The majority of 3.7 million comments received by the FCC advocate strong and unambiguous Net Neutrality protections for the Internet, but that seems to have had little impact on FCC chairman Thomas Wheeler, who is laying the groundwork for a hybrid Net Neutrality Frankenplan that would marginally protect deep pocketed content producers while leaving few, if any, protections for consumers.

The Wall Street Journal reported late last week that Wheeler is considering a “hybrid” approach, separating broadband into two distinct services:

• Retail Broadband, sold to consumers, would continue as a broadly deregulated service, allowing ISPs to set prices and policies with little, if any, oversight. Wheeler’s plan would allow providers to freely implement usage-based pricing, establish paid fast lanes at the request of customers, and permit ISPs to continue exempting preferred content from usage pricing while charging customers extra to access content from “non-preferred partners;”
• Wholesale Broadband, the connection between your ISP and content producers, would be reclassified under Title II and subject to common carrier regulations, which would allow the FCC to police deals between your provider and services like Netflix.

Wheeler’s proposal would offer significant protection to wealthy content producers like Netflix, Amazon.com, broadcasters and Hollywood studios, but would leave consumers completely exposed to providers’ pricing tricks, usage caps/consumption billing, and paid fast lanes that could leave unpaid content vulnerable to network deterioration, especially during peak usage times.

Large telecommunications companies argue that deregulation promotes broadband investment and expansion to create world-class service. But years of statistics and comparisons with other countries suggest deregulation has not inspired sufficient competition to keep prices in check and force regular network upgrades. In fact, competition is much more robust at the wholesale level, while the majority of retail consumers have a choice of just one or two providers that receive almost no oversight. Those providers are now exercising their market power to further monetize broadband usage to boost profits and raise prices.

Wheeler’s proposal would ignore the wishes of more than three million Americans that want comprehensive Net Neutrality protections, as well as those of President Barack Obama, who has called for a ban on paid fast lanes. A senior White House official signaled Thursday the administration has concerns about Wheeler’s proposal, noting “the president has made it abundantly clear that any outcome must protect net neutrality and ban paid prioritization—and has called for all necessary steps to safeguard an open Internet.”

“This Frankenstein proposal is no treat for Internet users, and they shouldn’t be tricked,” consumer group Free Press CEO Craig Aaron said in a statement. “No matter how you dress it up, any rules that don’t clearly restore the agency’s authority and prevent specialized fast lanes and paid prioritization aren’t real Net Neutrality.”

Broadband providers don’t like Wheeler’s plan either. Verizon last week sent comments to the FCC warning any attempt to reclassify broadband under Title II “could not withstand judicial review.” Others, including the industry-backed U.S. Telecom Association, promised swift legal action against Wheeler’s proposal.

Aaron believes the last thing broadband needs is another “hybrid” plan.

“The FCC has already tried twice before to invent new classifications on the fly instead of clear rules grounded in the law,” Aaron said. “And twice their efforts have been rejected. This flimsy fabrication will be no different. And this approach will only serve to squander the political support of millions and millions of Americans who have weighed in at the agency asking for strong rules that will stand up in court.”

T-Mobile has asked the Federal Communications Commission to investigate AT&T’s “artificially high roaming rates” charged when its customers travel outside of T-Mobile’s home service area.

T-Mobile is heavily reliant on AT&T for roaming service outside of major cities and the country’s smallest national wireless carrier complains AT&T is using their market power to put it at a major disadvantage, which could force new limits on roaming access in some areas.

T-Mobile provided examples of the damage already done by AT&T’s roaming rates:

“Limitless Mobile has severely restricted its customers’ access to AT&T’s network ‘for the sole reason that AT&T’s data roaming rates are too high and by continuing roaming access, Limitless could not maintain a commercially competitive retail wireless data offering to the general public,’” T-Mobile told the FCC.

