Excellent lecture.

The day before the FCC's Chairman decided that AT&T and Comcast should have greater powers as gatekeepers to the Internet, Marketplace Tech Report published an interview with Tim Wu. Tim Wu discusses the history of net neutrality and its importance. In addition to the usual 5 minute clip, they have released a longer 20 minute clip. Listen to the longer one.

Today, the FCC is poised to pass a half-ass attempt to preserve the open Internet against the interests of massive gatekeepers like AT&T and Comcast. Tim Karr rightly calls it Obama's "Mission Accomplished" moment. Fortunately, the likely result will be a couple of years in the courts before the rule is thrown out because the FCC has not properly ground its half-ass actions in any authority it has received from Congress. Perhaps when the FCC next has to deal with this, we'll have an FCC Chairperson with a backbone and a stronger interest in what is best for hundreds of millions of Americans than what is best for AT&T and a few other corporations. The FCC and supporters of this let's-keep-the-Internet-partly-open "compromise" will lump all critics as being extremist looneys. (Okay, the Republicans who oppose this might fit that description as they are literally making things up or totally confused about what is being decided). But let's look at the crazy looney rhetoric of FCC Chair Genachowski last year:

Genachowski proposed that the FCC formalize its four principles of network openness. To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled:

• to access the lawful Internet content of their choice.
• to run applications and use services of their choice, subject to the needs of law enforcement.
• to connect their choice of legal devices that do not harm the network.
• to competition among network providers, application and service providers, and content providers.

To these, Genachowski proposed adding two more: The first would prevent Internet access providers from discriminating against particular Internet content or applications, while allowing for reasonable network management.

Whenever the discussion of Network Neutrality comes up, we like to remind everyone that when the network is locally owned and accountable to the community, anti-subscriber discrimination is not a problem. That said, we are strong supporters of proper safeguards to ensure massive companies like AT&T cannot abuse their market power and discourage innovation. As the FCC prepares to discuss a half measure to preserve parts of the open Internet, a number of us have been frustrated that while we cannot read the proposal, AT&T appears to be helping write it. Karl Bode's take:

[T]he question shouldn't be whether or not consumers can now view a neutrality proposal after it was hashed out in private meetings (predominately with only the largest, wealthiest carriers), it should be: why weren't consumers absolutely integral in crafting it? AT&T has met with the FCC half a dozen times in the course of three weeks and likely knows precisely what's in this plan -- do you?

We've written to FCC Commissioners to make it clear that they must not compromise on the future of the open Internet. You should too. Photo used under Creative Commons license from AdamWillis.

As part of our continuing effort to shed light on the tendency of privately owned telcos and cablecos to consolidate rather than compete, we would like to note comments from Qwest's Chief Financial Officer. Stop the Cap! has the story:

Chief Financial Officer Joe Euteneuer said the time was right for Qwest to sell operations in the north-central and mountain west region because there were too many competitors in the marketplace. Euteneuer said the telecommunications market needs to resemble the cable-TV business, which has been heavily concentrated into two huge powerhouses — Comcast and Time Warner Cable.

So not only do these executives think there is too much competition (find me a subscriber who believes that!), but believes we should have less and less competition moving forward. These folks are incredibly candid about their plans to diminish what little competition exists -- perhaps because the FCC has made it clear that it plans to take no actions to encourage further competition. The National Broadband Plan pretty much ignores this problem, perhaps its biggest failing. For those of us who care about the future of broadband and the communities that increasingly depend upon it, the spectre of even larger privately-owned incumbent providers (with increasingly distant headquarters) is daunting. Bigger and bigger incumbents mean it is that much harder to build better networks that will compete with them. These massive companies cross-subsidize their operations to dramatically cut rates in newly competitive areas specifically to drive out new competitors (public and private). Larger companies have greater advantages for securing discounts on key inputs, allowing them to offer lower prices than communities are naturally able. This is yet more evidence that the private-company approach to broadband infrastructure is bankrupt. If we are destined to have only a few entities owning the networks on which we depend, those entities must be directly accountable to the communities, rather than focused solely on increasing profits every year.

David Isenberg, of isen.blog, has published a short history of Reedsburg's community fiber network that he previously wrote for the FCC when they were gathering evidence of successful networks they would later ignore in formulating a plan to continue the failed status quo of hoping private companies will build and operate the infrastructure we need. Nonetheless, one cannot say that smart people like David did not try to help the FCC overcome its obsession with national carriers who dominate the conversations, and whose employees often work periodically with the FCC in what we call the revolving door (which itself, is a reason the FCC has been captured). Back to Reedsburg; it is a small community approximately 55 miles northwest of Madison that just happens to have far better broadband service than just about anywhere else in Wisconsin. David writes,

RUC first entered the telecommunications business in 1998, when it constructed a ring to tie its wells, its five electrical substations together and to provide Internet access for its high school, middle school and its school administration building. In planning the ring, the city asked Verizon and Charter if they would build it, but they were not responsive. RUS built a partly aerial, partly buried 7-mile ring of 96-strand fiber at a cost of about $850,000. Internet access was provided by Genuine Telephone, a tiny subsidiary of LaValle Telephone Cooperative which ran a fiber from LaValle, about 8 miles NW of Reedsburg.

