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Comcast Gamed FCC for Internet Essentials "Concession" in NBC Merger

Last year, when Comcast unveiled its Internet Essentials program, the corporate powerhouse received accolades from FCC Chairman Julius Genachowski. The program was promoted as an example of corporate philanthropy helping to bridge the digital divide.

Comcast received all kinds of positive media coverage for its program. Most of that coverage failed to note that the FCC required Comcast to integrate the program as one of the supposed concessions offered in return for Comcast being able to take over NBC -- giving the largest cable monopolist in the US even more market power.

DSLReports has publicly exposed what many of us suspected all along -- the program was not a concession on Comcast's part. Internet Essentials was originally conceived as a program that would offer slower connections to certain low income households at affordable rates that nevertheless remain profitable for Comcast.

A recent Washington Post Technology profile on Comcast's Chief Lobbyist David Cohen, notes how the program was actually conceived in 2009, but:

At the time, Comcast was planning a controversial $30 billion bid to take over NBC Universal, and Cohen needed a bargaining chip for government negotiations.

“I held back because I knew it may be the type of voluntary commitment that would be attractive to the chairman” of the Federal Communications Commission, Cohen said in a recent interview.

Eligibility depends on four factors:

  • Participants must reside in an area serviced by Comcast
  • Participants must not have an overdue Comcast bill or have unreturned equipment
  • Participants could not have had Comcast service within the last 90 days
  • Participants must have at least one child in the house that qualifies for free or reduced lunches

Comcast Logo

When the program launched in 2011, only households with children qualifying for free lunches under the National Free Lunch Program were eligible. After residents in Philadelphia expressed their derision at the narrow eligiblity, Comcast broadened the criteria to include those that qualified for reduced lunches. Even with this one requirement relaxed, eligibility is narrow. From a 2011 DSLReports article released when the program was new:

Once you've eliminated those who don't qualify for the school lunch program, eliminated those who already have service (not uncommon even in poor homes), and eliminate those who also owe Comcast money (also obviously not uncommon in poor homes), how many customers will Comcast actually wind up having to serve at the $10 price point? Even then, they'll only have to offer it for a few years, making it significantly less of a difficult merger condition than it might originally appear.

The Philly.com article notes that Comcast estimates 2.3 million people nationwide are eligible for the program. Even though meeting the participation criteria is incredibly difficult, Comcast blames low participation rates to on the people they are supposed to be helping:

Comcast says it has found that the biggest barrier to Internet Essentials' adoption is that many people in poor neighborhoods don't understand the Internet (emphasis added by me).

"They think it may be used for Comcast or the government to spy on them," said David Cohen, the program's chief booster and an executive vice president at Comcast.

I am one of those 2.3 million, used to help Comcast increase its market power with the NBC merger. Very few of us think much about the government or Comcast spying on us. In fact, we spend most of our time thinking about paying the bills. If Comcast or the government DID spy on us, we know they would be pretty damn bored.

As a lower-income single parent of two children that qualify for reduced lunches, our household qualifies largely because a subscription to paid TV is a luxury that we have chosen to avoid for several years. But believe it or not, I DO understand the benefits of Internet access and so do all the parents of all the kids that I know who are similarly situated. In fact, the kids understand the Internet, too.

As an experiment, I called Comcast and am happy to report that a very nice lady helped me. After answering all the questions she presented, my application for the Internet Essential program is on its way. 

I hate to report stories like this for multiple reasons. First, there is the conscious decision on the part of Comcast to cynically delay a program supposedly designed to benefit the most vulnerable populations. Then there is Comcast's obvious goal of positive media attention for their hated brand rather than effectively advertising the program to the vulnerable populations.

DSL Reports Logo

There is a policy lesson that DSLReports nails:

On the plus side, some people got less expensive broadband, which certainly isn't a bad thing. On the other hand, you've got a Comcast lobbyist who delays a program for the poor in order to profit handsomely by buying NBC, and an FCC claiming credit for a show pony program just to earn political points and to avoid imposing tougher conditions. As we'ved noted previously, hollow programs that do little but sound great has been a constant theme at an agency too timid to actually regulate.

