. In short, broadband Internet access service appears to offer its users the “capability” to perform each and every one of the functions listed in the definition—and accordingly appears to be an information service by definition. 

The Charter Advanced Services v. Lange decision is important because it supports the FCC’s reasoning that broadband Internet access service fits within the definition of a Title I information service in at least two key respects.

First, the U.S. District Court’s decision recognized that an offering’s performance of one function listed under Title I – transforming – sufficed to render it an “information service.” Judge Susan Richard Nelson of the U.S. District Court for the District of Minnesota ruled that Charter’s Spectrum Voice offering “engages in net protocol conversion, and that this feature renders it an ‘information service’ under applicable legal and administrative precedent.” According to Judge Nelson: “In this specific factual context, the touchstone of the information services inquiry is whether Spectrum Voice acts on the customer’s information – here a phone call – in such a way as to ‘transform’ that information… By altering the protocol in which that information is transmitted, Charter Advanced’s service clearly does so.”

The District Court’s decision thus supports the Restoring Internet Freedom proposal’s rationale insofar as “transforming” functionalities bring an offering within the scope of Title I’s information services definition. Of course, broadband Internet access service offerings transform the form or content of users’ information in many ways beyond voice offerings. As the Restoring Internet Freedom proposal observes, ISPs “routinely change the form or content of information sent over their networks – for example, by using firewalls to block harmful content or using protocol processing to interweave IPv4 and IPv6 networks.” Indeed, broadband services generate, acquire, store, transform, process, retrieve, utilize, and make information available to users in myriad ways beyond those briefly identified in the FCC’s proposal.

Second, the U.S. District Court’s decision emphasized that the information service definition is keyed to the provision of the “capability” of performing certain functions – regardless of whether those functions are actually performed in every instance. So, in Charter Advanced Services v. Lange, it was “the capability to convert calls” between Internet Protocol (IP) and Time Division Mutiplexing (TDM) that brought Charter Advanced within the meaning of Title I. As Judge Nelson explained:

[T]he mere fact that Spectrum Voice does not always involve protocol transformation does not render the service any less of an ‘offering’ of information services. At no point does the Telecommunications Act suggest or require that a customer use an information service’s transformative features all the time. Indeed, the very language of the definition of an ‘information service,’—which merely mandates that there be an ‘offering of a capability’ to, inter alia, transform information—belies such a conclusion.

Similarly, the Restoring Internet Freedom proposal emphasizes that “[t]he definition of “information service” speaks to the ‘capability’ to perform certain functions.” That is, an information service need not actually transform or perform other delineated Title I functions for broadband Internet access users in every instance. Rather, the proposal recognizes that “offering Internet access is precisely what makes the service capable of ‘generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information’ to consumers.”

The Restoring Internet Freedom proposal follows the FCC’s Cable Modem Order (2002), which “recognized that broadband Internet users often used services from third parties.” The Cable Modem Order – which declared cable modem service an information service “regardless of whether subscribers use all of the functions provided as part of a service” – was affirmed by the U.S. Supreme Court in NCTA v. Brand X (2005).

Conversely, the Restoring Internet Freedom proposal rejects the Title II Order’s effective disregard of functional “capability” as part of the definition of an “information service.” The Title II Order concluded that consumers use broadband service “primarily as a conduit” for accessing third-party content, applications, and services. This is not a conclusion on which there is anything like universal agreement. But, in any event, even if true, it is by virtue of being an Internet “conduit” that broadband Internet access service is capable of ‘generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information’ to consumers” – in an offering in which the conduit and information processing elements are inextricably linked.

The holding in Charter Advanced Services v. Lange is specific to IP-to-TDM voice offerings. Of course, the District Court’s decision does not alter the Title II Order or compel the FCC to make a Title I reclassification decision. Nonetheless, the court’s focus on the functional capabilities in the “information service” definition in the 1996 Act supports the argument for Title I classification of broadband Internet access service in the Restoring Internet Freedom proposal.

Classifying broadband Internet access service as an “information service” under Title I will restore a proper understanding of the statute and reflect its intent that Internet service providers be subject to light-touch regulatory treatment.

[*This post was updated to correct the case name of one of the Defendants 05/22/17 2:45pm EST]

Senate Passes Permanent Extension of Internet Tax Freedom Act

Today, February 11, 2016, the Senate passed a permanent extension of the Internet Tax Freedom Act, which would permanently ban state and local taxes on Internet access. Because the House passed its version of the bill in June 2015, the legislation now waits for President Obama’s signature. (See my June 2015 blog on the House passing the bill.)

As I have written many times, along with FSF scholars who have written on the subject, Internet access taxes at any level of the government would make Internet access less affordable for all consumers and, therefore, stifle broadband infrastructure investment from Internet service providers.

Thanks to Congress for passing this important piece of legislation. Now, President Obama must sign the bill in order to keep the Internet affordable for all!

Permanently Ban Internet Access Taxes

On January 19, 2016, Steve Pociask, President of the American Consumer Institute, published a Forbes article entitled “Keep The Internet Tax-Free.” Mr. Pociask says that the proposed provisions included in H.R. 644, which would permanently ban Internet access taxes, should be supported for a couple of reasons. He states that taxes on Internet access would reduce revenues for Internet service providers (ISPs) and would increase the price consumers pay for Internet access. Mr. Pociask states that such revenue losses would stifle investment and lead to fewer jobs created in the information economy because ISPs would not be able to cover their fixed costs. He also says that an increase in the price of Internet access would discourage prospective consumers from adopting Internet access and discourage current consumers from expanding their use of Internet-based services, ultimately leading to less tax revenue, not more.

The Internet has brought wonderful benefits to consumers over the past 20 years, but artificially increasing the price of Internet access (through federal, state, or local taxes) would certainly harm innovation and investment and diminish consumer benefits. It is time that Congress permanently ban Internet access taxes.

Read Mr. Pociask’s article here.

ACT NOW - DON'T LET INTERNET TAX BAN EXPIRE!

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