Time Warner Cable, Cablevision Sink as the FCC Goes ’Nuclear’
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It could have gone back to Congress to get clearer statutory authority for its mandate to regulate the web. If successful, that effort would have led to a solution in the form of a new statutory provision that carefully defined what the FCC could or couldn't do in regulating the internet. While that would have been an ideal solution, it would have meant having to get support for the agency's net neutrality goals in Congress, and that support was doubtful.
The other choice was to do what it did here, and that is to take its existing authority over common carriers in the telephone market and attempt to extend it to the internet. The problem with this is that such authority is very broad-based and includes (among other things) the power to regulate pricing through a complex system of tariffs.
The FCC is claiming to do a "hybrid," however, by saying that, yes, we are going treat internet access providers like phone companies but we don't intend to regulate their pricing or exercise any of the other broad regulatory powers we might otherwise exercise once we use this this approach. In effect, the agency is saying, "we plan to come in with a scalpel and do only what is needed to implement our narrow regulatory plan that is focused primarily on net neutrality rules - so, don't worry about the rest, trust us that we will not overreach."
Of course, nothing is in place under the FCC's chosen approach to stop overreaching by the agency except its own discretion. By invoking existing statutes designed for another purpose altogether, instead of seeking to get a new statute from Congress aimed at solving the immediate issue of net neutrality only, the FCC is exerting government power in a way that may not have been contemplated by the original statutes and in a way that will most certainly be challenged in the courts.
Maybe this approach will work for proponents of net neutrality but it comes at a price of the government staking out a pretty broad claim to regulate the internet without any particular checks on that power beyond the FCC's own judgment as to what it should or shouldn't do in the future. Thus, this is basically an agency power grab - perhaps supportable, perhaps not - but almost certain to have unpredictable and potentially unpleasant side effects as always happens when there are insufficient checks on government power.
One the one hand, we have ISPs, all with near-strangleholds in their area, making decisions that the market can't effectively retaliate against (high barriers to entry and whathaveyou).
On the other hand, we have the slippery-slope of government regulation of the internet. I know I'm in the minority, here, but frankly, I find this option the more unnerving.
Are we simply damned if we do, damned if we don't? How do we take power from providers without giving any more power to regulators?
You're also begging the question of whether treating ISPs as common carriers grants the FCC power to "regulate the internet".
Those are each highly debatable positions that you're assuming as truth.
I'm not going to question your motives, but suffice it to say your argument is hardly convincing for making these assumptions.
The free market has failed the Internet. For some things, like utilities, government regulation works best. I think we all can agree that network access is a utility and should be treated as such.
To some extent that is a result of the fact that we had it early. A lot of money was put into the early infrastructure, and it now needs to be upgraded, but there's little incentive to do so as long as it's working well enough.
Whereas latecomers to the party can get equipment three generations better than what we started with, and install it for a lot less money than we had to sink into our old stuff.
This is not too uncommon in business, either, where (especially in fields where patents don't ensure a monopoly for the innovator), the innovator spends a lot of resources in development, setting up the supply chain, and driving consumer demand. The "me, too!" business then comes along and benefits from all of this without having to pay a dime, and can skip right past many unprofitable months and challenge the innovator to a game of catch-up very quickly.
When you limit the innovators' ability to profit from their innovations, they'll stop innovating...
The goal of patents is to reduce the risk of competitors taking profits for an idea without investing the R&D in the idea.
It needs both, honestly. Companies need freedom to innovate, and they also need rules to prevent them from screwing consumers and other businesses. I see neutrality as a means to ensure freedom for companies to innovate on an equal playing field.
Here's an over stretched metaphor:
It's as if UPS owned parts of the highway and only allowed delivery of certain items by certain companies.
FedEx would pay huge tithes to them just to compete. Eventually FedEx would need to buy it's own network of highways somewhere else to lock-in an area and compete.
This is an exaggeration, but I see this as analogous to media companies (like TimeWarner) buying up cable companies to become ISPs.
Metaphors end here, because I personally don't see driving on a highway as a Right, and internet communication is very similar to Speech, which is an American Right.
What does that mean? Which powers were stripped? How can they impose more regulations if they have less power?