The obvious question that has been utterly ignored by just about all the press coverage of this program is if Comcast makes a profit on its $9.95 service, why is the price so high for everyone else? Comcast, AT&T, and others are constantly crowing about how much competition supposedly exists in U.S. broadband but their profit margins and capacity to incease rates year after year proves the opposite is true.

We need to continue pushing the FCC to protect the rights of all Americans, not just a few big cable and telephone companies.

Community Broadband Bits 23 - Harold Feld from Public Knowledge

One hundred years after Teddy Roosevelt and AT&T agreed to the Kingsbury Commitment, Harold Feld joins us on Community Broadband Bits podcast to explain what the Kingsbury Commitment was and why it matters. In short, AT&T wants to change the way telecommunications networks are regulated and Harold is one of our best allies on this subject.

AT&T is leaning on the FCC and passing laws in state after state that deregulate telecommunications. Whether we want to deal with it or not, these policies are being discussed and consumer protections thus far have taken a beating. This interview is the first of many that will help us to make sense of how things are changing and what we can do about it.

We also discuss the ways in which the Federal Communications Commission and Federal Trade Commission spurred investment in next-generation networks by blocking the AT&T-T-Mobile Merger on anti-trust grounds.

Harold is senior Vice President of Public Knowledge and writes the Tales of the Sausage Factory blog.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 22 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed. Search for us in iTunes and leave a positive comment!

Listen to previous episodes here.

Thanks to mojo monkeys for the music, licensed using Creative Commons.

Antitrust Enforcement Yields Increased Investment in Wireless

We have long argued that smart antitrust policy promotes investment and competition in the market. Allowing a few firms to consolidate too much power allows them to ignore our needs because we lack alternative service providers. In economic terms, they can use their market power to prevent market entry from innovative new firms.

Harold Feld recented provided more empirical evidence for our view by comparing the present cellular wireless market against that of 20 months ago. He notes new investment from abroad in T-Mobile and Sprint and that U.S. Cellular plans to expand its footprint; AT&T is planning upgrades in its spectrum holdings. Bottom line - investment is starting to happen, which was not the case a year ago. 

Feld breaks out details in FCC and DoJ activities to show the relationship. In addition to the DoJ and FCC mutual block of the AT&T/T-Mobile deal, Feld notes the FCC's new attitude regarding regulatory reform. From the Feld blog:

On top of this, the FCC sudden[ly] started getting all serious about regulatory reforms designed to keep carriers other than AT&T and Verizon in the game as serious players. This included not just the long-awaited data roaming order (which now looks like it will probably survive review by the D.C. Circuit after all), but also revisiting special access, 700 MHz Interoperability, and renewed interest in clarifying the spectrum screen/possibly reviving the spectrum cap. While the last three are still in progress, the fact that the FCC is even talking about them in a serious way is so radically different from what folks expected at the beginning of 2011 that it puts heart into investors and competitors who were looking for some sign that anyone in DC gave a crap or if competitive wireless would end up going the way of competitive telecom and competitive ISPs.

Feld acknowledges that there will be those that jump to conclusions and discourages an all-or-nothing viewpoint in favor of a more measured approach. Also from his blog post:

The actual lesson is: “the argument that antitrust enforcement and/or other types of regulation always  discourage investment and cannot possibly create jobs or promote innovation is just as wrong as the argument that all mergers are bad and a regulatory response is always appropriate.” Or, put another way, efforts to apply simplistic approaches to complex issues are usually wrong (and often disastrously so).

When properly applied, antitrust enforcement and light-touch regulation actually encourages investment and thus creates jobs and stuff, whereas an unregulated consolidated free-for-all encourages stagnation and collection of monopoly rents in lieu of investment and innovation.

Markets work best when no single player can dictate terms. While we are so far from that ideal in telecommunications as to wonder if it is even possible, some antitrust is surely better than none. Better to have four national cellular carriers than just three (or two).  

And on the wireline side, limiting the predatory behavior of the Comcast and other cable giants will encourage investment and new competition -- both from the private and public sector. But that is precisely what the big guys are lobbying against -- the opportunity for new competition.

Community Broadband Bits 18 - Dewayne Hendricks

Dewayne Hendricks is a serial entreprenuer, innovator, and wireless expert. Wired magazine labeled him a broadband cowboy back in 2001. And he is our guest on the 18th episode of Community Broadband Bits.

