Back when Verizon sued to overturn the FCC's 2010 net neutrality rules, the telco argued that the FCC was aggressively and capriciously violating the company's First and Fifth Amendment rights. According to Verizon's argument at the time, broadband networks "are the modern-day microphone by which their owners engage in First Amendment speech." Verizon also tried to claim that neutrality rules were a sort of "permanent easement on private broadband networks for the use of others without just compensation," and thereby violated the Fifth Amendment.
Granted, any well-caffeinated lawyer in a nice pair of tap dancing shoes can effectively argue anything, though in this case you'd obviously have to operate in a vacuum and ignore the history, context and definition of net neutrality to fully do so. Regardless, Verizon did manage to have those original, flimsy rules thrown out, but it had nothing to do with the telco's Constitutional arguments. Verizon won because the FCC was trying to impose common carrier rules on ISPs without first declaring them as common carriers under Title II of the Communications Act, something the FCC tried to remedy with the latest rule incarnation.
"In a statement of issues that AT&T intends to raise when the case moves further into the court process, the company said last week that it plans on challenging whether the FCC’s net neutrality order "violates the terms of the Communications Act of 1934, as amended, and the First and Fifth Amendments to the US Constitution." The First and Fifth Amendment will be used to attack the FCC's decision to reclassify both fixed and mobile broadband as common carrier services, as well as the FCC's assertion of authority over how ISPs interconnect with other networks."
CenturyLink, wireless carriers (the CTIA) and major telcos (USTelecom) have stated they plan to argue the same point, though the precise legal approach obviously isn't being disclosed yet. Basically, AT&T and friends are throwing every legal claim they can possibly think of at the wall and hoping something sticks.
Leaning on the First Amendment when it's convenient has long been a telecom lawyer mainstay, logic be damned. Verizon tried to argue that its participation in the government's domestic surveillance efforts was protected by the First Amendment. Comcast has tried to argue that its right to bar competitors' TV channels from its lineup is similarly protected by the First Amendment. Charter Communications has hinted it believes its First Amendment rights mean it doesn't have to adhere to municipal franchise contracts. Of course, those of us here on planet Earth realize net neutrality is intended to protect the free speech rights of consumers and small business owners from the incumbent ISPs, and the only concept truly being explored here is irony.
The FCC's net neutrality rules don't even go into effect until June 12, but they're already benefiting consumers. You'll recall that the last year or so has been filled with ugly squabbling over interconnection issues, with Level 3 accusing ISPs like Verizon of letting peering points congest to kill settlement-free peering and drive Netflix toward paying for direct interconnection. But with Level 3 and Cogent hinting they'd be using the FCC's new complaint process to file grievances about anti-competitive behavior, magically Verizon has now quickly struck deals with Level 3 and Cogent that everybody on board appears to be happy with.
That players in the transit and ISP space are suddenly getting along so wonderfully when ISPs insisted net neutrality rules would result in the destruction of the Internet is nothing short of miraculous. It's almost as if the FCC's new net neutrality rules are already benefiting consumers, companies and a healthy internet alike!
"Until now, a variety of voluntarily negotiated, individualized arrangements have been used to exchange traffic between networks. But, under the Order, these arrangements are now part of the “telecommunications service” that broadband Internet access providers offer their retail customers, and thus broadband providers—but not their interconnecting counter-parties—are subject to the requirements of Title II. Yet again, however, the FCC did not explain what that means or how broadband providers must act."
While the FCC's rules on interconnection are a bit vague, the agency has made it clear they'll be looking at complaints on a "case by case basis" to ensure deals are "just and reasonable." Since this is new territory, the FCC thought this would be wiser than penning draconian rules that either overreach or contain too many loopholes. This ambiguity obviously has ISPs erring on the side of caution when it comes to bad behavior, which is likely precisely what the FCC intended. Still, companies with a generation of history at being bullies complain this ambiguity lets others...bully them:
"Providers are thus left to negotiate contracts subject to sweeping statutory mandates without knowing what decisions could lead to enforcement action. Already, providers face demands for significant changes to interconnection agreements. The parties making those demands are threatening to file enforcement actions if their demands are not met. This distortion in what had been a well-functioning private negotiation process is irreparable harm."
