Section 706 of Telecom Act offers FCC little to address telecom infrastructure deficit

Net neutrality storm engulfs FCC - POLITICO: FCC officials are meeting with congressional staff this week as Wheeler tries to better explain the options on the table to industry players and the public interest community. Across those meetings, the FCC chairman and his aides haven’t tipped their hand about how they want to proceed, according to multiple sources. The officials have given a rundown of the various options, including adopting the utility-style regulation known as Title II, using a weaker authority known as Section 706 or some combination of the two — but failed to lay out a clear path forward, the sources said.

Section 706, found in Title VII (Miscellaneous Provisions) of the Communications Act, isn't really a mandate on telecommunications providers. Rather, it merely affords the Federal Communications Commission authority to issue rules creating incentives to remove barriers to telecommunications infrastructure investment and to promote competition.

The main barrier to wireline Internet infrastructure investment that according to the FCC has left about 19 million American homes without Internet connections is economic, not regulatory. The business models of investor-owned providers typically require relatively quick return on monies invested to build infrastructure. In less densely populated areas, there is greater risk that standard won't be met, extending out the time for investors to break even and begin generating profits. No FCC rulemaking can change those economics.

The FCC provides subsidies to help bridge the gap (the Connect America Fund), but providers have generally spurned them. Instead, they've concentrated capital investments in more densely populated and profitable parts of their service territories and in mobile wireless services.

As for removing barriers to competition, there is little the FCC can do within the existing market-based model for telecommunications service. That's because telecommunications infrastructure is a natural monopoly that due to high cost and risk barriers deters would be competitors from entering the market.

FCC Chair Wheeler faces either/or choice on Internet regulation; the baby can't be split.

Obama’s call for an open Internet puts him at odds with regulators - The Washington Post: Huddled in an FCC conference room Monday with officials from major Web companies, including Google, Yahoo and Etsy, agency Chairman Tom Wheeler said he has preferred a more nuanced solution. That approach would deliver some of what Obama wants but also would address the concerns of the companies that provide Internet access to millions of Americans, such as Comcast, Time Warner Cable and AT&T. “What you want is what everyone wants: an open Internet that doesn’t affect your business,” a visibly frustrated Wheeler said at the meeting, according to four people who attended. “What I’ve got to figure out is how to split the baby.”

It's natural given Tom Wheeler's background as a telecom lobbyist that he would look for some kind of deal or compromise that opposing parties in a contentious policy issue can live with. But that's not what President Obama -- who designated Wheeler as Federal Communications Commission chair -- had in mind when he issued a statement this week calling on the FCC to issue rules defining Internet service a common carrier telecommunications service under Title II of the Communications Act instead of a more narrowly offered, specialized information service under Title I of the statute. These are entirely different regulatory schemes that don't lend themselves to hybrid models. It's an either/or choice. The baby can't be split. Moreover, doing so will only create legal uncertainty and fuel litigation. Rather than satisfying various stakeholders, none will be happy and more inclined to turn to the courts for redress of their grievances, potentially creating years of regulatory uncertainty.

Judging from the millions of comments filed with the FCC on the question, it's eminently clear the public preference is for Title II common carrier regulation of Internet service providers. Which makes sense given the Internet is gradually replacing the role the telephone system served in the past: a universal communications system accessible to everyone regardless of their location and whether they received or placed calls. Even the legacy incumbent telephone companies agree, saying it doesn't make sense for them to have to adhere to regulations governing landline telephone service.

Bottom line at this point, this is now primarily a political and not a regulatory issue. As such, expect politics to come more sharply into play. If Wheeler can't bring himself to make a clear policy call for Title II, President Obama could end up designating another Democrat on the FCC to replace him as chair. Speaking of Democratic politicians, I expect former President Bill Clinton will weigh in siding with Obama, saying something like Title II was where he ultimately intended Internet regulation to go when he signed the 1996 Telecommunications Act into law, with Title I more of a transitional but not permanent regulatory scheme. His vice president, Al Gore, could also join the Title II juggernaut.

Common carrier universal service obligation -- not net neutrality – primary reason for incumbent telephone and cableco opposition to FCC Title II enforcement

Threats by the legacy incumbent telephone and cable companies to sue the U.S. Federal Communications Commission if it acts to enforce Title II of the Communications Act aren’t solely motivated by net neutrality. President Obama and other net neutrality supporters look to enforcement of Section 202 of the statute that bars “discrimination in charges, practices, classifications, regulations, facilities, or services...” Net neutrality supporters maintain enforcement of this provision will prohibit telephone and cable companies (and other ISPs) from creating “fast lanes” to speed traffic from users like Netflix to its subscribers. They also argue enforcement would similarly bar ISPs from charging consumers more to access selected websites, for example.