The Rural Wireless Association noted that competing carriers “cannot sustain the provision of data roaming services if [they] must provide that service at a loss.”

The problem of data roaming rates is getting larger as carrier agreements are due for renewal at many mobile providers. Independent cellular companies are finding AT&T unwilling to renew at prices and terms comparable to their existing contracts. Instead, they face renewal rates that average a minimum of 10 and as much as 33 times higher than the national carriers’ retail rates.

For example, T-Mobile’s agreement with AT&T includes a data roaming rate that is now 150 percent higher than the average domestic rate that T-Mobile pays for data roaming.

This is one thousand percent higher than the data roaming rate negotiated between Leap Wireless and MetroPCS prior to their respective acquisitions, wrote T-Mobile.

With the stark price increases, carriers have begun imposing limits, including speed throttling and data caps, on customers when roaming on AT&T’s network.

Because of AT&T’s artificially high roaming rates, T-Mobile wireless customers roaming in South Africa have a better user experience than customers roaming on AT&T’s network in South Dakota, argues T-Mobile. Their speed is twice as fast, and their data usage is unlimited.

T-Mobile is asking the FCC to intervene by establishing some type of standard about what constitutes “commercially reasonable” roaming rates as part of its 2011 Data Roaming Order, designed to protect competition.

This year, carriers dependent on Verizon Wireless or AT&T to help deliver “nationwide coverage” are negotiating roaming access to the companies’ 4G LTE networks for the first time. Most roaming agreements used to only cover 3G service, delivered at a slower speed.

If carriers like Sprint and T-Mobile are unable to negotiate fair terms, both companies will be at a major competitive disadvantage, relegated to providing only regional coverage or charging higher prices for roaming service.

AT&T vice president of regulatory affairs Joan Marsh said T-Mobile’s request bordered on being illegal, in direct violation of the Telecommunications Act. Marsh argued T-Mobile and other carriers should be incentivized to build their own networks instead of relying on cheap roaming access from companies like AT&T. Marsh added any move by the FCC to set rates or benchmarks would be beyond the FCC’s mandate. Wireless carrier rates are deregulated and not subject to common carrier regulation.

Wall Street is increasingly pessimistic about Comcast and Time Warner Cable pulling off their merger deal as regulators stop the clock to take a closer look at the transaction.

The Capitol Forum, an in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition, specializes in examining marketplace mergers and their potential impact on American consumers and the general economy. The group has shared a copy of their assessment — “Comcast/Time Warner Cable: A Closer Look at FCC, DOJ Decision Processes; Merits and Politics May Drive Merger Challenge, Especially as Wheeler Unlikely to Embrace Title II Regulation for Net Neutrality” — with Stop the Cap! and we’re sharing a summary of the report with our readers.

The two most important government agencies reviewing the merger proposal are the Federal Communications Commission and the Department of Justice. The FCC is responsible for overseeing telecommunications in the United States and is also tasked with reviewing telecom industry mergers to verify if they are in the public interest. The Department of Justice becomes involved in big mergers as well, concerned with compliance with antitrust and other laws.

In many instances, the two agencies work separately and independently to review merger proposals, but not so with Comcast and Time Warner Cable.

Sources tell Capitol Forum there is a high level of coordination and information sharing between DOJ and the FCC, potentially positioning the two agencies in a stronger legal position if they jointly challenge the merger. Readers may recall AT&T’s attempt to buy T-Mobile was thwarted in 2011 when the FCC followed the DOJ’s lead in jointly challenging the merger on competition and antitrust grounds. With a united front against the deal in Washington, AT&T quickly capitulated.

Despite a blizzard of Comcast talking points claiming the cable industry is fiercely competitive, Capitol Forum’s report indicates the DOJ staff level believes the cable industry suffers dearly from a lack of competition already, and allowing further marketplace concentration would exacerbate an already difficult problem.

Capitol Forum reports the DOJ’s staff is inclined to “take an aggressive posture with regards to [antitrust] enforcement.”