And by "well functioning private negotiation process," the ISPs clearly mean one in which they were able to hold their massive customer bases hostage in order to strong arm companies like Netflix into paying direct interconnection fees. One in which regulators were seen but not heard, while giant monopolies and duopolies abused the lack of last mile competition. Yes, the FCC's actions have been so brutish and aggressive, they've resulted in a cease fire across the interconnection front to the benefit of video customers and internet users everywhere. Will the nightmare ever end?
While there's been no limit of hand-wringing over the new net neutrality rules, much of this has been either hyberbole by giant ISPs that don't like having their anti-competitive pipe dreams quashed, or by folks who don't actually understand what the rules actually do. There are a number of smaller ISPs, partisans and tech execs that exist in the second camp, assuming in kneejerk fashion that the FCC's new rules saddle them with all manner of burdensome regulations. In reality, as we've noted several times, not much changes under the new rules -- provided you don't intend to engage in anti-competitive behavior.
Former Verizon regulatory lawyer turned FCC Commissioner Ajit Pai voted down the rules, and has been waging a bizarre, facts-optional assault on neutrality supporters like Netflix ever since. Last week Pai managed to drum up a little extra hysteria on this front by proclaiming that the new rules were crushing small ISPs with all manner of new costs. Pai trots out several small ISPs that, in filings to the FCC, take a page out of the AT&T pouting playbook and say they're freezing investment in broadband because the rules are just too damn onerous:
"KWISP President Kenneth Hohhof told Ars that his two-person company makes revenue of $250,000 to $300,000 per year, and he estimates that he’ll have to pay $20,000 in legal costs because he intends to hire a lawyer to review his business practices. Hohhof admits that he “pulled that [number] out of the air,” but given the hourly rates charged by telecom lawyers, he expects the bill to be substantial for such a small company.
...Another wireless ISP Pai described is SCS Broadband in rural Virginia, which serves 800 customers and “has already stopped investing in new rural areas because of the FCC’s decision, and it won’t resume until it can ‘determine if the additional cost in legal fees warrant such investments,’” Pai said. “And investors have already told SCS Broadband that ‘projects that were viable investments under the regime that existed before the Order will no longer provide the necessary returns to justify the investment.’"
Yes, like with any regulations, investors will need to do due diligence, and businesses need to occasionally consult attorneys to understand the market landscape in which they operate. Also, shockingly, lawyers do indeed tend to take extra advantage of people who can't be bothered to understand when their services are or aren't needed. And while it's clear the FCC could do a better job communicating the rules' impact, these problems aren't the fault of the rules themselves.
Rather amusingly, Ars Technica then proceeds to dissect most of these concerns point by point, suggesting that most of the small ISPs engaged in hysterics over the rules appear to not understand them in the slightest. As Ars notes, most of the onerous portions of Title II (rate regulation, local loop unbundling) aren't included in the rules, and most smaller ISPs are exempted from new transparency requirements. Indeed, most of the non-blocking, non-throttling, and "reasonable network management" requirements are the same, relatively-generous ones these ISPs lived under with the original net neutrality rules, which they didn't need lawyers to understand and comply with.
The bottom line: a lot of confusion and fear on the part of hysterical anti-Title II folks could be eliminated by actually reading the rules (pdf), instead of listening to incumbent ISP lawyers, former incumbent ISP lawyers like Ajit Pai, or execs like Mark Cuban. Again, many folks who actually run ISPs for a living (like Sonic.net CEO Dane Jasper) note it's only ISPs that engage in anti-competitive behavior that should worry. That's not hard to realize if you've paid attention to the FCC's recent, totally out of character, shift toward notably more consumer and competition-friendly telecom policies that are already benefiting consumers and companies alike.
