Last week, the word going around town--and in the "Twittersphere"--was that Gene Kimmelman, the president of advocacy group Public Knowledge, was threatening that if FCC Commissioner Rosenworcel didn't "get in line" behind Chairman Wheeler's set-top box proposal that he would oppose her re-nomination for another term as an FCC Commissioner. This article in Fortune supports the rumor with a quote from Kimmelman that "[w]e'll hold everyone accountable . . . [for not supporting the Chairman's set-top box plan]." If you're anything like me, you're probably asking, "who does this?"
Who Does This?
In communications circles, perhaps no group has been as successful at converting political capital into the old-fashioned kind as Public Knowledge. After the group's previous president, Gigi Sohn, became a senior adviser to FCC Chairman Tom Wheeler, Public Knowledge has carved out a lucrative niche for itself as a critical ally for commercial interests with regulatory goals, i.e., either seeking to escape scrutiny (e.g., Google), or to saddle their rivals with more regulation (e.g., Netflix and the CLECs).
The group's current president, Gene Kimmelman, before taking over at Public Knowledge, was himself a political appointee for the first half of the Obama administration--as a Deputy Assistant Attorney General in the Antitrust Division of the Department of Justice. Kimmelman, as his Wikipedia page will tell you, "is a consumer protection advocate who specializes in competition law and United States antitrust law."
What Kimmelman's Wikipedia page won't tell you, though, is that he wields a lot more power than the average consumer protection lawyer, because he has been playing the "consumer friendly" face of one corporate interest, or another, for pretty much his whole career. In fact, almost 25 years ago, the New York Times wrote about Kimmelman's talent for winning political battles by playing one set of corporate interests against the other.
The NY Times article notes that Kimmelman's first big political victory was against the cable companies--his current set-top box issue enemies--on behalf of the broadcast networks. In fact, if you're a cable consumer, you're still paying for Kimmelman's first big victory--in the form of the retransmission fees that subscription TV providers (cable, phone, and satellite companies) pay local broadcasters to carry their stations. These rates--and not the set-top box rates Kimmelman is attacking on behalf of current corporate client Google--have been primarily responsible for raising your cable bill over the last 2 ½ decades, and they're projected to continue to rise faster than other programming costs for the near future.
Thus, given Public Knowledge's affiliations with powerful corporate interests--including Google (set-top boxes), Netflix (Internet peering), and CLECs/Sprint (special access/business data services--it isn't that surprising that PK's president would feel like he's got the power to bully an FCC Commissioner. After all, it's probably a safe bet that Google has enough powerful friends in the White House, and in the Senate, to make Commissioner Rosenworcel's life a little difficult, to say the least. But why do it so . . . publicly?
Why Be a Public Bully?
If you've got the political power, I can kind of see--in a TV bad guy sort of way--why you might try to deliver a political threat to an FCC Commissioner; assuming you thought your victim believed you had the power to deliver on the threat, and the issue was so important to you that you didn't mind looking like a cliché and a jerk at the same time. But still, why tell the world?
It seems to me that, if you go public with your threat, you make it harder for your threat to work. After all, the smaller the group of people that knows about your threat, the easier it is to give your target a "face-saving" way out.
On the other hand, once you tell everyone--including those that have expressed concerns about your plan--that you'll "hold them accountable" if they don't support you, then you not only make it harder for them to support you, but also anyone new to support you. Who wants to be known as someone that got pushed around?
Likewise, it also makes it difficult for those that you want to carry out your threats if you put them in the public spotlight, because--they too--now end up looking like they were just "in your pocket." A public threat makes everything "all about you" and not the issue that you wanted everyone to think was so important to you, Google/the White House, etc. Finally, when you go public, it's important that the politicians/public servants that you're threatening--up and down the line--know that you can deliver on your threat. In other words, if you are the NAACP, AARP, or even a commercial group like a labor union or the NRA, politicians know that you control/influence voters and that's what makes them accountable. Seems that Public Knowledge, despite having money and connections, might not really be representing millions of voting consumers--and that's a bluff that any inside-the-beltway interest group has to worry about being called.
