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Title II Will Have Little Effect on Telecom Developments in The USA

We now know what direction the FCC will take in reorganising the American telecoms market. For many years I have mentioned the rather bizarre situation in that country wherein broadband is not seen as a telecoms service but rather as an internet service, which is itself classified as providing content.

Thanks to extensive lobbying from among the telcos (who also refer to themselves as ISPs) in the early days of the internet, back in the 1990s, the FCC accepted their unbelievable proposals. As a result, over the last 20 years or so the USA’s telecom market has changed from being one of the most competitive among developed economies to what it is now: a market with hardly any fixed telecoms competition at all.

On top of this, the incumbent telcos have received billions of dollars in subsidies and tax concessions to roll out fibre networks. Although they have only delivered a fraction of what they promised, at a government level nobody is asking questions, let alone suggesting that taxpayers’ money be paid back by the incumbents.

Because of the internet classification of broadband, telcos can essentially do what they want in this monopolistic market. This has resulted in the Net Neutrality issue: in the unregulated broadband market, telcos can create different levels of broadband access based on how much the content providers—who need good quality for the delivery of video—are prepared to pay. If the telcos do not like certain content providers then they can simply choose not to provide that level of quality. They can make exclusive access arrangements based on who pays the most, and starve other content providers out of the market.

It clearly shows that the telcos have reached the stage of being ‘too big to fail’. At this point President Obama has finally stepped in, saying at his recent State of the Union address that enough was enough. These remarks were followed by the FCC ruling, known as ‘Title II’, which will reclassify broadband access as telecom access. This re-definition also applies to mobile broadband services.

Clearly the reclassification of broadband access as a telecoms service is a good first step. However, at least in the short to medium term this is not going to have any significant effect on the incumbents. The reclassification basically sets the US market back to the late 1990s, a time when other western economies started to introduce regulatory changes such as unbundling and various forms of separation (accounting separation, wholesale separation, etc). Those involved in these changes during this period know what sort of battles took place in order to get effective unbundling and effective separation. In relation to the latter, most countries are still struggling to achieve progress even after two decades.

On the Net Neutrality issue, here also the FCC will have better tools to address the misuse. It is likely that this will be enough of a deterrent to stop the telcos from moving in that direction. However, little misuse has taken place so far, so the reclassification will not result in dramatic changes.

So it is no wonder that the reaction of the US telcos has been outwardly one of rage regarding the change, but inwardly very relaxed. The share price of all the major companies involved went up following the FCC announcement.

So even if the FCC can get Title II through Congress, which is still a big ‘if’, it is going to take many years before positive effects of it will become apparent in the market. True, the FCC will have better tools to address the abhorrent lack of broadband access competition and fibre infrastructure roll outs, but the few telcos that are now left in this market are now so powerful—backed by politicians, many of whom heavily rely on telcos’ donations for their political survival—that the way towards a more competitive market in America will be a continuous uphill battle. Each of those steps will see lengthy and costly court battles. The FCC’s record of winning such battle has not been good.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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This has resulted in the Net Neutrality Frank Bulk  –  Feb 9, 2015 8:55 PM

This has resulted in the Net Neutrality issue: in the unregulated broadband market, telcos can create different levels of broadband access based on how much the content providers — who need good quality for the delivery of video — are prepared to pay.

So do you mean that if content provider XYZ is willing to pay an ISP $$$$ per month to place equipment that will improve the ISP’s subscriber’s experience that the ISP should not be allowed to accept the money, or must do it for free?

They can make exclusive access arrangements based on who pays the most…

On what basis do you make the claim of exclusivity?

Fine balance Paul Budde  –  Feb 10, 2015 4:22 AM

Thx Frank, there is a fine balance between managing the infrastructure and creating specialized services on the one side and network discrimination on the other side. At the moment there are no checks and balances in place to prevent (potential) misuse. What the proposed ruling will do is to provide the tools that allows the FCC to manage such situations in a balanced way. Paul

It's one thing if there was rampant Frank Bulk  –  Feb 10, 2015 4:32 AM

It's one thing if there was rampant misuse, but that doesn't seem to be the case. I'd like to point you to another perspective on the issue: "Many think it’s a big win for consumers that the proposed laws will prohibit ISPs from blocking, throttling, or prioritization content on their network, yet to date, no ISP has been accused of doing this." http://blog.streamingmedia.com/2015/02/fcc-internet-rules-changes-little.html The checks and balances are the market. Note how little bandwidth caps have actually progressed in the United State.

Being able to place equipment would be Todd Knarr  –  Feb 10, 2015 7:46 AM

Being able to place equipment would be one thing, as long as the ISP's willing to accept equipment from any provider willing to place it. And I'd question whether it's really appropriate for the content provider to be paying anything beyond the cost of the equipment and installation and maybe electric power. It's the ISP's users that're demanding the content, after all, and the ISP that's signed contracts with those users to provide connectivity to the Internet which includes that content. Normally when I'm the one who wants a direct connection to something (eg. I want a dedicated fiber from my office to my ISP so I don't share bandwidth or have my traffic mixed with anyone else) I'm the one who foots the bill for it. The starting point for this, after all, was ISP customer demand for better quality. If I'm griping to my ISP about local congestion and my ISP says "Well, we do offer dedicated service if you want it." it doesn't suddenly mean the ISP's the one wanting the dedicated line put it, it's still me wanting it and the ISP's just offering ways for me to get what I want. Bear in mind that the ISPs have already been caught degrading service deliberately as a bargaining tool. As in, people have measured performance of Netflix streams going directly to Netflix vs. going through a VPN and a route that ought by all technical measures to be slower and have worse performance than the direct route, and yet the direct connection to Netflix was operating at a fraction the performance of the VPN connection.

