What the New FCC Chairman Must Do

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julius-genachowski-thumb1President-elect Obama will name Julius Genachowski as the new chairman of the Federal Communications Commission, the Wall Street Journal said today, adding weight to similar reports in the Washington Post from a few weeks ago. Aside from being Harvard buddies with Obama, Genachowski runs LaunchBox Digital, a Washington, D.C.-based startup accelerator program similar to YCombinator and TechStars. He may not fully represent the outside-the-Beltway perspective that we were looking for, but he does understand two things that should offer comfort to Silicon Valley — startups and new media.

More importantly, Genachowski is replacing Kevin Martin, who has proven to be such an enemy of the citizens, so obviously biased in favor of the big phone companies (he was a lobbyist, after all), that anyone with a sense of fairness and common sense would look like an improvement.

Genachowski and ultimately his boss, President Obama, will have to work hard to shift the focus away from incumbent telecommunication providers, and to ome up with a broadband strategy befitting a country that has long been a technology leader and innovator. Instead of focusing on today’s access technologies of DSL and cable, the new FCC must focus on nurturing future opportunities. We’ve talked to some of our most trusted sources to come up with a detailed technology and broadband task list for the new administration to tackle. It includes:

  • An Internet user bill of rights, with a focus on citizen privacy. Or as contributor Alistair Croll says, “Internet of the people, by the people, for the people.”
  • A focus on one key metric for all FCC decisions: a relentless obsession that helps the U.S. return to the global forefront of Internet and mobile technology.
  • An emphasis on future technologies (mostly wireless) that boost marketplace competition. For instance, large increases in license-free bandwidth could could lead to a lot of innovation without spending too much government money.
  • Special incentives to attract new players (and not older companies) that bring broadband to the masses.
  • Incentives or tax breaks for incumbents to reach specific deployment goals before the end of 2010. Incentives will only be granted after those goals are met and broadband speeds of upwards of 20 Mbps down and 10 Mbps up for less than $50 a month without bandwidth restrictions are available. This trades tax credits for rapid improvements to our nation’s broadband infrastructure.
  • Better and more connectivity to office buildings, especially from newer players.
  • An IP- and broadband-centric, rather than voice-centric, approach to reforming the Universal Service Fund.
  • Policies that bring quality of service into the wireless agenda, and penalize wireless companies which have high numbers of dropped call complaints.
  • An understanding that web monopolist Google (s GOOG), and other web companies, are not the consumer’s friend, so their agenda shouldn’t automatically be trusted.

According to a Stifel Nicolaus report, Genachowski will likely have the following effect on the main industries the FCC regulates:

  • Incumbent Telcos: Will see their influence wane, especially when it comes to securing protection for landline broadband access, but not disappear.
  • Cable MSOs: Will probably be better than Martin (who pushed, for example, for à la carte cable pricing), but Genachowski is also expected to “spell out digital public interest duties and be skeptical of industry requests for relaxation of ownership limits.”
  • Wireless Operators: Will help promote wireless broadband access in a variety of ways likely to benefit incumbents as well as new entrants. The battle lines will be drawn between wired broadband access and wireless, rather than the incumbents vs. the upstarts on this particular issue.

Genachowski was Obama’s top technology adviser during the presidential campaign, according to the Journal, and raised a considerable amount of money for the effort. Prior to incubating startups (so far only nine startups have graduated from LaunchBox, among them BuzzHub.com, Koofers.com and Heekya.com, and none have really become household names yet), Genachowski was chief of business operations and a member of Barry Diller’s office of the chairman at IAC/InterActiveCorp (s iaci). He’s not entirely foreign to the FCC, as he served from 1994-1997 as chief counsel to then-FCC Chair Reed E. Hundt. For other positions, check out his Muckety map.

There’s no guarantee that Genachowski’s experiences will translate into consumer-friendly policy decisions on net neutrality, broadband access and competition, and other issues before the FCC, but his appointment does give us some hope — especially with regard to net neutrality and understanding the benefits of a fat pipe into the home to push web content. His willingness to assure consumer privacy on the web is a bit doubtful given his experience in new media, where advertising remains the dominant revenue source, but we eagerly wait his Senate confirmation to see which fights he takes on.

39 Comments

Rich Maro

Net neutrality is a must. Taking the power from the RBOC’S is long overdue as Judge Green intended for them not to control and havce unjust influence over the loca lPSC/PUC as well as the FCC. Enforcing the rules to allow competition to grow would be the better part of his plan. Many rules or regulations have been disregarded and the FCC fails to enforce them as the favor goes to th Bells! My own personal experience has been if you can’t afford to suppor may lobbyist and attorneys the FCC turns theirt head from you no fair. Please be the fair Chair we need to allow growth and competition to help stimulate the economy. Me been at the FCC for tweleve years and the law aginst the RBOC’S has still yet toi be enforced while they continue to be unjustly enrich and grow back to a monolpy

Phil

“Insisting on an unprofitable business model is counter-productive to that goal.”

