Phillip “It’s hard to trust a group that so spectacularly flip-flopped on Internet policies when its benefactor AT&T changed its tune” Dampier

When Republican FCC Commisioner Ajit Pai turned up last week at a telecom symposium to warn a more activist FCC could ruin broadband providers’ efforts to charge consumers more money for less service, he was speaking to a very friendly audience.

The conservative Phoenix Center, which ran the event, has been spewing out industry-friendly “research reports” for years that attempt to justify the country’s sky-high broadband pricing. It also promotes a “hands-off” mindset on industry oversight, calling it common sense and consumer-friendly.

Unfortunately for the group and its supporting authors, it has a serious credibility problem — exposed as an industry-funded “think tank” operating as a mercenary research arm for AT&T and other phone companies. In fact, the same group that today generates endless research condemning Net Neutrality had a very different position in 2004 when it published an Op-Ed entitled, “Net Neutrality: Now More Than Ever.”

What changed? Its benefactor. In 2004, AT&T was a competing long distance carrier fighting local phone companies. Today it –is– one of those phone companies. With its Baby Bell owners controlling AT&T’s purse-strings starting in 2006, the Phoenix Center dutifully flip-flopped to maintain continuity with the ‘new AT&T,’ strongly opposed to most forms of broadband regulation.

So it comes as no surprise the Phoenix Center continues pumping out cheerleading “research reports” that attempt to bolster credibility to forces opposing Net Neutrality and supporting an Internet Overcharging free-for-all with the help of usage billing and caps.

One particular bit of nonsense that completely ignores marketplace reality came in Phoenix Center Chief Economist Dr. George Ford’s report, “A Most Egregious Act? The Impact on Consumers of Usage-Based Pricing.”

For example, Ford argues:

A prohibition of differential pricing renders a single price that lies between the low price for the restricted service and the high price for the unrestricted service. Therefore, prohibitions against usage based pricing forces some consumers to pay more for services they do not want or use, while others are allowed to pay less for services they do. The prohibition, in effect, results in a transfer of wealth from one group of consumers to another, and profits are also reduced. Overall consumer welfare is diminished, even though some consumers are better off.

We’re number one… in prices, even with the increasing prevalence of usage-based pricing Ford believes benefits consumers. (Image: CRTC)

But Ford completely ignores the current conditions in today’s broadband market that have made it easy for providers to promulgate an unpopular end to flat rate, unlimited broadband in favor of a highly-flawed, usage-based billing policy:

1. Ford ignores the broadband market is essentially a duopoly for most consumers and effectively a monopoly in rural America. That gives providers what they call “pricing power,” the ability to increase prices at will and change pricing models because consumers are dependent on the service and have limited options to take their business elsewhere;
2. The only “transfer of wealth” involved here is from consumers to providers. While profits soar and costs drop, Ford complains that those using the service more are somehow subsidized by lighter users, when it fact providers enjoy a 90-95% gross margin on broadband. As Time Warner Cable CEO Glenn Britt admitted, the most significant cost attributed on the cable company’s balance sheet for broadband comes from its backbone traffic costs, which are minuscule in contrast to the increasing prices the cable company charges for its broadband service;
3. Consumer welfare is reduced primarily from the high costs charged by providers, made possible by scant competition that would otherwise drive prices downwards, not from expenses associated with broadband traffic;
4. Ford is careful not to advocate for a true usage-based billing system that would be a revenue nightmare for his benefactors. In a strict usage-based pricing model, customers would pay a small fee for infrastructure, support, and equipment expenses and a variable charge based on actual usage. But no provider in the United States advocates for this system. Instead, providers force consumers into tiered broadband plans that include different usage allowances the vast majority of customers will either not exhaust or will exceed, which raises profits even higher with usage overlimit penalties. With no unused usage rollover, most customers are in the same position Ford claims will diminish consumer welfare: paying for service they do not want or use;
5. Most consumers favor unlimited, flat use plans even if they could save money with a usage-constrained pricing model. Since keeping customers happy with a more expensive unlimited plan they like instead of a lower priced plan they don’t want would seem to enhance provider profits. But Ford ignores this reality, perhaps understanding providers are actually laying the groundwork to broadly monetize Internet usage. Whether a provider adopts usage-based billing or a strict cap on usage, which is growing in most households, the inevitable result is still the same: more profits, less cost from constrained usage. Inevitably this will force customers into higher-priced, higher-profit upgrades that deliver a higher usage allowance, again something consumers simply do not want. This is already a reality in the wireless marketplace, and is well-acknowledged by both AT&T and Verizon Wireless.

