Excerpt

If you happen to own a computer, television or other streaming device, you’ve probably heard that Netflix recently reached an agreement with Comcast to facilitate the delivery of its videos to Comcast customers.

You’ve probably also heard that the chairman of the Federal Communications Commission has circulated new “net neutrality” rules to govern how traffic moves across the so-called “last mile” connection between an Internet Service Provider (ISP) and your home.

What do these have to do with each other? The short answer is “nothing,” but you wouldn’t know that from listening to Netflix’s CEO.

In short, the Netflix-Comcast agreement deals with something known as interconnection — how big content providers transmit their huge files over the Internet’s backbone in order to get to Comcast and other ISPs’ last-mile facilities in the first place. Net neutrality deals with how traffic is handled once it arrives at the last mile, and whether it makes sense for certain traffic to receive priority treatment once it gets there.

Continue reading on the Baltimore Sun

If you happen to own a computer, television or other streaming device, you’ve probably heard that Netflix recently reached an agreement with Comcast to streamline the delivery of Netflix’s videos to Comcast customers.

You’ve probably also heard that the chairman of the Federal Communications Commission has circulated new “net neutrality” rules to govern how traffic moves across the so-called “last mile” connection between an internet service provider and your home.

What do these have to do with each other? The short answer is “nothing,” but you wouldn’t know that from listening to Netflix’s CEO.

In short, the Netflix-Comcast agreement deals with something known as interconnection – how big content providers transmit their huge files over the internet’s backbone in order to get to Comcast (and other ISP) last mile facilities in the first place.  Net neutrality deals with how traffic is handled once it arrives at the last-mile, and whether it makes sense for certain traffic to receive priority treatment once it gets there.

Let’s take the issue of interconnection first.

Big content providers have always had to pay someone to manage delivery of their shows, movies and services. Typically these companies use specialized services called “content delivery networks” (CDNs) to manage this traffic as it travels from the provider to the ISP, which then moves it over its “last miles” to individual customers and screens. CDNs often build significant infrastructure of their own to improve speeds, and content providers (including Netflix) have always paid for this.

A company like Netflix can also connect to ISPs directly to cut out the middleman. Companies like Google, Microsoft, Amazon and others do just this, paying for network “ports” that enable them to manage their own traffic and offload their massive data streams directly, instead of paying a third party to handle it.

Netflix’s much-loved videos take up as much as 30 percent of all internet bandwidth in the U.S, creating longstanding traffic management problems for the company that have been costly to address.  Netflix had used a number of CDN middlemen to deliver its traffic, but ran into problems when it overloaded one CDN, Cogent, which didn’t want to pay for the extra infrastructure needed to offload the additional content.
So Netflix chose to interconnect directly with Comcast, which had already invested heavily in the infrastructure to handle large volumes of content.  Although Netflix pays Comcast for interconnection, it has reportedly saved a ton of cash in cutting out the middleman— and increased its speeds by 65 percent.

Net neutrality, on the other hand, addresses the issue of discrimination on the last-mile networks owned by Comcast and other ISPs. In essence, it seeks to prohibit unfair treatment of unaffiliated content traveling within an ISP’s network. Under the new proposed rules, according to reports, if an ISP decides to provide premium speeds to Netflix over its last mile facility, it can’t deny that same quality of service to Netflix’s competitors.

So if the issues of interconnection and net neutrality are entirely different, why did Netflix CEO Reed Hastings take to the airwaves to complain that the interconnection deal with Comcast – one that he initiated and over which he stands to save money – amounts to an unfair “toll” on Netflix that threatens net neutrality?

Apparently, Mr. Hastings figured he could confuse longstanding, widely accepted interconnection practices with the debate over net neutrality, hoping politicians and regulators who favor net neutrality might help him get a free pass on interconnection costs.

But free to whom? Someone has to pay for the infrastructure needed to handle Netflix’s traffic. If Netflix (or Cogent) doesn’t pay, everyone using the network would have to, whether they were Netflix customers or not.

