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Netflix Secretly Holds Subscribers Hostage to Gain Favorable FCC Internet Regulations

September 17, 2014

by Fred Campbell
Center for Boundless Innovation

A stunning revelation is buried in a lengthy Netflix filing at the Federal Communications Commission (FCC): Netflix used its subscribers as pawns in a Machiavellian game of regulatory chess designed to win favorable Internet regulations.

The filing reveals that Netflix knowingly slowed down its video streaming service with the intention of blaming Internet service providers (ISPs). Specifically, Netflix used its relationships with Internet ‘backbone’ providers (e.g., Level 3, Cogent) to deliberately congest their peering links with ISPs, and at the same time, started publishing ‘ISP speed rankings’ to make it appear that ISPs were causing the congestion. It appears that Netflix cynically held its subscribers hostage to reduced service quality in order to pressure the FCC into adopting favorable Internet regulations that would permanently lower Netflix’s costs of doing business. Read More…

FCC Revisits Net Neutrality Exemption for Mobile Broadband

September 17, 2014

by Edward Wyatt
New York Times

WASHINGTON — High-speed cellular Internet access has been largely exempt from regulations aimed at preventing Internet providers from slowing down or blocking websites and applications. But wireless broadband’s special status is quickly losing support.

On Tuesday, the Federal Communications Commission will hold a round-table discussion to examine whether proposed net neutrality rules should cover mobile broadband. The battle lines will probably be clear: the cellphone companies against nearly everyone else. Read More…

FCC receives record 3 million net neutrality comments: What now?

September 16, 2014

by Grant Gross
PC World

The U.S. Federal Communications Commission’s deadline for the public to comment on the agency’s proposed net neutrality rules passed Monday with more than 3 million comments filed, by far a record number for an FCC proceeding.

The 3 million comments, as of midday Monday, eclipsed the 1.4 million complaints the FCC received related to singer Janet Jackson’s so-called “wardrobe malfunction” on live television during the 2004 Super Bowl. Many of the net neutrality comments called for the agency to pass strong net neutrality rules prohibiting broadband providers from selectively blocking or slowing Internet traffic or charging Web content providers for priority access to broadband customers. Read More…

772,000 AMERICANS TELL THE FCC— ‘DO NOT REGULATE THE INTERNET’

September 15, 2014

by American Commitment
Human Events

Washington, D.C.— Over three quarters of a million Americans have officially told the Federal Communications Commission they do not want the Internet regulated by Washington bureaucrats, according to American Commitment, a national advocacy organization who encouraged Americans opposed to proposed Internet regulations to speak out.

In the past three weeks, over 772,000 Americans filed comments opposing any regulation of the Internet. Read More…

Treating the Internet like a utility won’t promote competition, no matter what ‘clicktivist’ say

September 15, 2014

by L. Gordon Crovitz
The Wall Street Journal

Does the Internet make people stupid? This column has been on the optimistic side: Surely humans can still find a way to focus on and understand complex topics. But that faith is being sorely tested by the abysmal Washington debate over “net neutrality.”

Monday is the deadline for public comments on proposed Internet regulations to the Federal Communications Commission. More than one million comments have been posted, mostly sent by “clicktivists” and drafted by special-interest groups in Washington. As a sign of the confusion over the topic, many commenters say they want more Internet competition but then demand regulation that would stifle competition. Read More…

End the Costly Integration Ban – Part II

September 17, 2014

by Randolph J. May
Free State Foundation

For almost eight years, I have been urging, along with other Free State Foundation scholars, an end to the costly so-called “integration ban.”This outdated, costly FCC regulation bans cable operators from integrating the security and programming navigation functions in set-top boxes.

The supposed rationale for the integration ban, which was implemented in 2007, was to promote the availability of an independent retail market in set-top boxes. But, as I explained in my July 25 blog, “End the Costly Integration Ban,” from the very beginning, “in light of the competition among multichannel video providers that already then existed, it was clear that the costs imposed by the mandated separation of security and program navigation functions outweighed the consumer benefits.” The blog explains, at considerable length, and with links to several of FSF’s works on the subject, why it is time — indeed, way past time — to end the integration ban. Read More…

Jeff Eisenach testifies on net neutrality and the Open Internet proceedings – See more at: http://www.techpolicydaily.com/communications/jeff-eisenach-testifies-net-neutrality/#sthash.gw7TOoBw.dpuf

September 17, 2014

by Jeffrey Eisenach
Tech Policy Daily

Today, Jeff Eisenach will be testifying in the Senate Judiciary Committee’s hearing “Why net neutrality matters: Protecting consumers and competition through meaningful Open Internet rules.” His written testimony can be found below, and video from the hearing can be found here.