Pai

Republican FCC Commissioner Ajit Pai has warned forthcoming court rulings on Net Neturality could set the stage for more active oversight of Internet Service Providers, including a possible ban on usage-based pricing and data caps.

Speaking at the 2012 Annual U.S. Telecoms Symposium at the Phoenix Center in Washington, D.C. Dec. 6, Pai said 2013 will be an important year for broadband policy.

“The most important action probably will not occur either at the FCC or on Capitol Hill,” Pai said. “Instead, it will take place in the federal courthouse about a mile away on Constitution Avenue.”

The D.C. Court of Appeals is currently weighing a court challenge from Verizon that argues the federal agency has no regulatory authority to implement and oversee the open Internet policies that are the cornerstone of Net Neutrality.

Republicans have traditionally been hostile to the concept of Net Neutrality, because it restricts private providers from using network management concepts that could open up new revenue streams. Without Net Neutrality, providers could artificially reduce the performance of certain websites while enhancing others, usually based on financial agreements.

Many Democrats and consumer advocates want Net Neutrality to guarantee that all websites are treated equally, and that paying customers deserve a service unfettered by artificial obstacles or additional expense imposed by providers.

Even if the court finds in favor of Verizon, Pai fears the FCC’s Democratic majority will respond by emphatically asserting its oversight powers, reclassifying broadband as a “telecommunications service.” Since the Bush Administration, broadband has been regulated as an “information service,” subject to more restricted oversight.

“Should the D.C. Circuit uphold the FCC’s order, I would expect to see revitalized efforts to expand the Commission’s regulation of the Internet,” Pai said. “In particular, I would not be surprised if the FCC looked into whether we should stiffen our oversight of the network management practices of wireless broadband providers and whether we should begin to regulate usage-based pricing.”

“Under no circumstance will I support […] reclassification,” he added. “I am convinced that grafting the creaky, burdensome common carrier regulations onto the Internet would dramatically slow broadband deployment, reduce infrastructure investment, frustrate innovation, hamper job creation and diminish economic growth.”

Current FCC Chairman Julius Genachowski has expressed repeated support for usage-based pricing in the market as an innovation in Internet pricing. With the chairman and his Republican colleagues in agreement, it seems unlikely the agency will consider curtailing the practice. So far, the FCC has not even responded to repeated requests to further investigate usage pricing and data caps.

Tomorrow is election day in the United States. Stop the Cap! has reviewed both presidential candidates’ positions (or the lack thereof) as well as the past voting records and platforms of members of both major political parties. With this in mind, it is time for our election guide for broadband enthusiasts. Regardless of what candidate you support, please get out and vote!

Neither political party or candidate has been perfect on broadband advocacy or consumer protection.

We’ve been disappointed by the Obama Administration, whose FCC chairman has major problems standing up to large telecom companies and their friends in the Republican-led House of Representatives. Julius Genachowski promised a lot and delivered very little on broadband reform policies that protect both consumers and the open Internet. Both President Obama and Genachowski’s rhetoric simply have not matched the results.

Bitterly disappointing moments included Genachowski’s cave-in on Net Neutrality, leaving watered down net protections challenged in court by some of the same companies that praised Genachowski’s willingness to compromise. Genachowski’s thank you card arrived in the form of a lawsuit. His unwillingness to take the common sense approach of defining broadband as a “telecommunications service” has left Internet policies hanging by a tenuous thread, waiting to be snipped by the first D.C. federal judge with a pair of sharp scissors. But even worse, the FCC chairman’s blinders on usage caps and usage billing have left him unbelievably naive about this pricing scheme. No, Mr. Genachowski, usage pricing is not about innovation, it’s about monetizing broadband usage for even fatter profits at the expense of average consumers already overpaying for Internet access.

Obama

Unfortunately, the alternative choice may be worse. Let’s compare the two parties and their candidates:

The Obama Administration treats broadband comparably to alternative energy. Both deliver promise, but not if we wait for private companies to do all of the heavy lifting. The Obama Administration believes Internet expansion needs government assistance to overcome the current blockade of access for anyone failing to meet private Return On Investment requirements.

While this sober business analysis has kept private providers from upsetting investors with expensive capital investments, it has also allowed millions of Americans to go without service. The “incremental growth” argument advocated by private providers has allowed the United States’ leadership role on broadband to falter. In both Europe and Asia, even small nations now outpace the United States deploying advanced broadband networks which offer far higher capacity, usually at dramatically lower prices. Usually, other nations one-upping the United States is treated like a threat to national security. This time, the argument is that those other countries don’t actually need the broadband networks they have, nor do we.