The DOJ would certainly not be walking the beltway plank to its political doom if it ultimately decides to oppose the merger.

Few on Capitol Hill are likely to fiercely advocate for a cable company generally despised by their constituents. The Capitol Forum report notes that Comcast faces powerful opposition and its political support is overstated. Comcast’s lobbying efforts and ties to President Obama and several high level Democrats have also been widely exposed in the media, which makes it more difficult for D.C.’s powerful to be seen carrying Comcast’s water.

In fact, the report indicates a regulatory challenge against Comcast and Time Warner Cable would face considerably less political opposition than what the FCC faces if it reclassifies broadband as a “telecommunications service,” protecting Net Neutrality and exposing the industry to stronger regulatory oversight.

The report suggests FCC Chairman Thomas Wheeler, who seems intent on opposing reclassification of broadband under Title II, may appease his critics by taking a stronger stance on the Comcast/Time Warner deal instead.

Wheeler has already expressed concern about the state of competitiveness of American broadband. He considers providers capable of delivering at least 25Mbps part of broadband’s key market, which in many communities means a monopoly for the local cable operator.

Understanding “The Public Interest” and the Implications of a Combined Comcast/Time Warner Cable on Competition

The FCC will review the transaction pursuant to Sections 214 and 310(d) of the Communications Act of 1934, in order to ensure that “public interest, convenience, and necessity will be served thereby.”

The merger proposal must also demonstrate it does not violate antitrust laws.

It is here that merger opponents have a wealth of arguments to use against Comcast and Time Warner Cable.

Despite Comcast’s insistence the deal would have no competitive implications, the Capitol Forum reports the merger’s potential anticompetitive effects are “widely recognized and evidence from the investigation could provide DOJ and FCC with a solid foundation to challenge the merger.”

Although the two cable companies don’t directly compete with each other (itself a warning sign of an already noncompetitive marketplace), the report finds “a wide array of anti-competitive effects and several antitrust theories” that would implicate the cable company in a Clayton Act violation.

Comcast is betting heavily on its surface argument that by the very fact customers will not see any change in the number of competitors delivering service to their area, the merger should easily clear any antitrust hurdles. That argument makes it more difficult for the DOJ to fall back on the usual market concentration precedents that would prevent such a colossal merger deal. To argue excessive horizontal integration — the enlarging of Comcast’s territory — the DOJ would first have to prove Comcast’s size in comparison with other cable companies is a reason for the courts to shoot down the deal. Or it could bypass Comcast’s favorite argument and move to the issue of vertical integration — one company’s ability to control not just the pipes that deliver content, but also the content itself.

Here the examples of potential abuse are plentiful:

• Comcast would enjoy increased power to force cable programmers to favor Comcast in cable programming pricing and policies while allowing it to demand restrictions on competitive online video competitors or restrict access to popular cable programming;
• Comcast could impose data caps and usage-based pricing to deter online viewing while exempting its own content by delivering it over a Wi-Fi enabled gateway, game console or set top box, claiming all are unrelated to Comcast’s broadband Internet service or network;
• Force consumers to use Comcast set top boxes that would not support competing providers’ online video;
• Use interconnection agreements as a clever way to bypass the paid prioritization Net Neutrality debate. Netflix and other content producers would be forced to compensate Comcast for reliable access to its broadband customers;
• Noting AT&T has declared U-verse can not effectively succeed in the cable television business without combining its customer base with DirecTV to qualify for better volume discounts, there is clear evidence that a super-sized Comcast could command discounts new entrants like Google Fiber could never hope to get, putting them at a distinct price disadvantage.

The FCC’s scrutiny of Comcast’s merger deal has already uncovered evidence previously unavailable because of non-disclosure agreements which show Comcast’s heavy hand already at work.

