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Anna-Maria Kovacs

Industry Group, Internet Innovation Alliance, Warns Against Regulation

in Broadband's Impact by

WASHINGTON, September 3, 2014 – Communications network consumers have more choices than ever today, and according to an Internet Innovation Alliance study, policymakers should be careful not to invoke broad regulation on a technology platform or service basis.

Less regulated wireless voice service is favored in eight times as many households as the most regulated landline option when a single service is relied upon, the 36-page study found.

“With the old network compact, regulators were in charge, but the new reality is that consumers are in control,” said Anna-Maria Kovacs, a policy scholar and communications industry analyst, who authored the study, released in late July by the pro-industry advocacy group.

Whereas 94 percent of households in 1996 subscribed to plain old telephone service (the most regulated voice service), only 5 percent still rely exclusively on it. Consumers today are subscribing to a variety of different internet platforms. A total of 62 percent subscribe to mobile, 22 percent to cable, 8 percent to wireline DSL, 7 percent to wireline fiber, and 1 percent to fixed wireless or satellite.

Consumers are also picking from many different kinds of video providers: wired cable (48 percent), broadcast (10 percent), telco (10 percent), satellite (31 percent) and broadband only (1 percent).

Given this multitude of options for consumers, Kovacs said, a new network compact has to be formed that only specifically regulates areas where consumer needs aren’t met by the market.

“Because consumers today don’t have to purchase what regulators design and a monopolist provides, they can’t be treated as a homogeneous body without choices; a ‘one size fits all’ solution is no longer viable,” added Kovacs. “Amidst extensive and varied competition, providers survive only if they give consumers what consumers want. Otherwise, consumers move to competing providers and take their spending and the associated earnings with them. Cross-subsidies don’t work, because consumers can flee the subsidizing services. Regulators can limit providers’ earnings on the upside but can’t protect the downside.”

Rick Boucher, honorary chairman of the innovation alliance, said reiterated Kovac’s claims: “The 21st century challenge of regulators in preserving and advancing the core values must take into consideration new platforms and the plethora of consumer choices.”

 

Is Internet Interconnection the New Network Neutrality? Panel Suggests a New Regulatory Creep

in FCC/Net Neutrality by

WASHINGTON, May 28, 2014 – The Federal Communications Commission is likely to experience increasing pressure to intervene in and resolve disputes involving internet interconnection, experts said on Tuesday at a panel hosted by the Progressive Policy Institute.

Central to the discussion was the question of whether the FCC should go as far as to mandate interconnection, should the agency intervene.

Responses from the panelists were mixed, albeit leaning toward the standpoint that outright mandatory interconnection may be unnecessary, and even counter-productive – although there was dissent from that position.

Early in the discussion, Carnegie Mellon University computer engineering professor Jon Peha explained the basics of concept of interconnection:

“The Internet feels like one big network when we use it, but if that were the case, there would be no such thing as interconnection,” Peha said “The internet is a network of networks that are packed over 66,000 independent, autonomous networks that somehow work as one, and each network in there is connected to one or more neighboring networks. That means information I send may travel from network to network before it finally gets to its intended recipient.”

“For example, I have a student right now in Uganda and I sent her a message, and amazingly, from whatever network I’m at, it somehow figures out how to get my message to her in Uganda,” he said.

The technical challenge is not only in getting the message to Uganda, but getting every network along the way to carry the information. There are tangible costs to this, he said.

“The solution to both of these challenges is buried in the magic of interconnection agreements,” Peha continued. “An interconnection agreement is where two networks come together and agree on both the technical and business issues of changing internet traffic, including ‘will I carry any of your traffic, and if so, how much will I carry?’”

Up until now, interconnections have been created generally been created through by private, unregulated negotiations, but that is changing. The role of content distributor delivery networks and peering relationships are multiplying. The question, Peha said, is what to do about it.

Ruth Milkman, chief of staff for FCC Chairman Tom Wheeler, argued there were historical precedents for mandatory interconnection. She pointed to railroad systems and electrical networks of early in the United States as having evolved partly due to through regulatory oversight.

“There have been diverse regulatory approaches to ensuring effective interconnection,” Milkman said. “Some have involved a relatively lighter touch; others a heavier hand. Often, price regulation has been part of the package. At the bottom, however, is that a network without connections and interconnections is one that simply doesn’t work. Disconnected networks simply do not serve the public interest.”

Kevin Werbach, professor of legal studies and business ethics at the University of Pennsylvania, opined said that interconnection is was essential, especially particularly when the all communications networks is are converging into onto an internet protocol network. While the FCC should not micro-manage private agreements, a public policy backstop was needed for private enterprise interconnection agreements.

“It’s [naive] to believe that somehow, magically, this will work itself out given the way the network’s changing,” he said. “Some FCC involvement would have a lot of benefits,” he said. “I think it’s not right to say ‘do we have private agreements or do we have the FCC?’ We can absolutely have lots of room for private agreements but still have a sense that there are certain practices which are anti-competitive. ”

Werbach distinguished net neutrality and interconnection as separate issues. Interconnection  concerns the “edge of provider networks, not the network,” Werbach said. Yet the two have similar implications. Both situations leave open the possibility of an ISP internet service provider degrading and differentiating between traffic, he said.

Economists Incorporated Senior Fellow Hal Singer and Gerry Faulhaber, professor emeritus of business economics and public policy from at the University of Pennsylvania, did not favor regulatory oversight of private agreements. Faulhaber scoffed at the idea: “light touch regulation…is sort of like jumbo shrimp – it’s kind of an oxymoron.”

