Tactical Misdirection in the Network Neutrality Debate

As the FCC proceeding on network neutrality gets closer to a critical point it is interesting to witness how the contending parties are attempting to influence the regulator, Congress and the public. These generally fit within the following categories:

1. Obfuscate the issue so that it becomes difficult to impossible to discern what network neutrality actually is and, when confusion is successfully established, offer a clear and simple solution which coincidentally (!) benefits the proposing party or at least is disadvantageous to its competitors.
2. Obfuscate another's obfuscation of the core issues (see previous point) and then offer a clear and simple solution which... well, you can fill in the rest.
3. Disentangle and clarify the core issues so that everyone can have a clear understanding of the numerous technical and business aspects of network neutrality. Sometimes this is done in an effort to facilitate the discussions but can sometimes be used to promote an agenda. The agenda may be to maximize the public good, but that is still an agenda.

Perhaps a simpler way of saying this that everyone has an agenda and will do what it takes to promote that agenda, even if occasionally one must go so far to even resort to the truth! Unfortunately the volume and quantity of proposals, attacks, misdirections and often poorly-informed reporting makes it difficult for the targets of all this (mis)information to understand anything other than what the best-placed voices want them to conclude. In other words, the public discourse on network neutrality is not only a mess, it's a political mess.

The FCC is quite used to putting up with attacks from the public, industry and Congress. While some of it is justified, it is also true that there are many competent people on staff that understand the issues perfectly well. With perception being reality (as the saying goes) they end up spending much of their time fending off the attacks rather than crafting good public policy that is in accord with the letter and spirit of the law. That, of course, is the objective of those attacks; while the FCC gets knocked around the key players, those that stand to gain or lose from what the FCC ultimately decides are busy influencing the politicians who are in a position to make their interests take precedence in the FCC's deliberations. Politics and regulations are inseparable, whether the industry is telecommunications, resource extraction, banking or pharmaceuticals. This isn't going to change.

Despite the sorry state of affairs, allow me to briefly describe what I believe are a few of the key industry issues that get bundled under the network neutrality banner, since they are so often obfuscated, conflated, misrepresented or otherwise mangled by so many of the antagonists.

• Carrier control over vertical services: It is always in the carrier's interest to be the provider of all services offered to the public over their networks. Vertical services -- value-added services over and above raw carriage -- have higher margins than transporting bits. This should be apparent if you think about it, although I went so far as to calculate the added benefit years ago when the array of services was much smaller than today. Even better is if the carrier not only offer these services but also can exclude others from offering these services over their networks. This is why the FCC's intent to reclassify broadband under common carrier regulations is bringing out the big guns in political lobbying. This is also why Bell Canada is so opposed to GAS-enabled 3rd-party ISPs and why Bell Canada toyed with building a content empire, including CTV, and Comcast is acquiring NBC. However it is possible to push too hard and suffer what Australian government has just done to Telstra by splitting wholesale (network utility) from retails (vertical services). Yes, sometimes governments really do try to favour consumers over major corporations.
  
• Traffic management: Every carrier requires mechanisms to manage network performance so that no one user sees more their share of service degradation; network capacity is always finite -- even though it is expandable, within the bounds of reasonable capital expenditures -- and there is always the risk of one user's activity impacting the service quality of other users. This is especially true for broadband, more so than telephony, because there is a wide range in volume and timing of traffic demand across the user base. The problem comes when traffic management is surreptitiously employed to favour the carrier's own business interests over that of other services that their broadband users choose to access, even if they are not directly competitive with equivalent services offered by the carrier. It has been surreptitious or even misrepresented because blatant discrimination can result in serious political fallout and harm their long-term interests if the government feels compelled to quell voter outrage with some heavy-handed market intervention. Traffic management will remain an issue even if broadband falls under common carrier regulation because it is so much of a cat-and-mouse game where the carrier has all the control and outsiders are hard-pressed to prove a solid pattern of discrimination.
  
• Volume and speed pricing: When control over vertical services and traffic management are prohibited or otherwise fail to glean the revenue and market control the carriers would like, they can in the end resort to pricing strategies. These fall into the categories of usage-based billing (UBB) and speed tiers where the more data you consume and the higher the access speed you desire, the more you pay. If (and I mean if) the carriers are truly relegated to the role of broadband utility with no competitive vertical services and no ability to throttle selected applications, it can be reasonably argued that pricing should be in proportion to network load. Where this crosses the line into the realm of network neutrality is when they price by volume and speed in a manner that is implicitly discriminatory, especially if they pursue this strategy in parallel with offering competitive vertical services. This has come up time and time again in the CRTC proceedings on Bell Canada's GAS technology coverage and traffic management practices where the accusation is that if they do not similarly throttle or price their own retail services then they are ensuring 3rd-party ISPs offer an inferior service. Also telling is how carriers position and promote volume and speed tiers that can inherently place a monetary burden (or at least allegedly) on users that subscribe to services such as Netflix, where there is in effect an extra charge to the user for downloading a movie or other bandwidth-intensive media. That is, even if the carrier isn't or is prohibited from these high-value vertical services, by pricing broadband with surgical precision they directly derive revenue from those services. Precision is required since if the price-volume boundaries are too aggressive, the majority of users will be hit even though these types of services currently have low penetration (although this will change) or, in the other direction, they will fail to garner the desired revenue from carriage of those services. That is, they want to get paid but without attracting unwanted attention from the regulator. This is the reason they make a public show of all the pain they feel when a (current) minority of users use these services. If successfully executed, the regulator doesn't act and their revenue will climb substantially in the coming years. Of course if they offer competitive media services they can even double dip.

Apart from the tactics I listed at the beginning of this article I was planning to say a bit more about how the US carriers are manipulating the regulatory proceedings and political process on network neutrality to get what they want, but I've run out of time. I'll come back to this in a day or two.

To end this article I will repeat a point that I (and many others) have stated: in a truly competitive market there is no need for regulations over company business practices and services since market forces alone will compel all companies to lower prices and offer more and better services if they intend to survive and maximize shareholder value. We are still a long way from achieving that in the telecommunications industry despite what many of dominant carriers would like us to believe. There are few enough choices for consumers to reach the content and services they desire that all these political games do have a major impact. The fight for and against network neutrality will be with us for years to come.