IMHO this is probably huge for net neutrality, but I wonder where their (generally accepted) efforts at traffic shaping will end up in all of this? I'm not sure anyone wants broadband that can't throttle its bittorrent users a little.
Why would your 24MBit/s work slower for bit-torrent than other uses? The whole point of this net neutrality debate is that ISPs have no business deciding which traffic they prefer, much like your phone company has no business deciding which one of your friends you're allowed to call.
I comment in agreement with the need to maintain QoS for reasons of network health, especially if you need to maintain minimum guaranteed bandwidth in the presence of misbehaving clients (e.g. botnets, ping floods, not just abusive torrenters).
However, the carriers in questions have often not been using QoS for reasons of improving service, but rather to penalize the percentage of broadband users who actually use a large portion of the bandwidth they're paying for.
For example, say you buy 1.5Mbit DSL and then carefully set up your torrent client to use a consistent 1.0Mbit during nighttime. A month later you get a disconnect notice from your ISP claiming that you were hogging bandwidth, probably leaving you SOL since that's the only viable ISP in your area.
This is the sort of business practice the FCC is trying to address.
Those 1.5Mbit DSL is "maximum capacity." Not what you should try to consume. Ultimately, all the customers go through one pipe, or a shared few pipes, so those hogging the lines negatively affect others.
In my opinion, it's the users of the bandwidth that are greedy. Do they really need 1,000 movies on their hard drives? Many bit torrenters have more content than they could ever watch in their entire lives...
If they don't want people to use the bandwith they pay to get, they should say so by advertising their monthly cap or whatever.
The idea that I can only transfer the particular types of bits across the wire that my ISP thinks I should is exactly the point of net neutrality rules. If that's not an infringement of free speech, I don't know what is.
Limiting the ability to share movies online is not an infringement of free speech.
I'm pretty sure the telcos don't have enough lines for everyone to place a call at the same time. Are you also going to argue that running a call center should be prohibited, too, because you are excessively using shared resources?
So the providers started screwing people over depending on what kind of bits they wanted to get over the net -- the beginning of some god-awful 74-thousand tiered pricing structure.
Lots of fuss about that. FCC tries to step in. Court says nope, in that bucket you don't have the authority to act.
So the FCC puts them in new bucket. Huge part of the economy now regulated and nobody had to elect anybody, there was no bill, no debate, no nothing (And I support this, but damn it's a freaking Faustian bargain if I ever saw one)
Apologies if I seemed to mislead anyone. There is nothing unconstitutional going on.
But that doesn't take away from the fact that the regulatory agencies have immense power in our society -- granted to them by Congress. For instance, the DEA can classify new drugs as dangerous, including setting what the jail time will be for possession -- and Congress has virtually no role[1]. Used to be it took an entire constitutional amendment to outlaw alcohol, but now a commission does the same work and there's little publicity.
[1] Ok, so they have "oversight", but as somebody who has seen oversight behind the scenes, and watched a lot of it on C-SPAN, color me unimpressed.
EDIT: Another good one is the EPA classifying CO2 -- the air we breathe -- as being under it's regulatory guidance. Now they made provision so that it only covers large producers of CO2, but that was their decision as an agency. There was no public debate or vote in Congress. Just a bunch of guys sitting around a conference table.
Once again, I support the outcome in this case. I'm not trying to argue that it's a bad outcome. Just not crazy about the way we got here, or the implications for broadband 20 years from now.
Legislative branch sets out what should happen (but misses details)
Executive branch fills in the details via implementation
Judicial branch tells them when they screwed up the details or the legislative branch did something that conflicts with higher law.
Yes, you are correct.
"Oversight" committees are set up by Congress to manage the authority they were given. These are -- well, start watching some if you'd like to know what they are. And don't let the Congressmen tell you their staff is on top of it. Managing Congressional staff is something the various agencies have learned a long, long time ago.