My testimony today advances three main points.  First, net neutrality regulation cannot be justified on grounds of enhancing consumer welfare or protecting the public interest.  Rather, it is best understood as an effort by one set of private interests to enrich itself by using the power of the state to obtain free services from another – a classic example of what economists term “rent seeking.” Second, the potential costs of net neutrality regulation are both sweeping and severe, and extend far beyond a simple transfer of wealth from one group to another.  Third, legitimate policy concerns about the potential use of market power to disadvantage rivals or harm consumers can best be addressed through existing antitrust and consumer protection laws and regulations.

To begin, net neutrality regulation cannot be justified as a means of enhancing consumer welfare or advancing or protecting the public interest, and instead is best understood as a classic example of rent seeking. This is particularly true of the more extreme flavors of net neutrality regulation advanced by companies like Netflix, which would ban payments from companies like Netflix to Internet Service Providers like AT&T.

As a general matter, government intervention in the marketplace can enhance economic welfare only in cases of market failure, which may occur under two primary sets of circumstances: (a) when a firm or group of firms can exercise monopoly power to raise prices, reduce quality or prevent entry by rivals; or (b) when markets are characterized by externalities (such as pollution) or public goods (such as national defense).

Looking first at the monopoly power rationale for intervention, there is no basis for believing – nor does the FCC assert – that net neutrality regulation can be justified by concerns about traditional monopoly power. Indeed, the Commission’s Notice of Proposed Rulemaking waxes eloquent about the strong performance of the broadband marketplace, citing the billions of dollars invested each year and the rapid increases in performance that have come about as a result. Such performance is not consistent with the “cozy duopoly” characterizations sometimes advanced by net neutrality advocates.  Nor is the structure of the broadband market a cause for concern.  Indeed, the broadband market is, if anything, less concentrated than many markets that make up the Internet ecosystem: one need only think of the markets for search engines, social networks and personal computer operating systems to realize that such markets are typically served – at any given time – by a few firms rather than by the atomistic structures imagined in introductory economics texts.

To be sure, broadband ISPs, like virtually all other firms in the Internet ecosystem, do possess a certain type of market power, which is the power, derived from successful product differentiation, to charge prices above marginal costs. But the existence of such market power is hardly cause for pervasive regulation – rather, as the courts have recognized, it is both the incentive to innovate and the reward for doing so, and hence the motive force behind growth and prosperity in a modern economy. And while this sort of market power – combined with the need for firms to collaborate with one another to create value – can create the incentive for firms to deny access to their platforms as a means of obtaining or maintaining market power (as the courts found Microsoft did in the case of Netscape and Java), such incentives are not unique to broadband markets, and thus cannot justify discriminatory regulation of ISPs.

Another variant of the market power argument suggests that while big, established edge providers might be able to fend for themselves against the ISPs, we need to look out for the little guys, the new entrants who may be strangled in the crib as a result of discriminatory access fees.  What no one can explain, however, is why ISPs would want to discriminate against start-up edge providers – the very firms that create the applications and content that draw consumers to subscribe to broadband service in the first place.  The reality is that to the extent ISPs engage in efficient price discrimination, basic economic theory predicts they will offer startups – those most sensitive to price – the lowest prices rather than the highest ones.

Rather than being motivated by worries about market power, the FCC (like some other net neutrality advocates) justifies its proposed regulations on the existence of externalities in the Internet ecosystem. Specifically, the theory goes, innovation “at the edge” generates benefits that are not reflected in the price system, and therefore deserving of subsidization – either in the form of a zero price rule granting them free access to ISP’s services, or through a non-discrimination rule designed to shift value away from ISPs and in favor of edge providers by preventing broadband ISPs from engaging in efficient price discrimination.

Like other firms in the Internet ecosystem, broadband ISPs operate in what economists call a “two-sided market.”  On one side are consumers, who value Internet access; on the other are providers of complementary products, like content, devices and applications, who value the ability to use the network to reach their ultimate customers.  Such markets are not unusual: newspapers, for example, serve both advertisers and subscribers.  The challenge for such firms is to set prices for each customer group in such a way as to attract the optimal mix:  Newspapers need just enough advertisers to allow them to keep subscription prices low, but not so many as to annoy readers and drive down subscribership.

