Archives For Verizon Communications

Like most libertarians I’m concerned about government abuse of power. Certainly the secrecy and seeming reach of the NSA’s information gathering programs is worrying. But we can’t and shouldn’t pretend like there are no countervailing concerns (as Gordon Crovitz points out). And we certainly shouldn’t allow the fervent ire of the most radical voices — those who view the issue solely from one side — to impel technology companies to take matters into their own hands. At least not yet.

Rather, the issue is inherently political. And while the political process is far from perfect, I’m almost as uncomfortable with the radical voices calling for corporations to “do something,” without evincing any nuanced understanding of the issues involved.

Frankly, I see this as of a piece with much of the privacy debate that points the finger at corporations for collecting data (and ignores the value of their collection of data) while identifying government use of the data they collect as the actual problem. Typically most of my cyber-libertarian friends are with me on this: If the problem is the government’s use of data, then attack that problem; don’t hamstring corporations and the benefits they confer on consumers for the sake of a problem that is not of their making and without regard to the enormous costs such a solution imposes.

Verizon, unlike just about every other technology company, seems to get this. In a recent speech, John Stratton, head of Verizon’s Enterprise Solutions unit, had this to say:

“This is not a question that will be answered by a telecom executive, this is not a question that will be answered by an IT executive. This is a question that must be answered by societies themselves.”

“I believe this is a bigger issue, and press releases and fizzy statements don’t get at the issue; it needs to be solved by society.

Stratton said that as a company, Verizon follows the law, and those laws are set by governments.

“The laws are not set by Verizon, they are set by the governments in which we operate. I think its important for us to recognise that we participate in debate, as citizens, but as a company I have obligations that I am going to follow.

I completely agree. There may be a problem, but before we deputize corporations in the service of even well-meaning activism, shouldn’t we address this as the political issue it is first?

I’ve been making a version of this point for a long time. As I said back in 2006:

I find it interesting that the “blame” for privacy incursions by the government is being laid at Google’s feet. Google isn’t doing the . . . incursioning, and we wouldn’t have to saddle Google with any costs of protection (perhaps even lessening functionality) if we just nipped the problem in the bud. Importantly, the implication here is that government should not have access to the information in question–a decision that sounds inherently political to me. I’m just a little surprised to hear anyone (other than me) saying that corporations should take it upon themselves to “fix” government policy by, in effect, destroying records.

But at the same time, it makes some sense to look to Google to ameliorate these costs. Google is, after all, responsive to market forces, and (once in a while) I’m sure markets respond to consumer preferences more quickly and effectively than politicians do. And if Google perceives that offering more protection for its customers can be more cheaply done by restraining the government than by curtailing its own practices, then Dan [Solove]’s suggestion that Google take the lead in lobbying for greater legislative protections of personal information may come to pass. Of course we’re still left with the problem of Google and not the politicians bearing the cost of their folly (if it is folly).

As I said then, there may be a role for tech companies to take the lead in lobbying for changes. And perhaps that’s what’s happening. But the impetus behind it — the implicit threats from civil liberties groups, the position that there can be no countervailing benefits from the government’s use of this data, the consistent view that corporations should be forced to deal with these political problems, and the predictable capitulation (and subsequent grandstanding, as Stratton calls it) by these companies is not the right way to go.

I applaud Verizon’s stance here. Perhaps as a society we should come out against some or all of the NSA’s programs. But ideological moralizing and corporate bludgeoning aren’t the way to get there.

Susan Crawford recently received the OneCommunity Broadband Hero Award for being a “tireless advocate for 21st century high capacity network access.” In her recent debate with Geoffrey Manne and Berin Szoka, she emphasized that there is little competition in broadband or between cable broadband and wireless, asserting that the main players have effectively divided the markets. As a result, she argues (as she did here at 17:29) that broadband and wireless providers “are deciding not to invest in the very expensive infrastructure because they are very happy with the profits they are getting now.” In the debate, Manne countered by pointing to substantial investment and innovation in both the wired and wireless broadband marketplaces, and arguing that this is not something monopolists insulated from competition do. So, who’s right?