Congratulations! You Played Yourself
The expression, "you played yourself," coined by Ice-T in 1990 refers to a situation--frequently brought on by hubris--in which someone ends up frustrating their own ends. Earlier this year, on the internets, it became a wildly popular meme, featuring DJ Khaled.
It's always possible that Gene Kimmelman's public political threat really will make him more powerful than the public servants he threatens, or the politicians he is relying on to carry out these threats. Then again, it's also possible that in delivering a cliché of a threat, he made a cliché of an error.
Earlier this week, I had a post explaining just how far afield the Tariff Investigations Order portion of the FCC's special access, now "business data services" ("BDS"), Tariff Investigations Order and Further Notice of Proposed Rulemaking ("FNPRM")strayed from rational decision-making. Unfortunately, since Chairman Tom Wheeler has taken the helm of the FCC, irregular departures from reasoned--and, more importantly, fair--decision-making have become the norm for this proceeding.
Yesterday, AT&T posted a statement on its public policy blog once again drawing attention to the lack of procedural due process with which AT&T believes the FCC has conducted its BDS inquiry. AT&T's Senior Vice President--Federal Regulatory, Bob Quinn provided a detailed description of the Commission's latest procedural irregularity: the Commission's introduction into the record of this 228 page filing containing previously-unseen revisions/critiques/analyses of the work of the FCC's 3d party economic expert--on the same day that public comments were due. AT&T concludes that,
the [FCC's] lack of due process only reinforces that this agency is driving to reach a pre-ordained outcome.
See, AT&T Public Policy Blog. AT&T's statement was its second this year (previously here).
AT&T's charges deserve more attention than "ordinary" criticisms of adversely-affected parties, because not only do AT&T's complaints refer to procedural fairness (not whether the FCC agrees with AT&T), and its previous complaint about this issue came 2 months before the company suffered an adverse decision. Finally, AT&T's concerns--that the Commission is driving toward a pre-ordained outcome--seem to be supported by independent events (from those cited by AT&T) taking place in the FNPRM proceeding this week.
The INCOMPAS-Verizon Proposal Advances
As mentioned in a previous post, on April 7th, INCOMPAS (the CLEC trade association) and Verizon started combining their BDS regulatory advocacy. Chairman Wheeler lauded the proposal immediately, as did the most politically influential lobbying/interest group here, and the FCC prominently mentioned the proposal in the first paragraph of its pending FNPRM. See Order/FNPRM at para. 159.
Earlier this week, on June 27th, INCOMPAS and Verizon sent in another joint letter ("INCOMPAS-Verizon June 27th Letter")--elaborating on the parties' previous "compromise" proposal. Chairman Wheeler seems unlikely to share Adam Smith's skepticism that,
[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
Thus, we can expect the Commission to take direction from this second, more specific, appeal for greater regulation.
Despite Contradicting the FCC's Own "Findings"
The INCOMPAS-Verizon proposal clearly has traction with the Chairman's Office, at a minimum. This is in no way more apparent than in the fact that the principle point of the letter would require the Commission to immediately renounce one of the "key findings" in its FNPRM--yet, the parties feel no obligation to address, or explain, this apparent inconsistency with the market realities, as seen by the Commission.
In its FNPRM, the FCC lists as one of its "key geographic market findings" the observation that,
[p]otential competition is important, that is, nearby suppliers can constrain BDS prices. For example, we find that fiber-based competitive supply within at least half a mile generally has a material effect on prices of BDS with bandwidths of 50 Mbps or less, even in the presence of nearby UNE-based and HFC-based competition.
See Order/FNPRM at para 161. In other words, the FCC observes that many areas of the country exhibit competitive characteristics, notwithstanding the number of actual competitors offering service in these census blocks. Instead, the Commission observes, the presence of a potential competitor within a half mile of a building will constrain the prices of every other competitor actually serving the building--even for the smallest capacities of bandwidth (50 Mbps and below).
Compare, however, the "compromise" offered by INCOMPAS and Verizon that,
we agree that all Business Data Services at or below a specified threshold should be deemed non-competitive in all census blocks. We agree that the specified threshold should be no lower than 50 Mbps.