Even the major ISPs that hate the idea of having their anti-competitive shenanigans policed have repeatedly and quietly admitted the rules don't impact their day-to-day business operations much. While their lawyers and lobbyists have been busy predicting business Armageddon, dozens of ISP execs have gone on record in recent months to admit the rules don't change much of anything for them operationally. And indeed, small ISPs that have bothered to pay attention to this bizarre new about-face at the FCC (like Joshua Montgomery of Wicked Broadband in Kansas) appear to understand this:
"If you're behaving in your customers' best interests and operating above the board, I don't think you have anything to be concerned about,” he said. “If you're advertising a $19 rate and then jacking people's bills up to $125 with fees and other things after six months and claiming some kind of long-term deal, yeah you're probably going to have trouble. [The FCC] made it very clear that their goal is to encourage competition, and I don't think they have their eyes on small players."
At the heart of the net neutrality opposition are very wealthy companies immeasurably angry that somebody is finally trying to stop them from aggressively cashing in on the lack of competition over the broadband last mile. At the periphery are many satellite opponents who just oppose the new rules because (certainly not without some valid historic justification) they believe all regulation is always bad, and you don't need to have an intelligent, nuanced debate on the merits of individual proposals because the fact that regulation is always, automatically bad is always true and la la la I can't hear you. The former have a pretty easy time riling up the latter, but you can go a long way toward avoiding this kind of confusion by actually reading and understanding the regulations you're busy claiming will destroy the business universe as we know it.
That broadband investment will suffer because of net neutrality has been the rallying cry of the broadband industry for much of the last year, despite the fact that hard evidence and public executive statements repeatedly show this claim to be nonsense. You might recall that back when the President issued his surprise support of Title II-based net neutrality rules last November, AT&T responded in typical AT&T fashion: by pouting. The company quickly proclaimed it would be taking its ball and going home, "freezing" the company's plans to deploy fiber to the home to up to 100 cities nationwide:
"We can't go out and invest that kind of money deploying fiber to 100 cities not knowing under what rules those investments will be governed...We think it is prudent to just pause and make sure we have line of sight and understanding as to what those rules would look like," added the CEO."
Of course, as we noted at the time, this 100-city deployment claim was a ridiculous bluff to begin with; AT&T was simply offering gigabit speeds to a limited number of housing developments where fiber already exists, then dressing it up as a massive deployment to save face in the Google Fiber age (aka "fiber to the press release"). In reality, AT&T's been cutting fixed-line investment hand over fist for years, and had announced yet another $3 billion fixed-line CAPEX investment cut just three days before announcing its supposed "investment freeze." In other words, it was all political theater.
And it wasn't even good political theater. When the FCC pressed AT&T to show hard numbers, the company had to notably walk back its claims in a highly-redacted filing. AT&T effectively admitted the entire thing was basically a bluff, and the company's plans to offer gigabit service to a few high-end housing developments was absolutely unchanged by net neutrality.
"We have seen the way the rules came out, ... and as we read those rules we do believe they are subject to modification by the courts" or by Congress, Stephenson said on CNBC's "Squawk Box." "So we've said we're going to invest around $18 billion this year. That will allow us to deploy a wireless broadband solution to 13 million homes around the U.S.," he said. "That compares to about $22 billion last year."
Basically, Stephenson's pretending that the broadband industry's just so damn confident it will be victorious in court, AT&T's going to boldly shake off reservations and sally forth with network investment. Of course Stephenson knows the press won't notice or care he's conflating wireless and wired network investment (when his original freeze claim was clearly regarding wired), overall investment is still dropping, AT&T's actually hanging up on millions of DSL users it no longer wants all over the country, or the fact that AT&T already admitted in filings the entire argument was a fraud in the first place. With a press too lazy to fact check him, Stephenson still conveniently trots out the investment bogeyman when convenient, even after AT&T's admitted such worries are little more than factually-unsupported, politically useful phantoms.