Nobody said that. Are you familiar with the concept of a regulated monopoly? The provider, in exchange for a franchise in a service area, agrees to have its rates and policies regulated by a public service commission. The provider is required to publish tariff schedules that lay out its services and rates, and it is required to provide service to anyone willing to pay.

The PUC sets rates that allow the carrier to make a specified rate of return over and above its costs.

This has worked well for many decades with electricity and gas suppliers. Why can’t it work for a local dark fiber network?

Rich Maro

Sorry you believe this! It is so far from the truth. The local PSC/PUC’s are controlled by the RBOC’S. This is a fact try and have some law enforced and watch how they defend and support the bell comopany in your area. Trust me I have been in telecom for over 22 years operating my own business and have had to dispuite many times Verizon and the law clearly states they were in the wrong but the PSC has allowed them far to much leverage and they tie you up forever. The case that has been before the FCC for twelve years now is a excellent. RBPC’S control!!

Phil

“I think we can agree that the government should encourage alternative broadband providers. Insisting on an unprofitable business model is counter-productive to that goal.”

That won’t work. Local transmission, just like local water, sewer, gas and electricity delivery, is a natural monopoly. Do you really want multiple companies digging up the street? We already have DSL and cable in many areas only because both sets of wires were originally installed for different purposes. Yet there’s little meaningful competition between them. The capital costs create a very high barrier to entry, so an oligopoly is just as bad as a monopoly. The market still isn’t truly free and competitive.

Verizon is indeed using FiOS to kill competitive DSL providers. There are many reports that they insist on pulling the copper out of your house when you have FiOS put in. That means you can never again sign up with another DSL provider, not that many are left anyway.

Besides, one single-mode fiber has so much capacity that you don’t really need any more other than for redundancy.

Phil

“The real issue is that a shareholder / Wall Street owned carrier can not get a ROI that is acceptable to Wall Street based on offering Transport only.”

That’s actually not true. See Andrew Odlyzko’s outstanding essay “Content Is Not King”. He makes a compelling argument that the real money is in fact in selling bandwidth. The problem is that the companies only think they can’t, so they’re enamored with content. That’s why they’re building walled gardens — to prevent competition from other content providers.

That said, we are in absolute agreement that the natural monopoly of local transmission demands that it be provided by either a municipality or a regulated private company. If the latter, then it is absolutely crucial that the owner of the transmission network not be allowed to sell their own services over it, even through a supposedly arms-length subsidiary. We discovered the hard way with DSL that the ILECs (the carriers) will simply ignore the rules and do whatever they can to squelch the CLECs.

The only detail I haven’t worked out is who should own and maintain any external plant other than the actual fiber. You could build a simple, dumb dark fiber network and let the service providers to whom you lease it light the ends. But it might be more efficient to put some switching and concentration inside the network to handle outages if nothing else. The problem is that this stuff is advancing rapidly and you don’t want it to get stagnant. Single mode fiber, on the other hand, is a pretty stable commodity.

Phil

I have absolutely no problem with paying for the resources I use. The question is, who should own those resources and decide how much they cost and how they are to be billed?

Lots of unimaginative people seem to think that we’ve never been here before. We have, and we forget that experience at our peril. The railroads and the highways are very good lessons.

The railroads were a major engineering breakthrough. They made things possible that had never been before. But the government, dazzled by the prospects, handed a monopoly to business. We quickly saw what happened; our term “robber baron” comes from those days. And look where the railroads are now.

The highways took a different tack, for the most part. Highways are built and maintained by governments as a public good. They are paid for, by the most part, by tax revenues from the users, notably the gasoline tax which has the advantage of automatically charging you more when you use the highways more, or with a heavier vehicle that causes more wear.

Note that there is no tollgate, no meter at the end of my driveway. In fact, I rarely drive through a tollbooth anywhere anymore (I’m in California). Does that mean I get to use the roads for free? Hardly. I’m just billed in a more efficient way, that’s all.

Another aspect of roads is even more crucial: the entity that owns the road is not the entity that owns the vehicles that run on them, or that provide transportation services to the public. Well, at least not the only one; buses are a government service but I have plenty of other choices including driving myself.

The road model is exactly the right one for telecommunications. The physical transmission medium is built and operated by government as a public good to avoid monopolization by private entities without any meaningful competition. (Note: actual road maintenance is usually done by commercial contractors working for the government, so it’s not like there’s no role for private enterprise there.) But the end-user services provided over that infrastructure can be and should be provided by private businesses, all with equal access to the facilities and all paying for their upkeep.

