net neutrality: one more time

Last week the FCC issued its latest pronouncement on net neutrality, the question of who regulates the internet–and therefore, implicitly, who owns it.  You can find the FCC releases and member commentary here.

background

Two pieces of background information are necessary to understand the meaning of the FCC statement.

1.  A while ago Comcast deliberately slowed down its service to BitTorrent, a file-sharing service.  Comcast said a small number of BitTorrent users were gobbling up huge amounts of bandwidth and slowing down service on its network for everyone else.  The FCC ordered Comcast to stop doing so.

Comcast successfully sued, arguing in court that the FCC didn’t have this kind of jurisdiction over it.  The case hinged on the FCC’s classification of the internet, not as a communications service, but as an “information” service.

Reading between the lines of subsequent statements by the parties and press coverage, the FCC decided to respond by saying it now realizes the internet is indeed a communications services, like plain old telephone service.  That would remove the internal contradictions in the FCC’s behavior.  But it would also potentially open the door to taxing internet access in the same way that phone service is.

Talk about driving a stake through the heart.  However, after hearing personally from over half of the members of the House of Representatives and a third of the Senate, the FCC changed its mind.

2.  In August, in the midst of the post-Comcast court victory discussion, Google and Verizon issued an internet manifesto (see my post).

what the FCC said

Last week’s FCC statement addresses the GOOG/VZN manifesto point by point.  The highlights:

–wired internet has one set of rules.  An ISP can’t block any content or services.  It also can’t deliberately slow down, or speed up, any particular content or services.  It can, however, offer different speeds of internet access to customers at different prices.

–wireless has another.  Basically, anything is ok, because the greater number of mobile internet service providers means consumers can switch ISPs if they don’t like what their current one is doing.

So far, this is more or less what GOOG/VZN suggested.  But…

–possible new services.  As I mentioned in my August GOOG/VZN post, I think GOOG wants to use its own money to build an internet service that’s more like the information superhighway that the rest of the developed world has, rather than the rutted country lane that ISPs have created in the US.  But before it invests billions doing so, it wants assurance that its service won’t be regulated as a public utility–that is, as if the network had been created with public money.  What GGOG/VZN got in this statement was just the opposite.

As I read it, the FCC says that a GOOG service would be subject to punitive regulation if it posed any threat to existing wired internet services.  But if a new service can’t be any better than today’s services, what’s the point?

jurisdiction?

The FCC asserts in its statement that it’s in charge–a reprise of Al Haig’s famous declaration, perhaps?  But the courts have been saying something else.  Congress seems to have the agency on a very short leash, as well.  And the new Congress may well have something more definitive to say.

Stay tuned.

A big new step toward the “Internet of Things”

About a decade ago, someone in the RFID-tag community coined the “Internet of Things” phrase.  The idea is that the ultimate destiny of the Internet is to be a communication and coordination network, not primarily of people, but of devices–from appliances, to houses to cars…–talking with each other through imbedded chips.

Today, that idea is sounding less and less like science fiction.  During the June quarter, major US wireless networks reported that they hooked up more new devices (such as digital picture frames and internet-enabled TVs) than new people to their networks.  Maybe not such a surprise, given that the US is already 100% penetrated with cellphones.

Another step came last Thursday, when the FCC issued an order allowing the use of wi-fi-like devices over the “white space” frequencies that separate TV channels and are intended to prevent interference.  This is intended, in the words of the FCC press release,  to “unleash a host of new technologies” that include things like:

–home wi-fi without dead spaces,

–“super wi-fi,” that is, long-distance, wide-range wi-fi that should allow inexpensive blanket wi-fi coverage of large areas, like ports or other large distribution hubs, as well as extending wireless internet into sparsely populated locations.

This action opens the door for all sorts of “intelligent” device applications.  Devices and services–like appliances with chips in them that can coordinate their actions (adjust the heat, wake you up earlier is there’s traffic congestion…)–should in theory be available by early 2012.  IBM posted its ideas on what the Internet of Things will be on You Tube in March.

http://www.youtube.com/v/sfEbMV295Kk?fs=1&hl=en_US

There’s still a big issue to be faced , however–net neutrality.  At least some of these wi-fi networks will be built by companies.  Will these be private, or will non-affiliated service providers be entitled to offer their wares on it, even though they have not contributed to the network’s construction costs?  This is the question that GOOG and VZ raised in an oblique way in their “Legislative Framework Proposal” in early August.

To me, it sounds like GOOG and VZ are willing, even eager, to build out “super Wi-Fi” networks and offer new services on them–provided they can either deny access to other potential service providers or give them lower priority on the new systems.

This implies that the development of really revolutionary new services will depend on the FCC clarifying the ownership issue for new commercial Wi-Fi networks.

investment implications

A favorable FCC decision for GOOG and VZ on Wi-Fi network ownership would likely be a big plus for both companies.  In the absence of that, the significant winners–and the safest stock market plays, in any event–will be the chip makers that will supply demand for new-standard Wi-Fi chips.

Who doesn’t like/want the internet?: an FCC survey

Chapter 9 of “America’s Plan,” which is how the FCC refers to its Connecting America plan in the body of the document that outlines the FCC strategy, is about internet adoption and utilization.

One of the key areas of focus for the FCC is trying to figure out who does not have broadband internet access at home, and why that is.  The agency bases its conclusions on a survey it conducted last fall about Americans’ use of technology.  In designing the survey, the FCC decided to place special emphasis on non-users of broadband at home.   Of 5,005 survey respondents, 2,334 did not have broadband access at home.