We've noted how AT&T and Verizon investors and executives have been terrified for some time that they would have to (gasp) compete on price as T-Mobile continues to disrupt the market with its consumer-friendly, faux-punk rock behavior. Ever since the AT&T deal was blocked by regulators, T-Mobile has been mercilessly (but entertainingly) mocking both companies, offering a bevy of promotions while eliminating a lot of "pain points" for consumers (like overage fees). It's working: T-Mobile's now signing up more subscribers each quarter than Sprint, AT&T or Verizon -- just by treating consumers well.
So far, outside of a few very time-limited promotions, Verizon's been unwilling to compete on price, insisting the company's high prices are justified by a "premium network experience." Verizon also recently tried to shoot down the appeal of T-Mobile's unlimited data offerings by insisting that nobody really wants unlimited data plans, they're just being driven by "gut feelings." With T-Mobile just having one of its most successful quarters ever, Verizon's increasingly under pressure to compete on price, yet the telco continues to proclaim it doesn't have to:
The company reported on Tuesday that it had lost 138,000 postpaid customers in the last three months. Francis Shammo, Verizon’s chief financial officer, apparently won't be missing customers who, he says, value price over quality. "If the customer who is just price-sensitive and does not care about the quality of the network—or is sufficient with just paying a lower price—that’s probably the customer we’re not going to be able to keep," he said in the company’s quarterly earnings call."
It shows you just what kind of competition Verizon's historically used to if the company honestly believes you have a choice of when you get to compete on price. And while the company is busy telling investors that it's not feeling any heat from T-Mobile, the growing, magenta-hued (TM) threat has Verizon simultaneously testing a number of new price promotions it hopes will help tip the subscriber scales back in its favor. Smelling blood, T-Mobile this week launched a new promotion that specifically takes aim at these "price sensitive" customers Verizon apparently doesn't want any more:
Of course Verizon's not entirely wrong. The company does come in first place pretty consistently in most customer service and network performance studies. Verizon's also well aware it enjoys an 80+% retail market share with AT&T, and an 85% market share of the special access (cell tower backhaul) market. The two companies also enjoy an estimated $171 billion in combined spectrum holdings, which certainly helps keep other competitors from market. Still, this belief that the company doesn't have to compete on price in the face of increased price competition seems like a pipe dream narrative they'll only be able to push for so long, especially if Sprint can manage to get out of its own way, fix its lagging network, and become a viable fourth wireless competitor.
Back when AT&T stopped offering unlimited wireless data, it grandfathered many of the unlimited users it had at the time. Unfortunately for those users, AT&T immediately started waging a quiet war on these customers as part of a concerted effort to drive them like cattle to more expensive plans. That included at one point blocking Facetime from working at all unless users switched to metered plans (but net neutrality is a "solution in search of a problem," am I right?) and throttling these "unlimited" LTE users after they'd consumed as little as three gigabytes of data.
Then, just about a year ago, the FCC (like it has on a number of consumer telecom issues like telco accounting fraud or municipal broadband) miraculously awoke from a deep, fifteen-year slumber and decided to do something about this kind of behavior. FCC boss Tom Wheeler started warning telcos that they can't use congestion as a bogeyman to justify cash grabs, and that network management should be used to actually manage network congestion -- not as a weapon to herd users to more expensive options. The FTC also filed suit against AT&T for false advertising over its "unlimited" claims.
"As a result of the AT&T network management process, customers on a 3G or 4G smartphone with an unlimited data plan who have exceeded 3 gigabytes of data in a billing period may experience reduced speeds when using data services at times and in areas that are experiencing network congestion. Customers on a 4G LTE smartphone will experience reduced speeds once their usage in a billing cycle exceeds 5 gigabytes of data. All such customers can still use unlimited data without incurring overage charges, and their speeds will be restored with the start of the next billing cycle."
As of this week, the policy now looks like this:
"As a result of AT&T’s network management process, customers on a 3G or 4G smartphone or on a 4G LTE smartphone with an unlimited data plan who have exceeded 3 gigabytes (3G/4G) or 5 gigabytes (4G LTE) of data in a billing period may experience reduced speeds when using data services at times and in areas that are experiencing network congestion. All such customers can still use unlimited data without incurring overage charges, and their speeds will be restored with the start of the next billing cycle."