As they were building the ring, local businesses asked to be connected as well. Reedsburg took the path that so many communities have followed, start by building for yourself and expand opportunistically. Of course, this requires that you originally engineer the network so it can be later expanded, which is good practice regardless of your future plans. Reedsburg used bond anticipation notes, a financial mechanism that few others have used in building similar networks.

A local bank loaned the initial $5 million in bond anticipation notes for planning and construction.

In the world of essential infrastructure, thousands of years of history have taught us that entities, acting on their own narrow interest, cannot be trusted to build or govern the building blocks of commerce or transportation. The temptation to abuse that powerful position has always proved too much for those without accountability to the public. For instance, if the only way to move goods is a canal, private canal owners will price at a high level or use their position to take a stake in all the industries using the canal. Such an arrangement is great for the canal owners but poor for the rest of society. Witness the history of canals and railroads. Two options to dealing with this problem have historically been either regulation or public ownership of such infrastructure. Readers of this site are undoubtedly well aware of our preference for public ownership - a structural approach using coops, local government, or non-profits to ensure the interests of the public at large receive the highest priority. This post explains one of the reasons a regulatory approach, whereby private companies still own the infrastructure (and often make key decisions) but must go through some form of public body that is supposed to prevent the natural interests of the private company from taking over and reducing the benefits to society at large. Writing in the Financial Times, John Kay explains regulatory capture, the process by which the agency or commission supposed to regulate effectively begins to act more in the interests of those regulated rather than the public. An obvious example of this is the Minerals Management Agency that has long improperly overseen the extraction industry, leading to the BP Gulf Oil Hole. As Kay rightly explains, there are multiple kinds of capture from outright corruption to something that leads some political science geeks bring up Gramsci and Hegemony...

But the most common form of capture is honest and may be characterised as intellectual capture. Every regulatory agency is dependent for information on the businesses it regulates. Many of the people who run regulated companies are agreeable, committed individuals who are properly affronted by any suggestion that their activities do not serve the public good.

In all the talk of the need for competition in broadband (or in the mobile space), there is remarkably little attention paid to the difficulties in actually creating competition. A common refrain from the self-interested industry titans (and their many paid flacks) is: "keep the government out of it and let the market decide." Unfortunately, an unregulated market in telecom tends toward consolidation at best, monopolization at worse. Practicioners of Chicago economics may dispute this, but their theories occur in reality about as frequently as unicorn observations. In our regulatory environment, big incumbents have nearly all the advantages, allowing them to use their advantages of scale to maintain market power (most notably the ability to use cross-subsidization from non-competitive markets to maintain predatory pricing wherever they face even the threat of competition). The de-regulatory approach of telecom policy over the past 10 or more years has resulted in far less competition among ISPs, something Earthlink hopes to change with a condition of the seeming inevitable NBC-Comcast merger. Requiring incumbents to share their lines with independent ISPs is one policy that would greatly increase competition - but the FCC has refused to even entertain the notion because big companies like AT&T and Comcast are too intimidating for the current Administration to confront. In the Midwest, Windstream is cutting 146 jobs as part of its acquisition of Iowa Telecom. When these companies consolidate, they can cut jobs to lower their costs... but do subscribers ever see the savings? Not hardly. The result is less competition, which leads to higher prices. Consider that Comcast is the largest cable company, but they are known better for their poor record of customer service than low prices enabled by economies of scale. We need broadband networks that are structurally accountable to the community, not private shareholders located far outside the community. The solution is not more private companies owning broadband infrastructure, but more private companies offering competing services over next-generation infrastructure that is community owned by coops, non-profits, or local governments.

In an editorial for the October, 2010 issue, Scientific American explains "Why broadband service in the U.S. is so awful, and one step that could change it." This is an excellent shorthand explanation for the poor decisions of the FCC during the Bush Administration. Unfortunately, these decisions are being carried forward by the Obama Administration's FCC.

It was not always like this. A decade ago the U.S. ranked at or near the top of most studies of broadband price and performance. But that was before the FCC made a terrible mistake. In 2002 it reclassified broadband Internet service as an “information service” rather than a “telecommunications service.” In theory, this step implied that broadband was equivalent to a content provider (such as AOL or Yahoo!) and was not a means to communicate, such as a telephone line. In practice, it has stifled competition.

And the solution?

Yet, puzzlingly, the FCC wants to take only a half-step. Genachowski has said that although he regards the Internet as a telecommunications service, he does not want to bring in third-party competition. This move may have been intended to avoid criticism from policy makers, both Republican and Democrat, who have aligned themselves with large Internet providers such as AT&T and Comcast that stand to suffer when their local monopolies are broken. It is frustrating, however, to see Gena chowski acknowledge that the U.S. has fallen behind so many other countries in its communications infrastructure and then rule out the most effective way to reverse the decline. We call on the FCC to take this important step and free the Internet.

Well said. Read the whole the piece.