CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

The Commission’s latest inquiry seems to respond in large measure to two aspects of the Verizon-Google Proposal. According to Verizon and Google: (1) as long as they comply with four general Open Internet principles (relating to consumer protection, transparency, non-discrimination, network management), Internet service providers should be allowed to provide other broadband services that would not be subject to the Open Internet rules; and (2) wireless Internet access service providers should be subject only to the transparency principle at this time. 

Well, isn’t that special?

With respect to the question of “specialized” services, the Commission is concerned that carving out exceptions for such services could undermine the ultimate effectiveness of the Open Internet principles. “Specialized” services include things like subscription video, telemedicine, or business services to enterprise customers. They’re services that are provided over the same last-mile facilities as “broadband Internet access service” (BIAS). They can in many instances look just like the kind of services normally available to the public through standing Internet access. But they are available only to those who sign up, and they typically incur costs beyond ordinary Internet access.

And that’s the problem.

Such “specialized” services can attract important private investment and can provide those willing to pay with new and valued services. There is therefore good reason to foster them by, for example, exempting them from Open Internet principles. In the NPRM the Commission appeared to recognize this and, accordingly, sought comment on how to define such services.

But the Commission is now focusing more on the possible risk that, if providers avail themselves of such an exemption, the whole point of those principles might be defeated. Providers might use the exemption to avoid Open Internet principles with respect to delivery of services that are substantially similar to standard broadband service. Or providers might devote so much of their capacity to such “specialized” services that the incentive and resources to expand standard broadband service would “wither”. The potential for anti-competitive conduct exists as well. And the risk of any of these undesirable consequences would be exacerbated if the public’s choices of Internet broadband service providers are unduly limited.

With these concerns in mind, the Commission suggests six possible approaches:

“Definitional Clarity” – This would involve defining BIAS “clearly and perhaps broadly”, with the Open Internet principles applicable to such service. “Specialized” services not subject to the Open Internet principles would be those services with a “different scope or purpose than broadband Internet access service (i.e., which do not meet the definition of broadband Internet access service)”,. This is somewhat similar to the approach suggested in the Verizon-Google Proposal, which characterized the exempt services as “additional or differentiated services . . . distinguishable in scope and purpose from broadband Internet access service”. The main difference, it would appear, is that the FCC is contemplating a more inclusive definition of BIAS that would, presumably, narrow the range of services entitled to the exemption.

“Truth in Advertising” – This heading – quoted directly from the FCC’s inquiry – is curious. The Commission’s brief summary under this heading refers to prohibiting providers from marketing “specialized services” as a substitute for BIAS. The Commission also suggests requiring providers to offer BIAS as stand-alone service. It is not clear that either of those suggestions necessarily involves “truth in advertising”.

“Disclosure” – This approach would entail the required disclosure, by providers, of information about specialized services, including their effect on capacity and the BIAS market.

“Non-exclusivity in Specialized Services” – Commercial arrangements for the offering of specialized services would have to be offered to all qualified parties on the same terms.

“Limit Specialized Service Offerings” – Broadband providers would be allowed to offer “only a limited set of new specialized services, with functionality that cannot be provided via broadband Internet access service”. The Commission offers telemedicine as a possible example.

“Guaranteed Capacity” for BIAS – Broadband providers would have to keep “providing or expanding” capacity allocated for BIAS regardless of any specialized services offered. Moreover, the provision of specialized services would be prohibited from “inhibiting the performance of broadband Internet access services at any given time, including during periods of peak usage”. Some of these suggestions are strong medicine, although for now, merely a starting point for discussion.

Going mobile

With respect to mobile wireless platforms, the FCC has asked in the NPRM how, to what extent, and when openness principles should be applied. Again, the Commission is concerned about furthering innovation, private investment and competition in the industry. In the most recent inquiry, the Commission seeks to update the record on these questions in light of intervening developments.

The two intervening developments that appear most significant to the Commission are: (1) the Verizon-Google Proposal suggestion that wireless broadband be exempt from all Open Internet principles other than transparency; and (2) the recent rise of wireless pricing plans based on the amount of data the customer uses. The latter, in particular, raises a serious question.