In other words, gone are the references to throttling unlimited LTE users just because they hit a totally arbitrary threshold, and the company is now using network management to manage the damn network, not to make an extra buck. AT&T will of course find other, clever ways to annoy these users until they switch to more expensive plans, but it's at least good to see that the network congestion bogeyman (fear the exaflood!) isn't quite as effective as it used to be when it comes to justifying high rates, misleading consumers or conning regulators.
After a fifteen-year slumber, regulators have apparently decided it might be a good idea to start cracking down on rampant fraud in the telecom market. Not long ago, we noted how AT&T was finally fined for abusing the IP Relay network for the hearing impaired, intentionally turning a blind eye to scammers on the network just to haul in the $1.50 per minute subsidies tied to the network. AT&T strung regulators along for years, implementing "solutions" that it knew wouldn't work but technically met flimsy FCC requirements. As a result, simply stopping AT&T from profiting off of defrauding the deaf (it's estimated that 95% of AT&T's IP Relay traffic at one point was credit card or other scammers) only took regulators the better part of two decades.
Last year, regulators finally cracked down on AT&T for helping scammers of a different sort: crammers. Crammers had been gouging AT&T customers for most of the last decade, charging them $10 a month for garbage "premium" text messaging, horoscopes and other un-asked-for detritus. There again, AT&T intentionally turned a blind eye to the criminal behavior, in large part because the company was netting around 35% of the proceeds from the scams. Worse perhaps, regulators found AT&T was actively making its bills harder to understand so the fraud would be more difficult to detect.
This month, the FCC has announced that it has struck a settlement with AT&T and former subsidiary SNET, over charges the companies were collecting undeserved subsidies under the agency's "Lifeline" program, a low-income community subsidy effort created by the Reagan administration in 1985 and expanded by Bush in 2005. According to the FCC's findings, AT&T apparently "forgot" to audit its Lifeline subscriber rolls and purge them of non-existent or no-longer-eligible customers, allowing it to continue taking taxpayer money from a fund intended to aid the poor:
"AT&T and SNET’s failure to remove ineligible Lifeline customers from their rolls was discovered in 2013 during an FCC audit of two AT&T Lifeline affiliates. The audit found that a number of Lifeline subscribers who no longer qualified for the program had not been de-enrolled following the annual recertification process for 2012 and 2013, a process in which consumers are required to certify their continued eligibility for Lifeline. These subscribers were given one extra month of Lifeline support, and AT&T improperly claimed reimbursement from the government for this extra month. Additionally, the Enforcement Bureau found other de-enrollment and recordkeeping violations."
The FCC announcement goes well out of its way to avoid calling this fraud, but unless you believe AT&T honestly forgot to purge its rolls (pretty difficult to do in full context of AT&T's historical behavior), it's hard to call it anything but. The FCC doesn't specify how great the discrepancy was, but given the speed at which AT&T has been backing away from unwanted DSL and phone markets, the revised differences likely aren't modest. This latest fine comes as AT&T is busy trying to convince the government that there's an endless parade of amazing benefits to be had by letting AT&T acquire DirecTV, effectively eliminating a competitor from the pay TV space.
Historically, telecom regulators love slam dunk cases against small scammers, but were willfully oblivious or too timid to acknowledge the larger players' culpability. With regulators no longer napping in regards to obvious fraud by bigger telecom players like AT&T, companies have unsurprisingly started grumbling that Travis LeBlanc, Chief of the FCC’s Enforcement Bureau, is being too hard on industry and therefore not actually curbing bad behavior:
"Two telecom-industry advocates complained that LeBlanc has been successful at grabbing headlines, but less effective at actually curbing bad behavior. By not being lenient on companies that self-report violations, he is discouraging future companies from coming forward, they said. "The FCC's new approach will discourage cooperation and self-disclosure, and it's going to force regulatees to beef up on litigation instead of compliance with the rules," one industry lobbyist said. "Ultimately, that's a poor use of resources for taxpayers, and it will lead to a worse result for consumers."