This gives us the best of both worlds. We avoid being strangled by monopoly ownership of the physical facilities, while benefiting from the innovation of the commercial sector in the provision of services over those facilities because there can be meaningful competition between those service providers.

Robert J Berger

As Phil nicely said, we are not saying connectivity is free. The real issue is that a shareholder / Wall Street owned carrier can not get a ROI that is acceptable to Wall Street based on offering Transport only. That is why the CableCo does its best to sell you just Internet service an TelCos are building infrastructure so they can offer walled garden video services and make it impossible for 3rd parties to resell transport only services on their network. Look at the debt that the carriers and CableCos are carrying. And now they want government bailouts!

Its called monopoly stranglehold. The job of a government in modern society is to remove monopoly strangleholds, not enforce them.

A utility like offering (public or privately held, but publicly regulated and mandated to offer open access service of the physical layer that was not allowed to control or have an economic what content was transported is the optimal way to insure that we as citizens have the best possible network.

Entrusting the network to corporate entities whose interests are diametrically opposed to the best network is how we get the worst network. The performance and availability of true broadband in the US has degraded from being #1 in the world to worst than #17. And its dropping at an accelerating rate.

The existing model of unregulated oligopolies “owning” (its really stolen from the rate payers) an operating the network has been a total failure. It must be turned around during this administration or the US is fast on its way to becoming a 3rd world country.

I live in Saratoga, CA, part of Silicon Valley and I can not get ANY broadband service. No DSL, No Cable service. If its that bad in parts of Silicon Valley, then how bad is it in other parts of the US?

And note, wireless does not count as a viable broadband delivery system. It is great for mobility and ubiquitousness (the fine capillaries of the Internet) but can not anytime in the next decade be competitive with fiber in terms of delivering the capacities we need to be a modern society. Wireless tech that is available in the next 5 years can not scale out to deliver 10s let alone 100’s of Megabits to each home and office. Whereas fiber can do it now, reliably and in well understood ways.

The Verizon FIOS architecture is a lock in for blocking resale of the physical plant and has unnatural limitations on being easily upgraded to deliver +100Mb to GB service to offices and individuals. And that should be the goal for the next 5 – 10 years: +100M to Gigabit or more to homes and businesses. Thinking that 10Mbps or less is broadband in the second decade of the 21st century is the thinking of an obsolete country.

Ted Murphy

I think we can agree that the government should encourage alternative broadband providers. Insisting on an unprofitable business model is counter-productive to that goal.

Lets say that marginal bandwidth actually is free (an absurd notion). Let the cable companies charge for it. A higher price point will encourage the rollout of FIOS, WIMAX, etc. The worst thing you can do is try to mandate low prices. You’re shooting yourselves in the foot.

Phil

Ted Murphy, why do you keep attacking the straw man that Network Neutrality proponents argue that the network should be free? I don’t say that. I don’t think Robert Berger is saying that. I don’t know of anyone who says that.

Robert is exactly right in that if there’s a difference between roads and networks, it’s that adding communications bandwidth is so vastly cheaper than adding road capacity that there’s even less reason to allow artificial scarcity.

We don’t object to paying for networking. We do object to PAYING MONOPOLY RATES for networking. In an ideal world there would be a thriving, free, competitive market for local broadband just as there seems to be one in long haul transmission, in web hosting, in email services, etc. If someone thought the existing local broadband providers charged too much, or put artificial restrictions on the uses of their network, or refused to expand capacity to create deliberate congestion and keep prices up, he could enter the market himself and compete. But that’s not the case; it’s a natural monopoly just like the more familiar utilities: electricity, water, sewer, gas. Free enterprise works great when there’s meaningful competition, but otherwise it breaks down. We have seen this over and over again, most recently quite spectacularly in the California electricity market circa 2000-2001. Why are we repeating the same mistakes?

In the absence of a truly free and competitive market, the government has to get involved. It can construct a municipal network itself and lease access on equal terms (“network neutrality”) to anyone willing to pay. Or it can grant a franchise to a private utility AND THEN REGULATE IT to ensure the same result.

In neither case would the network be “free as in beer”. In each case, the users are charged a sufficient amount to cover the costs of building and maintaining the physical transmission network. But the network WOULD be “free as in freedom”; once the users pay for its use, they are free to use it however they want. Since the users of the transmission network would be the ISPs, they would in turn pass those charges to their customers.

Perhaps this is the basis of the confusion; the Network Neutrality advocates are talking about “free as in freedom” while the opponents believe (or pretend to believe) that we mean “free as in beer”. They’re two entirely different things.

Although I think flat rate pricing for the transmission network makes the most sense, I wouldn’t even mind metered service as long as the rates were reasonable and I can use the network for whatever I want. The proble isn’t meters vs unmetered service, the problem is the unregulated monopoly. They have no incentive to keep their rates reasonable and every incentive not to.