The agency itself is a part of the executive branch. So theoretically they report to the president. In practice, however, the government is a huge thing. It is highly unusual to be within 3 people of reporting to the executive. The president makes political appointments, and the top people at each agency are those who manage those guys. Usually contractors are brought in to create a lot of presentations and such so that staff can show to the political hack how great the agency is. Over time agencies get very, very good at managing the hacks and resisting change. After all, the agency is full of people there for life. These guys are just passing through. It's not unusual for the president to bring in activists or ex-corporate types as their political hacks. After all, these guys are contributors and they are interested and qualified (but also have many hidden agendas)
The courts technically oversee whether or not the agencies act in a constitutional manner -- the idea being that although Congress can delegate huge swaths of its power to agencies, it can't delegate something it never had. Appellate courts step in when federal agencies overstep, but historically in an ad-hoc manner. http://www.jstor.org/pss/2647783 The worst abuses with the most political imapct are caught. Lots of little guys get trampled.
Also, as in this FCC case, there is the matter of whether or not Congress gave them the power to do X in the first place.
What you are painting as a demon I think of as giving regulators flexibility to adapt to a changing world. It couldn't work otherwise, if everything had to be spelled out exactly by Congress do you really think it would work better?
The open question is whether the courts will accept this reclassification. This question will likely take several years to wind its way through the courts, but no matter how it turns out it will be a huge headache for the cable providers.
The fundamental issue here is whether net neutrality can be imposed on the cable providers. The standard meme is that net neutrality is a basic right. I am one of the few people who actually don't want net neutrality. Not because I trust ISPs to behave in a reasonable fashion, but because I think that the only real solution to bot nets is to make ISPs liable for the traffic that they let onto the Internet, and any such rule would be incompatible with net neutrality.
Have a sense of proportions...
Just because people aren't aware of how big a problem it is doesn't mean that it isn't a big problem.
http://www.washingtonpost.com/wp-dyn/content/article/2010/04...
The real issue question is whether or not enforcing net neutrality would introduce a new level of federal regulation that would scare off investment.
And all they had to do to avoid this was not act like greedy assholes.
I guess it was a matter of asking a leopard to change its spots.
Corporations must grow. They must increase their share price. They must continue to do more and more and more to get more money or they die. If you aren't growing you are dead.
That's the problem with our system. But this system violates the laws of nature. Organisms in nature don't continue to grow forever. Those that don't stop growing eventually collapse under their own weight. That's exactly what is happening to our corporations -- and our society.
We have to create a new system, whereby corporations -- organizations -- are rewarded for their stability, for their consistency. For their remaining the same for a long time.
Small businesses can do this. At some point, the small business owner can say, "I have enough." But corporate leaders cannot say, "Our corporation is big enough." If they say that, they are fired. If you go public, you have to grow forever until your corporation collapses -- or is broken up by regulators.
There is only one destination for public companies -- destruction, either through collapse or regulatory fragmentation.
True, although do they have to do that by trying to decrease service at every opportunity, and by trying to enter markets outside their core competencies?
There's nothing wrong with being a big dumb pipe. For a cable carrier or telco, trying to do anything else will either divide the company against itself, or pit the company against its own customers. It could be argued that by trying to grow into inappropriate areas, the carriers are contravening their fiduciary duty.
But blue oceans are uncharted territory. They are scary and risky and require a level of creativity that exists in few telecom companies.
Most telecoms are so big that to grow at a rate above 1% would require massive opportunity. It's much easier to charge 1% more to all their customers or include a hidden fee or provide 1% less bandwidth. They've done that to an equilibrium now and breaking the deadlock with their competitors is destructive to their own organization. They can't cut costs because they don't have the margins. They can't raise rates because customers will go to a cheaper alternative. They can't reduce services because the FCC comes down on them.
Remember what happened to comcast when they tried to treat bit torrent differently? It seemed reasonable to me. If the FCC wants to turn the internet into a transportation system, then they will need the equivalent of a weigh station, because the heavy trucks cause more damage to the roads.
If they were data companies, UPS and Fedex would have more and larger servers (sorting and storage facilities) than DHL, but their packets (trucks) are treated the same way on the open road.
"A business corporation is organized and carried on primarily for the profit of the share-holders. The powers of the directors are to be employed for that end. We are not, however, persuaded that we should interfere with the proposed expansion of the Ford Motor Company. In view of the fact that the selling price of products may be increased at any time, the ultimate results of the larger business cannot be certainly estimated. The judges are not business experts."