The primary reason the big incumbents are gearing up for possible litigation against the federal government isn’t net neutrality. Rather, it’s two words in Title II: common carrier. The incumbents don’t want to be classified as common carriers. Why not? Because Section 254(b) of the Communications Act requires common carriers to provide access to advanced telecommunications and information services (i.e. Internet service) in all regions of the nation. Section 202 of the law also contains an anti-redlining provision barring providers from discriminating against localities in providing service. That means they’d have to serve all premises in their service territories and not just selected neighborhoods, roads and streets. That would obligate the incumbents to invest billions to connect the approximately one in five premises they have opted to leave unconnected to the Internet.

That doesn’t jibe with their business models because those customers tend to be located in less densely populated areas that are less likely to generate a quick return on the investment in infrastructure needed to serve them. In addition, Section 214(e)(3) empowers the FCC to "determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof."

It could be the policy environment on Internet regulation has reached a tipping point. Oftentimes it takes just a single, well publicized incident to create the final push toward change. The previous post on the sad plight of an upstate New York family being asked to pay more than $20,000 to get their home connected to the Internet might be one of those proverbial straws that brought us to that point

CNY man says Time Warner Cable wants to charge $20,000 for broadband Internet | syracuse.com

CNY man says Time Warner Cable wants to charge $20,000 for broadband Internet | syracuse.com: Think your cable and Internet bill is too high? Jesse Walser might disagree with you.

Walser, who lives about 20 miles outside of Syracuse in the rural town of Pompey, told Ars Technica that Time Warner Cable wants to charge him more than $20,000 to hook him up with broadband Internet. What baffles him is that he can see TWC lines from his house, just 0.32 miles from the road.

"I didn't think it would be that difficult, because the cable was on my road," he told the tech news site. "I have phone. I have electricity. It's not completely 'Green Acres.'"

As this blog has previously pointed out, many Americans lack wireline Internet access because of this kind of arbitrary redlining by legacy incumbent telephone and cable companies. It's difficult to make a credible argument that living less than a half mile from existing infrastructure puts a customer premise out in the middle of nowhere, making it cost prohibitive to serve. As Mr. Walser points out, his circumstance bolsters the argument that last mile Internet service providers be classified as common carriers.

This situation has existed unchanged throughout much of the United States over the past decade (and isn't likely to change anytime soon), leaving some 19 million homes offline according to the U.S. Federal Communications Commission. The FCC is currently considering common carrier regulation of Internet service providers.

The view from South Korea: Incumbent protectionism hobbles U.S. Internet infrastructure

Now that the Internet is maturing to the point that it's the de facto global telecommunications system, the view of the United States -- the nation that innovated the Internet -- from the outside can be quite unflattering. Other developed nations watch as Americans struggle with high cost, low value service. Or no service at all as is the unfortunate circumstance for some 19 million U.S. homes, according to the U.S. Federal Communications Commission.

Why didn't the U.S. put in place policies and plans decades ago to ensure all American homes and businesses have fiber optic connections to the Internet? How did it lose its way? Sometimes when one is lost, they don't know it until someone else points out to them they're off course or wandering about.

A spokesman for South Korea's SK Broadband, which is preparing to introduce 10Gbps fiber service, provides an answer: protectionism of legacy telephone and cable companies that failed to put in place plans to transition to fiber infrastructure.

“In my travels to the United States, it is very plain they have lost their way in advancing broadband technology,” said Pyon Seo-Ju. “Internet access is terribly slow and expensive because American politicians have sacrificed Americas’s technology leadership to protect conglomerates and allow them to flourish. Although unfortunate for America, this has given Korea a chance to promote our own industry and enhance the success of companies like Samsung that are well-known in the United States today."

The American way of broadband: slow - LA Times

The American way of broadband: slow - LA Times: In Southern California, for example, an open-access arrangement would allow upstart Internet companies and low-cost wireless providers to book space on broadband and cellular networks owned by the likes of Time Warner Cable, AT&T and Verizon.

"If you want to lower prices and improve service, you need to increase competition," said Allen Hammond, a professor at Santa Clara University School of Law who specializes in telecom issues. "One way to do that is keep the network open."

A primary reason existing telecom infrastructure providers are slow to upgrade and build out their networks is their reliance on closed access, proprietary networks serving customer homes and businesses. That introduces a lot of business risk that impedes upgrades since they cannot easily predict how many will subscribe to and maintain Internet service offerings.

Since they operate on a wholesale basis selling access to Internet service providers, open access networks substantially reduce and spread that risk since any one provider doesn't have to bear network construction costs directly alone and cover them by signing up and keeping subscribers.

Despite more favorable market conditions, incumbent telephone and cable companies unlikely to expand limited Internet infrastructure footprints

Over the past 15 years, the market dynamics for incumbent legacy telephone and cable Internet service providers have improved from a risk standpoint. Early on, there was substantial uncertainty as to how many customers would subscribe to premise Internet connections. Telcos marketed advanced “broadband” services as an add on to their voice telephone service as did cable companies as an adjunct to their pay TV offerings.