In reality, Hastings was looking for a government handout – either in the new net neutrality rules or via “conditions” attached to approval of the Comcast/Time Warner Cable deal. Given that Sen. Al Franken recently asked Netflix to help him kill the transaction using similar “gatekeeper” metaphors, Hastings’ ploy may well be effective. But that doesn’t make it logical or fair.

There is simply no justification for offering Netflix any special treatment in its interconnection arrangements. Online content providers have countless ways to connect with broadband networks. Competition has forced prices for these interconnection services down by a remarkable 99 percent in recent years. ISPs can do nothing to thwart interconnection, and, in fact, Comcast has every incentive to keep the online video spigot wide open.

There is a reason every iteration of the FCC’s net neutrality rules, including the latest, have explicitly not applied to backbone interconnection agreements: Interconnection over the backbone has always been open and competitive, and it simply doesn’t give rise to the kind of discrimination concerns net neutrality is meant to address.

That Netflix would prefer not to pay for delivery of its content isn’t surprising. But net neutrality regulations don’t — and shouldn’t — have anything to do with it.

Cross-posted from the Oregonian

Summary

The FTC oversees nearly every company in America. It polices competition by enforcing the antitrust laws. It tries to protect consumers by punishing deception and practices it deems “unfair.” It’s the general enforcer of corporate promises made in privacy policies and codes of conduct generated by industry and multi-stakeholder processes. It’s the de facto regulator of the media, from traditional advertising to internet search and social networks. It handles novel problems of privacy, data security, online child protection, and patents, among others.

But perhaps most importantly, the Federal Trade Commission has become, for better or worse, the Federal *Technology* Commission, and technology creates a special problem for regulators.

Inherent limitations on anyone’s knowledge about the future nature of technology, business, and social norms caution skepticism as regulators attempt to predict whether any given business conduct will, on net, improve or harm consumer welfare. In fact, a host of factors suggests that even the best-intentioned regulators may tend toward overconfidence and the erroneous condemnation of novel conduct that benefits consumers in ways that are difficult for regulators to understand.

One thing is certain: A top-down, administrative regulatory model of regulation is ill-suited for technology, and this technocratic model of regulation is inconsistent with the regulatory humility required in the face of fast-changing, unexpected—and immeasurably valuable—technological advance.

In assessing the FTC, three themes emerge as being crucial to the Agency’s continued success: humility, institutional structure, and economic rigor. Together these three elements serve the essential function of restraining this powerful Agency’s discretion.

This essay discusses how these constraints have operated (or failed to operate) in the past, and offers some suggestions for reform to improve their operation in the future.

 

I have a new article on the Comcast/Time Warner Cable merger in the latest edition of the CPI Antitrust Chronicle, which includes several other articles on the merger, as well.

In a recent essay, Allen Grunes & Maurice Stucke (who also have an essay in the CPI issue) pose a thought experiment: If Comcast can acquire TWC, what’s to stop it acquiring all cable companies? The authors’ assertion is that the arguments being put forward to support the merger contain no “limiting principle,” and that the same arguments, if accepted here, would unjustifiably permit further consolidation. But there is a limiting principle: competitive harm. Size doesn’t matter, as courts and economists have repeatedly pointed out.

Read the full piece here.

In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules to ensure that it would have the ability to serve as the regulator of trade and business that Congress intended it be. Much, perhaps even the great majority, of what the FTC does is uncontroversial and is widely supported, even by critics of the regulatory state. However, both Congress and the courts have expressed concern about how the FTC has used its considerable discretion in some areas. Now, as the agency approaches its 100th anniversary, the FTC, courts, and Congress face a series of decisions about how to apply or constrain that discretion. These questions will become especially pressing as the FTC uses its authority in new ways, expands its authority into new areas, or gains new authority from Congress.

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Excerpt

No mattter what you think of network neutrality — for it, against it, it’s complicated, who cares — the fact that a federal court just struck down most of the FCC’s net neutrality rules is clearly cause for concern.

