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A century of mixed governmental policy and clever corporate maneuvers has delivered a U.S. telecommunications market devoid of competition. In most cases the cost of entry in the broadband internet market is prohibitively high.  (Source: Parker Brothers)

FCC Chairman Julius Genachowski today will hold a public meeting to discuss the rough draft of net neutrality rules to try to regulate this unruly market.  (Source: AP Photo/Danny Johnston)

Sen. John McCain and Washington Republicans have opposed the measure, but may be powerless to stop it. The telecom industry has donated or fund-raised millions in campaign contributions to McCain and others in a bid to secure their opposition of net neutrality and other restrictions.  (Source: AP/Zimbio)
Under the FCC's new rules "legal" traffic will be protected; though their are significant exceptions for wireless

The U.S. Federal Communications Commission will today hold a public meeting to discuss its draft of new internet rules and regulations.  The proposal, drafted by FCC Chairman Julius Genachowski, represents a relatively moderate approach and thus may draw fire from both strong net neutrality advocates and industry officials alike.

I. What's in the Draft

The draft is all about protecting an "open" internet.  It forbids internet service providers, such as Comcast or Time Warner, from throttling (slowing) legal traffic.  It also would likely outlaw plans, such as the pay-per-site scheme unveiled by wireless providers this week.

The rules have a number of exceptions, though.  Wireless carriers are allowed to throttle certain kinds of traffic (e.g. video), assuming they are not using that as a tool to promote their services in an anticompetitive fashion (i.e. the proposal permits them to "reasonably" manage traffic).  And while they may have to prove it's illegal, wired and wireless operators are allowed to throttle illicit traffic, such as P2P or bittorrent traffic of pirated materials.

Those limitations may bother some net neutrality advocates.  The mobile provision is particularly worrisome to companies like Google who are becoming increasingly reliant on mobile advertising and peddle a variety of high-bandwidth products (like YouTube).

While the outlook is good for video and voice services (e.g. Skype, YouTube, and Hulu) in the wired domain, trouble could show its face their as well.  The proposal permits wired carriers to adopt usage-based pricing, as many are eager to do.

Usage-based pricing is a mixed bag for the public.  For "low tech" internet users, who only check their email and read text-heavy pages like 
Wikipedia or The New York Times, their bills will likely be reduced.  But for "high-tech" users who video chat on Skype, stream movies from Netflix, or play online games they may soon see their bills skyrocket.

The FCC promises to monitor the markets for what it sees as abuses.  But the question is whether the Commission will act in time to prevent such abuses 
before they happen and whether its rulings will even hold up in court, given the fact that they're loosely defined in existing and pending regulation guidelines.

II.  Rise of the Collective Monopoly

i. The Past

Between 1934 and 1996 the internet popped up, cell phones became fashionable, and the telephone marketplace radically changed.  However, there was precious little new regulation to guide this new market.

And the root of the problem began long before that, even.

In the 1880s and 1890s, the Bell Telephone Company enjoyed a monopoly on telephone services in the U.S., thanks in part to the the United States defending its patent on the phone.  Those hoping to construct their own systems of phone lines first had to pay to license the Bell patent , and then had to navigate through a myriad of government restrictions designed to help Bell.

Under the system few legitimate competitors to Bell arose, and those that did were quickly acquired by Bell before they came a nuisance.

In 1899 the American Telephone and Telegraph Company (AT&T) acquired, Bell.  The net effect was to assign a new name and owners to the national monopoly.

A similar monopoly was developing in the wireless industry, with wireless giant RCA stomping out the competition.  Together RCA and AT&T held the critical patents on vacuum tubes.  And in the 1920s they agreed to a cross-licensing agreement that would essentially make them America's exclusive source of transmitted information over the next three decades.

In the 1960s and 1970s court rulings slowly chipped away at AT&T's domination of the market, by allowing third party devices and their ilk to connect.  And then a landmark decision in 1974 -- the 
United States v. AT&T -- force the AT&T monopoly to split into smaller companies.

Slowly many of these telephone companies began to merge back together, reducing the total number of options.

At the same time as all this was occurring, a handful of cable television companies (Cox, Time Warner, and Comcast) emerged and cornered the small, but increasingly lucrative paid television market.  Eventually some of these firms would be acquired by the telecoms and vice versa.

In 1996 U.S. President Bill Clinton passed the Telecommunications Act, the first major telecommunications legislation since the Communications Act of 1934, which established the FCC.  Among other things, the new law required telecoms to interconnect their wired networks (wireless networks could still operate independently).

ii. Today

Today a handful of companies largely control the wired and wireless internet in the U.S.  There are only four major wireless carriers, and only eight cable networks with a million subscribers or more.

