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Changes to FCC Four Principles could ban existing services

By 26 October 2009 3 Comments

fcc-logo-180wOne of the main justifications for the new rules spelled out in the FCC’s Notice of Proposed Rule Making (NPRM) in the name of “Net Neutrality” is to “preserve” the Internet, but the details of the rules indicate that substantial changes could be made to the existing Internet.  These changes could mean that existing business models and service offerings could become out of compliance with the NPRM as the text currently stands (available in Word and Acrobat format).

Among other things, the stated purpose of the NPRM is to codify the “existing” Four Principles created in 2005.  But upon examination of the current NPRM and previous versions of the “Four Principles”, the currently proposed Four Principles appear to have changed in subtle but significant ways.  The new NPRM differs from the 2005 version of the FCC’s Four Principles which itself had changed from the original “four freedoms” spelled out by former FCC Chairman Michael Powell.

The current NPRM in Section C, paragraph 92 codifies the first four principles.

  1. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from sending or receiving the lawful content of the user’s choice over the Internet.
  2. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from running the lawful applications or using the lawful services of the user’s choice.
  3. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from connecting to and using on its network the user’s choice of lawful devices that do not harm the network.
  4. Subject to reasonable network management, a provider of broadband Internet access service may not deprive any of its users of the user’s entitlement to competition among network providers, application providers, service providers, and content providers.

There are several notable changes to the Four Principles.  The first rule of Powell’s “Four Freedoms” granted the freedom to access content of the broadband consumer’s choice but it allowed for “reasonable limits” so long as such restraints are clearly spelled out in the service contract and only used at a minimum when necessary.  The new first principle does not seem to allow such contractual exceptions even if they are clearly spelled out and even if the capacity of the network e.g., wireless networks can’t support the content.  The possibility remains that this exception could be written into section H of the current NPRM which clarifies the differences in various network platforms.  Without it, lower cost service plans with fewer capabilities may be regulated out of business.

The first principle prior to the current NPRM only granted the freedom to “access” content but the new first principle also grants the ability to “send” lawful content which infers the ability to operate servers.  While there’s nothing unlawful about operating servers, ISPs usually reserve this capability for their higher priced business class services and exclude this capability in their consumer grade services.  This differentiation shifts the cost of the Internet’s infrastructure from consumer grade services to business class services, and that lowers barrier to entry for broadband which increases adoption.  While the principle may be well meaning, the unintended consequence could be the merging of business grade products and consumer grade products which would lower prices for business customers at the expense of increasing prices for most consumers.  It would be as if the Federal Aviation Administration (FAA) created a rule that prohibited differences between economy and business class flights.  It sounds great but it would raise prices for most flyers.

The second and third freedoms of Powell’s “Four Freedoms” granted consumers the freedom to run the application and attach the device of their choice so long as they operate within the service plans.  The new second and third principle does not seem to permit such exceptions and this could spell trouble for most of the existing service models shown in figure A below.

Figure A – The Internet supports a wide range of business models

Presently, consumers have a choice between lower costing partial service wireless Internet access or higher costing full wireless Internet access.  Smart phones like the iPhone have single-device service plans which contractually prohibit the attachment of other devices like laptops.  This “no tethering” limitation significantly lowers the cost of iPhone 3G wireless Internet access from the normal $60/month to $30/month.  Smart phones like the BlackBerry Bold which does permit the attachment of laptops has a service plan similar to other full service Internet access plans which costs $60/month.  If all service plans must permit the attachment of devices, the $30/month single-device plan goes away and consumers are left with the $60/month plan.

Devices like the Peek simply email device costs $20/month for unlimited email access but it blocks access to every application legal or otherwise with the exception of a few email servers that the customer specifies.  Devices like the Amazon Kindle eBook reader and upcoming Barnes & Nobles Nook will have very limited access to the Internet, but they don’t cost the user anything up front in the form of a monthly subscription fee for 3G Internet access.  The Peek, Kindle, and Nook under a strict first two principles that does not make exceptions for service plan limitations would be regulated out of existence.  That would be a tragic mistake because these are business models and devices that lead the world in innovation and they give consumers a cheaper products with the feature sets they desire.

Lastly, the original “Four Freedoms” stated that “consumers should receive meaningful information regarding their service plans” which is essentially a transparency rule.  But the new “Four Principles” would change this to say that consumers are “entitled” to competition between network providers.  Since many consumers only have two or fewer wired broadband network providers and some feel that this is not a sufficient level of competition, it opens the possibility that the the new fourth principle is a pretext for mandated network unbundling and structural separation.  In the context of the recent Berkman broadband study (which appears to be based on flawed historical analysis and flawed data), forced unbundling is more than just a theory and it could have serious consequences for private Internet investments.

This only begins to scratch the surface of the NPRM regulations on the Internet.  All through this week, Digital Society will analyze every aspect of the NPRM.  As it currently stands, the NPRM will need several revisions to the revised Four Principles or it could raise prices for consumers and stifle future investments in broadband infrastructure.