The report notes Michael Mooney, a senior vice president and group general counsel at Level 3, told the Capitol Forum the dispute earlier this year between Netflix and Comcast could have been resolved in about five minutes had Comcast added a port to relieve congestion at an interconnection point. The cost? Just $5,000. Had Comcast been willing to spend the money, millions of Comcast customers would have never experienced problems using Netflix.

Whether Comcast is ultimately deemed too large to permit another consolidating merger or whether it is given conditional approval to absorb Time Warner Cable remains a close call, according to the Capitol Forum, despite the fact consumers have urged regulators for something slightly more concrete – a single sentence, total denial of its application.

[flv]http://www.phillipdampier.com/video/Capitol Forum The Consumer Welfare Test.mp4[/flv]

The Capitol Forum broadly explores how the “consumer welfare standard” has become a part of the antitrust review process over the last 30 years. Sometimes, a strict antitrust test is not sufficient to protect “the public interest” of consumers, and allows the dominant player(s) to harm competition. In the digital economy, corporate mergers that empower companies to restrict innovation can prove far more damaging than classic monopoly abuse. (15:52)

The arrival of Netflix north of the American border has sparked a potential video revolution in Canada that some fear could renew “an erosion” of Canadian culture and self-identity as the streaming video service floods the country with American-made television and movies. But anxiety also prevails on the upper floors of some of Canada’s biggest telecom companies, worried their business models are about to be challenged like never before.

Two weeks ago, the country saw a remarkable Canadian Radio-television and Telecommunications Commission (CRTC) hearing featuring a Netflix executive obviously not used to being grilled by the often-curt regulators. When it was all over, Netflix refused to comply with a CRTC order for information about Netflix’s Canadian customers.

Earlier today, the CRTC’s secretary general, John Traversy, declared that because of the lack of cooperation from Netflix, all of their testimony “will be removed from the public record of this proceeding on October 2, 2014.” That includes their oral arguments.

“As a result, the hearing panel will reach its conclusions based on the remaining evidence on the record. There are a variety of perspectives on the impact of Internet broadcasting in Canada, and the panel will rely on those that are on the public record to make its findings,” Mr. Traversy wrote in a nod to Canada’s own telecom companies.

Not since late 1990’s Heritage Minister Sheila Copps, who defended Canadian content with her support of a law that restricted foreign magazines from infiltrating across the border, had a government official seemed willing to take matters beyond the government’s own policy.

CRTC chairman Jean-Pierre Blais threw down the gauntlet when Netflix hesitated about releasing its Canadian subscriber and Canadian content statistics to the regulator. Mr. Blais wanted to know exactly how many Canadians are Netflix subscribers and how much of what they are watching on the service originates in Canada.

With hearings underway in Ottawa, bigger questions are being raised about the CRTC’s authority in the digital age. Doug Dirks from CBC Radio’s The Homestretch talks with Michael Geist at the University of Ottawa. Sept. 19, 2014 (8:40) You must remain on this page to hear the clip, or you can download the clip and listen later.

Netflix has operated below regulatory radar since it first launched service in Canada four years ago. The CRTC left the American company with an impression it had the right to regulate Netflix, but chose not to at this time. The CRTC of 2010 was knee-deep in media consolidation issues and did not want to spend a lot of time on an American service that most Canadians watched by using proxy servers and virtual private networks to bypass geographic content restrictions. But now that an estimated 30% of English-speaking Canada subscribes to Netflix, it is threatening to turn the country’s cozy and well-consolidated media industry on its head.

Ask most of the corporate players involved and they will declare this is a fight about Canada’s identity. After all, broadcasters have been compelled for years to live under content laws that require a certain percentage of television and radio content to originate inside Canada. Without such regulations, enforced by the CRTC among others, Canada would be overwhelmed by all-things-Americans. Some believe that without protection, Canadian viewers will only watch and listen to American television and music at the cost of Canadian productions and artists.

