FCC’s Proposed Internet Rules Changes Little, No Real Impact On Interconnection or Choice

FCC Chairman Wheeler released a fact sheet today that outlined the new rules he is proposing for the Internet, which falls far short of solving the main complaints we’ve heard about in the market for so long. Many think it’s a big win for consumers that the proposed laws will prohibit ISPs from blocking, throttling, or prioritization content on their network, yet to date, no ISP has been accused of doing this. It’s nice that these restrictions might be a law going forward, but it doesn’t do anything to address the complaints of what takes place outside the last mile, or all the debate around consumers wanting more choices for broadband services.

In fairness, we haven’t seen the full proposal or all the details, but the fact is, that one of the biggest complaints we read about is that consumers want more choice when it comes to Internet service providers. The proposed rules won’t require any last-mile unbundling, so those that think the rules will foster more ISP services will be sadly mistaken. Think of how many times we read about consumers contending with local monopolies for their broadband Internet service and want more choice. Isn’t that the number one complaint by consumers? These new rules do nothing to address that. Not that I think they should, but this proposal doesn’t unbundle the last-mile and doesn’t regulate rates. So for those that call this a “win” for consumers, I don’t see it. There will be no new competition. The proposed new rules also allow ISPs to do “reasonable network management”, so those that wanted that off the table, won’t be happy either.

When it comes to the topic of interconnection taking place outside of the last mile, which so far Netflix has been the only content owner to complain about, the proposed new rules won’t actually govern them. The little bit of language we have on the topic, so far, says that the “Commission would have authority to hear complaints and take appropriate enforcement action if necessary, if it determines the interconnection activities of ISPs are not just and reasonable.” That’s not a law. It’s simply a way for the FCC to hear any gripes and then try to figure out what to do with them. How does the FCC plan to define “just and reasonable”? Traditionally, “just and reasonable” is defined by reference to the “cost” of providing the service. As a practical matter, this has been accomplished through the use of tariffs and investigations into tariffs. I couldn’t find any prior case where the FCC has assessed whether a non-tariffed rate is just and reasonable.

Who or what will be the authority on what “just and reasonable” market rates are? Will these rates be compared to pricing from transit providers, third-party CDN providers or some other form of alternate distribution? And will the decision only be on cost, or on the quality of service? I find it interesting that so far, in this whole net neutrality debate, people are arguing over capacity and speed, but never bring up quality of service. Capacity means nothing without performance and a good user experience. Also, while this may sound silly, the FCC is going to have to define what they classify as an interconnection. The language makes reference to the “interconnection activities of ISPs”, but what about those who aren’t ISPs? If people truly want an “open Internet” and transparency, it’s not fair that Cogent can secretly prioritize packets and impact the consumer experience, but doesn’t fall under the same rules.

One article I read today said, “without specific rules, ISPs would be tempted to ban, slow down or seek payment from content providers.” Why would they be tempted to do that? They don’t get paid a lot of money from interconnect deals, just look at the revenue numbers Comcast made public. ($40M-$60M in 2013) And by law, Comcast already isn’t allowed to block or throttle content due to their purchase of NBC. So for all the people acting like we have all kinds of blocking or throttling of content, by ISPs, we don’t have a single example of it being done.

Again, why not draft a proposal that deals with the actual complaints of consumers, instead of perceived issues that no consumers are actually dealing with. And before anyone says this is what Netflix has been complaining about, it isn’t. Netflix has never once accused Comcast or any other ISP of blocking or throttling their content, but rather a lack of wanting, and not getting for free, more capacity at interconnection points. Netflix’s CEO was quoted as saying, “it has no evidence or belief that its service is being throttled.” We need to stop using this term of “throttling” or implying that it’s happening to Netflix, or to anyone else, until someone makes that claim, and shows evidence of it happening. Implying it is taking place, only fuels the fire, and makes people debate non-facts, which does not help.

I read one post that said these proposed rules are a “big win for Netflix”, but in reality, that’s not the case. Netflix will have a hard time trying to convince the FCC that they are being mistreated when the interconnection deal they have with Comcast costs them less money than using transit providers and third-party CDNs, improves the video quality for consumers, and comes with an install SLA, packet loss SLA and latency SLA from Comcast. In Q2 of 2014 alone, Netflix paid third-party CDN provider Limelight Networks $5.4M, to deliver a small percentage of their overall traffic. Clearly if the FCC felt interconnect deals were a big enough problem, or that Netflix was truly getting treated unfairly, they would have proposed something much stronger than what is primarily a way to just “hear complaints.”

Another question I have from reading the proposed new rules is how the FCC is going to reclassify mobile broadband, when we have clear language protecting mobile broadband from Title II. I also can’t tell from the proposal if the FCC plans to reclassify retail broadband service only, or those services they provide to edge providers as well. The bottom line is that this outline we have seen today doesn’t really addresses the issues and leaves us with a lot of unanswered questions. We need to see the full proposal to know the details and see the language that will be used, but this is just another step along the way of what is going to continue to be a very long debate on the topic of net neutrality. It brings no real clarity to the debate, still has to be voted on, pass any legal hurdles and be put into practice. That’s not happening anytime soon.

One final thought, it says these new laws are intended to let consumers “access the legal content and applications that they choose online, without interference from their broadband network provider.” That’s funny considering my broadband provider is never what prevents me from accessing content. It’s always the combination of the device, the OS platform and the closed and highly controlled ecosystem that run on these devices.