Being able to place equipment would be Frank Bulk  –  Feb 10, 2015 2:37 PM

Being able to place equipment would be one thing, as long as the ISP's willing to accept equipment from any provider willing to place it.
What you're suggesting does not seem unreasonable at face value, but it's more than just equipment, it's also rack space, power, cooling, and cross connects. The reality of the Internet is that most content is more than one hop away. It's for that reason that when someone does a speed test 15 hops away I can't promise that they'll experience the speed that they subscribed to. Just as the ISP wants to be well-connected, the content provider has incentive to be as close as possible to the customer to enhance the experience. While much of the Internet content is free to access (through advertising), not every website can afford to be served from a CDN. But they can't afford to be closer to the customer, so sometimes they're 20 hops away. Some content, such as Netflix, costs the subscriber additional money. Is it unreasonable that if the Netflix wants to give customers the best possible experience that they pay to have a better interconnection with an ISP?
Bear in mind that the ISPs have already been caught degrading service deliberately as a bargaining tool.
Please point us to some verifiable references. What you're referring to in regards to it operating better over VPN is because the content providers content does not travel over one (congested) peering link but through a VPN that's flowing through a different (uncongested) peering link. That's not the ISP degrading service.

Please point us to some verifiable references.I'd've Todd Knarr  –  Feb 11, 2015 3:54 AM

Please point us to some verifiable references.
I'd've thought you'd have seen the articles, considering how widely they were published. http://arstechnica.com/information-technology/2014/07/verizon-made-an-enemy-fios-customer-mad-that-netflix-works-better-on-vpn/ http://www.techhive.com/article/2457642/how-a-netflix-subscriber-used-vpn-to-thwart-verizons-streaming-slowdown.html http://iamnotaprogrammer.com/Verizon-Fios-Netflix-Vyprvpn.html

Thanks, those three links touch on the Frank Bulk  –  Feb 11, 2015 3:59 AM

Thanks, those three links touch on the VPN item, which I attempted to address above. The VPN item does not indicate that the the ISP is degrading Netflix service deliberately, only that some of the ISP's peering sessions are congested (the one that most Netflix traffic flows over) and that others peering sessions are not (the one(s) that that VPN flowed over).

cont. Paul Budde  –  Feb 10, 2015 7:48 AM

Frank IHHO it make sense to classify broadband access as telecoms access as different from internet content (which remains unregulated). By having broadband access within the rest of telecoms regulations will create a better platform to start looking at how to better create competition in the American fixed telecoms infrastructure market. At the moment America doesn’t have any real fixed telecoms infrastructure competition.  The proposed ruling is creating a platform that can address this. While the current situation might not yet have been misused there has been attempts and a significant outcry, we need to ensure that we prevent that from happening and the best way to this is to create a better foundation that allows for more competition to emerge in this market.

I've read a lot of analysis on Frank Bulk  –  Feb 10, 2015 2:42 PM

I've read a lot of analysis on the FCC's proposed rules and few think this is a platform to create better competition. It's my understanding that you want vertical separation so that multiple providers can use the same plant, but that doesn't seem very likely in our ownership and capital system. The other kind of competition is facilities-based, and you know that only in denser markets that is affordable. And we see some of that with the MSOs and FiOS and UVerse and Google Fiber and some other CLECs. But beyond the urban markets, where Universal Service is already subsidizing telcos, how can consumers "afford" to have even one more wireline competitor?

spot on Todd Paul Budde  –  Feb 10, 2015 7:50 AM

What you describe is how the new ruling can create that extra competition, this works in every other country where broadband access is treated as telecoms access.

how to move forward Paul Budde  –  Feb 10, 2015 9:48 PM

You are right Frank the way forward is a problem. Most other countries started with this some of regulation in the 1990s and it can take a decade plus before incumbents show the sort of cooperation that would lead to wholesale based competition. The trouble between reasonable and unreasonable is that if we leave that sort of interpretations to the incumbents it most likely will be unreasonable we do need a good arbiter in the middle.

In general telecoms infrastructure gravitates towards a monopoly and the best long term solution is to address that situation. However, the lobbying power of the incumbent will fight this, so if we see any progress on this in America it will be very slow.

Competition Paul Budde  –  Feb 11, 2015 11:33 AM

Thanks for the links Todd.

Re wireline competition.The way it world in the rest of the world Frank is that there is wholesale competition, especially with DSLAMs. In all reality fixed infrastructure is gravitating to a (fibre) utility monopoly and as I mentioned in one way or another we will have to cope with that.

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