Why the FCC's net neutrality negotiations failed - and the opportunity that presents

by Gigi Sohn, Public Knowledge

This summer has been one of the most exhausting in recent memory.  First, there has been a constant barrage of record heat and humidity.  Second, there is the continuing battle over whether and how to preserve the FCC’s authority to protect broadband consumers and ensure universal broadband access.  While the former is somewhat predictable for Washington, the latter has been like a soap opera, with lots of plot twists, make-ups and break-ups and nearly a few tears (of utter frustration).

The latest wrinkle came on Thursday, when FCC Chief of Staff Eddie Lazarus declared the end of the two month negotiations between AT&T, Verizon and the National Cable & Telecommunications Association on one side, and Google, the Internet telephony provider Skype and the Open Internet Coalition (an industry-public interest coalition of which PK is a member) on the other.  Lazarus said the talks have “been productive on several fronts, but has not generated a robust framework to preserve the openness and freedom of the Internet - one that drives innovation, investment, free speech, and consumer choice.” 

Some analysts and industry reps (mostly from the telephone and cable companies) were surprised and dismayed – dozens of hours of negotiations had already been logged and word from the FCC had been that progress was being made.   Others, including public interest advocates, were relieved.  It was hard to conceive that a negotiation that was largely (though not entirely) limited to the largest industry players would result in an agreement that would have been good for small entrepreneurs and consumers.

So what happened?   While I wasn’t in the room, I was kept apprised of the negotiations by the parties (on both sides) and to their credit, by FCC officials.  As a result, I have formed my own conclusions as to why the talks didn’t succeed.  More importantly, the recent turn of events presents a golden opportunity for the FCC to move forward quickly on giving itself limited authority to protect broadband consumers and ensure universal broadband access.

Lack of Incentive to Make a Deal

My understanding of the negotiations was that the areas of disagreement were pretty much the same as they have been for the past several years: 1) whether wireless would be subject to any regulation, including transparency and no-blocking); 2) whether there would be a presumption against pay-for-priority on the best efforts Internet and 3) the scope of so-called managed services, most importantly whether they could be used for exclusive priority carriage arrangements (for example, Comcast only permits its own Xfinity online video service on its managed service, and not Netflix.)  The edge providers had made two major concessions: 1) that wireless Internet access would not be subject to a full non-discrimination requirement right away – the Commission would start with a no blocking rule, and apply full non-discrimination at a future date; and 2) that something called “managed services,” private priority services to residential consumers, could be something more than how Chairman Genachowski described them at a speech at the Brookings Institute in the fall, provided in “limited circumstances,” and as a “supplement” that would not “supplant — free and open Internet access….”

But where was the incentive for the carriers to make significant concessions? It comes as no shock that the cable and telephone company reps in the negotiations were disappointed at their demise.   They spent the last two months kicking the can down the road, much like they did in year-long negotiations with Public Knowledge and Free Press in 2008-2009.  They’d come in to those talks, reject our proffer and offer almost nothing concrete in return. So long as it appears like there is minimal progress, there is no need for either the FCC or Congress to act.

Had there been a credible threat that the FCC would have voted on the reclassification matter if an agreement were not reached, it might have made the network providers more serious about dealing.  But when several analysts reported a few weeks ago that the FCC was prepared to act in September, few believed it.  And why should they have?  The Chairman announced an intention to apply a limited Title II regime (the “Third Way”) to broadband Internet access in May, and then almost immediately afterwards the negotiations were announced.  I’ve been told by people on the Hill and at the FCC that I am wrong about this, that the telephone and cable company representatives told them that they were seriously concerned about the FCC acting, but would they have admitted otherwise?

Different Priorities for Big Cable and Telephone Companies

Few dispute that the telephone companies have largely given up on wireline Internet access.  Verizon’s investment in its high speed fiber optic FiOS network has been put on hold and it appears that both it and AT&T have decided to live with DSL for residential customers, with speeds that typically reach only 1.5 Mbps.  Instead, the companies are placing all their eggs (and their investment) in the wireless basket – upgrading to LTE and betting that the future for broadband will be mobile.

Cable, on the other hand, is upgrading to Docsis 3.0, which is capable of far faster downstream and more importantly upstream speeds, which would appear to resolve the traditional problems that “tree and branch” cable systems usually experience. A recent report found that Comcast’s cable broadband service is now the nation’s fastest, with average speeds of 16.23 Mbps, and that the fastest eight broadband access providers were all cable companies.  But other than Cablevision and Cox, the cable industry does not have a lot of wireless assets, and even where they do, they are nowhere near the telcos in deploying them.

So the carriers themselves had different priorities – the telephone companies want to keep wireless as unregulated as possible, and were willing to be more flexible on the wireline side.  NCTA would likely have been happy to throw wireless under the bus in exchange for less regulation (particularly of managed services) on the wireline side.

The Google-Verizon Debacle

The reported agreement between Google and Verizon on the parameters for net neutrality followed by the media and netroots blowback was perhaps the final straw for the FCC negotiations. Let’s set the record straight – there most definitely is an agreement (likely to be announced today) between the two companies about net neutrality, although technically it isn’t, as a Verizon official said, a “business” agreement.  It’s more like a legislative/policy agreement, and according to who you ask, it was one that the two companies were going to take to the Hill and the FCC as a model for public policy (I have heard conflicting accounts of whether selling the deal to policymakers was part of the agreement).  Frankly, I’d be more comforted if the agreement was about business and not public policy.  I don’t care so much if Google and Verizon come up with their own definition of net neutrality, but it shouldn’t become the template for legislation or FCC rules.

The New York Times account was not as accurate as it could have been – but it got the essence of the deal correct.  Under the Google-Verizon definition of network neutrality, wireless companies would only have to be transparent about their network practices – meaning they could block any application or content so long as they told the consumer they were doing it.   And while there would be no pay for priority on the best efforts Internet, there are almost no limits on so-called “managed services,” other than that they would need to be “distinguishable in purpose and scope,” from the Internet.  Thus, it is conceivable under the agreement that a network provider could devote 90% of its broadband capacity to these priority services and 10% to the best efforts Internet.  At that point, who cares what is or is not permitted on the best efforts part of the pipe?

So if you are AT&T and NCTA negotiating at the FCC and what is on the table there is stronger than what Google and Verizon have agreed to, wouldn’t you be a tad annoyed that you had already conceded too much?   And if Google and Verizon have already come to an agreement, what were they doing in the room at that point anyway?

The Opportunity Moving Forward

The cessation of the net neutrality talks, coupled with the Google-Verizon leak and the admission from a key member of the Senate that with a handful of legislative days on the calendar legislation to codify FCC authority will not pass places the authority question firmly back in the agency’s lap.  But this time, the Google-Verizon deal and its aftermath put the wind firmly at the Chairman’s back to move forward on the Third Way proposal quickly.  Those who have denied for the past 5 years that the carriers would want to block or prioritize traffic for whatever reason cannot credibly do so anymore – the agreement, officially announced or not, shows otherwise.    The outrage in the blogosphere, in the mainstream media and elsewhere shows that the public wants the FCC to be able to protect an open Internet that will ensure that the next Google, the next Facebook, the next Twitter and the next Wikipedia can succeed.  The time for excuses and delays to the FCC doing its job and completing the classification proceeding before it has now ended and I, for one, look forward to an end to both the heat and the open question of the FCC’s authority.

article originally published at Public Knowledge.

The media's job is to interest the public in the public interest. -John Dewey