Our discussion focuses on the promise of wireless technologies and how a few entrenched interests in DC (the big broadcasters and wireless telephone companies like AT&T) are preventing innovative approaches that would dramatically improve the capability of all our modern technologies.

Hendricks is a prolific tweeter that comes highly recommended from us. And he has kindly recommended two papers readers may want to read following our conversation: David Weinberger's "The myth of interference" and Paul Baran's "False Scarcity" [PDF].

We look forward to inviting Dewayne back soon to discuss the Fiber versus Wireless debate. Let us know if you have any other questions we should ask when he returns!

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 26 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed. Search for us in iTunes and leave a positive comment!

Listen to previous episodes here.

Thanks to Fit and the Conniptions for the music, licensed using Creative Commons.

FCC Chairman Genachowski Once Again Praises Muni Broadband

Just this week, FCC Chairman Julius Genachowski highlighted the success of Chattanooga at a speech at VOX Media and SBNation on Winning the Global Broadband Race. From his speech (the entire speech in PDF format is available here):

First, as we said in our National Broadband Plan, we need “innovation hubs” with ultra-fast broadband, with speed measured in gigabits, not megabits.

There have been some positive recent developments on this front.

...

In Chattanooga, the community-owned utility installed a 100% fiber-to-the-premises network, making speeds up to 1 gigabit per second available to all businesses, residences, and institutions

Genachowski also commented on Chattanooga's place in the competitive environment:

Promoting competition also means we need to keep a close eye on developments in places like Chattanooga and Kansas City to see what additional steps we can take to encourage game- changing investments by disruptive broadband competitors.

This is not the first time Chairman Genachowski has referred to municipal networks as a valuable asset. In his August comments on the Google Fiber roll-out, he referred to the importance of municipal infrastructure investments as a way to push the boundaries and compete globally.

A Match to Watch: Tennis Channel v. Comcast

Back in 2010, we reported on the merger between Comcast and NBC, which was in the works at the time. One of the issues that came up was how programming is chosen.

At the time, the Tennis Channel had filed a suit against Comcast, alleging that Comcast did not make Tennis Channel programming available to as many subscribers as the Golf Channel and NBC Sports (both belong to Comcast). Comcast, under the Communications Act and Commission rules, is required to place channels owned by others on tiers equal to its own similar types of channels and can't play favorites.

The FCC had reviewed the case at various levels for two years (there was an appeal) and finally, in July of this year, issued a decision in favor of the Tennis Channel. The Tennis Channel alleged discrimination, Comcast argued the Tennis Channel was using the FCC to get out of a contract it wanted to escape. According to a Meg James LA Times article:

The FCC ordered Comcast to provide the Tennis Channel with distribution comparable to the two sports channels, which would effectively increase its coverage by about 18 million homes, and force Comcast to pay Tennis Channel millions of dollars more each year in programming fees.

It was the first time that a major cable operator has been found in violation of federal anti-discrimination program carriage rules that were established in 1993.

Comcast was ordered to remedy the situation within 45 days, a window that would make the Tennis Channel available in more homes during one of the biggest tennis events of the year, the U.S. Open in New York. The channel is currently available in about 34 million homes nationally.

Comcast immediately asked for a stay from the remedy, appealing to the U.S. Court of Appeals for the D.C. Circuit. Comcast was granted the stay while the case is argued on appeal. Once again, Comcast's army of lawyers  are strategically using the court as a way to slow down an adversary's remedy.

We expect to see more video legal issues arise in the near future. As broadband transforms the way people receive video signals, how those signals are governed will inevitably affect license agreements, rules, and regulations.

In an informative blog post, Susan Crawford gives us the heads up on where problems dwell and the attitudes that will drive litigation and policy. Unfortunately, now that few people watch video for free, the usual participants will tussle for a very large pie. Will the consumer be considered? Early indications don't seem to suggest that. From Crawford:

The consumer, who is being squeezed the most, would like to watch what he/she wants, when he/she wants, and doesn’t want to be stuck with enormous must-buy bundles. But no one is talking about that.

The ever-growing Comcast is a threat to those who have innovative ideas for video content. If you want people to see your content, you need to get it in a cable lineup or online... but the big cable providers are trying to wrestle back control over online video with monthly bandwidth caps.