See, INCOMPAS-VZ June 27th Letter at p. 2 (point 2). And, in case you're wondering what a "non-competitive" designation means, the parties "support ex ante price regulation for all Business Data Services deemed non-competitive." Id. (point 6).
Thus, while the FCC makes a "key finding" that prices are constrained--even at the lowest capacity levels--without regulation in many parts of the country (notwithstanding the number of actual competitors selling service in these areas), INCOMPAS and Verizon urge the Commission to adopt a nationwide presumption that the opposite is true. Given the apparent influence of these parties with this Commission (and the undisputed clout of those supporting this compromise), I'd be willing to bet that the Commission ends up believing the advocacy of INCOMPAS and Verizon over "its own lyin' eyes."
It's easy to dismiss the protestations of parties that don't prevail in a Commission matter as "sour grapes." But, it's harder to ignore complaints--before a party has even lost--that they won't get a fair chance to be heard, then the integrity of the system is called into question and we should all be interested. Finally, concerns about the FCC moving toward a pre-ordained outcome are worse still when any casual observer can notice that some parties have a map to that pre-ordained destination--and others, including the public, are just along for the ride.
In his Dissenting Statement from the FCC's recent Business Data Services Order and Further Notice of Proposed Rulemaking ("BDS Order"), FCC Commissioner Ajit Pai compares the FCC's decision to expand its regulation of the "business data services" market to the world Alice encountered in "Through the Looking Glass, and What Alice Found There." In order to give you some idea of what Commissioner Pai was talking about, let's just look at some of the most obvious errors the FCC makes in its wholesale abandonment of rational decision-making.
Business data services ("BDS") are dedicated circuits that transmit data at speeds of 1.5Mbps or 45Mbps between the customer's location and another point on the incumbent LEC ("ILEC") network. After the break-up of AT&T in 1982, the FCC set prices for the competitive "long-distance" inputs (supplied by the ILECs) of switched and "special" access. Almost 35 years later, in its BDS Order, the Commission renames "special access" as BDS, but continues price regulation.
In its BDS Order, the FCC makes a finding that certain provisions in the legacy incumbent telephone company discount tariffs for business data services are "unjust and unreasonable." Notably, the FCC made no finding as to the "just and reasonable" nature of the ILECs' basic "month-to-month" retail rates for BDS.
The Commission found only that certain terms and conditions the ILECs required in order for a customer to qualify for the largest discounts off the retail rate were "unjust and unreasonable." Moreover, the Commission also found that the some of the penalties (for the customer failing to meet purchase volume, or contract term, commitments) allowed the ILECs to recover more from a "breached" contract than the ILEC would have received if the customer had fully performed.
The Threshold Fallacy
From the outset, we can readily see that the FCC has a bit of a logic problem that it needs to explain, before it can resolve the tariff complaints. The "month-to-month" BDS rates have not been challenged as unjust/unreasonable, nor do these rates require a purchaser to agree to buy any specific number of circuits or hold the circuits for any period of time.
Given that any customer can purchase BDS on "just and reasonable" rates, terms, and conditions, then wouldn't any rates below the "month-to-month" BDS rates--regardless of terms and conditions--have to be, by definition, just and reasonable rates? The Commission never explains how it can rationally determine that any terms and conditions--which result in lower prices than the already-established-just-and-reasonable-prices--can be "unjust and unreasonable."
Where's the Law?
When you read the BDS Order, one of the first things you'll notice--as opposed to every other FCC Order--is that the Commission never explains the prevailing legal standard. Of course, the FCC notes that Section 201(b) of the Communications Act requires that,
[a]ll charges . . . for and in connection with such communication service, shall be just and reasonable, and any such charge . . . that is unjust or unreasonable is declared to be unlawful . . .
See 47 U.S.C. Sec. 201, but this tells us nothing about what the "just and reasonable" requirement means.
Moreover, because "just and reasonable" is an unambiguous, statutory term, the Commission will get no deference from the Court of Appeals. So, why wouldn't the Commission at least get the precedent it wants to rely on in its Order?