[flv]http://www.phillipdampier.com/video/BNN Netflix vs the CRTC 9-22-14.flv[/flv]

Kevin O’Leary, Chairman, O’Leary Financial Group is furious with regulators for butting into Netflix’s online video business and threatening its presence in Canada is an effort to protect incumbent business models. From BNN-Canada. (8:45)

A viewer watches Netflix’s Corie Wright testify before the CRTC. (Image: Sean Kilpatrick, The Canadian Press)

But behind the culture war is a question of money – billions of dollars in fact. Giant media companies like Rogers, Shaw, and Bell feel threatened by the presence of Netflix, which can take away viewers and change a media landscape that has not faced the kind of wholesale deregulation that has taken place in the United States since the Reagan Administration.

Before Netflix, the big Canadian networks didn’t object too strongly to the content regulations. After all, CRTC rules helped establish the Canadian Media Fund which partly pays for domestic TV and movie productions. Canada’s telephone and satellite companies also have to contribute, and they collectively added $266 million to the pot in 2013, mostly collected from their customers in the form of higher bills. Netflix doesn’t receive money from the fund and has indicated it doesn’t need or want the government’s help to create Canadian content.

“It is not in the interest of consumers to have new media subsidize old media or to have new entrants subsidize incumbents,” added Netflix’s Corie Wright. “Netflix believes that regulatory intervention online is unnecessary and could have consequences that are inconsistent with the interests of consumers,” Wright said, adding viewers should have the ability “to vote with their dollars and eyeballs to shape the media marketplace.”

That is not exactly what the CRTC wanted to hear, and Wright was off the Christmas card list for good when she directly rebuffed Mr. Blais’ requests for Netflix’s data on its Canadian customers. Wright implied the data would somehow make its way out of the CRTC’s offices and end up in the hands of the Canadian-owned broadcast and cable competitors that know many at the CRTC on a first name basis.

Does Netflix pose a threat to Canadian culture? Matt Galloway spoke with John Doyle, the Globe & Mail’s television critic, on the Sept. 22nd edition of CBC Radio’s Metro Morning show. Sept. 22, 2014 (8:31) You must remain on this page to hear the clip, or you can download the clip and listen later.

Mr. Blais, obviously not used to requests being questioned, repeated demands for Netflix’s subscriber data to be turned over by the following Monday and if Netflix did not comply, he would revoke Netflix’s current exemption from Canadian content rules and bring down the hammer of regulation on the streaming service.

Blais

The deadline came and went and last week Netflix defiantly refused to comply with the CRTC’s order. A Netflix official said that while the company has responded to a number of CRTC requests, it was not “in a position to produce the confidential and competitively sensitive information, but added it was always prepared to work constructively with the commission.”

Now things are very much up in the air. Many Canadians question why the CRTC believes it has the right to regulate Internet content when it operates largely as a broadcast regulator. Public opinion seems to be swayed against the CRTC and towards Netflix. Canadian producers and writers are concerned their jobs are at risk, Canadian media conglomerates fear their comfortable and predictable future is threatened if consumers decide to spend more time with Netflix and less time with them. All of this debate occurring within the context of a discussion about forcing pay television companies to offer slimmed down basic cable packages and implement a-la-carte — pay only for the channels you want — is enough to give media executives heartburn.

To underscore the point much of this debate involves money, American TV network executives also turned up at the CRTC arguing for regulations that would compensate American TV stations for providing “free” programming on Canadian airwaves, cable, and satellite — retransmission consent across the border.

Netflix does not seem too worried it is in trouble in either Ottawa or in the halls of CRTC headquarters at Les Terrasses de la Chaudière in Gatineau, Québec, just across the Ottawa River. Prime Minister Stephen Harper and Heritage Minister Shelly Glover have made it clear they have zero interest in taxing or regulating Netflix. Even if they were, the Canada-U.S. free trade agreement may make regulating Netflix a practical impossibility, especially if the U.S. decides to retaliate.