Yes, they are primarily in it to make money for their shareholders. However, it's nearly impossible to tell the effects of many decisions on the company's bottom line, and moves that increase the company's image in the eyes of the general populace can certainly be argued to have effects that increase the financial well-being of the company.
There's something called the business judgment rule that's applied in cases such as this. The board members must act in good faith, act in the best interests of the corporation, act on an informed basis, not be wasteful, and not involve self-interest. This gives a great deal of wiggle room because, as the judge said in Dodge v. Ford Motor Co., "judges are not business experts."
A move like eschewing moves away from net neutrality is arguably (which is all it needs to be) a move done in good faith to increase the bottom line of the company, especially since it builds goodwill with consumers.
It could be argued that it violates the property rights of the corporation. Almost every restaurant has a sign that says, "We reserve the right to refuse service to anyone."
The telecoms built those wires. They installed the switches. It seems wrong to me to tell them how they must allow traffic to flow over them. Existing transportation companies aren't hounded by the Department of transportation because they charge more for a 12 cubic foot container than they charge for a 1 cubic foot container.
If a railroad wants to charge one company more than another company they can do that. If they want to limit the amount of goods they transport, they can do that. They can refuse to transport certain kinds of goods as well. Grains, liquids, explosives... Or charge a different rate...
How is the internet, where the packages are full of 1's and zeros different?
Telecoms are also given a lot of government protection, like local monopolies and no liability for the information they deliver, in return for the regulation. The government paid for a lot of the wires and switches with subsidies, which muddles the property rights argument. The government certainly has a right, as well as an obligation to the public, to ensure that its expenditures are to the public benefit.
I personally take the view that, for all intents and purposes, telcoms aren't completely private entities due to the legal and financial privelages they recieve from the government, so reasoning by analogy to other private enterprises is flawed. The crossover is enough to give them a civic obligation in addition to their fudiciary responsibility, enforcable by regulation.
Shipping rates vary by type of commodity
Each cargo owner pays a different rate
CSX has pricing rates by commodity http://www.csx.com/?fuseaction=customers.pricing_lists
It's obvious to anyone who has shipped almost anything that costs are different by size and weight and scale.
The discriminatory pricing refers to the client, not to the shipped goods.
Pricing for different goods by type, size and height is appropriate because of the different resources needed to ship those goods. More fuel and studier cars are needed to move iron loads vs a load of pillows. Moving coal requires open-topped coal cars while moving ice-cream requires refrigerated cars, etc.
Telecoms are in the business of moving bits. If they want to charge more to move a gigabyte of video data than they do to charge a gigabyte of text data, or if they want to offer slower speeds for a gigabyte of torrent data vs a gigabyte of FTP data, I think they should better explain how the different types of data justify the different charges.
I believe also that paying dividends would be an alternative to having a pyramidal share price.
Software companies do it all the time. Oracle charges Salesforce more for its database than it charges a university and it gives it way for free to some organizations.
Essentially, net neutrality is saying that the telecoms don't have the right to choose how to charge for their product.
If the FCC is saying the internet is a right everyone should enjoy at the same rate, why don't they create a public wireless grid? People argue against that saying the government will control our traffic, but essentially that's what they are arguing for here as well. They want the FCC to control the internet, but keep it private in such a way that limits the corporation's ability to profit.
I'd be angry if the FCC came in and told me what I could charge for my SaaS or my consulting hours. Why is it different for the telecoms?
Because the telecoms have gotten tons of help from the public, via the government, over the years. At the Federal level, the cable and satellite companies got the original anti-circumvention laws that led to the DMCA. They also get to be exempt from a lot of state level regulation that they might not like, in exchange for the far friendlier FCC. And at the local level, telcos get to use public rights of way and often have monopoly grants.
They're in no way comparable to a small entrepreneur. They're like a company that's been given (or bought) permission to operate a toll road. In exchange for being allowed to make money, they need to charge everyone the same tolls and the amount of the tolls that they charge is going to be subject to regulation.
As for why the government doesn't just build and operate the infrastructure itself ... if the telcos keep it up, that may just be what happens. Critical infrastructure has been a frequent target, historically, for nationalization when the owners of that infrastructure are perceived to be rent-seeking to excess. The public tolerance for toll roads evaporated in the 1880s [1] and they were almost entirely stamped out by the Progressives; the telecommunication operators of today would do well to keep that in mind.