Yes, doing the bare minimum to prevent AT&T from ripping off taxpayers and consumers is just an atrocious affront to taxpayers and consumers.
While overreach is certainly possible, most of the stuff LeBlanc is cracking down on is either outright fraud, or the kind of enforcement that's hard to seriously cry foul about (like fining companies for failing to report 911 outages or airing porn during prime time). By and large, LeBlanc appears to be following the lead of FCC boss Tom Wheeler, breaking FCC tradition and actually standing up to large telecom companies. If there's a place LeBlanc (former aide to California AG Kamala Harris) may overreach, it's as the FCC begins using newfound Title II authority to re-examine broadband privacy rules.
For the moment, however, it's just interesting to see the FCC no longer turning a blind eye to scams and fraud when the country's biggest telecom campaign contributors are involved, even if the fines being levied are likely a small fraction of the total money AT&T has made off of a decade of very shady behavior.
Did you know that U.S. ISPs in uncompetitive markets are really, really shitty at their jobs? While I assumed that was pretty common public knowledge by this point, there's an interesting new groundswell of attention being paid to the fact that most ISPs are absolutely abysmal at communicating 1: what real-world speeds a user can get; and 2: whether users can actually get service at all. Case in point was the recent, Kafka-esque experience of a new Washington homeowner, who spent months being given the runaround by Comcast and CenturyLink regarding service the companies repeatedly (but falsely) promised was available.
This week, another story is making the rounds that highlights how ISPs will often claim to offer one speed, then actually offer users something dramatically more pathetic (if you can get connected at all). This user in Michigan, for example was told by AT&T's website and employees repeatedly that he should be able to get 20 Mbps at his address -- only to discover that the top speed he could get was a not-so-brisk 300 kbps. Such circa 1999 speeds are of course well below the FCC's new 25 Mbps broadband definition, changed to highlight the notable lack of U.S. competition at higher speeds.
Given that AT&T likely doesn't see any competition in the user's market, that 300 kbps isn't just slow, it's unreliable, suffers from the more-than-occasional hiccup and for good measure it's capped at 150 GB of usage before overages are incurred. Similarly, no competition means AT&T doesn't have great motivation to upgrade its outdated internal databases, or improve customer service. The lack of competition and regulatory capture in so many of these states makes communicating with AT&T (or getting regulators to care about broken promises) a Sisyphean endeavor:
"I’ve complained to just about everybody, the FCC, the FTC, the Michigan Public Service Commission,” Mortimer said. "I got a call back from the office of the president of AT&T responding to my FCC complaint. All I got was, ‘sorry, Mr. Mortimer, the speeds are the fastest available at this time.’" Since Ars first spoke with Mortimer in January, he suffered several more frustrations with AT&T. In one incident, his Internet service was shut off after an auto-payment error, he said. In another mishap, AT&T raised his bill from $33 to $89.40 after adding a phone line to his Internet service, even though he never asked for phone service."
The good news is that once you're actually connected at the speed your ISP advertises, more often than not you'll be able to reach those speeds consistently. An annual FCC study informed by custom firmware-embedded routers shows that most ISPs (with the exception of most DSL providers) deliver the speeds they advertise. The FCC has been naming and shaming ISPs that don't with fairly good results. Still, these DSL lines nobody wants to upgrade are going to be a notable problem going forward. And with billions of subsidies already thrown at companies like AT&T and Verizon over the last generation to avoid exactly these problems, people are justifiably skeptical that throwing more federal taxpayer dollars at these markets is actually going to help things.
That's of course where municipal broadband and the FCC's push to eliminate protectionist state laws comes in. Poorly-served towns and cities need the right to craft their own, flexible and customized broadband solutions in cases of market failure -- whether that's a publicly-owned fiber ring or a public/private partnership with somebody like Google. Instead, we've watched as the same telcos that don't even want to serve many of these DSL customers -- pass protectionist law preventing these communities from doing anything about it. We're only just starting to see this logjam starting to break, but it's going to take a lot more work to get many of these broadband black holes out of the grip of mega-ISP apathy.