“Interconnection is not just a communications issue,” Faulhaber said. “It occurs in virtually every business in which the producer of something – it could be canned peas – has to distribute something to customers through distributors like supermarkets. Distributing through supermarkets works so nobody’s going for regulation of supermarkets…. We have an [internet] system that works.”

Calling for regulation of internet access because networks have changed is a fallacy, he said. The Internet has maintained itself for 30 years. The FCC, by contrast, has a “terrible reputation as an adjudicator.”

History has consistently shown that limited regulation causes two things to occur: rent- seeking and a slippery slope of more regulation.

“Once a commission interests itself in a particular area, puts a sign out that says ‘open business,’ which is what we did [with] the open internet order. What happens? Firms realize, ‘oh I don’t get to make money looking at customers and making investments. I make money by going to the regulators and getting them to favor me and disfavor others. For thirty 30 years, we never had complaints about interconnections. Since 2010, we’ve had a number…why? ‘Open for business.’

“The second thing that happens is even though commissioners may say ‘we want to limit how much we regulate,’ that won’t happen. They will be under constant pressure to expand the regulatory writ. Level 3 in 2010 said ‘let’s try to leverage network neutrality into regulating interconnection.’ It looks like we’re now leveraging the interest of the FCC in net neutrality into interest in interconnection.”

Singer added that the costs of mandatory interconnection outweighed the benefits, precisely because there have been relatively few network disputes.

“If the probability of these disruptions happening is close to zero, then the expected benefit of imposing mandatory interconnection is small as well,” Singer said.

On the cost side, Singer argued that if networks are forced to connect, it could upset providers’ “make or buy decision” and undermine some of the goals of Section 706 of the Communications Act of 1996 – namely, to encourage deployment.

“Some people point to Sprint and T-Mobile’s reluctance to deploy their spectrum into rural areas,” he said. “Mandatory interconnection and data roaming agreements cause them to want to take the ‘buy’ decision over the ‘make’ decision – so I’m worried about what it would do to incentives, not just of ISPs, but also of these middle-mile folks and content providers who are now getting a little taste of what it’s like to be in last-mile access.”

Taking a more neutral stance, Peha said he could see both sides of the argument on intervention by the FCC’s intervention. Ultimately, the agency has to provide more concrete evidence that there is a significant problem in the first place. The FCC also has to prove it can make things better.

“I would like to see more information gathered,” Peha said. “I think that’s where the FCC can do something constructive is to try to shed a little light on all those private agreements and just see if we have to be concerned about them.”

Anna-Maria Kovacs, a visiting scholar at Georgetown University’s Center for Business and Public Policy, expressed more condescension, arguing that even though it is essential for everyone to interconnect, several decades’ worth of history have proven that private commercial agreements can get the internet to that point.

Regulation, said, would eliminate flexibility and consequently lead to investments drying up.

“Barring a breakdown, we really should not be intervening because the rigidities that regulation would bring to the system would probably create far more chaos than the occasional disputes that you have between parties,” said Kovacs.

Kevin Werbach concluded by seeking to rebut arguments in opposition to regulation.

“I would hate to see the internet turn into a supermarket that’s just selling us peas,” Werbach said. “That’s not what the internet is today… not [the] open platform that generated so much extraordinary innovation. It’s a linear market – nothing comes back from the consumer the other way…. That’s not the internet we should have in the future.”

Who Will Buy … a National Broadband Plan?

in FCC Workshops/National Broadband Plan by

WASHINGTON, October 1, 2009 – For the national broadband rollout, the big question is who will pay for it? Phil Bronner, of Novak Biddle Venture Partners, challenged investors to make the national broadband happen at an October 1 Federal Communications Commission workshop.

“We have been on innovation and we must see the fundamental shift that will make national broadband a reality. Technology is a risk, but even business is a risk too. We cannot stop now.”

Other panelists echoed calls for investment in the national broadband plan. FCC Chairman Julius Genachowski said that every dollar invested in broadband leads to tenfold returns in the economy.

There is tremendous potential for free speech and free enterprise through broadband, and high speed network will bring a robust communication, said Thomas Aust, a senior analyst at GE Asset Management.

“The issues around broadband are subtle, with investors asking for surety before they put their money,” Aust added. The notion that the government can and should make broadband better though regulatory management is not enough.

Also at the panel, investors voiced concern about the need for capital commitment because they want to know the new telecom rules,  and that those rules will not change.

“Larger telecommunications companies and cable [operators] have publicly complained regarding reporting requirements and restrictions associated with the current stimulus plan,” said Christopher King, a principal telecom analyst at Stifel Nicolaus. He also stated that long term regulatory certainty should include Net neutrality mandates.

Still, Anna-Maria Kovacs, president of Regulatory Source Associates LLC, called broadband a high-risk investment. Investors would want to know if they can make money out of investing in broadband. The problem of investing in broadband is mainly in the rural areas – which is where most capital would be needed.

“If you cannot raise capital and pay expenses of providing network, you cannot provide services to consumers,” she said.
Monish Kundra, venture partner at Columbia Capital, agreed that attention needed to be paid to unserved areas.

“Part of FCC policy can be to allow for a single point of access for those in rural areas,” said Kundra.

He advocated positive regulation which would free up a lot of spectrum for users. He opted for investing in broadband, citing the 10-fold multiplier effect that Genachowski referred to earlier.

Workshop presentations and video.

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