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FCC’s “Commercial Reasonableness” Standard Already a Dismal Failure

T-Mobile filed a petition today making it clear that the FCC’s commercial reasonableness standard is a failure.

Anyone following net neutrality knows that the FCC is proposing to authorize discrimination and pay-for-priority deals known as fast lanes. The FCC is claiming we need not worry, however, because the FCC can make sure that entrepreneurs and users face only “commercially reasonable” discrimination. That is loosely defined: even exclusive deals are presumed commercially reasonable. And, if a startup wants to prove that it’s being offered a commercially unreasonable discriminatory deal, it must sue one of the world’s largest companies (be it Verizon or AT&T or eventually Comcast) at the FCC (or ask the FCC’s “ombudsman” to do it). The startup would then have to meet an extremely vague standard regarding harm to competition, to consumers, or to civic participation, contributing any funds they may have to their favorite lawyers, expert witnesses, and economists. (Yes, ironic, to have a test turning on harm to competition, consumers, and civic participation, since the FCC’s authorization of discrimination, on its face, harms all three.)

Said another way: under the FCC’s rule, discrimination will be authorized and startups would have no recourse at all.

Nonetheless, some at the FCC keep asserting that the vague “commercial reasonableness” standard will be an important safeguard and we should give it a chance (a chance to change the Internet as we know it, perhaps irreversibly).

The commercial reasonableness standard was first used in an order involving data roaming—deals between AT&T and Verizon Wireless and smaller carriers, like T-Mobile. The FCC set out 16 factors (plus a catch-all “other” factor) to determine whether data roaming deals were commercially reasonable.

T-Mobile filed a petition essentially explaining that the FCC’s factors provide far too little guidance to the market and have been ineffective.

Since adoption of the data roaming rule, however, carriers have continued to report that “the negotiation of data roaming agreements has not meaningfully progressed.” Problems have included offers of wholesale data roaming rates many orders of magnitude higher than the offering carrier’s retail rates to its own data customers, delays of more than eight months to obtain even initial responses to roaming requests, requests for detailed long-term traffic projections and proposed hefty penalties for any resulting deviations from those projections, and testing procedures and queues that would drag on for undisclosed or indeterminate periods of time.

These issues continue to persist today, and in some cases are getting worse.

Now the FCC wants to bring this approach to the Internet. It’s a bad idea.

By Marvin Ammori, Fellow at the New America Foundation, Lawyer at The Ammori Group

He advises a range of technology clients, large and small. The views expressed here are his own and should not be attributed to any other institution or client.

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Comments

What constitutes commercial reasonableness Michael Elling  –  Jun 6, 2014 2:36 PM

Marvin I agree with the point of this article.  There is too much evidence over time how one party with a (near) monopoly position in one layer or boundary point of the information stack can exert undue pricing or cost pressure by any number of means at layers and boundary points far removed from the point in question.

What’s required is an understanding that an exchange model of buyers and sellers can develop at any particular point in the stack.  These are generative, as in layer 2 offload in the smartphone device which have been a win/win situation for incumbents and new entrants alike.  Many other examples abound in terms of pole attachment, switch access, number portability, etc… from the 1980s-90s.  The FCC should continue to foster open interconnect policies that lead to fluid and scalable multi-lateral agreements that lead to generative exchange models and ecosystems and not individual, balkanized, cumbersome, unilateral agreements.

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