Cable services tend to be what economists refer to as an inelastic good.  While providers make their decisions "independently" they tend to adopt common pricing in a particular region, and have in effect an unlimited supply.  

The cost of market entry is prohibitively high for small competitors to emerge.  Even with the ability to connect to their competitors wired lines, the infrastructure costs associated with launching a cable network to cover over a million people make it virtually infeasible for all but the biggest financial powers.

The question becomes how to regulate a competition-devoid industry that's essentially behaving as a collective monopoly and ever looking for ways to milk more money from customers.  That FCC has largely been saddled with that responsibility.

Many today, however, are unhappy with this state of affairs.  After all, they say, the government put us in this mess by promoting early cable, telephone, and wireless monopolies -- so what makes us think that they will get us out of it with more regulation?

Adding to the difficulty faced by the FCC and pro-regulation members of Congress, is a wealth of campaign donations from the industry's biggest players.  These donations have helped convinced some states to propose laws to effectively ban cheaper municipal Wi-Fi offerings -- an emerging alternative to big cable.  They also have lead politicians on the national scale to fight against new regulation on net neutrality and other topics.

The question, however, becomes -- if Congress and the FCC can't (or are unwilling to) extract the nation from the service providers ever tightening web of rising prices, who can?

III.  The Outlook for the New Rules

The FCC faced contention in its own ranks, when debating Chairman Genachowski's proposal.  Commission members Michael Copps and Mignon Clyburn only reluctantly gave their approval to the draft, while expressing misgivings about its exemptions for the wireless industry and various loopholes.  Mr. Copps commented, "While I cannot vote wholeheartedly to approve the item, I will not block it by voting against it."

The two votes from Mr. Copps and Ms. Clyburn gave the Commission a 3-2 vote, clearly split along party lines.  The two Republicans have both opposed the bill.  Commissioner Robert McDowell, one of the two Republican members of the Commission commented in a 
WSJ interview, "Nothing is broken and needs fixing.  Ample laws to protect consumers already exist."

Some industry analysts have praised the draft.  States Daniel Ernst, an analyst at Hudson Square Research, in an interview with 
Reuters, "Without regulation, rates could go up and up and up and emerging providers like Netflix and Hulu could have problems attracting users."

However, the proposal, as mentioned, is drawing the ire of some net neutrality groups as being too weak.  Craig Aaron, managing director of Free Press, criticized the bill's many loopholes and lax restrictions on the wireless industry, stating, "These rules appear to be flush with giant loopholes."

These advocates argue the FCC is abandoning its responsibility to protect the public and bowing to corporate influence.

While the bill clearly won't fully satisfy everyone, it does provide some barriers towards the anticompetitive/anti-consumer behavior that the telecommunications market has increasingly been experimenting with.  Thus some see it as a modest step towards preventing telecoms from abusing their artificially dominant position.

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How does an ISP "prove" a BT is illegal
By namechamps on 12/21/2010 12:23:13 PM , Rating: 3
If MSE/PE is used then the traffic can't be determined by the ISP.

They know it is BT due to hueristics (how many other applications create hundreds of low bandwidth connections to unique IP at the same time) but they can't prove the content.

I hope the FCC isn't foolish enough to just allow the ISP to assume BT traffic is illegal. i.e. "if we can't prove it is legal then it must be illegal".

By ICBM on 12/21/2010 12:41:19 PM , Rating: 3
Good point. And when the ISP decides what is legal to download, when does that new "online privacy bill of rights" come into play?

RE: How does an ISP "prove" a BT is illegal
By walk2k on 12/21/10, Rating: -1
RE: How does an ISP "prove" a BT is illegal
By MrBungle123 on 12/21/2010 2:04:08 PM , Rating: 2
Exactly, the throttling only seems unfair until you realize that the ISP doesn't have infinite bandwidth and sometimes they just don't have enough to serve all the demand.

RE: How does an ISP "prove" a BT is illegal
By MrBungle123 on 12/21/2010 2:11:19 PM , Rating: 1
To add to that what would the "net neutrality advocates" rather have?

Government mandated "fair" internet with no throttling ever which in practical terms might mean you get a 3Mbps connection that can never be throttled?


Free Market internet that will give you 20Mbps+ connection speeds that can get throttled back as far as 3Mbps if the network is completely swamped with traffic?

The ISP doesn't have enough bandwidth to serve everyone at their full connection speed at the same time so when too many people are online they have to throttle you.

RE: How does an ISP "prove" a BT is illegal
By room200 on 12/21/2010 2:19:24 PM , Rating: 5
What good is 20Mbps if you're only ALLOWED to use that 20Mbps for certain sites while they throttle the uses that are not a part of their "preferred" network of "acceptable" sites.