And even when Comcast does violate the law, it knows how to string out the process long enough that the harmed party has to fold or negotiate directly with them because they'll go bankrupt waiting for justice. 

Verizon and Big Cable Win - Competition Loses

Once again, we are witnessing the federal government allowing a few massive telecommunications companies to collude rather than compete. Verizon is about to ally itself with major cable companies, to the detriment of smaller competitors in both wireless and wireline.

One of the reasons we so strongly support the right of communities to decide locally whether a community network is a smart investment is because the federal government does a terrible job of ensuring communities have fast, affordable, and reliable access to the Internet. By building their own networks, communities can avoid any dependence on the big cable or telephone companies that are more interested in consolidating and boosting shareholder dividends than they are in building the real infrastructure we need.

The Department of Justice released a statement on August 16th, that it will allow the controversial Verizon/SpectrumCo deal to move forward with changes. We have watched this deal, bringing you you detailed review and analysis by experts along with opinions from those affected. One week later, the slightly altered deal was also blessed by the FCC.

Many telecommunications policy and economic experts opposed the deal on the basis that it will further erode the already feeble competition in the market. In addition to a swap of spectrum between Verizon and T-Mobile, the agreement consists of side marketing arrangements wherein Verizon agrees not to impinge in the market now filled with SpectrumCo (Comcast, Time Warner Cable, Cox, and Bright House Communications).

Verizon has been accused of hoarding spectrum it doesn't need. The marketing arrangements constitute anti-competitive tools that the DOJ has decided need some adjusting. From the announcement:

The department said that, if left unaltered, the agreements would have harmed competition by diminishing the companies’ incentive to compete, resulting in higher prices and lower quality for consumers.

The deal was considered inevitable when FCC Chairman Julian Genachowski released a statement indicating that his agency had no problem following the DOJ. A PDF of the FCC statement can be viewed here.

In scrutinizing the deal, the FCC and DOJ bisected the analysis, which worked in the parties' favor. Susan Crawford looked at the process:

Bottom line: The companies involved in the transaction can credibly claim that the deal itself is not going to change the facts on the ground for most Americans. Without “merger-specific harms,” and with an impressive display of bureaucratic sleight-of-hand – FCC got the spectrum part of the deal but DOJ got the joint marketing arrangements, and the two agencies have different statutory authority and DNA, leading to lots of finger-pointing and careful behavior – the companies will avoid being interfered with unduly by the feds.

FCC Logo

Harold Feld, another strong critic of the deal, recently commented on the issue of FCC authority in this particular review. Feld notes that challenging FCC authority is a growing trend, and not good for telecommunications policy. Those who challenge it are diluting at what many consider an already tepid application. In essence, the "repeat loudly and often and eventually they will believe you" phenomena is creeping in and even FCC Commissioners are buying it. From Feld:

Given all this, it is rather difficult to understand why both Commissioner McDowell and Commissioner Pai likewise question the FCC’s authority to engage in ongoing monitoring in the wake of the agreements.  Given that this transfer involved spectrum, cable, broadband, and even broadcasters (shout out to my NBC peeps! What it is O & Os!), the only way this could implicate more FCC jurisdictions would be if one of the parties owned a maritime radio service.

...

Given that there is no question that the FCC has authority to entertain complaints going forward, and certainly has authority to monitor how the markets under its jurisdiction are developing, it is hard to understand the jurisdictional argument even as the worship of empty formalism.

...

I would think that “we’ll keep an eye on things, anyone with complaints can file over here” would be applauded as the lightest touch possible rather than condemned as regulatory overreach.

Feld goes on:

Which requires me to point out one of the more unfortunate problems in telecom policy (and regulatory policy) these days. There is a huge difference between “it’s bad policy, don’t do it” and “you don’t have authority.” It is unfortunate that those who agree with the FCC on matters of policy increasingly seek to cast their arguments as arguments of regulatory authority. I get that if you don’t like the policy, you would prefer the FCC not have authority to implement it. But just as real lawyers read the footnotes, real lawyers (and non-lawyers) ought to be honest about the difference between policy and authority. Certainly there are times when authority is genuinely contestable, and I will never blame a litigant for making the traditional Hail Mary pass at jurisdiction. But where, as here, the authority of the FCC over reseller agreements is well established, attacks on authority can only be the interpreted as careless or disingenuous.