The FCC’s primary theory of net neutrality regulation (embraced by the DC Circuit in Verizon v. FCC) is that one side of the two-sided market served by ISPs (the “edge providers”) generates so much innovation and other “external” benefits that it should be subsidized by the other side (that is, by consumers) through a rule that forces consumers to pay 100 percent of the costs of the network while edge providers pay zero.  This is a fine theory – but there is not a scintilla of empirical evidence to support it.  Indeed, a strong argument can be – and often is – made that the external benefits generated by investment in broadband infrastructures are at least as great as if not greater than the benefits associated with innovation at the edge.  In short, the edge-provider-innovation-externality rationale for net neutrality regulation is a naked emperor of an argument if ever there was one.

Finally, some argue net neutrality regulation is needed to protect freedom of speech – that without it, “alternative, non-profit and dissenting voices” will be consigned to “Internet slow lanes.”There are at least three problems with this theory.  First, there is virtually no evidence that ISPs have (or have incentives) to stifle dissenting or alternative views; indeed, as explained above, the availability of diverse content on the Internet is what makes it valuable and causes people to want to pay ISPs for broadband access in the first place.  Second, to the extent “censorship” is an issue, it implicates other types of Internet firms at least as much as (and likely more than) ISPs.  Third, and finally, it is simply not apparent that giving Netflix free use of Comcast’s network has anything to do with protecting political speech.

When these rationales are stripped away, what is left is the obvious:  Edge providers, big and small, and those who fund them and profit from their success, have a powerful economic interest in getting the government to guarantee them free access to the ISPs’ networks. Occam’s Razor applies: when it doubt, the simplest explanation tends to be the correct one, and net neutrality is no exception.

At this point in my testimony, I want to be emphatically clear that, in suggesting that net neutrality is a battle over the allocation of economic rents, I am not impugning the integrity of anyone involved in the process.  Government intervention in markets – whether justified or otherwise – invariably results in the redistribution of wealth, and the affected parties have every right – even, arguably, an obligation – to look out for their own interests. That is the way our democracy works and, to paraphrase Churchill, it is a terrible system…except when compared to the alternatives.  Nor do I mean any disrespect to the heartfelt views of those across the political spectrum who worry about the need to protect free speech on the Internet and elsewhere. I share their ultimate goals and objectives, even though I may not fully share their assessment of the nature of the challenge, or the appropriate response.

But while there is nothing illegal or even immoral about private entities seeking to advance their interests through the use of state power, the results can prove highly damaging, and ultimately can be far more harmful than a simple transfer of wealth from one group to another.  In the case of net neutrality, the risk is that the intensely dynamic, pragmatic, business-and-engineering-driven approach to building and running the most important “general purpose” technology in history – the approach that has facilitated the remarkable growth of the Internet over the past two decades – could be replaced by a static, bureaucratic, politicized regulatory regime, not only in the U.S. but around the world.

There is no economic basis for a general rule forcing one side of the market, consumers, to bear 100 percent of network costs while the other side, the firms that benefit from the ability to deliver content over the network, pay zero.  Indeed, as the types and volumes of traffic carried over the web change, one would expect pricing structures and other contractual terms to adjust accordingly – as has been the case with peering and transit arrangements, which have adjusted dynamically to the explosive growth of the Internet without regulatory intervention for nearly two decades.  Net neutrality regulation would at best inhibit, or at worst prohibit altogether, the market’s ability to achieve such adjustments.

The costs of net neutrality regulation are directly related to the substantive standards imposed, the extent of their application, and the means by which they are enacted and enforced.  For example, a rule that presumptively bans all forms of differentiated service offers could literally cripple the ability of the Internet to adjust to the continued growth in the amount and types of traffic, especially if it were extended to wireless ISP services, where differentiation is especially important due to inherent limitations on bandwidth and other engineering concerns.