In essence the issue boils down to this. The need for “network management” – i.e,, blocking or slowing traffic – generally increases to the degree that network traffic approaches or exceeds network capacity. If usage-based pricing reduces congestion on wireless networks, will wireless operators have less need to use traffic management techniques that trigger open Internet issues?  

The latest inquiry raises far-reaching questions, and poses potential solutions, that are likely to generate considerable debate. Look for a further influx of commentary, for and against, as the deadline for comments approaches. (As of this writing the deadlines for comments and replies have not been established. Check back to www.commlawblog.com for updates.)

There is two additional intriguing aspects of the latest inquiry (and Chairman Genachowski’s separate statement in support of it). First, according to the notice, the “discussion” triggered by the Open Internet proceeding “appears to have narrowed disagreement on many of the key elements of the framework proposed in the NPRM”. Genachowski’s statement strikes a similar note. It is, of course, impossible to say for sure whether that gloss on the on-going deliberations is accurate. Certainly the Chairman would prefer it to be so. The response to the most recent may or may not tell a different story. 

Second, whenever the comment and reply deadlines happen to be set, the window for replies will not close before November 2. . . which happens to be Election Day. That means that the conclusion of the Open Internet proceeding, once expected by some to be set for September, will not happen before the upcoming election. In view of the high profile the issue of Network Neutrality has had on Capitol Hill – it’s probably no accident that Verizon and Google titled their magnum opus a “Legislative” proposal – an intervening election could have a significant impact on the fate of the Open Internet proceeding.   We shall see.

Wasn’t it the Obama administration in general – and FCC Chairman Genachowski’s administration in particular – that arrived on the scene with a much ballyhooed promise of “transparency” in government decision-making?   Gone would be the bad old days of a few corporate giants sitting around with policy-makers in smoke-filled rooms deciding the fate of the rest of the industry and, for that matter, of the general public, whose representatives were offered no seat at the table.   Some tentative steps in that direction were taken, including announcing the expected agenda items at upcoming meetings far enough in advance to permit everyone to have a last word with the Commission before the cone of silence imposed by the Sunshine Act descends. A new spirit of openness seemed to be stirring over the waters of FCC policy-making.

Perhaps that is why the recent backdoor maneuvering seems like such a betrayal.   To be sure, the GSA’s “no smoking” policy ensured that industry titans would have to leave their Macanudos and Cohibas smoldering outside in their idling limos while they met with “senior FCC officials”. And these days mineral water and acai juice are more likely to be on the beverage bar than rye and sour mash. So a lot of the fun, not to mention the smoke, has been drained from smoke-filled rooms. 

But the essence of a smoke-filled room – the private, closed door, invitation-only, giant corporation-only session with high ranking policy-makers – certainly remains. The conception that something as important as Net Neutrality (with huge implications for the privacy of the American people), the development and growth of the Internet, and the expansion of broadband access could be hashed out by a few corporations over corned beef sandwiches with no involvement whatsoever from the rest of the world is appalling. It is everything that the Obama administration claimed to reject about politics-as-usual. 

The FCC needs to do some damage control – and fast – to reassure people that in its quest to deliver universal broadband to strengthen our economy and democracy, it is not trampling on the very principles that it seeks to further.   An open decision-making process cannot take short cuts and can thrive only in the full light of day.

Verizon bucked the trend recently by doubling the ETF on “advanced” handsets, bringing it up to a whopping $350. This got Congress exercised again, leading Senators Amy Klobuchar (MN), Russ Feingold (WI), Jim Webb (VA), and Mark Begich (AK) to introduce a bill just yesterday (December 3, 2009) which would prevent wireless carriers from charging an ETF higher than the discount they give on the cellphone purchase.  It would also require (a) pro-ration of ETFs so that they drop to half after the first year of a two-year contract and are pro-rated down to zero by the end of the contract, (b) clear and conspicuous disclosure at the time of purchase, and (c) a statement on each month’s bill of how much of the ETF remains.