[1] http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes
But back to your point, the toll roads I travel on charge more for semi-trucks than they charge for passenger vehicles.
I understand the thought that the public is investing in these wires, so they own them, but the public invests in all sorts of industries, including pharmaceuticals (via the NIH), vehicles (buying GM), mortgages (fannie may, aig), but yet they don't regulate what gm charges for cars or Pfizer charges for their drugs.
I wonder why we believe it is okay for the govt to meddle in some areas and not others? Where and how do we draw the line?
Yes, because the semis cause more than their share of road-maintenance costs. This is akin to charging me 2x as much if I want to upgrade to a pipe that's 2x as fast. Nobody has a problem with that.
The problem happens when the government sells the tollway to a private corporation, who then starts up its own trucking line. The road's new owner charges its own trucks $0.25 and everybody else's trucks $5.00. How could you defend that?
I wonder why we believe it is okay for the govt to meddle in some areas and not others? Where and how do we draw the line?
This isn't even a new question. There are some interesting parallels with the early telephone switching system. About a hundred years ago, an undertaker named Strowger noticed that his competitor was getting all the calls whenever someone kicked the bucket. It didn't take much investigation before he discovered that Betty the Switchboard Operator was the sister-in-law of Bob the Undertaker at the competing funeral home.
Nowadays we're faced with the exact same scenario, but due to the logistics of the last-wire monopoly, we can't solve it by inventing a new switching system like Strowger did. That's where the government has a legitimate role to play.
The overarching point is that it's a clear good for society. It doesn't have to be fair - we're not required to be nice, or fair, to corporations - they're not people. We're required to maximise the benefit of the citizens in the country. Sure, being 'unfair' to corporations can have negative long term outcomes, which is why you only do it in cases like these: where the outcome is so clearly a positive for the system as a whole.
Right now, they are basically stuck paying for all the copper they bought. They can't buy new fiber. They can't install new towers, etc...
Even so - I'm not sure they're being prevented from charging more, necessarily - although the FEC would gain the power to do so if necessary. The main thing is, they're being prevented from charging in a discriminatory manner.
Yes, simple risk/return analysis? And they were warned too.
"Don't harass the chicken that lays golden eggs too much."
I'm not sure how tractable this problem is. If you'll forgive some hand-waving, it reminds me of the oligopoly problem turned inside out - rather than a few large companies in a market, you have a few powerful directors in a market where shareholder votes are exchanged for management services. Even if directors have independent ideas about the right policy for the corporation, as they should, the nature of the (internal) market itself may result in unanimity to the detriment of shareholders. Shareholder demand for value (qua consumer demand for management services) is rather inelastic, which limits the appetite for risky things like firing the entire board, and by proxy firing the management team - the more so when fund managers of institutional investors (administering important things like pensions) have a clear fiduciary and ethical duty to maximize returns to the fundholders.
Well, specifically it's directors who have that duty, and (naturally) they select managers whose views further their own. Of course, in recent years there have been examples of tension between managers and shareholders in the US (unrelated to the financial crisis), where shareholders' powers to change policy 'from the floor' are relatively limited. Some argue, too, that directors' fiduciary responsibilities need to be rethought in terms of long-term sustainability and stability rather than in purely expansionary terms.
There's an interesting discussion of these issues here: http://blogs.law.harvard.edu/corpgov/2009/11/17/shareholders...
And on a slightly tangential note, a cautionary tale about a company that went bust within weeks of its IPO, and how the arguments of the firm's attorney and directors found short shrift in court: http://ssrn.com/abstract=1567657
NN was always a bad idea and this step by the FCC was obvious to anyone who saw through the NN BS. I'll never understand why people still think the government can "help" them by solving problems that don't even exist.
Say hello you're new Internet nanny, the FCC.
I disagree with that while agreeing that a good outcome from this move is extremely unlikely. (Is you faith in the government that strong? In a political body who's partisan nature shifts from administration to administration?
And that was before I read the theory that this would freeze a lot of stuff while it gets fought out in the courts for the next few years.