The specter of common carriage regulation is of particular concern.  As others have noted, Title II regulation would not ban price discrimination by ISPs. To the contrary, Title II specifically envisions that prices should vary across different types of services and different types of customers, just as – for example – postal rates do today.  It may seem difficult to imagine imposing on the Internet a public-utility-style rate setting process akin the Postal Regulatory Commission; but can anyone doubt that if broadband were declared a Title II service, it would not be long before the Commission would take comments on whether some types of services should bear more of the costs of the network than others, leading inevitably to something closely resembling the perennial scrum between first, second and third class mailers over who will pay how much for junk mail, magazines, and so forth?

Even less intrusive approaches could have serious costs.  Consider, for example, the comments filed with the FCC by startup firm Syntonic, which develops innovative technologies that allow content providers to make their content available to consumers over mobile networks without charge.  Such “sponsored data” plans shift the cost of bandwidth from consumers – especially those less able to afford high-end data plans – to mobile wireless carriers and content providers, and are increasingly popular in both the U.S. and, to an even greater extent, in developing countries.  As Syntonic explains in its comments, “despite the fact that these alternative business models increase consumer choice and help bring consumers the content they desire more efficiently … opponents can use stringent net neutrality rules to impose homogeneity on broadband markets and destroy even the most consumer-friendly alternatives to the status quo … [showing] the danger of structural rules designed to protect edge providers rather than consumers.”

Adopting net neutrality regulation would also harm the cause of Internet freedom worldwide.  The Internet the most powerful and disruptive force for freedom in the world, threatening the power of the state and setting literally billions of people free to learn, think, and decide for themselves. It represents a fundamental threat to repressive, authoritarian regimes from Moscow to Tehran, from Beijing to Caracas.  By embracing the idea of state control of the Internet – both economic and political – the adoption of net neutrality regulation by the U.S. would legitimize the efforts of tyrants everywhere to impose far more repressive forms of statist intervention.

My last point, which I will make briefly because it has been so thoroughly addressed elsewhere, is that legitimate concerns about the exercise of market power by ISPs (and other firms in the Internet ecosystem) can readily be addressed through existing laws, including specifically the Sherman Act, the Clayton Act and the Federal Trade Commission Act.  These laws have protected competition and consumers for well over a century, and have developed into a dynamic and sophisticated body of economic doctrine and legal jurisprudence that is fully capable of addressing the threat that Internet firms, whether ISPs or others, will use the market power signified by their persistence in the marketplace for harmful purposes.  Antitrust is not perfect, but it is by far the best approach to addressing concerns about the business practices of broadband ISPs.

- See more at: http://www.techpolicydaily.com/communications/jeff-eisenach-testifies-net-neutrality/#sthash.gw7TOoBw.dpuf

Decompetition Decompetition Decompetition

September 15, 2014

by Scott Cleland
The Daily Caller

The FCC’s new professed mantra is “competition competition competition.”

However, the FCC appears to be pursuing a de facto policy of decompetition rather than competition.

Decompetition is regulation that undermines competition in order to justify more regulation.

How could this perverse outcome happen?

It’s what one gets when one combines an obsolete communications law and regulators nostalgic for the regulatory power of a bygone era.

The FCC is increasingly acting like a 20th century regulator searching for relevance in a 21st century marketplace. Read More…

772,000 AMERICANS TELL THE FCC— ‘DO NOT REGULATE THE INTERNET’

September 15, 2014

by American Commitment
Human Events

Washington, D.C.— Over three quarters of a million Americans have officially told the Federal Communications Commission they do not want the Internet regulated by Washington bureaucrats, according to American Commitment, a national advocacy organization who encouraged Americans opposed to proposed Internet regulations to speak out.

In the past three weeks, over 772,000 Americans filed comments opposing any regulation of the Internet. Read More…

Net neutrality policy and the future of your Internet

September 15, 2014

by James E. Prieger
Hillicon Valley

Recently, the Chronicle published Thea Selby’s account of her letter to the Federal Communications Commission, one of more than a million comments filed in connection with its “net neutrality” proposal to regulate how Internet service providers manage traffic on their networks.