The recently released 2013 Progressive Policy Institute Report, U.S. Investment Heroes of 2013: The Companies Betting on America’s Future, has two useful little tables that lend support to Manne’s counterargument.

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The first shows the top 25 investors that are nonfinancial companies, and guess who comes in 1st, 2nd, 10th, 13th, and 17th place? None other than AT&T, Verizon Communications, Comcast, Sprint Nextel, and Time Warner, respectively.

skatch

And when the table is adjusted by removing non-energy companies, the ranks become 1st, 2nd, 5th, 6th, and 9th. In fact, cable and telecom combined to invest over $50.5 billion in 2012.

This high level of investment by supposed monopolists is not a new development. The Progressive Policy Institute’s 2012 Report, Investment Heroes: Who’s Betting on America’s Future? indicates that the same main players have been investing heavily for years. Since 1996, the cable industry has invested over $200 billion into infrastructure alone. These investments have allowed 99.5% of Americans to have access to broadband – via landline, wireless, or both – as of the end of 2012.

There’s more. Not only has there been substantial investment that has increased access, but the speeds of service have increased dramatically over the past few years. The National Broadband Map data show that by the end of 2012:

  • Landline service ≧ 25 megabits per second download available to 81.7% of households, up from 72.9% at the end of 2011 and 58.4% at the end of 2010
  • Landline service ≧ 100 megabits per second download available to 51.5% of households, up from 43.4% at the end of 2011 and only 12.9% at the end of 2010
  • ≧ 1 gigabit per second download available to 6.8% of households, predominantly via fiber
  • Fiber at any speed was available to 22.9% of households, up from 16.8% at the end of 2011 and 14.8% at the end of 2010
  • Landline broadband service at the 3 megabits / 768 kilobits threshold available to 93.4% of households, up from 92.8% at the end of 2011
  • Mobile wireless broadband at the 3 megabits / 768 kilobits threshold available to 94.1% of households , up from 75.8% at the end of 2011
  • Access to mobile wireless broadband providing ≧ 10 megabits per second download has grown to 87%, up from 70.6 percent at the end of 2011 and 8.9 percent at the end of 2010
  • Landline broadband ≧ 10 megabits download was available to 91.1% of households

This leaves only one question: Will the real broadband heroes please stand up?

With Matt Starr, Berin Szoka and Geoffrey Manne

Today’s oral argument in the D.C Circuit over the FCC’s Net Neutrality rules suggests that the case — Verizon v. FCC — is likely to turn on whether the Order impermissibly imposes common carrier regulation on broadband ISPs. If so, the FCC will lose, no matter what the court thinks of the Commission’s sharply contested claims of authority under the Telecommunications Act.

The FCC won last year before the same court when Verizon challenged its order mandating that carriers provide data roaming services to their competitors’ customers. But Judge Tatel, who wrote the Cellco decision is likely to write the court’s opinion overturning the Net neutrality rules — just as he wrote the court’s 2010 Comcast v. FCC opinion, thwarting the FCC’s first attempt at informal net neutrality regulation.

Over an extraordinary two-hour session, Judges Tatel and Silberman asked a barrage of questions that suggest they’ll apply the same test used to uphold the data roaming rule to strike down at least the non-discrimination rule at the heart of the Open Internet Order — and probably, the entire Order.

Common Carrier Analysis

The Communications Act explicitly prohibits treating services that are not regulated under Title II as common carriers. Title II regulates “telecommunications services,” such as landline telephone service, but broadband is an “information service” regulated under Title I of the Act, while wireless is regulated under Title III of the Act (as a “radio transmission”).

In Cellco, the court ruled that the FCC’s data roaming rule did not impermissibly classify mobile providers as common carriers even though it compelled wireless carriers to let other companies’ subscribers roam on their networks. Here, the Open Internet Order effectively forces ISPs to carry traffic of all “edge” providers in an equal, non-discriminatory manner. While these might seem similar, the two mandates differ significantly, and Tatel’s analysis in the data roaming case may lead to precisely the opposite result here.