RE: How does an ISP "prove" a BT is illegal
By MrBungle123 on 12/21/10, Rating: 0
RE: How does an ISP "prove" a BT is illegal
By room200 on 12/21/2010 7:45:53 PM , Rating: 2
You have way too many "probablys" for anything you've said to be considered factual, so spare me the sanctimonius nonsense. You're not in people's homes, so you can't say what they're doing with their internet connections.

RE: How does an ISP "prove" a BT is illegal
By FastEddieLB on 12/21/2010 8:18:33 PM , Rating: 3
For example, they could be working on a large collaborative open source program via FTP that could very well be several gigs in size. I've done such myself.

RE: How does an ISP "prove" a BT is illegal
By dsumanik on 12/22/2010 8:52:51 AM , Rating: 4
All arguments against net neutrality are completely BS. User should pay for how much bandwidth they consume, just like water, power and gasoline.

Would you think it is fair to have to pay extra for gas because yu drive a ferrari? A surcharge because your wife likes to use the blowdryer alot???

These isp's can suck my kawk, expand the network, and spend the money for a future proof infrastructure instead playing catch up.

Think of it like this:

If the power is going out, the solution is to increase generation or transmission efficiency...not throttle electricity to your customers. You dont turn out the lights and then charge extra for it.

Furthermore, japan got 3g wireless 12 years you think it is fair for them to eek every last drop out of this decade old technology by enforcing selective management and tiered pricing?

They need to be looking at expansion for what the demand is going to be a decade from now, then double that for good measure... all these headaches go away and all of a sudden you have millions of customers quietly paying thier internet bill, just like water and power.

By vol7ron on 12/22/2010 7:49:52 PM , Rating: 2
Title: ...though their are significant exceptions...

didn't know you could own an "are"

By Klinky1984 on 12/21/2010 8:15:42 PM , Rating: 2
When was porn illegal? Also an illegal & legal download take similar amounts of bandwidth. Streaming a legal copy of a movie will actually take more bandwidth since it's encoded for streaming, which introduces some inefficiencies, also it's not downloaded once and then played locally from then on out, it has to be streamed each time someone wants to play. Similarly a legal song from iTunes takes about the same(more/less) bandwidth as an illegally obtained mp3 file.

If you replace the illegal downloads with legal downloads, guess what it takes just as much bandwidth to transfer. There is the fact that people would have to pay for it & that would lessen demand, but if you think on this, the Internet could ultimately replace regular media deliveries bread and butter. Imagine if you get a box, you hook it to your TV, then you subscribe only to the channels/movies you want ala carte from the content producer directly. You could save massive amounts of $$ and it would create more competition. There is no reason this couldn't happen other than the big media companies doing their best to prevent it.

RE: How does an ISP "prove" a BT is illegal
By namechamps on 12/21/2010 2:57:02 PM , Rating: 5
You seem to be consumed. Throttling has nothing to do with net neutrality. Nothing.

ISP deciding some content is more valuable than others (via payments from content providers) is violating net neutrality.

You are watching show on HBO. I am downloading from a torrent. The ISP runs out of bandwidth (demand exceeds supply). ISP throttles both of your connections back 20% - neutral.

Alternate solution: ISP decides that HBO is more valuable content (because HBO is paying kick backs to ISP). You get 20Mbps accessing HBO. I only get 2Mbps accessing bittorrent. Not neutral.

Starting to see the difference?

RE: How does an ISP "prove" a BT is illegal
By MrBungle123 on 12/21/2010 3:05:19 PM , Rating: 3
If that is the case then the only thing that should happen is that the ISP disclose what types of traffic have priority to the customer before internet service is provided.

By namechamps on 12/21/2010 4:17:19 PM , Rating: 2
Well that wouldn't be neutral would it.

You can't pretend the ISP market is a "free market" by any stretch of the imagination.

The infrastructure was built with significant tax payer dollars, and is enforced both on the telco side and the cable side by monopolistic franchise agreements.

In vast majority of the country consumer has 2 or less choices for broadband and in many places they have a single choice.

Under that environment it would be naive to think the free market can operate.

While everyone likes to espouse "free markets" very few have actually read Adam Smith. His definition of a free market was one free of coercion, fraud, monopolies, and governmental interference. Today most people focus on the last point and forget the other three.

RE: How does an ISP "prove" a BT is illegal
By Iaiken on 12/21/2010 4:17:18 PM , Rating: 2
Who is going to make them disclose anything?

There are pretty much NO regulations whatsoever on what they can or can't do.

The internet is not just like the wild west, things are going down here almost EXACTLY like they did in back then.

The say you want a movie from the data drivers at Netflix wanna drive that movie across the local data baron's land (AT&T's network) so you can enjoy it. Now AT&T wants to sell you their own movie, so they tell you that they're gonna charge YOU for the privilege of them letting those no-good Netflix boys and their stinkin movie across their land. Before they leave, they mention that they're willing to sell you the same movie themselves, without the addition fee.