Not to be outdone, or perhaps to tell Congress that “we cand handle it, folks", the FCC wrote a letter to Verizon today (Dec. 4, 2009), asking a few pointed questions. You can check out the FCC’s letter here. The Feds want to know how customers are informed of the amount of their ETF when they sign up for service – by a means other than searching for fine print on the Verizon website (which is probably too small to read on your Verizon handset – if, that is, you can find it at all).  What information is given to those who sign up on the Web? Perhaps more important, how much does that fast-talking salesperson in the big box retail store tell the customer? And what about the pro-rating of the ETF? Do customers learn everything they are stuck with before their free trial period expires? And do they understand the details of their trial period?

And by the way, the FCC asks, how do you decide which handsets get socked with the higher ETF? Is it based on the wholesale price Verizon pays, or might popularity of the handset play a part? Are wholesale prices going up?  Does the ETF depend solely on the handset or also on the type of service provided? Is Verizon going to extend the super-ETF to other devices and services in the future?

But there’s more. While folks under 25 probably can’t live their lives without mobile Internet access, some more elderly folks probably are happy to ignore the Internet when they are away from their computer.   We hear, the FCC says, that for those who eschew web access, Verizon is charging $1.99 if you make a mistake and use Mobile Web service accidentally. Do phones have one-button access to Mobile Web which makes “accidents” likely to happen? Can the feature be turned off? And word is that Verizon charges a fee for transmitting a blocking notification. Does this mean that there is no way to avoid the risk of accidental charges?

It is not so clear to what extent the FCC can regulate charges for other than communications services without a substantial change in their historical approach to rate regulation.   But if you poke the regulatory beast hard enough by angering enough members of the public, the beast starts to snort.

Verizon has until December 17 to respond to the inquiry. If its response is made public – and, in view of the questions the FCC has asked, that’s a very big “if” – it should make for interesting reading.

That’s $5.10 per minute! The market rate for calls to an Israeli landline is around two percent of that amount, in the neighborhood of ten cents/minute. True, I don’t have an international calling plan, so I expected to pay a premium for “casual” calling. But not 50 times the going rate.

So I called Verizon, punched my way through the lengthy voice-mail tree, keyed in my 12-digit account number, listened to hold music, and finally got a live person on the line who tried to sell me enhanced phone service, faster Internet access, and cable TV (“lots of high definition!”) before she decided my problem was outside her area of expertise and transferred me to more hold music, and finally, a snippy lady who listened to my eloquent use of “exorbitant” and “unreasonable,” then informed me that, yes, $5.10 is your basic rate without a calling plan, and that’s what you’ll have to pay, and can I help you with anything else today?

Ordinarily the next stop would be at the FCC. Back in 1934, after all, Congress charged the FCC with regulating telephone rates to and from the United States. But that was then. In 2001, deciding there is adequate competition to protect consumers from price-gouging, the FCC took its hands off the controls. A carrier can now set its own rates, so long as it posts them at one office location and on its website. After the fact, I spent ten minutes digging through Verizon’s website, clicking through endless promotions for new services (blazing Internet speeds! dramatically affordable calling plans!) to finally discover the basic rate to Israel is indeed $5.10, not including taxes and Universal Service Fees.

No doubt a more prudent consumer would have put in the ten minutes before making the calls. In fact the FCC recommends doing just that, amidst lots of other good advice on saving money.    “Just picking up your phone and placing an international long distance call could be expensive,” says the FCC. No kidding. “Shop around,” says the FCC.  “Avoid paying ‘basic rates’ whenever possible.” Thanks. I’ll make a note.

One question, though, FCC. You still have a requirement on the books that telephone rates be “just and reasonable.” What can these words mean, if a five-dollar rate in a ten-cent market passes the test?

And so one more irked subscriber joins the exodus from traditional long-distance service. I might sign up for VOIP, or start using a 10-10 dial-around, or buy a phone card at the corner convenience store. Verizon did nothing illegal, but they have needlessly lost a customer. Possibly they forgot they are no longer the phone company, now that we users have other options. Thanks to the hard work of knowledgeable telecommunications attorneys.