But not for the reasons you think. Others are saying that the FCC just lost the battle but “can finally win the war” — if the agency formally “reclassifies” broadband as a heavily regulated “common carrier” (like traditional telephone services). Actually, the FCC lost the battle, but it just won the war over regulating the internet. It no longer needs to bother with reclassification, a process so difficult and drawn-out it was always a political fantasy anyway.

The FCC’s broad new powers should worry everyone, whatever they think of net neutrality. Because beneath the clever rallying cries of “net neutrality!” lurks a wide range of potential issues. Most concerns are imaginary or simply misplaced. The real concerns would be better addressed through other approaches — like focusing on abuses of market power that harm competition.

But first, we need to look at the ruling in a more nuanced way.

Continue reading on Wired.com

Today the D.C. Circuit struck down most of the FCC’s 2010 Open Internet Order, rejecting rules that required broadband providers to carry all traffic for edge providers (“anti-blocking”) and prevented providers from negotiating deals for prioritized carriage. However, the appeals court did conclude that the FCC has statutory authority to issue “Net Neutrality” rules under Section 706(a) and let stand the FCC’s requirement that broadband providers clearly disclose their network management practices.

The following statement may be attributed to Geoffrey Manne and Berin Szoka:

The FCC may have lost today’s battle, but it just won the war over regulating the Internet. By recognizing Section 706 as an independent grant of statutory authority, the court has given the FCC near limitless power to regulate not just broadband, but the Internet itself, as Judge Silberman recognized in his dissent.

The court left the door open for the FCC to write new Net Neutrality rules, provided the Commission doesn’t treat broadband providers as common carriers. This means that, even without reclassifying broadband as a Title II service, the FCC could require that any deals between broadband and content providers be reasonable and non-discriminatory, just as it has required wireless carriers to provide data roaming services to their competitors’ customers on that basis. In principle, this might be a sound approach, if the rule resembles antitrust standards. But even that limitation could easily be evaded if the FCC regulates through case-by-case enforcement actions, as it tried to do before issuing the Open Internet Order. Either way, the FCC need only make a colorable argument under Section 706 that its actions are designed to “encourage the deployment… of advanced telecommunications services.” If the FCC’s tenuous “triple cushion shot” argument could satisfy that test, there is little limit to the deference the FCC will receive.

But that’s just for Net Neutrality. Section 706 covers “advanced telecommunications,” which seems to include any information service, from broadband to the interconnectivity of smart appliances like washing machines and home thermostats. If the court’s ruling on Section 706 is really as broad as it sounds, and as the dissent fears, the FCC just acquired wide authority over these, as well — in short, the entire Internet, including the “Internet of Things.” While the court’s “no common carrier rules” limitation is a real one, the FCC clearly just gained enormous power that it didn’t have before today’s ruling.

Today’s decision essentially rewrites the Communications Act in a way that will, ironically, do the opposite of what the FCC claims: hurt, not help, deployment of new Internet services. Whatever the FCC’s role ought to be, such decisions should be up to our elected representatives, not three unelected FCC Commissioners. So if there’s a silver lining in any of this, it may be that the true implications of today’s decision are so radical that Congress finally writes a new Communications Act — a long-overdue process Congressmen Fred Upton and Greg Walden have recently begun.

Szoka and Manne are available for comment at [email protected]. Find/share this release on Facebook or Twitter.

Filed under: federal communications commission, international center for law & economics, net neutrality, regulation, technology, telecommunications, wireless Tagged: Broadband, FCC, Federal Communications Commission, Internet of Things, net neutrality, Open Internet Order, Verizon v. FCC

Today the D.C. Circuit struck down most of the FCC’s 2010 Open Internet Order, rejecting rules that required broadband providers to carry all traffic for edge providers (“anti-blocking”) and prevented providers from negotiating deals for prioritized carriage. However, the appeals court did conclude that the FCC has statutory authority to issue “Net Neutrality” rules under Section 706(a) and let stand the FCC’s requirement that broadband providers clearly disclose their network management practices.

Read the full piece here.