That is the very definition of anti-competitive behavior and it's wrong. A key aspect of net neutrality is the forbidding of service providers from being content providers. The slides that were posted on WIRED the other day show exactly what form of digital hegemony the service providers are engaged in creating.

I'm sorry sir, but you went outside the walled garden, I'm going to have to charge you a "traipsing through the woods" fee.

RE: How does an ISP "prove" a BT is illegal
By Iaiken on 12/21/2010 4:18:24 PM , Rating: 2
I'd like to apologize to everyone else with an intellect about the wild west analogy.. I was trying to translate from plain English, to moron.

RE: How does an ISP "prove" a BT is illegal
By MrBungle123 on 12/21/2010 5:31:03 PM , Rating: 1
Well excuse me for not being so ready to jump on board with having a bunch of unelected bureaucrats regulate yet another aspect of everyones lives! Clearly you and the rest of the oh so wise ones have the intellectually superior position because there is absolutely no examples of that sort of situation ever being anything but sublime for the public in general!

RE: How does an ISP "prove" a BT is illegal
By Klinky1984 on 12/21/2010 8:21:51 PM , Rating: 2
You seem more than happy to have a bunch of overpaid bureaucrats(Wait bureaucracy is in corporations too!? Oh no! My world is shattered!) decide how the Internet should be run.

By aebiv on 12/22/2010 11:44:19 AM , Rating: 2
Because ultimately they answer to their stock holders, and unless they get special treatment from the Government, the consumer.

Look at it this way, you can choose to pay a business money.
The government will always just take your taxes.

By RivuxGamma on 12/23/2010 8:03:58 PM , Rating: 1
It also seems unfair when they tell people that they have a 5 Mbit connection and then those same people never get anywhere close to that. It also seems unfair when they're told that they have up to 5 Mbit. It also seems unfair when the ISP doesn't make their policies available so that people don't violate them.

Stop defending assholes that lie about their abilities.

RE: How does an ISP "prove" a BT is illegal
By namechamps on 12/21/2010 2:54:36 PM , Rating: 2
I never said ISP should be able to throttle.

Net-neutrality doesn't prohibit:
* caps
* speed throttles
* per unit pricing (pay as you go)

The issue is that ISP must treat all data neutrally. So someone consuming 100GB via Bittorrent wouldn't be capped/charged/trottled any more/less than someone consuming 100GB from Hulu or cnn or any other source.

Neutrality means simply that.

RE: How does an ISP "prove" a BT is illegal
By Iaiken on 12/21/2010 4:43:32 PM , Rating: 2
How disgustingly neutral of you...

I hate these filthy Neutrals, Kif. With enemies you know where they stand but with Neutrals, who knows?

It sickens me.

By Omega215D on 12/21/2010 11:26:02 PM , Rating: 2
Yeah well, Live Free or Don't.

If I don't make it, tell my wife hello.

By EricMartello on 12/22/2010 12:30:15 PM , Rating: 2
You're missing the key point here that ISPs are OVERSELLING their services and not delivering on what they're advertising. You pay $xx for say 20 Mbps up/down but get throttled because the ISP figures you are using too much. No, if they advertise 20 Mbps and bill you on 30 day periods, that means 20 Mbps x 30 days of usable bandwidth - that works out to 216 GB per day, or 6.4 TB per month. If the ISPs' networks cannot handle a user or group of users putting that kind of demand on their network then guess what, THEY SHOULD NOT ADVERTISE IT AS SUCH.

Selling someone 20 Mbps and then throttling it down to 2-3 Mbps except for a few select sites is essentially bait-and-switch. You're advertising a 20 Mbps connection but in reality its 3 Mbps...when it comes to communications I do think that there needs to be unbiased regulation that prevents companies from doing this kind of stuff. There's also a serious lack of competition in the telecom industry and that's leading to a few fat, bloated providers lobbying for these "abusive" policies to be made into law.

RE: How does an ISP "prove" a BT is illegal
By marvdmartian on 12/22/2010 9:39:10 AM , Rating: 1
Don't be surprised when they decide to "err on the side of caution", and just say everything is illegal. I look forward to the inevitable court battles this will bring.

Jason, check your spelling:
"Under the FCC's new rules "legal" traffic will be protected; though their are significant exceptions for wireless"

Spell check doesn't always catch it when you mis-spell a word by spelling another (wrong) word correctly. ;)

By HoosierEngineer5 on 12/22/2010 11:27:03 AM , Rating: 1
Their are enough grammatical errors in Jason's articles that I believe they are intentional. I personally just grit my teeth through them without commenting. Perhaps he is introducing them in some perverse attempt to increase page hits?

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