What the Law Says
In Verizon v. FCC, 535 U.S. 467 (2002), the Supreme Court's review of its Iowa Utilities Board remand to the 8th Circuit, Justice Souter, writing for the majority, offers a historical summary of the evolution of the "just and reasonable" standard with respect to rates between businesses (vs. rates between the utility and the public).
When commercial parties did avail themselves of rate agreements, the principal regulatory responsibility was not to relieve a contracting party of an unreasonable rate . . . but to protect against potential discrimination by favorable contract rates between allied businesses to the detriment of other wholesale customers.
See, Verizon, at p. 479 (internal citations omitted). Justice Souter also notes that, with respect to rates/terms set by contract between two commercial providers, the Court has previously stated that,
the sole concern of the Commission would seem to be whether the rate is so low as to adversely affect the public interest--as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden or be unduly discriminatory.
Id. at pp. 479-480 (citing FPC v. Sierra Pacific Power Co., 350 U. S. 348, 355 (1956)).
Thus, Supreme Court precedent, with respect to "just and reasonable," would limit the Commission's ability to step in and void a contract tariff rate/term between two sophisticated entities to situations where the rate was too low, and reflected an improvident "giveaway" to a commercial customer, at the expense of other customers.
Competition Cannot Be Harmed By Limitations on BDS Discount Availability
In its BDS Order, the FCC states that it has previously expressed concerns about the "potential anticompetitive nature" of the ILECs' term and volume discount plans. Order at para 92.The latest expression of concern the FCC cites is from 1996--when Congress gave the FCC a much more effective tool for determining prices/terms between ILECs and their competitors--the Telecommunications Act of 1996, which allows the FCC to order ILECs to provide access to "unbundled network elements" ("UNEs"), at rates much lower than BDS tariff rates, if the FCC believes that competitors would be impaired in their ability to compete "but for" access to the UNEs.
But, the Commission knows the CLECs/wireless carriers cannot credibly make such a claim. In 2004, the D.C. Circuit pointed out,
[a]s we noted with respect to wireless carriers' UNE demands, competitors cannot generally be said to be impaired by having to purchase special access services from ILECs, rather than leasing the necessary facilities at UNE rates, where robust competition in the relevant markets belies any suggestion that the lack of unbundling makes entry uneconomic.
U.S. Telecom Ass'n. v. FCC, 359 F.3d 554, 591 (D.C. Cir. 2004) (emphasis added) .
The FCC and the ILECs' wholesale BDS customers have known for quite a while that the FCC couldn't credibly require ILECs to give them access to UNEs, because BDS availability has stimulated, not thwarted, competition in related markets. But, the statutory term, "just and reasonable," sort of sounds like an unbounded grant of Goldilocks-level discretion. The FCC, seeing saw no reason to reflect on logic, or precedent, moved ahead with its plans to help another privileged class of competitors. And that is how the FCC went Through the Looking Glass.
One of my favorite episodes of the TV comedy series "Seinfeld" is called "The Opposite," in which George Costanza reflects on his life, and realizes it is the opposite of what he hoped it would be. At the diner, George tells his friends "that every decision I've ever made, in my entire life, has been wrong." His best friend, Jerry, suggests "[i]f every instinct you have is wrong, then the opposite would have to be right." (quotes from IMDB, episode 5.21) By the end of the episode, after consistently "doing the opposite" of what he would normally do, George's life has corrected itself: he is dating a beautiful woman, has his dream job with the New York Yankees, and is able to move out of his parents' house.
Verizon Training Video
The episode starts with the universal human emotion of regret, and then humorously illustrates common logical fallacies, which are presented as both problem ("every decision I've ever made has been wrong") and solution ("the opposite would have to be right"). And, even though both problem and solution are products of fallacious reasoning . . . hijinks ensue--and problems resolve. But, certainly, no one would actually take this seriously--especially not one of the largest companies in the country--would they?
If its Public Policy Blog is reflective of its corporate mindset, Verizon--based on a couple of recent posts--appears to be willing to give George's zany solution a try. But, are they really "doing the opposite," or have they just changed--as competition forces all firms to do?
A Net-Neutrality Flip?