Connecting America doesn’t discuss the survey methodology, other than to say in a footnote that the sample size is too small to draw statistically valid conclusions.  The FCC draws conclusions anyway.

(In fairness, one should note that this is probably a fact of life in 21st century surveying.  The increasing sophistication of junk mail has meant that people simply throw away any mail that isn’t familiar.  People tend to embroider the truth when interviewed on the phone.  There’s no good way to figure a response rate for an internet survey.  And some segments of the population are notoriously difficult to sample effectively.  So what the FCC has, while not as rock solid as census data or exit polls, is likely as good as it gets.)

Here are the FCC results:

Who the non-users are

Demographic group————adoption rates at home

National average               65%

Asian Americans               67%

African Americans               59% 

Hispanics               49%

Rural Americans               50%

People with disabilities               42%

Income under $20,000/yr               40%

Americans 65+ years old               35%

Less educated/no high school degree               24%

So if you’re old, poor, have a disability and didn’t finish high school, chances are you don’t have broadband access at home.

Why non-users don’t have broadband

1.  The number one issue is cost, which is cited by about a third of non-users.  This may be the continuing expense of service (15% of nonusers), installation fees (9%), or having to buy a computer in the first place (10%).

2.  Lack of familiarity with computers or with the internet is the second issue, mentioned by 22% of the non-adopters.

3.  19% of non-adopters don’t find internet content particularly interesting or useful.  (I’m sure these people would change their minds if they could read this blog!)

Interestingly, non-users are not technophobes:  80% have satellite or cable TV, 70% have cellphones, and 42% have at least one working computer in their homes.  Among all survey respondents, 24% have disabilities, but 39% of the non-users have disabilities.  (I’m not sure what to make of this last sentence.  At the very least, it casts some doubt on the validity of the survey, since a 2002 Census Bureau study says only 18% of Americans have disabilities.)

What the FCC proposes

Three initiatives, one to address each of the three “barriers” to internet adoption:

1.  subsidize broadband internet service for low-income families, much in the way–and possibly using the same programs–the government currently subsidizes telephones service.

2.  launch a National Digital Literacy Program, with the aim of “training and outreach” in communities that have a lot of non-adopters.

3.  increase the relevance of the internet for non-users.  Government agencies that address non-user segments could require interaction through the internet.  Public and private groups can work with non-user segments to help them find relevant content on the internet.

I get it, sort of

I presume, although the report doesn’t say, that, other than the small group of non-users who think the internet is a “waste of time,” the rest have dialup.  So they have internet access, just not fast or user-friendly internet access.  Still, if you’re unemployed and looking for work, logging onto job sites, researching potential employers…can be a real pain in the neck with dialup.  So, too, can finishing a homework assignment for school–or getting a part-time job that requires computer/internet literacy.

Also, it may be the best approach politically to frame the broadband question as one of social justice, rather than of the competitiveness of US industry.

As well, the report makes it clear on almost every page that the FCC is going to do everything it can to speed the development of broadband internet.  So the bottom line for investors is to concentrate on finding winners from an impending wave of government action.

Still, the evangelism makes me a little uneasy.  I keep asking myself how the report would change if we substituted “reading material from ESPN.com” or “participating in Facebook” for adopting and using broadband internet.

We’d probably find the same community of non-users–older, poorer, less educated.  Then we’d be saying that the government should go into senior citizen or assisted living communities to teach the residents about the value in, and pleasure of, following sports statistics closely.  Maybe ESPN could be induced to offer discounted subscriptions to its premium content for low-income families, or persons over 65.  Suppose programs like this worked and non-users went from thinking that sports statistics are a waste of time to spending three hours a day trolling the various ESPN sites.  Would this be a good thing?

“Connecting America,” the FCC’s National Broadband Plan

Happy St. Patrick’s Day!!!

Connecting America

The FCC presented Connecting America:  the National Broadband Plan to Washington yesterday.   The report is the culmination of close to a year of work, mandated by Congress, of laying out a roadmap for government help in the development of broadband, both fixed and mobile, in the US over the next ten years.

remedial action

As almost any foreigner will cheerfully point out while visiting the US, the country is much closer to being the caboose of the broadband train than the locomotive.  As a result, a lot of what the FCC proposes is necessary for the US to catch up with the rest of the developed world–although, of course, that fact isn’t mentioned in the report.  On the other hand, some of the ideas proposed have already been tried elsewhere.  And the projections of economic benefits to be had from development of broadband, especially mobile broadband, are on surer ground than most economic forecasts, since they’ve already been realized elsewhere.

mobile broadband is the plan’s focus

The centerpiece of the plan is the goal of providing an additional 500 Megahertz of spectrum available for broadband over the next ten years.  A more immediate goal is to provide an extra 300 Mhz spectrum for mobile broadband over the next five years.

Of that latter figure, the FCC has 50 Mhz in inventory–meaning it has to find an additional 250 Mhz fairly quickly.  About half is envisioned to come from spectrum now licensed by over-the-air television.  More is supposed to come from getting government agencies (I think we’re supposed to understand that the FCC means the military) to free up unused, or very inefficiently used, spectrum for better social use.  Presidents have been asking Congress to allow this for the past ten years, though, without any success.

I’ll write more about the report’s findings in later posts.  For today, however, the main point I want to make is that the star of the FCC show is (and correctly so, I think) mobile broadband.

winners and losers Continue reading