They calculated only a fraction of customers would choose to receive these services -- and pay extra for them. Hence, they deployed the infrastructure to deliver them to a select set of homes and small businesses -- favoring higher density and income levels -- to reduce the risk that there would not be sufficient revenues to cover the cost of deployment and ongoing maintenance.
 
Some developed formulaic approaches to utilize large numbers to spread their risk. For example, Comcast adopted a hard rule that it would build infrastructure only in areas where there were 16 occupied premises per linear road or street mile. That mitigated risk because it could be reasonably predicted that with that many premises, enough would take Internet services to help defray the cost of building out and upgrading the network in order to serve them.

Now with premise Internet service increasingly regarded as essential as landline telephone service was before it was succeeded by the Internet, the risk picture has changed. The likelihood of residential and small business customers subscribing to the incumbents’ Internet service is significantly higher, even than it was just five years ago.

One might think given the improved commercial risk picture, the legacy incumbent telephone and cable companies would be undertaking an aggressive effort to construct infrastructure to serve nearly all and not limited “footprints” within their service territories. Not likely. The reason is the large, shareholder- owned incumbents that dominate in much of the United States lack business models that allow them to make the significant capital expenditures that would be required. That would divert dollars that could boost earnings, pay generous shareholder dividends and fund stock repurchases.

Consequently, the nation continues to need alternative approaches to ensure all premises have Internet service to meet their current and future telecommunications needs such as community operated networks or public-private partnerships that tap into sources of patient investment capital such as Utah’s UTOPIA.

Rural America: Welcome to Verizon LTE Broadband - $120/Mo for 5-12Mbps With 30GB Cap • Stop the Cap!

Rural America: Welcome to Verizon LTE Broadband - $120/Mo for 5-12Mbps With 30GB Cap • Stop the Cap!: “Definitely stay away [...] unless you like to see your data charges skyrocket (in my case more than doubling) when your use doesn’t,” reported Richard Thompson. “I’ve pulled the plug on it — literally.”

Time to dump the "bandwidth by the bucket" pricing model that bears no economic relationship to the marginal cost of providing it. It's a gouge, pure and simple, enabled by a natural monopoly market. Verizon has these consumers over a barrel in areas where its landline marketing partner, Comcast, doesn't offer service.

Frontier Faces Lawsuit in West Virginia Alleging False Advertising, Undisclosed DSL Speed Throttling • Stop the Cap!

Frontier Communications customers in West Virginia are part of a filed class-action lawsuit alleging the phone company has violated the state’s Consumer Credit and Protection Act for failing to deliver the high-speed Internet service it promises.

The lawsuit, filed in Lincoln County Circuit Court, claims Frontier is advertising fast Internet speeds up to 12Mbps, but often delivers far less than that, especially in rural areas where the company is  accused of throttling broadband speeds to less than 1Mbps. The suit also alleges Frontier’s broadband service is highly unreliable.

Frontier Faces Lawsuit in West Virginia Alleging False Advertising, Undisclosed DSL Speed Throttling • Stop the Cap!

Another exhibit in the case demonstrating how the United States has thoroughly bungled telecom infrastructure deployment and regulation under the Clinton, Bush and Obama administrations, creating lack of access and uncertainty. It also illustrates the moral hazard associated with excessive (and lazy) policymaker reliance on telecom provider promises relative to service availability and quality.

Instead of devoting resources to litigating how many bits and bytes constitute "broadband," we should be developing plans to construct fiber to every American home and place of business -- work that should have been started two decades ago.

Deficient telecommunications infrastructure limits growth of telehealth

Just What the Doctor Ordered: Telehealth Poised for Growth: “Rural healthcare providers (HCP) continue to suffer from limited access to broadband speeds necessary to fulfill their rapidly expanding public and private Internet network needs vital for telehealth communications with patients and HCPs,” said Tim Koxlien, founder and CEO of Rural Health Telecom. “Upgrading rural health care provider broadband networks will dramatically enhance their ability to implement new telemedicine technologies and increase access to electronic medical records. This will ultimately enable them to better serve patients through streamlined operational efficiencies, expanded patient service access, reduced costs and improved quality of care.”

Koxlien also noted that high equipment installation costs and a workforce deficit of trained IT personnel as two challenges facing telecom accessibility. “Many local service providers are reluctant or unwilling to expand into these underserved markets because of the costs associated with designing and implementing rural networks, [and a] lack of funding,” Koxlien said.

Disruptive forces bringing U.S. telecommunications infrastructure to an inflection point

Several disruptive forces are building toward a tipping point heralding a new era of construction, operation and regulation of telecommunications infrastructure in the United States. 