Tatel’s data roaming opinion rested on a test, derived from decades of case law, for determining what level of regulation constitutes an impermissible imposition of common carrier status:

  1. “If a carrier is forced to offer service indiscriminately and on general terms, then that carrier is being relegated to common carrier status”;

  2. “[T]he Commission has significant latitude to determine the bounds of common carriage in particular cases”;

  3. “[C]ommon carriage is not all or nothing—there is a gray area [between common carrier status and private carrier status] in which although a given regulation might be applied to common carriers, the obligations imposed are not common carriage per se” because they permit carriers to retain sufficient decisionmaking authority over their networks (by retaining programming control and/or the authority to negotiate terms, for example); and

  4. In this gray area, “[the FCC’s] determination that a regulation does or does not confer common carrier status warrants deference” under the Supreme Court’s Chevron decision.

In Cellco, the court determined that the data roaming rule fell into the gray area, and thus deferred to the FCC’s determination that the regulation did not impose common carrier status. The essential distinction, according to the court, was that carriers remained free to “negotiate the terms of their roaming arrangements on an individualized basis,” provided their terms were “commercially reasonable.” Rather than impose a “presumption of reasonableness,” the Commission offered “considerable flexibility for providers to respond to the competitive forces at play in the mobile-data market.” Thus, the court held, the data roaming rule “leaves substantial room for individualized bargaining and discrimination in terms,” and thus “does not amount to a duty to hold out facilities indifferently for public use.”

The Open Internet rules, by contrast, impose a much harsher restriction on what ISPs may do with their broadband networks, barring them from blocking any legal content and prohibiting “unreasonable” discrimination. Judges Tatel and Silberman repeatedly asked questions that suggested that the Order’s reasonable discrimination rule removed the kind of “flexibility” that justified upholding the data roaming rule. By requiring carriers to “offer service indiscriminately and on general terms” and to “hold out facilities indifferently for public use” (to quote the D.C. Circuit’s test), the rule would go beyond the “gray area” in which the FCC gets deference, and fall into the D.C. Circuit’s definition of common carriage. If that’s indeed ultimately where the two judges wind up, it’s game over for the FCC.

The Open Internet Order requires broadband ISPs to make their networks available, and to do so on equal terms that remove pricing flexibility, to any edge provider that wishes to have its content available on an ISP’s network. This seems to be Judge Tatel’s interpretation of ¶ 76 of the Order, which goes on at length about the reasons why “pay for priority” arrangements would “raise significant cause for concern” and then concludes: “In light of each of these concerns, as a general matter, it’s unlikely that pay for priority would satisfy the ‘no unreasonable discrimination’ standard.” So… legal in principle, but effectively banned in practice — a per se rule dressed up as a rule of reason.

If that isn’t, in effect, a requirement that ISPs hold out their networks “indifferently for public use,” it’s hard to imagine what is — as Tatel certainly seemed to think today. Tatel’s use of the term “indiscriminately” in Cellco almost hints that the test was written with the FCC’s “no discrimination” rule in mind.

The FCC tried, but failed, to address such concerns in the Open Internet Order, by arguing that broadband providers remained free to “make individualized decisions” with the only customers that matter: their subscribers. Today, the agency again insisted that restricting, however heavily, a broadband provider’s ability to negotiate with an edge provider (or the backbone providers in between) is irrelevant to the analysis of whether the FCC has illegally imposed common carriage. But if that argument worked, the D.C. Circuit would not have had to analyze whether the data roaming rule afforded sufficient flexibility to carriers in contracting with other carriers to provide data roaming services to their customers.