The FCC and the DOJ may have tried to lighten the negative impact this deal will have on competition by making slight adjustments. Their efforts amount to putting a band aid on a bullet wound. The decision to allow this deal to move forward was telecommunications business as usual.

Crawford, like many others, sums up this deal for what it is:

"...the SpectrumCo transaction is an outcome, not a cause, of the primitive approach to communications that characterizes this country."

Verizon Wireless Busted for Violating Network Neutrality

In December, 2010, Verizon Wireless began operating its network via C-Block spectrum with licenses it acquired in the 2008 auction. In keeping with net neutrality rules unique to C-Block usage, Verizon agreed long ago that it would not block or limit consumers' ability to tether on their 4G LTE network.

Tethering allows a consumer to use a device, such as a smartphone, as a modem to funnel Internet access to an additional device. On July 31, the FCC agreed to end an investigation into whether or not Verizon Wireless had violated this rule. In exchange, Verizon Wireless would make a $1.25 million "voluntary contribution."  Verizon Wireless did not admit it broke the rules. The FCC's consent decree requires the practice cease and that Verizon Wireless implement policies to curtail the behavior.

The story began in 2011. Verizon Wireless began charging its customers an addition $20 per month to allow them to tether additional devices to their smartphones and called the feature "Mobile Broadband Connect."

The Free Press filed a complaint. The FCC began their investigation in October, 2011. From the Free Press website:

Free Press argued that by preventing customers from downloading these applications that allow customers to use their phones as mobile hotspots, Verizon violated conditions of its 700 MHz C Block licenses, the spectrum in which Verizon operates its LTE service. When Verizon purchased the licenses, it agreed to abide by conditions that it not “deny, limit or restrict” its customers’ ability to use the applications or devices of their choosing.

The company also asked the Google Play Store store to block Verizon Wireless customers from accessing software that would enable tethering. Google complied with the request, even though it has often advocated for net neutrality, but were not investigated because they are not an ISP.

Free Press Logo

From Free Press Policy Director Matt Wood:

Today's action makes it clear that Verizon was flaunting its obligations as a spectrum-license holder and engaging in anti-competitive behavior that harmed consumers and innovation.

The FCC sent a strong signal to the market that companies cannot ignore their pro-consumer obligations. Unfortunately, the fact that Verizon worked to block these apps in the first place is a clear indication that wireless providers have a strong incentive to discriminate against certain content and applications, an incentive that continues to threaten online freedom and innovation. While we are pleased that the FCC finally acted on our long-standing complaint, and did so before taking action on Verizon's pending spectrum acquisitions, we remain concerned that consumers of other carriers lack the same basic protections that Verizon's customers have under the law.

We encourage 4G users to test to see it Verizon Wireless got the message and changed its ways. Apparently, Fletcher, Heald & Hildreth ran this test three days after the consent decree was released. At the time, Verizon Wireless was still trying to charge $20 for the ability to tether.

Using the micro-USB to USB cable that came with the phone, connect the phone to a laptop, and turn both on. On the phone, go into Settings, and possibly More Settings or Advanced, looking for “USB Tethering.” Tap it and see what happens. What happened to us was a “Sign up” screen inviting us to incur that $20 per month.

Related:

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Apparently, Verizon isn't the only big corporate telco snubbing its nose at net neutrality protections for consumers. The freepress just reported on AT&T's similar attempt to nickel and dime customers with added restrictions:

AT&T just announced that unless its iPhone customers subscribe to a more expensive "mobile share" unlimited text-and-voice plan, the company will cripple the device's built-in FaceTime app so users can't make mobile video calls.

So if you want to use an app rather than make a call -- something you'll be able to do on a "3G" network when Apple updates its operating system -- then you first have to pay for more old-fashioned phone calls and text messages. Say what?

You can learn more and let the FCC know your thoughts on AT&T's policy change at the freepress Take Action page.

The FCC has only applied the bare minimum of regulations on wireless, far less than what we, and groups like Free Press, believe are best of innovation and consumer protection. But AT&T and Verizon are running roughshod over even these basic rules. We are heartened to see the FCC upholding its rules and protecting the public interest in this case.