Having written about the FCC for most of my adult life, I've grown cynically accustomed to an agency that pays empty lip service to things like consumer welfare and the painful lack of broadband competition. It doesn't matter which party is in power; the FCC has, by and large, spent the lion's share of an entire generation ignoring last mile competitive problems and the resulting symptoms of that greater disease. When the agency could be bothered to actually address these issues, the policies were so tainted by the fear of upsetting campaign contributors (read: regulatory capture) they were often worse than doing nothing at all (see our $300 million broadband map that hallucinates speeds and ignores prices or 2010's loophole-filled net neutrality rules co-crafted by Verizon and Google).
Whether it was former FCC boss turned cable lobbyist Michael Powell's claims that massively deregulating the sector would magically result in telecom Utopia (tip: that didn't happen) or Julius Genachowski being utterly terrified of taking any meaningful stand whatsoever, the broadband industry has spent decades governed by an agency that, at its best, is too timid to do its job, and, at its worst, is an obvious revolving-door lap dog to an industry it's supposed to regulate.
So in 2013 when it was announced that a former lobbyist for both the wireless and cable industries would be the next FCC boss, the collective, audible sighs of disgust unsurprisingly rattled the Internet. I, like many others, believed we were bearing witness to a twisted culmination of decades of regulatory capture, a giant, living, breathing middle finger to a public hungry for a more consumer and innovator-friendly FCC. John Oliver even put Wheeler's name in lights when he infamously compared hiring the former cable lobbyist to employing a dingo as a babysitter:
Most people (with a few notable industry exceptions) believed Wheeler was the final nail in a grotesque, campaign-cash stuffed telecom coffin long under construction. We were painfully, ridiculously wrong.
In fact, if you read profiles on Wheeler, he's turned out to be a complete 180 from the thinking of a traditional revolving-door regulator, basing his decisions on all available information -- even if that data conflicts with previously-held beliefs (a unique alien indeed in 2015). And while it's true that massive grass roots advocacy helped shift Wheeler's thinking on issues like Title II, his embrace of issues like municipal broadband required little to no shoving, since the lion's share of the public had no idea the issue existed. One of the biggest reasons Wheeler's willing to stand up to the broadband industry? He's 69, and no longer biting his tongue and biding his time for the next cushy lobbyist or think tank gig. Perhaps we should make a rule that all future FCC bosses must be on the brink of retirement to avoid what we'll henceforth call Michael Powell syndrome.
Still, watching Wheeler fills me with cognitive dissonance, as if my frequently-disappointed brain isn't quite sure what to do with an FCC Commissioner capable of objective thought free of AT&T, Comcast and Verizon lobbyist detritus. As a sure sign of the looming apocalypse, last week I watched an FCC Commissioner issue a statement about protecting competition -- and actually mean it:
"Comcast and Time Warner Cable’s decision to end Comcast’s proposed acquisition of Time Warner Cable is in the best interests of consumers. The proposed transaction would have created a company with the most broadband and video subscribers in the nation alongside the ownership of significant programming interests. Today, an online video market is emerging that offers new business models and greater consumer choice. The proposed merger would have posed an unacceptable risk to competition and innovation especially given the growing importance of high-speed broadband to online video and innovative new services."
Though his tenure's unfinished, it may not be a stretch to say that a man most of us believed would be the epitome of revolving door dysfunction has proven to be one of the most consumer- and startup-friendly FCC Commissioners in the agency's history. Granted that may not be saying much; caring more about consumers than Martin, Powell and Genachowski is like getting an award for beating a handful of lobotomized ducklings at a hundred yard dash. And none of this is to classify Wheeler as a saint -- the agency's net neutrality rules have some very concerning loopholes and the FCC still refuses to talk much about pricing, whether that's the problems inherent in usage caps, unreliable meters, or sneaky below the line fees.