[flv]http://www.phillipdampier.com/video/Canadian Press CRTC vs Netflix 9-19-14.mp4[/flv]

Dwayne Winseck, Carleton School of Journalism and Communication, defended the role the CRTC is mandated to play by Canada’s telecommunications laws. (1:41)

All of the top-10 broadband rankings for accessibility, affordability, speed, and subscription rates have been awarded to countries in Europe and Asia, while the United States continues to fall further behind.

This week, the UN Broadband Commission issued its annual report on broadband and had little to say about developments in North America, where providers have maintained the status quo of delaying upgrades, raising prices, and limiting usage. As a result, other countries are rapidly outpacing North America, preparing the infrastructure to support the 21st century digital economy while officials in the U.S.A. and Canada cater primarily to the interests of large incumbent cable and telephone companies.

The United States has fallen from 20th to 24th place in wired broadband subscriptions, per capita. Virtually every country in western Europe now beats the United States, as does Hong Kong, Belarus, and New Zealand. Canada scored better, taking 14th place.

Only managing a meager 19th place, only 84.2% of Americans are online. Iceland has 96.5% of their population on the Internet, closely followed by the other northern European nations of Norway, Sweden and Denmark. Also scoring superior to the United States: Andorra, Bahrain, Qatar, and the United Arab Emirates. Canada did better than its southern neighbor as well, coming in at number 16.

With big profits to be made in wireless, large wireless phone companies like Verizon Wireless and AT&T helped the U.S. achieve its best rating — 10th place in wireless. But the countries that exceeded the United States did much better (Canada was not rated this year.)

With the arguable exception of wireless, the United States is no longer a world leader in broadband and continues a slow but steady decline in rankings as other countries leapfrog over the U.S.

At least 140 countries now have a National Broadband Plan in place, most maintaining stronger oversight over telecommunications infrastructure than the largely unregulated U.S. broadband marketplace. After reviewing broadband performance across most UN member states, the Broadband Commission for Digital Development recognized several traits common in countries where broadband has been particularly successful:

Competition is essential to promote enhanced broadband. A monopoly or duopoly (usually a telephone company and cable or wireless operator) is not enough to promote healthy broadband advancements. At least three, near-equal competitors are required to achieve the best upgrades and price competition. The presence of smaller competitors or those charging considerably different pricing had little effect on competition.

Countries with the best speeds have national policies promoting the installation of fiber optic technology, at least in multi-dwelling units and new developments. Although the cost of fiber and its installation can amount to as much as 80% of a broadband expansion project, many countries have been successful compelling competing providers to share a single fiber optic network (and its costs) to make the investment more affordable. In terms of ultra-high-speed broadband, there are still not many consumer apps and services that need Gigabit speeds, but such services are on their way. Experience shows that technology typically moves faster than most people anticipate – so countries and operators need to start planning now for the imminent broadband world.

A coherent regulatory foundation that emphasizes competition over regulation was the most effective policy. But regulatory frameworks must guarantee a level playing field among competitors and strong oversight to make sure competitors play fair. Regulation is not keeping pace with the changes in the market – Internet players offering equivalent voice and messaging services are, by and large, subject to relatively limited requirements (including consumer protection, privacy, interoperability, security, emergency calls, lawful intercept of customer data, universal service). Asymmetric regulation has resulted in an uneven competitive landscape for services. Governments and policy-makers need to review and update their regulatory frameworks to take into account evolving models of regulation.

Telecommunication and broadband access providers need to explore business arrangements with Internet content providers that will accelerate global investment in broadband infrastructure, to the mutual benefit of all, including end-consumers. Internet companies and Internet content providers need to contribute to investment in broadband infrastructure by debating interconnection issues and agreeing fees/revenue shares with other operators and broadband providers.

That last issue is now being hotly debated in the United States, where providers are seeking compensation from streaming video providers like Netflix, which now account for a substantial amount of Internet traffic.