NYU School of Law Analyzes, Supports Net Neutrality Policy

Publication Date: 
January 7, 2010
Author(s): 
Inimai Chettiar
Author(s): 
J Scott Holladay

In 2010, the Institute for Policy Integrity at the New York University School of Law released a report titled Free to Invest: The Economic Benefits of Preserving Net Neutrality. The report, authored by Inimai Chettiar and J. Scott Holladay, is a great resource - substantial and very digestible - on what net neutrality really is, how it is (or is not) regulated, and the economic possibilities policy makers must consider when moving ahead.

The Institute looks at the economic relationships between content providers, ISPs, and consumers. In addition to the current economic structure, the report examines possible alternate pricing models that are contrary to our current net neutrality policies. We have extracted just a few excerpts and encourage you to get the full report.

There are five main findings that are examined in depth:

Internet Market Failure: The report explains how ISPs lose potential dollars under today's market structure. There is ample motivation for them to find a way to charge content providers based on delivery, and open up a whole new market far beyond our net neutrality policy.

The FCC’s nondiscrimination rule would prohibit an ISP from treating any content, application, or service in a “discriminatory” manner, subject to reasonable network management. This clearly bans pure price discrimination (charging different content providers different prices to access their subscribers). The regulation also bans ISPs from offering content providers a “take it or leave it” offer on access to their users. For example, an ISP like Verizon could not charge a website of a company like The New York Times a certain price for access to its subscribers by threatening to block the website from its network and therefore from its Internet subscribers.

Smart Policy Can Help: The authors of the report stress how the Internet must be viewed as a two pronged market - infrastructure to deliver the content and the content itself - and how both are equally important. Effective policy must recognize the delicacy of that balance.

The goal of any policy should be to maximize the value of the Internet, which means choosing a policy that addresses both the quality of broadband service and the quality of Internet content. Focusing exclusively on either of the two complementary goods may lead to overinvestment in one at the expense of underinvestment in the other, thereby reducing the total surplus in the market.

...it is far easier for the government to make up the shortfall for infrastructure investment; protecting content providers’ current surplus is the best policy option given the structure of the Internet market and the difficulty of directly subsidizing the creation of content.

Transferring Wealth Through Price Discrimination: If ISPs could discriminate among content providers and extract the full amount that each content provider would be willing to pay, content providers would be forced to share their proceeds with ISPs.

At its heart, net neutrality regulation is about who will get more surplus from the Internet market. Retaining net neutrality would keep more surplus in the hands of the content providers, and eliminating it would transfer some surplus into the hands of the ISPs.

If price discrimination is allowed and our policy of net neutrality is abandoned, ISPs will have more money to invest in infrastructure, but content providers will have less to invest in content. The report notes that investment has been shown to have a direct impact on a nation's economy:

The World Bank estimates that every 10% increase in broadband penetration in a developed country increases economic growth by 1.2%…

So, for example, if eliminating net neutrality were to increase broadband penetration even by 10% (from 50% to 60%), that penetration would increase the value of the U.S. GDP by $289 billion per year.

The report also recognizes that ISPs don't make decisions based on the needs of consumers, but based on their past successes and failures. If net neutrality disappeared tomorrow, the only entities positioned to obtain the revenue to invest and expand are those that already exist. The report very frankly states that ISPs would not be inclined, based on their own investment history, to physically expand the pipes needed to connect more communities and more people. They would be more likely to filter those profits up to shareholders.

A large portion of the wealth transfer from content providers to ISPs would be essentially wasted because it would compensate for decisions that are already locked in, and most of the additional revenue would simply accrue on the basis of assets that the ISPs have already created.

Efficiently Supporting Infrastructure: A simple look back supports the idea that government should build infrastructure. From highways to electric service, the government has a track record of success in physical infrastructure. Conversely, our efforts to subsidize content have been limited. The report gives excellent examples of both and concludes:

Thus, when faced with the choice of how to correct for the externalities in the Internet market, government must take into consideration its whole range of policy options. Given the government’s historic success in subsidizing infrastructure and difficult in subsidizing content, it makes the most sense for government to correct the externalities by instituting net neutrality—a pricing policy that incentivizes market players to invest in content—and then directly subsidizing investments in infrastructure.

Problems With Prioritization: Authors of the report analyze the possible risks of allowing ISPs to divide content into accessibility tiers - speed of delivery based on who pays the most. Like price discrimination, this type of policy could stifle innovation and reduce the quality of the Internet.