Still, it's a lesson learned in letting your mind run on cynicism autopilot, and it's a reminder that even our very broken, campaign-cashed soaked government can still occasionally manage to give birth to consumer-friendly policies. So in short, the tl;dr version is this: I apologize to you, Tom Wheeler, for believing you were a mindless cable shill. I was wrong.
With Comcast's attempted acquisition of Time Warner Cable dead and buried, telecom regulators now shift their gaze to AT&T's attempt to acquire DirecTV. Unlike the Comcast deal, AT&T's deal is in some ways worse because it actually eliminates a direct competitor in the pay TV marketplace. Still, somehow the overarching narrative is that the deal isn't nearly as bad because the final company will be only slightly less massive. As such, regulators appear poised to sign off on the deal, with insiders saying they're swayed by AT&T's claims that the deal will somehow help expand broadband services:
"The divergence in fortunes signals that regulators are more worried about providing choice in Internet access and new, online video options than they are about concentration in pay TV...The Federal Communications Commission sees the AT&T deal as helping competition and aiding the spread of broadband into rural areas that lack service, people familiar with the matter said."
Yet in a recent, heavily-redacted filing with regulators, AT&T promises that if it's allowed to buy DirecTV, it will expand fiber to the home service to an extra two million households. After defending its decision to skimp on network investment for a decade, AT&T's filing illustrates how the telco, unlike Verizon, chose to spend a lot less money on slower fiber to the node service, painting itself in a corner in terms of offering broadband speeds on par with cable. The filing claims that being allowed to buy DirecTV will somehow magically fix this by pushing AT&T to invest more heavily in fiber (and they mean it this time):
"Based on the expected content cost savings alone, AT&T concluded that it will have an economically viable business case to justify expanding FTTP GigaPower’s reach to at least two million additional customer locations that would not meet investment thresholds absent the merger, and AT&T has committed to do exactly that within four years of the closing of the merger. Significantly, this “lift” in the economic viability of FTTP GigaPower service from the transaction is in addition to any further expansion justified by changes in the constantly evolving competitive landscape."
There are a few problems with this scenario. One, AT&T has a long history of using phantom broadband expansion as a carrot on a stick for regulators, then failing to follow through. Whether it's the company's acquisition of BellSouth or its failed acquisition of T-Mobile, AT&T's strategy has always been to take broadband deployments it was planning to do anyway, then break them out as a pretended added expansion should its latest deal get approved. Meanwhile, AT&T's Gigapower service is, as previously noted, mostly aimed at high-end housing ("greenfield") developments. Even if real (which if history is any indication it's not), two million isn't much of an expansion when you consider how much fiber to the home service $49 billion would have purchased. Even if AT&T sees cost savings thanks to improved programming leverage, AT&T's historically the type to pocket those proceeds -- not put them back into the network.
Even M&A loving Wall Street analysts don't quite understand the point of the DirecTV deal, even though history (T-Mobile) has made it perfectly clear the telco is willing to spend tens of billions simply to reduce sector competition. Some argue that buying a satellite TV operator at a time when cord cutting is just starting to nibble at satellite's subscriber base -- and the traditional pay TV ecosystem is undergoing a seismic shift related to unsustainable pay TV rates -- just doesn't make sense. As such, the FCC may be thinking the deal may not need to be blocked, given it may just be dumb enough to be irrelevant over the long haul. It may even be able to extract some consumer-friendly conditions in the process.
Still, in the short term, AT&T's inevitable competitive-hamstringing of the traditionally more price disruptive DirecTV is troubling. It's here I'll remind folks that AT&T's attempt to nab T-Mobile was blocked, and the result was undeniably a more competitive wireless marketplace than before. Meanwhile, Comcast's deal was refused in no small part thanks to the extreme, negative public sentiment surrounding cable service and the Comcast brand. Though AT&T is every bit obnoxious and aggressively anti-competitive as Comcast, AT&T's merger has managed to fly under the public-perception radar. Should AT&T's deal (and bundled nonsensical broadband expansion plans) be approved, AT&T's certainly going to owe the folks at Comcast a very lovely "thanks for the distraction" gift basket.