As Ev Erlich responded on July 24, at the heart of the controversy is how regulators should treat your ISP: as they always have – as an entity that supplies you broadband Internet service – or more like the way they regulate common carriers such as AT&T, Verizon and others. Read More…

Free State Foundation Comments

September 17, 2014

by Free State Foundation

On the issue of            )           AT&T and Direct TV merger

COMMENTS OF
THE FREE STATE FOUNDATION*
I. Introduction and Summary
These comments are filed in response to the Commission’s request for comments
concerning the agency’s review of the transfer of control of licenses in connection with the
proposed acquisition of DIRECTV by AT&T Inc. These comments do not endorse or oppose the
proposed merger. Rather, their purpose is to set out baseline principles by which the Commission
should evaluate this as well as other mergers and to provide a summary analysis of
AT&T/DIRECTV in light of those principles.
Mergers and acquisitions are competitive entrepreneurial activities Read More…

Free-Market Advocates’ Comments to FCC, Opposing Internet Regulation

July 15, 2014

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of  Protecting and Promoting the Open Internet

GN Docket No. 14-28

Comments of

Free-Market Advocates Opposed to Internet Regulation

For 10 years officials at the Federal Communications Commission have told Americans that the Internet will “break” unless the agency steps in to keep it “free and open.”  All the while, the Internet’s privately driven development has been vibrant, relentless and universal.  Nevertheless, at points during this same period the Commission twice sought to encumber the Internet with restrictive common carrier-like, Net Neutrality regulations.  In response to each of these actions, the DC Circuit twice struck down the agency’s overreach.  In the latest DC Circuit ruling – Verizon v. FCC[1] – the Court struck down the main thrust of the Commission’s arguments, but found that the Commission had some authority under Section 706 of the Communications Act.   The Commission has apparently undertaken the present Notice of Proposed Rulemaking to once again establish a regulatory regime in the absence of a market failure or a clear Congressional grant of authority.

The Internet is “free and open,” making the vast “network of networks” an integral engine for societal growth, participatory democracy and global commerce.  Its healthy development came primarily through the lack of government regulation, not because of it.  Although the Court seems to have offered the FCC a very narrow pathway to impose some form of Net Neutrality regulation on the Internet, nothing demands that the FCC go forward with its present plans.

Read More…

IFC Reply Comments to FCC: Title II Reclassification Unjustified, Unnecessary

August 12, 2010

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of Framework for Broadband Internet Service                    

GN Docket No. 10-127

FCC Docket No. 10-114

 Reply Comments

of the Undersigned Members of the

INTERNET FREEDOM COALITION

Introduction

The Commission is being asked by Free Press and other organizations to pursue a radical course of action – reclassifying information services as telecommunications services in order to regulate the Internet for the first time.  We write to urge the Commission to keep the Internet free of new government regulation and taxation and to refrain from rushing into such a potentially disastrous course of action.

Analysts are only beginning to grasp the extent of the disruptive and destructive consequences of regulating the Internet under Title II of the Communications Act, and the Commission is in no position to predict the outcome, much less assure Americans it will be positive.  Americans have heard political leaders admit that we will not know the full extent or nature of massive health care and financial services regulations until after the underlying legislation has been passed.  Now, Americans are facing the imposition of an even lesser-understood regulatory regime over the Internet without the benefit of any legislative process whatsoever.

CLICK HERE FOR PDF

IFC Supplemental Reply Comments: FCC Lacks Authority, Justification for Reclassifying Internet as Title II Service

April 26, 2010

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of
Preserving the Open Internet              GN Docket No. 09-191                                  
Broadband Industry Practices            WC Docket No. 07-52

Supplemental Reply Comments of the Internet Freedom Coalition

Just two days prior to the Commission’s deadline for reply comments regarding the above Notice of Proposed Rulemakings, the U.S. Court of Appeals ruled in Comcast v. FCC that the Commission has no authority to enact Net Neutrality rules.  The deadline for comments was extended, particularly to facilitate discussion of other methods of promulgating Net Neutrality regulations.

 Beginning with comments on the National Broadband Plan filed by Public Knowledge in January, a small number of organizations have since proposed classifying the Internet as a Title II common carrier service as a way of asserting the Commission’s authority to enact Net Neutrality regulations.  The Internet Freedom Coalition respectfully submits these reply comments in strong opposition to any effort to reclassify the Internet as a Title II service.

Read More…

IFC Reply Comments to FCC: Refuting Free Press’ Arguments for Regulating the Internet

April 26, 2010

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of                                           
Preserving the Open Internet                      GN Docket No. 09-191
Broadband Industry Practices                    WC Docket No. 07-52

Reply Comments of the Internet Freedom Coalition

The following comments are submitted by the undersigned members of the Internet Freedom Coalition.  They are submitted in reply to comments filed by proponents of Network Neutrality regulations, and are attributable only to the signatories.

Read More…

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