• The realization amid exponential growth in bandwidth demand that the nation needs to rapidly fiber up its legacy metal wire infrastructure and should have begun the work 20 years ago.
• The growth of local fiber to the premise infrastructure projects inspired by Google Fiber and the associated push back against state laws restricting the ability of local governments to build and operate telecom infrastructure.
• The obsolescence of bandwidth-defined "broadband" delivered over legacy metal wire infrastructure as an extension of plain old telephone service (POTS) and cable TV.
• The Federal Communications Commission's potential classification of Internet infrastructure as a common carrier telecommunications service amid growing popular sentiment that premise Internet service is a utility that should be universally available. 
• Excessive commercial risk that limits fiber infrastructure deployment to discrete neighborhoods.
• The recognition of the large moral hazard risk associated with public policy reliance on incumbent promises to build out the footprints of Internet infrastructure in their service territories.
• Growing unease with Comcast gaining excessive market power and getting a lock on most U.S. Internet premise infrastructure.
• The breakdown of the triple play "smart pipe" vertical business model due to high video programming costs and the rise of a la carte Internet video offerings.

High TV content costs threaten the “triple play” commercial Internet infrastructure business model

Television programming costs associated with the “triple play” (TV, Internet, voice) offering of legacy telcos and cable companies are the primary business risk facing the subscription-based, closed access, “own the customer” infrastructure business model employed by the legacy telephone and cable companies as well as Google Fiber.

Those costs are steep and threaten the viability of commercial fiber to the premise deployments that depend on future cash flows from service offerings – which include TV – to cover CAPex and provide ROI to investors.

So dear are TV programming costs that Google Fiber’s Milo Medin described them “the single biggest piece of our cost structure” and “the single biggest impediment" to further expansion. The Wall Street Journal reports costly TV content has prompted some small cablecos to scrap the triple play offering and reposition themselves purely as Internet and VOIP (Voice Over Internet Protocol) providers. Over the top (OTT) TV offerings by Sony and Dish Network are also similarly struggling with the high costs of TV programming.

Susan P. Crawford’s book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age describes the self-reinforcing TV programming market dynamics that cement the dominance of the big subscription-based incumbent telcos and cablecos – and Comcast in particular for live sporting events. These large players can afford the high TV programming costs. But large scale notwithstanding, it’s not TV for all since the big legacy telcos and cablecos cherry pick their service areas, leaving lots of consumers redlined and without Internet TV since they opt not to build the infrastructure to deliver it.

One possible way around this negative circumstance would be for the OTT Internet TV content players to organize consumers into large regional purchasing pools and cater to smaller providers as well as open access community fiber networks operated by local governments and utility cooperatives. That would shift market power to the purchasing side while at the same time bolstering these home grown Internet infrastructure players.

Spiral Internet gearing up for fiberoptic network in Nevada County | TheUnion.com

Spiral Internet gearing up for fiberoptic network in Nevada County | TheUnion.com: “Years ago, every home in the U.S. had copper wires put in, going to each home, but we never got wired again for the 21st century,” he said, referring to fiber. “That’s the kind of network we need.”

Very true words spoken by Spiral Internet CEO John Paul as his Nevada City, California company soft launches fiber to the premise infrastructure serving 2,900 households and 300 businesses with deployment planned for 2015-17.

US Telecom Association wants 'archaic' regulations gone | TheHill

US Telecom Association wants 'archaic' regulations gone | TheHill: Steve Davis, chairman of the board of U.S. Telecom, said some of the regulations cited "don't apply to cable companies or any of our competitors, and to the extent that they ever served a purpose, that purpose has long since evaporated."

The group pointed to a number of regulations they want to avoid, including requirements that companies "separate local and long-distance business, and requiring traditional phone companies to continue the provisioning of obsolete technology."

The group cited a speech Wheeler gave in February in which he noted that a large percentage of investment recently by telephone companies went to "maintaining the declining telephone network, despite the fact that only one-third of U.S. households use it at all."

"The future regulatory environment should be one that is based upon the world as it exists today," the group’s president and CEO, Walter McCormick, told reporters. "That is sort of like the overall theme we think public policy should move towards. This petition is a little tiny baby step in that direction."

The world of POTS (Plain Old Telephone Service) is still very much alive in much of the United States, where some 19 million homes and small businesses still rely on the publicly switched telephone network (PSTN) and dialup wireline Internet service. As long as it exists, regulators will be hard pressed to scrap rules designed for POTS without a firm transition plan in place.

The Incumbent Local Exchange Carriers (ILECs) could potentially get more than they wish for in making this request. The Federal Communications Commission could respond by effectively saying, "OK, if you don't want to comply with outdated POTS rules, you are hereby subject to Title II of the Communications Act and thereby must deploy advanced telecommunications infrastructure throughout your service territories."