The Obama Administration bows to the reality that private companies simply will not invest in unprofitable service areas unless the government helps pick up the tab. But those companies also want the government to spend the money with as little oversight over their networks as possible.

That sets up the classic conflict between the two political parties — Democrats who want to see broadband treated like a critically-important utility that deserves some government oversight in its current state and Republicans who want to leave matters entirely in the hands of private providers who they claim know best, and keep the government out of it.

FCC Chairman Julius Genachowski’s regular cave-ins for the benefit of Big Telecom brought heavy criticism from us for his “cowardly lion” act.

Just about the only thing the two parties agree on is reforming the Universal Service Fund, which had until recently been directing millions to keeping traditional phone service up and running even as Americans increasingly abandon landlines.

But differences quickly emerge from there.

The Obama Administration believes broadband is increasingly a service every American must be able to access if sought. The Romney-Ryan campaign hasn’t spoken to the issue much beyond the general Republican platform that market forces will resolve virtually any problem when sufficient demand arises.

Republicans almost uniformly vociferously oppose Net Neutrality, believing broadband networks are the sole property of the providers that offer the service. Many Republicans characterize Net Neutrality as a “government takeover” of the Internet and a government policy that would “micromanage broadband” like it was a railroad. Somehow, they seem to have forgotten railroad monopolies used to be a problem for the United States in the early 20th century. Robber barons, anyone?

President Obama pushed for strong Net Neutrality protections for Americans, but his FCC chairman Julius Genachowski caved to the demands of AT&T, Verizon, and the cable industry by managing Net Neutrality with a disappointing “light touch” for those providers. (We’d call it “fondling” ourselves.)

Democrats favor wireless auctions and spectrum expansion, but many favor limits that reserve certain spectrum for emerging competitors and for unlicensed wireless use. Republicans trend towards “winner take all” auctions which probably will favor deep-pocketed incumbents like AT&T and Verizon. The GOP also does not support holding back as much spectrum for unlicensed use.

Republicans have been strongly supporting the deregulation of “special access” service, critical to competitors who need backhaul access to the Internet sold by large phone companies like AT&T. Critics contend the pricing deregulation has allowed a handful of phone companies to lock out competitors, particularly on the wireless side, with extremely high prices for access without any pricing oversight. The FCC under the Obama Administration suspended that deregulation last summer, a clear sign it thinks current pricing is suspect.

Romney

Opponents of usage-based pricing of Internet access have gotten shabby treatment from both parties. Republicans have shown no interest in involving themselves in a debate about the fairness of usage pricing, but neither have many Democrats.

As for publicly-owned broadband networks, sometimes called municipal broadband, the Republican record on the state and federal level is pretty clear — they actively oppose community broadband networks and many have worked with corporate front groups like the American Legislative Exchange Council (ALEC) to ban them on the state level. Democrats tend to be more favorable, but not always.

The biggest problem broadband advocates face on the federal and state level is the ongoing pervasive influence of Big Telecom campaign contributions. While politicians uniformly deny that corporate money holds any influence over their voting, the record clearly indicates otherwise. Nothing else explains the signatures from Democrats that received healthy injections of campaign cash from companies like AT&T, and then used the company’s own talking points to oppose Net Neutrality.

But in a story of the lesser of two-evils, we cannot forget AT&T spends even more to promote Republican interests, because often those interests are shared by AT&T:

• AT&T has spent nearly $900,000 on self-identified “tea party” candidates pledged to AT&T’s deregulation policies;
• AT&T gave nearly $2 million to the Republican Governors Association — a key part of their ALEC agenda;
• AT&T gave $100,000 to everyone’s favorite dollar-a-holler Astroturf group — The Heartland Institute, which opposes Net Neutrality and community broadband.

Free Press’ campaign against AT&T’s Net Neutrality violation (click image for further information)

When AT&T customers take delivery of their new iPhone 5 or install Apple’s latest iOS 6 software update, the popular video conferencing app FaceTime will become available to the company’s mobile broadband customers for the first time, if they agree to switch their service to one of AT&T’s new, often more-costly “Mobile Share” plans.

Until now, FaceTime has been limited to Wi-Fi use only, but objections from wireless carriers and some technical limitations kept the popular app from working over 3G or 4G wireless networks.

AT&T’s decision to block the FaceTime app unless a customer changes their current mobile plan has sparked a notification from three public interest groups that they intend to file a formal Net Neutrality complaint against AT&T.

