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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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Looking for a problem
By MrBungle123 on 12/21/2010 12:54:41 PM , Rating: 0
I really think this whole "net neutrality" thing is a bunch of control freaks at the FCC looking for a problem.

Here's how I see it. You get more bandwidth per $ now than ever. Not that long ago it used to cost $50 a month for a 1.5Mbps internet connection now you can't hardly find one that slow and $50 - 60 will get you 15-25Mbps. Even if they do "throttle" you down to say 5Mbps you're still way ahead of where you would have been 5 or 6 years ago. I would suspect the "throttling" is caused by network congestion more than anything.

Wireless companies charge more for their internet services because they are cell phone companies and probably don't have the infrastructure in place to support sending mulitple gigabytes a day to every user on their network. In that respect streaming media clogs up their network to a greater degree than it does a cable internet provider so since your effect on them is greater so I would expect to pay more.

Yes there are "regional monopolies" but I'm not seeing anti-consumer practices, I'm seeing the opposite. Access to the network keeps getting faster and cheaper and the only way that anyone can afford to offer services like broadband internet access is by being huge. How is some small "mom and pop" outfit that serves a few hundred people supposed to afford the enterprise class IT hardware and data transmission lines required to be a reliable ISP? You know what we had when there were 400 ISPs with small customer bases all over the place? dial-up. No, I'll keep my 25Mbps internet connection even though it only works at 15Mbps during peak hours from the "big evil" charter communications, thanks. And while I still can, I'd like that internet connection without more stupid creeping regulations from the FCC.




RE: Looking for a problem
By ICBM on 12/21/10, Rating: 0
RE: Looking for a problem
By MrBungle123 on 12/21/2010 1:25:06 PM , Rating: 3
That sucks that you don't have faster service options but that is a consequence of living in sparsely populated areas.

As for competition in my area it is essentially a monopoly. My choices are Qwest DSL which tops out at 5Mbps or charter communications cable internet which has plans that range from 3 - 25Mbps. If I want the faster connection I have a single option. Charter upgraded their way into making Qwest irrelevant years ago and they keep offering faster and faster services.

Even still, living in a tiny town you're still getting a better deal then I was 8 years ago... I payed $50 for a 1.5Mbps connection you pay less than half that and do so with more inflated dollars.


RE: Looking for a problem
By ICBM on 12/21/2010 1:33:50 PM , Rating: 2
Most small towns seem to have at least two options, one being cable the other DSL. For some reason the cable in our town is still analogue only with 36 channels. You get all of this for $49.95 a month!! Needless to say, no cable modems for us. Nobody even uses cable for tv here anymore, everyone is with Dish Network or Directv. I only wish satellite internet was a decent option.

The move to 4G may be the best bet for many smaller communities, assuming they are deemed worthy of having their towers upgraded.


RE: Looking for a problem
By MrBungle123 on 12/21/2010 1:58:52 PM , Rating: 2
The upgrades will get there it just might take longer than you want it to. Bigger areas are upgraded first because they cost less per customer to service, the fact that you have any sort of broadband service at all means that they can pull a profit on that type of service out there you're just in a low priority area.


RE: Looking for a problem
By namechamps on 12/21/2010 3:05:33 PM , Rating: 2
Well there is no guarantee.

10 years ago broadband in some cities was slower but still faster than rural areas.

The cities got upgraded. There is a lot of money to be made so there is some competition (FIOS helps) so more upgrades are made, and more, and more.

My cable internet connection has been upgraded about half dozen times in the last few years. We got two giant upgrades and a price cut when FIOS came.

There is no guarantee ISP will put money into rural broadband. Most of them have a 100% monopoly. Nobody else is going to run lines. So people will buy the product no matter how expensive or how slow.

So it is possible you will see something like this.

Average download speed

2000 rural 1Mbps city 3Mbps
2010 rural 1Mbps city 10Mbps
2020 rural 1Mbps City 50Mbps
2030 rural 1Mbps city 100Mbps
2040 rural 1Mbps city 400Mbps


RE: Looking for a problem
By monitorjbl on 12/21/2010 4:36:28 PM , Rating: 2
I feel like you can't see that other things change too. 1.5 megs was more than adequate 8 years ago, but the internet has evolved a lot since then. Honestly, anything south of 5 megs is pretty piss-poor for an average family that knows how to use the internet nowadays.

This is an unrealistic analogy because electricity doesn't work this way, but...would you want your electricity restricted to a 2 kW at a time just because you live out in the sticks and your electric company doesn't think it's profitable to run more lines out to you? Or because it's more profitable for them to charge you more when you go over a certain amount? For reference, 2kW is like running your computer, A/C and TV at the same time.

I guarantee you'd be on the other side of this if it affected you more; based on your comments on this topic, I don't think you use the internet nearly as much as most of the other people on this site do.


RE: Looking for a problem
By fearrun on 12/22/2010 1:12:47 AM , Rating: 2
Your time-line is fairly close to my own for when I first started using DSL. Two small towns here, around twenty-five thousand for population combined.

In 2002 it was Verizon DSL at 1.5 Mbps or dial-up, Charter had not even hinted at the providing internet services let alone HDTV. Less than a year later we were bumped up to 3 Mbps. In 2006 we decided to purchase our first HDTV and with Charter still a coin toss if they would provide internet or HD in our area, they lost a customer to DirecTV.

Still chugging along on 3 Mbps here at the end of 2010, now with Frontier after being abandoned by Verizon earlier this year. Verizon evidently saw, what some others have mentioned, no profit supporting internet and other services in rural areas like the Northwest.

Eight years later Charter has some coverage for their high-speed and HD. But, they are again stagnant on the likelihood of ever expanding to the area near my home.


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