First, on March 21st, Verizon in the context of net neutrality decides to "make clear what Verizon stands for and what kind of policies we support, regardless of the outcome of [the pending Open Internet Order appeal]." And, as it turns out, the rules/policies that Verizon thinks "are fair, even-handed, good for consumers and essential for us and others to thrive going forward" . . . are pretty much the same rules the Commission adopted in its first Open Internet Order in 2010. In other words, Verizon now endorses the very rules that were vacated as the result of the D.C. Circuit's decision in . . . Verizon v. FCC.
Clearly, Verizon was seized with regret over an appeal it now realizes it could have lived with, but traded for worse rules, and is now "doing the opposite," right? At first glance, it would seem to be the case, but, the blog is quick to explain that this is not a simple case of human regret (or any other human emotion) finding its way into Verizon's corporate offices.
Rather, according to Verizon, it is not the same company it was five years ago, when it appealed the FCC's 2010 Open Internet Order. In the intervening time period, Verizon notes, it has "invested billions in businesses that depend on the ability to reach customers over the networks and platforms of others." Indeed, since 2013, Verizon has built its Digital Media, content and ad delivery, business through the acquisitions of EdgeCast, upLynk, Intel's OnCue ad delivery platform, and AOL.
Thus, Verizon's net neutrality position is not really an example of it doing "the opposite" (though, of course, it would have saved itself and everyone else a lot of hassle and expense had it just recognized this before it appealed the 2010 Open Internet Order). But this isn't Verizon's only, or even best, example of "doing the opposite" in the last month alone.
Verizon's Special Access "Compromise"
Last week Verizon decided to "up" the "opposite," and suggested--along with Chip Pickering, head of INCOMPAS (the rival carrier association formerly known as CompTel)--that the FCC should probably go ahead and regulate "new networks" along with the old special access circuits still subject to FCC regulation. Verizon has long fought against any regulation of its data transmission services and has already received FCC forbearance and been selling its packet, Ethernet, and SONET optical services without regulation for almost 10 years, so this is a clear Costanza-esque flip-flop, right?
Let's take a closer look at the letter that Verizon and INCOMPAS jointly sent the FCC. The letter asks the FCC to: 1) immediately, make all dedicated services--regardless of technology--"subject to Title II of the Communications Act, including Sections 201 and 202;" 2) seek comment on a permanent regulatory framework, which would include ex ante price regulation in "relevant markets" where competition is "insufficient."
When looking at whether Verizon is really "doing the opposite," it helps to keep in mind the "not the same Verizon" caveat. In addition to Verizon's recent digital media investments, the company has been divesting itself of its wireline (telephone + ISP + TV) properties for years, and at an accelerating pace in the wake of the FCC's reclassification of Internet access services.Similarly, based on Verizon's pending XO Communications acquisition, and its reported interest in Yahoo!, Verizon may well see INCOMPAS as more of a future trade association, and less of a regulatory opponent, these days.
Until the terms "relevant market" and "insufficient competition" are defined, it's difficult to say how much of Verizon's future revenues are likely to be affected. Given the Chairman's immediate endorsement of the "compromise," it's doubtful that Verizon is worried about having too much of its future revenues tied up by the regulation it's endorsing. On the other hand, if you are a cable company--or a telecom carrier with some unique routes--Verizon's "compromise" seems more like the good, old-fashioned, Washington-style compromise . . . of someone else's opportunities.
* * *
In his more lucid, less politically-driven, first days on the job, Chairman Wheeler noted that every previous "network revolution" changed the world dramatically, and counseled that "we should not, therefore, be surprised when today's network revolution hurls new realities at us with an ever-increasing velocity." When the velocity of new realities forces a rational economic actor to change positions as dramatically as a TV sitcom actor, it's safe to assume that the industry forcing those new realities is not subject to anything but competitive market forces. So, why is it so hard for Chairman Wheeler to accept that the last thing a dynamically evolving "revolution" needs is more regulation?
Unfortunately for Internet users, the reality is that--on the Internet--privacy is binary; you either have it, or you don't. Moreover, as the Erin Andrews case demonstrates, on the Internet, when your information is lost to one person, it's available to everyone. What is most concerning is not that the Chairman's proposed ISP privacy rules can't deliver on these fantastic promises, but that in the Chairman's Set Top Box NPRM, consumers are actually losing privacy that they used to have.