Similarly, the FCC failed today, and in its briefs, to effectively distinguish this case from Midwest Video II, which was critical to the Cellco decision. here, the Supreme Court court struck down public-access rules imposed on cable companies as impermissible common carrier regulation because they “prohibited [cable operators] from determining or influencing the content of access programming,” and “delimit[ed] what [they could] charge for access and use of equipment.” In other words, the FCC’s rule left no flexibility for negotiations between companies — the same problem as in the Open Internet Order. The FCC attempted to distinguish the two cases by arguing that the FCC was restricting an existing wholesale market for channel carriage, while no such market exists today for prioritized Internet services. But this misses the key point made, emphatically, by Judge Silberman: it is the FCC’s relentless attempt to regulate Net Neutrality that has prevented the development of this market. Nothing better reveals the stasis mentality behind the FCC’s Order

Perhaps the most damning moment of today’s arguments occurred when Verizon’s lawyer responded to questions about what room for negotiation was left under the unreasonable discrimination rule — by pointing to what the FCC itself said in Footnote 240 of the Order. There the FCC quotes, approvingly, comments filed by Sprint: “The unreasonable discrimination standard contained in Section 202(a) of the Act contains the very flexibility the Commission needs to distinguish desirable from improper discrimination.” In other words, the only room for “commercially reasonable negotiation” recognized by the FCC under the nondiscrimination rule is found in the limited discretion traditionally available to common carriers under Section 202(a). Oops. This #LawyerFail will doubtless feature prominently in the court’s discussion of this issue, as the FCC’s perhaps accidental concession that, whatever the agency claims, it’s really imposing common carrier status — analogous to Title II, no less!

Judges Tatel and Silberman seemed to disagree only as to whether the no-blocking rule would also fail under Cellco’s reasoning. Tatel suggested that if the non-discrimination rule didn’t exist, the blocking rule, standing alone, would “leave substantial room for individualized bargaining and discrimination in terms” just as the data roaming rule did. Tatel spent perhaps fifteen minutes trying to draw clear answers from all counsel on this point, but seemed convinced that, at most, the no-blocking rule simply imposed a duty on the broadband provider to allow an edge provider to reach its customers, while still allowing the broadband provider to negotiate for faster carriage on “commercially reasonable terms.” Silberman disagreed, insisting that the blocking rule still imposed a common carrier duty to carry traffic at a zero price.

Severability

Ultimately the distinction between these two rules under Cellco’s common carriage test may not matter. If the court decides that the order is not severable, striking down the nondiscrimination rule as common carriage would cause the entire Order to fall.

The judges got into an interesting, though relatively short, discussion of this point. Verizon’s counsel repeatedly noted that the FCC had never stated any intention that the order should be read as severable either in the Order, in its briefs or even at oral argument. Unlike in MD/DC/DE Broadaster’s Assoc. v. FCC, the Commission did not state in the adopting regulation that it intended to treat the regulation as severable. And, as the DC Circuit has stated, “[s]everance and affirmance of a portion of an administrative regulation is improper if there is ‘substantial doubt’ that the agency would have adopted the severed portion on its own.”

The question, as the Supreme Court held in K Mart Corp. v. Cartier, Inc., is whether the remainder of the regulation could function sensibly without the stricken provision. This isn’t clear. While Judge Tatel seems to suggest that the rule against blocking could function without the nondiscrimination rule, Judge Silberman seems convinced that the two were intended as necessary complements by the FCC. The determination of the no-blocking rule’s severability may come down to Judge Rogers, who didn’t telegraph her view.

So what’s next?

The prediction made by Fred Campbell shortly after the Cellco decision seems like the most likely outcome: Tatel, joined by at least Silberman, could strike down the entire Order as imposing common carriage — while offering the FCC a roadmap to try its hand at Net Neutrality yet again by rewriting the discrimination rule to allow for prioritized or accelerated carriage on commercially reasonable terms.

Or, if the the court decides the order is severable, it could strike down just the nondiscrimination rule — assuming the court could find either direct or ancillary jurisdiction for both the transparency rule and the non-discrimination rule.

Either way, an FCC loss will mean that negotiated arrangements for priority carriage will be governed under something more like a rule of reason. The FCC could try to create its own rule.  Or the matter could simply be left to the antitrust and consumer protection laws enforced by the Department of Justice, the Federal Trade Commission, the states and private plaintiffs. We think the latter’s definitely the best approach. But whether it is or not, it will be the controlling legal authority on the ground the day the FCC loses — unless and until the FCC issues revised rules (or Congress passes a law) that can survive judicial review.

Ultimately, we suspect the FCC will have a hard time letting go. After 79 years, it’s clearly in denial about its growing obsolescence.