Robert J Berger

I didn’t say free, I said unmetered.

And by Internet Infrastructure, I meant ISP infrastructure, not a web service.

We pay taxes for roads which pays for maintenance and to pay back bonds that were used to build the roads. The cost is flat rate.

Its much cheaper to add more capacity to fiber based networks than to roads, so I think this model is much more appropriate for the physical plant of telecom/Internet.

See http://netparadox.com/ and http://purplemotes.net/2008/04/13/successful-municipal-fiber-network/ for some examples.

Note that its just the Physical Plant (rights of way, conduit, utility poles, copper, fiber, etc) that should be publicly owned/controlled. The services on top (including lighting the fiber in most cases) should be a commercial marketplace built on top of the open access physical plant. The physical plant would not be free, but it would be charged at a cost + based on 20 – 30 year amortized cost.

Ted Murphy

Well, I’ve run internet businesses since 1996. So, I have some experience with network architecture and deployment. And, I have found that the cost of providing marginal capacity/serices (ie the cost of servicing that next customer) over the Internet is shockingly low. It is low, but not free.

I basically want bandwith to be ubiquitous and cheap. Insisting on free is counter-productive to my mind. I would rather insist on full disclosure within an open, competitive market.

Robert J Berger

> The cable companies would not be messing around, trying to throttle high-bandwidth protocols and suggesting bandwidth plans if they did not think that bandwidth truly mattered in their cost structure.

Excuse me, but are you saying that because you understand and have experience with network architecture and deployment or because you just assume monopolies don’t just try to extract what the market will bear?

The Telcos for sure, have chosen technologies to deploy (AT&T U-Verse with remote DSLAMs/VRADs, and Verizon FIOS passive optical networks) mainly based on limiting the ability of 3rd parties to share that infrastructure. These technologies also make it more difficult to ride “Moore’s Law” and continually upgrade bandwidth. There are much better technologies that could have been deployed that would have fit what is best for society and would have end costs that are lower.

The Telco’s (which have over 100 years of experience) and the CableCos (who have less experience but are doing their best) at manipulating the regulators and optimizing to maintain their monopolies. Serving the customer and deploying what is best for society are barely on their radar.

Ted Murphy

@robert

> The cost model does not map to metering

The cable companies would not be messing around, trying to throttle high-bandwidth protocols and suggesting bandwidth plans if they did not think that bandwidth truly mattered in their cost structure. The cost of additional bandwidth may be low, but it is not zero. And that additional bandwidth should absolutely be metered and paid for.

> and the usage model breaks when there is metering.

Some companies’ may be offering products where the usage model breaks without free bandwidth, but that’s not a good argument for forcing the isps to offer unlimited bandwidth.

Robert J Berger

The cost model does not map to metering and the usage model breaks when there is metering.
Packet networks can share resources at a much finer grain than circuit switched networks for one thing.

Another thing is that once physical plant is in place, it has very low opex costs. Its mainly initial capital costs and those are low compared to most traditional physical infrastructure. It comes out to about $3000 / home. Today the biggest cost is the Rights of Way, and that was given to the Telco/Cablecos for practicaly free and was paid for by ratepayers under the old Bell Monopolies, or City franchises.

And once physical plant is in place (particularly fiber), the capacity can be increased every few years by replacing the active optical/electrical components on each end.

The actual service on top would be normal market set rates where there can be competition. But there is an effective “natural” monopoly at the last mile/regional physical plant that fits more the model of roads, sewer and water than normal marketplace.

Ted Murphy

I don’t understand why you guys think bandwidth should not be metered and paid for. That’s the best way to make the business of providing bandwidth profitable.

Without allowing the business of providing bandwidth to be profitable, you will end up with either poor or inefficient internet connectivity.

Phil

Robert, you’re spot on with every point. As much as I like wireless, I’m continually annoyed by everyone in my industry who thinks it has to do all the things that fiber and cable already do much better.

And yes, YES! We need horizontal lines, specifically between monopoly wiring plants and the service providers that run over them. The towns and states own and maintain the highways, but I can call any number of private taxicab companies when I want a ride to the airport. Or take a shuttle. Or drive myself…you get the idea.

Robert J Berger

If the focus is on wireless, then we are doomed. Wireless can deliver low performance but high ubiquity. It does not solve the last mile bandwidth to the home / office. To do that we need fiber to the home/office. And to make that afordable, it can’t be owned or operated by the Cable/Telcos. It needs to be a physical layer only transport service. Just like roads. A vibrant marketplace would emerge if there was dark fiber available in most places at cost that are amortized over appropriate for physical plant 30 year time periods.

Its time for Re-Divestiture. Break up the Telcos, but this time correctly: horizontally.

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