Your Information Is Already on the Internet
It's no secret that, "your information is the commodity that drives the internet economy." Nor is it any secret that this is the price the largest "free" websites/services charge for their services--such as those provided by Apple, Google, Facebook, and Microsoft.
Likewise, Google is the leading online advertiser because it knows the most about you--and, according to the NY Times it is only getting better at gathering your information. If you're interested, and have a Google account, here's an article with some links that allow you to see how much Google knows about you, based on your self-identified use of its apps. But, these links don't tell you how much "pretty close to personal" data Google has collected on you, or what it has acquired through your use of its Android mobile operating system and mobile apps--which now account for 60% of mobile devices in the U.S.
The firms mentioned above are just the ones that you know have your information. There is a whole industry comprised of firms, the names of which most people wouldn't recognize, called "data brokers." These data brokers also track your Internet usage--and combine that information with other, personal information that they buy from your online merchants--to form a pretty accurate personal profile of all your online activity, which they make available to anyone willing to pay.
ISP Privacy Rules Won't Give You "More" Privacy
Not surprisingly, according to experts, your ISP doesn't have any information about you that isn't already available from multiple other sources. In fact, Professor Peter Swire of Georgia Tech says that, due to consumers' increased use of encryption, multiple connected devices, and proxy services, like VPNs, your ISP may actually know less about your Internet behavior than the websites you visit.
Of course, every expert doesn't agree completely with Prof. Swire's conclusions. In a thorough article presenting the opposing side, Computerworld reports that some experts disagree with Prof. Swire about how much of a consumer's Internet traffic ISPs can see--because encryption isn't always as effective as consumers might think, and even VPNs/DNS proxy services can be configured poorly. Thus, Computerworld counsels readers to assume the worst, and that, "[m]uch like Google, your ISP knows everything about you."
Now you all know everything about me . . .
Said differently, "the Internet" will not know one less fact about me if my ISP stops being the nth company to tell advertisers that I'm the leading YouTube viewer of "Lancelot Link: Secret Chimp" videos. Rather, as Roslyn Layton explains, the effect of the proposed rules will be confined mostly to the ISPs, who must rely on consumers to pay an even larger share of the network costs, and the online advertising market--which needs more competition, not less. But, as for me, I get no "more" privacy than I have now.
Set Top Boxes Aren't Cheaper If You Pay with Your Privacy
Almost 30 years ago, during the politically polarized Senate confirmation hearings on President Reagan's Supreme Court nominee--Judge Robert Bork--some of the Judge's opponents were able to obtain his video rental history from his video store. His opponents didn't find anything embarrassing, but they sparked a bi-partisan public outcry for laws to protect citizens from this type of repulsive invasion of privacy. Here's a contemporary article from the Chicago Tribune.
Congress, though, was in front of the public this time, and Judge Bork's enemies could not have obtained his TV viewing records (if he was even a cable subscriber at the time), because in 1984 Congress had passed the Cable Communications Policy Act, protecting video subscribers' privacy. 47 U.S.C. 631 Since then, the FCC has had rules in place preventing the disclosure of personally-identifiable viewer information to third parties.
In its Set Top Box NPRM, the Commission asserts that it will not totally ignore the requirements of the law, but the proposed rules would require the regulated entity (your cable or satellite MVPD) to send your personally-identifiable information to an unregulated third party providing a video navigation service. The Commission suggests just asking Google and the data brokers to "self-certify" that they are complying with the legal obligations that apply to cable/satellite companies. See, NPRM at paras 73-74, 78.
Putting aside the dubious legality of the FCC's proposal, the Commission is exhibiting an almost-willful disregard for the purpose of the statute--or even worse, the importance of television as a shared medium. The very nature of specific, viewer-tracked, ad delivery--of the kind Google proposes--is invasive. Unless everyone gets the ad for [insert embarrassing product], then only the consumer gets embarrassed--when his friends watching March Madness ask, "why do I only see this ad at your house?"