For a variety of reasons, prioritization could run the risk of lowering the total surplus from the Internet market...In addition, the pure surplus effects from breaking the Internet into multiple streams is uncertain, the surplus loss for content providers in the slow lane may offset any gains from content providers in the fast lane. Perhaps most importantly, ISPs will face perverse incentives if they can generate revenue from the fast lane but not the slow lane. This misalignment of incentives could create a situation where ISPs can increase their revenue at the expense of the overall surplus from the market.

The conclusion, based on history, reason, and a realistic look at today's telecommunications industry:

By giving players the best incentives for optimal investment, net neutrality encourages a cycle that breeds more content, which in turn breeds more users. A combination of policies that protect content providers and judiciously deploy government resources to augment private investment in physical infrastructure is the right mix to ensure that the Internet continues to grow and flourish, generating massive benefits for the American public.

Unions and DSL Customers: Verizon Knocks Out Two Birds With One Stone

If you are a current or potential Verizon customer, by now you know that you no longer have the option to order stand alone DSL. When the business decision became public knowledge in April, DSL Reports.com looked into the apparent step backward and found existing customers were grandfathered in but:

However, if you disconnect and reconnect, or move to a new address -- you'll have to add voice service. Users are also being told that if they make any changes to their existing DSL service (increase/decrease speed) they'll also be forced to add local phone service. One customer was actually told that he needed to call every six months just to ensure they didn't change his plan and auto-enroll him in voice service.

By alienating customers from DSL, Verizon can begin shifting more customers to its LTE service, which is more expensive. Susie Madrak, from Crooks and Liars, speculated on possible repercussions for rural America:

Rural areas could see the biggest impact from the shift, as Verizon pulls DSL and instead sells those users LTE services with at a high price point ($15 per gigabyte overages). Verizon then hopes to sell those users cap-gobbling video services via their upcoming Redbox streaming video joint venture. Expect there to be plenty of gaps where rural users suddenly lose landline and DSL connectivity but can't get LTE. With Verizon and AT&T having killed off regulatory oversight in most states -- you can expect nothing to be done about it, despite both companies having been given billions in subsidies over the years to get those users online.

The belief is that current DSL customers who don't want (or can't afford) the switch to the LTE service will move to Verizon's cable competition. Normally, losing customers to the competition is to be avoided, but when your new marketing partners ARE the competition, it's no big deal.

Recall that Verizon entered into an agreement with Time Warner Cable, Cox, Bright House (collectively SpectrumCo) to a purchase spectrum. A related agreement, wherein Verizon and the cable companies cross-market each others' services, received approval from FCC and the DOJ. The deal appears inevitable, regardless of concerns from consumer groups, economic and telecommunications policy leaders, and labor.

Madrak makes another critical observation: Verizon Wireless is a non union company, while Verizon Wireline employees belong the the Communicatons Workers of America (CWA).

The CWA has engaged Maryland Senators Barbara Milkulski and Benjamin Cardin to press the FCC and DOJ to move carefully. The pair recent sent a letter to both agencies citing major job loss concerns from CWA and lack of competition concerns from consitutents. From the letter [pdf]:

Our concern is that we are turning former competitors into business allies, that may be violating the concept of open and fair competition.We also are very concerned… [that] it appears to limit Verizon’s incentive to invest in its all fiber FiOS network, potentially depriving consumers of the competitive alternative to cable, broadband and, video services. What this means is that you...could be impacting [72,000] middle class jobs.

Eliminating unions and forcing DSL customers to switch to a more expensive service translates into even more profits for Verizon. How will this strategy affect the broadband situation in America? Madrak summed it up in her coverage:

It's all a very ingenious play by Verizon, though it will have a massive competitive and connectivity impact on the U.S. broadband market that will be studied for decades. What's most amazing is that nobody (analysts, regulators or the press) seems to have really noticed what Verizon's up to: turning a massive swath of the country from a marginally-competitive duopoly with union labor, into an even less competitive and more expensive cable and telco un-unionized cooperative monopoly.

Absent action from communities, the future will be one with less competition to deliver broadband services, not more. Community networks can create jobs, competition, and savings -- a far better alternative than watching Verizon's plans come to fruition.