“AT&T’s decision to block FaceTime unless a customer pays for voice and text minutes she doesn’t need is a clear violation of the FCC’s Open Internet rules,” said Free Press policy director Matt Wood. “It’s particularly outrageous that AT&T is requiring this for iPad users, given that this device isn’t even capable of making voice calls. AT&T’s actions are incredibly harmful to all of its customers, including the deaf, immigrant families and others with relatives overseas, who depend on mobile video apps to communicate with friends and family.”

Free Press is joined in the forthcoming complaint by Public Knowledge and the New America Foundation’s Open Technology Institute.

“AT&T’s decision to block mobile FaceTime on many data plans is a direct contradiction of the Commission’s Open Internet rules for mobile providers,” said Sarah Morris, policy counsel for the New America Foundation’s Open Technology Institute. “For those rules to actually protect consumers and allow them to choose the services they use, the Commission must act quickly in reviewing complaints before it.”

AT&T earlier responded claiming they still allow the app to work over Wi-Fi (yours or theirs), so it cannot be a Net Neutrality violation. The company has spent an increasing amount of energy trying to convince regulators that wireless networks, including Wi-Fi, are largely equivalent. So long as a customer can access an app on one of them, there is no violation according to AT&T.

The company also claimed that since FaceTime comes pre-installed on phones, it is exempted from Net Neutrality regulations.

Whether the FCC will believe arguments that access over Wi-Fi is suitable enough to escape scrutiny for blocking an app on AT&T’s own 3G and 4G networks is open to debate.

The Obama Administration’s FCC has taken a lukewarm approach on Net Neutrality, adopting a compromise that is being attacked in court by MetroPCS and Verizon Wireless and considered insufficient protection by most consumer groups.

On important issues for the online community, there are some substantial differences between the Democratic and Republican parties, particularly regarding Net Neutrality.

A review of the yas and nays in both party platforms (and past history in Congress) shows your vote can make a difference when Washington ultimately deals with privacy, network traffic, piracy, cybersecurity, and broadband expansion.

Net Neutrality – “Preserving the free and open Internet”: Prohibits providers from discriminating against different types of network traffic for profit or control

• Democrats: Yas
• Republicans: Nay

While the Democratic platform specifically states, “President Obama is strongly committed to protecting an open Internet,” one “that fosters investment, innovation, creativity, consumer choice, and free speech,” Republicans have treated Net Neutrality as anathema to the free market. Although virtually every Republican member of Congress has voted against Net Neutrality or publicly opposed the concept, some Democrats have as well, particularly those who have received significant financial contributions from the largest phone and cable companies lobbying against the policy.

Net Neutrality has not proved to be a major issue in Congress this year, with most of the recent battles taking place at the Federal Communications Commission. FCC chairman Julius Genachowski applauded a ‘third way’ for Net Neutrality, staking out a middle-of-the-road policy that pleased few outside of the FCC. It largely leaves the concept a “suggestion” for wireless carriers. Replete with loopholes and enforcement issues, even wired providers like Comcast have run around the policy for their own benefit.

Network Privacy – Full disclosure when websites track your browsing habits, and how online companies protect your private information

• Democrats: Yas, provisionally
• Republicans: Yas, provisionally

Net privacy is a topic many consumers hear about the most when a website gets hacked and private customer information is stolen in the process. But a growing number of consumers are also concerned about what websites are doing with their information and how their web visits are being tracked for advertising purposes. Large online companies like Facebook and Google have a vested interest in keeping this space as unregulated as possible to maintain lucrative revenue earned selling demographic information to advertisers. But consumers may not want advertisers to know the websites they visit, and members of both political parties have expressed growing interest in taming who gets their hands on your private stuff. Republicans are primarily concerned about tracking by government agencies, Democrats are more concerned with for-profit use of customer data.

The Republican platform abhors government intrusion into private liberty — primarily a reference to certain forms of surveillance. But the GOP platform is silent on enhancing privacy rights of consumers. The Obama Administration has been calling for a “Privacy Bill of Rights” that permits consumers to opt out of web tracking cookies and other tracking technology. Democrats separately want companies to do a better job disclosing and explaining how private information is being used. But Congress, under heavy lobbying to avoid the issue, never acted on the administration’s request.

Expanding Broadband: Finding New Wireless Spectrum and Improved Rural Access

• Democrats: Yas on both
• Republicans: Yas on one, vacillating  on the other

While neither party fully embraces their respective platforms while governing, their stated positions often reflect political positioning when new laws are contemplated.

The Democrats tout both their National Broadband Plan and the Obama Administration’s commitment to find Internet access for 98 percent of the country and expand spectrum available to meet the growing demands for wireless data. The Democratic platform touted President Obama’s proposal to promote wireless broadband as a possible rural Internet solution.