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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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Cost and Freedom
By drycrust3 on 12/21/2010 2:12:04 PM , Rating: 3
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.

Firstly, I'm not American, I know very little about the finer workings of telecommunications in America, and have never worked for an ISP, but I have worked in telecommunications in the past.
The problem with banning throttling is there is such a thing as physical limitations. We see these all the time: my car will stop if it runs out of petrol, my cell phone will die if I don't recharge it, you can only get 2GB on a 2GB flash drive.
An ISP is in the same situation: the servers have physical limitations. The CPU inside the server cannot do more work than what the clock will let it, nor can it store more information in RAM than it has RAM, nor can it send more data to my computer than the broadband connection will let it.
Notice the last one: an ISP cannot send more data to my computer than the broadband link will let it! If I choose to live a long way from the local telecoms source, then I cannot expect to get a large amount of data down the phone line, and if I choose to close to the local telecoms source, then I will get more data down the phone line.
An ISP, in turn, has to make choices, one of which is do they buy capacity that equals the sum of all the broadband connections of all their customers to all the other ISPs they connect to, and from there to all the websites. For example, I live in New Zealand, so should my ISP have links to Australia that equals the sum of all their customers' broadband links, and to America, and to Europe, and to Romania, and to Russia, etc? If they did, then they could guarantee that I will never encounter any restriction between the website and my computer, but the cost of my broadband would be so high I couldn't afford it for even one second.
Notice that: for an ISP to guarantee that I will never ever ever, even in times of international crises, get any form of throttling is going to cost me so much that even large wealthy companies would not consider connecting to them, let alone people on a tight budget like me.
So, because of the high cost, the ISPs place bets. The bet is how much can they reduce those physical links by and me not notice. For example, say they reduced their links to America from being equal to all the customers' capacity requirements to being equal to 99%, would I notice? Of course not! So they could get away with that! What about 9%? Probably not, but on rare occasions I might!
The problem with legislation that says you cannot throttle traffic (and that "legal traffic" is just nonsense if you don't want your ISP to be snooping into what you do) is it denies reality. What they should say is an ISP should state what sort of concentration ratio they have between their customers' broadband links and the other ISPs they connect to, and what sort of impact the end user can expect under normal situations.
As a rough guide, a cheaper ISP will have a higher concentration ratio than a more expensive one, but the customer on a cheaper one will encounter a longer time downloading a large file at peak times than a customer on the more expensive ISP.
Lastly, as I said, this idea of "legal traffic" is nonsense! It is like saying I can get a cheaper rate from my phone company if I don't swear on the phone! How can they know? Only by checking on what I am doing! If you want freedom, then you let the ISP run his equipment the way he wants, with the proviso that he should tell you what sort of quality to expect, just like any other business, otherwise you go down the path of censorship and control.

RE: Cost and Freedom
By peebee on 12/21/2010 2:54:41 PM , Rating: 2
True, a glass can only hold so much. Unfortunately ISPs in this country don't operate this way.

Let's say I build a swimming pool and charge everyone $5 to use the pool. It becomes popular around town and more people join the club daily. At this rate, I'm going to eventually run into a capacity issue. This leaves me with two choices. I can expand my pool to increase comfort and useability of my pool for the users or I can tell the swimmers that they can only swim in certain locations of the pool, for a certain number of hours per day, and must use floaties while doing so.

My analogy might be flawed in a number of areas but the general message still applies. TCOMs in this country, for years, have taken the profits for themselves with little regard to expanding their infrastructure to better their service.

This practice is catching up with them today and guess what? They're continuing to pressure the public with reduced offerings and hellacious prices.

RE: Cost and Freedom
By drycrust3 on 12/21/2010 5:57:55 PM , Rating: 2
As I said, I'm not American and don't know your situation, but surely the most important part is your freedom to use the internet. What is so bad about across the board throttling if it allows what you do to remain confidential and away from prying eyes?

RE: Cost and Freedom
By namechamps on 12/22/2010 12:26:34 PM , Rating: 4
There is nothing against across the board throttling (as there is nothing wrong with across the board caps or across the board price increases).

Net neutrality has nothing to do with any of those "issues" which are merely a metric of supply & demand. Supply being available bandwidth and demand being consumption (especially durring peak hours).

What IS a violation of net neutrality is treating data differently.

An ISP making it cheaper to access HBO.COM than
An ISP throttling only bittorrent traffic
An ISP putting cap on netlfix movies but not on other content.

"We are going to continue to work with them to make sure they understand the reality of the Internet.  A lot of these people don't have Ph.Ds, and they don't have a degree in computer science." -- RIM co-CEO Michael Lazaridis

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