Many in mobile fear a drastic change in FCC Internet regulation

It was a very big week for the network neutrality debate. Stakeholders from all sides of the issue and of all political stripes took time to say their piece loudly, publicly. After months of lobbying, letter writing, and public comments, things are finally coming to a head.

I spent a lot of time talking to people in the mobile industry this week about the Federal Communications Commission’s network neutrality problem. Most of them blanched at the idea of regulating broadband as a Title II telecommunications service — that is, as a public utility. Many of them believe that if this comes to pass, investment in Internet infrastructure and mobile technology will slow down.

The POTUS plunge

President Barack Obama took the plunge into the middle of the net neutrality debate this week, making a direct appeal to the FCC to regulate broadband as if it were a public utility. This in itself was odd. If such a strong directive would have come from Bill Clinton at the height of his popularity in the polls in the late nineties, it wouldn’t have seemed strange. But the appeal came from a leader whose party just took a humiliating beat-down in the mid-term elections. Many of the Democratic campaigns in that election even tried to distance their candidates from the president, whose approval number have been low for some time now.

Approval does not necessarily reflect the state of the economy. Unemployment is below 6 percent, oil imports are down and exports are up, and the markets are hitting new highs. It’s a perception issue. The president is not liked, inside and outside Washington. So why did he choose to make his net neutrality statement now? One person I talked to believes it was to please well-monied Democratic contributors in Silicon Valley, and that it had little to do with the future of the Internet.

For big ISPs like AT&T, Verizon, and Comcast, the president’s plan might mean that the government would impose rules on the way they price and distribute broadband service. Caps might be placed on rate hikes, for instance. And ISPs might be required to invest in building out their networks in the poorer parts of town, not just in the neighborhoods where middle class and rich folks live.

The cable guys

The cable companies in particular are under pressure to increase prices already. The reason cable companies, and to some extent telco TV providers like AT&T, are always raising prices is that the owners of the TV content they distribute are constantly raising their prices. For the cable guys, the broadband business is the one bright spot on the balance sheet. It’s a high volume, high margin business. If consumer broadband suddenly became a Title II service, those nice margins might suffer.

At a Comcast press event here in San Francisco this week, CEO Brian Roberts weighed in. Roberts says his company is in favor of an “open Internet” but disagrees that broadband should be reclassified as a Title II service under the Telecommunications Act of 1996. Roberts said the U.S. is enjoying an unprecedented run in tech innovation and investment, and that a reclassification would just spoil the party. He believes that the FCC already has plenty of power to impose network neutrality rules under Section 706 of the Telecommunications Act.
The main question in the network neutrality debate is whether ISPs can sell Internet “fast lanes” to big Internet companies like Netflix that can afford it, at the exclusion of smaller companies that cannot.

I asked Roberts directly if his company had a business agreement with content providers like Netflix to take those packets over the last mile and down into the household. Roberts told me Comcast treats all data packets equally when it sends them over the “last mile” of the network down to the home. “We are comfortable with an industry-wide ban on fast lanes,” he said.

The cooling effect

The thing I heard over and over this week is that if broadband (fixed and mobile, as the president made clear) became a public utility, investment in broadband infrastructure would begin to dry up. One telecom industry veteran likened it to rent control, saying that potential property investors withhold their investments in housing because rent control places a cap on the return they might get in high rents. The end result, they say, is poorer housing in general.

That theory was exemplified by AT&T’s somewhat predictable reaction to Obama’s directive this week. The company’s CEO, Randall Stephenson, told investors on Wednesday that his company would hold off on making further investments in its network of fiber optic lines until the FCC makes its net neutrality rules clear. “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,” Stephenson said.

Wheeler’s ‘hybrid’ fix

FCC chairman Tom Wheeler is on the hot seat to come up with a ruling on net neutrality that everyone can live with. Wheeler has some deep roots in the telecom industry; he spent many years lobbying for it in the Capitol, so classifying broadband under Title II full-stop is not an option. Wheeler has proposed a “hybrid” approach where the Internet backbone, which carries traffic over long hauls across the country, would be regulated under Title II as a “wholesale” utility service, and the “retail” or “last mile” consumer broadband service that delivers packets down to the household would be more lightly regulated.

But both the wholesale and retail parts of the web affect the speed at which services are delivered. If Comcast sells a fast lane to Netflix on the retail part of the web, Netflix’s packets will still make it to their destination faster than the packets of some Netflix competitor that can’t afford to pay the premium, regardless of the equity in wholesale speed. In this sense, regulating the Internet is an all-or-nothing proposition. Either make it a public utility or don’t, but halfsies won’t cut it.

One thing’s for sure: The pressure on the commission to make a ruling on network neutrality is nearing its peak. Something will happen soon, and it will be one of most important and influential decisions the FCC has ever made.