Genachowski, Man Up! And Silicon Valley, Wake Up!

27 Comments

FCC Chairman Julius Genachowski

The Federal Communications Commission (FCC) just called off the “closed door” network neutrality negotiations it was conducting between major ISPs, Google (s GOOG), Skype and the Open Internet Coalition, after news broke Wednesday afternoon that Google and Verizon (s VZ) had reached an independent deal on the issue outside of the FCC negotiations. The end of these talks, which had been roundly criticized because they were being held in secret, may be a sign of hope for the FCC to push ahead with the public debate. However, it’s more likely another example of how powerless the agency has become. The FCC released a statement today from Edward Lazarus, FCC chief of staff, saying:

“We have called off this round of stakeholder discussions. It has been productive on several fronts, but has not generated a robust framework to preserve the openness and freedom of the Internet – one that drives innovation, investment, free speech, and consumer choice. All options remain on the table as we continue to seek broad input on this vital issue.”

The FCC decision comes less than 24 hours after hysterical and confused reports of a Google and Verizon deal on net neutrality began circulating around media outlets and Washington. I wish I could tell you what’s going on behind the scenes and how exactly Google and Verizon plan to compromise, but the general framework seems to abandon the idea of network neutrality for wireless networks and may involve some pay for prioritization.

So far, Google and Verizon have reportedly come to an agreement that discriminating against some traffic will be permitted on wireless networks, but not wireline networks (which we should have realized already given how closely the success of Google’s Android platform is tied to Verizon’s wireless business). The deal may or may not involve paying for prioritization of content. (For a closer look of the issues they’re likely discussing check out this filing from January when Google and Verizon laid out their points of agreement and disagreement.)

Aside from the details, the bigger issue is that the FCC has been neutered, and Silicon Valley had a small part to play in the operation. Technology companies didn’t hold the knife, but they’re not protesting either, at least not in an effective way that Washington understands. All the net neutrality videos hosted on YouTube aren’t going to change things; votes and lobbying will. So, if in the not-too-distant future, Google and the big ISPs are the gatekeepers to the Internet for media, video and applications, here’s how it all went down:

The Beginning of the End for the FCC
When President Obama named Julius Genachowski the head of the FCC in the middle of 2009, the agency was in sorry shape after years of effectively kowtowing to the big telecommunications firms. The U.S. broadband network was in sad shape as well, unless one was lucky enough to live in an area with a cable provider that was deploying DOCSIS 3.0 or within range of Verizon’s fiber network. An FCC survey this year discovered that 78 percent of the U.S. has only two broadband providers to choose from, while 13 percent have only one.

The numbers are important, because one of the bulwarks against nefarious activity in terms of discriminating against certain types of content is robust competition. The line of thinking is that if AT&T blocks certain files, the customer can simply find an ISP that doesn’t. In practice, this isn’t a very effective threat because in some areas, the alternatives are crappy DSL lines, satellite broadband or nothing.

The new FCC ,with Genachowski at its head, was going to change all that. He was a businessman. He worked with startups. He decided to champion network neutrality, not only for wireline, but also for wireless access. He was going to be a thorn in the side of the big incumbents and agitate for innovation, consumer rights and change. At night, he snuggled up to an iPhone and an Android handset.

Right. Genachowski may not be the quintessential politician, but his agency lives within the political system where the incumbent ISPs are accustomed to fighting, and this is where he failed. The mortal wound to net neutrality — and the FCC as an agency — came in April, when a federal appeals court struck down the FCC’s ability to make rules pertaining to broadband. This decision, ironically, was tied to the previous FCC’s one moment of consumer advocacy: its decision to censure Comcast for blocking P2P files on its network.

Comcast (s cmcsa) sued, and the results of that lawsuit kicked off the mother of all fights for the FCC: reclassification. At issue was whether the FCC could regulate broadband as an information service (GigaOM Pro sub req’d) , considerably weakening the agency’s ability to do anything with regard to broadband, or as a transport service. Reclassification could have given the FCC all kinds of powers that it currently exercises over the analog phone lines. Basically, could the FCC as an agency move its regulatory powers into the modern age?

The “Third Way” is a Path to Purgatory

Suddenly, the issue of reclassification became far more important than network neutrality. The telecommunications firms pulled out the big guns and went to Congress. Congress obliged and started sending the FCC letters saying that it shouldn’t “regulate the Internet” and that any changes in telecommunications law needs to come from Congress, rather than the FCC.

The FCC proposed a compromise path that would give it more powers but also leave the ISPs relatively unregulated in ways that would be anachronistic, calling the path the “third way”. This third way would give the FCC the authority it would need for network neutrality, Universal Service Fund reform, privacy regulation, and other issues. But now, the FCC was stuck between a rock and hard place. Congress was on one side and on the other, years of legal wrangling in the courts if the FCC implemented its third way plan and ISPs subsequently sued (which they would).

So in an attempt to get something out of this mess, the agency focused on network neutrality and toned down its reclassification efforts. Basically, it decided that instead of stitching its mortal wound shut, it would apply a very public Band-Aid and live to fight another day. But given its weak position after the Comcast ruling, that Band-Aid took too long to apply, and Google and Verizon went out on their own. Now it looks like the FCC may not get a bandage after all.

Instead, it will lie there bleeding while the industry takes over the network neutrality regulations and comes up with a compromise that works for Google, Verizon, and possibly those who met behind closed doors at the FCC. Those folks include representatives of Skype, AT&T (s att), the National Cable and Telecommunications association, and the Open Internet Coalition, which is also somewhat neutered because Google is a member, and Google is now in bed with the ISPs.

What it Means for the Valley and Consumers

As Google and Verizon work out their compromise and promote whatever version of network neutrality works for one of the largest telecommunications companies and the largest driver of web traffic, the effect on the startup ecosystem and consumers may take a while to appear. But warning signs are already planted. For example:

Consider what paid prioritization means for the nascent web television industry, which right now sometimes uses Google’s YouTube as a distribution platform. It’s great that Google may pay for their shows to get prioritization, but what happens if Google doesn’t like a show, or maybe it wants to run ads the creator doesn’t like? The Internet as an equal opportunity distribution platform is subtly changed.

If wireless is utterly exempt from the network neutrality debate, the FCC’s hope that mobile broadband will save folks from a lack of competition becomes moot, because a wireless network that can discriminate against traffic becomes sub-par compared with a wireline network that doesn’t.

The FCC has abdicated itself from deciding on these issues by backing off reclassification and and now shutting secret negotiations to broker a deal on net neutrality. Perhaps Chairman Julius Genachowski knows the efforts to broker a net neutrality deal are a lost cause, so it may as well be lost out in the open. But absent any agreement, the bigger players in this fight are making their own deals. Instead of acting like a powerful regulator protecting web innovation, Genachowski is letting others take the helm.

But by staying out of Washington politics and pinning its hopes on grassroots efforts, Silicon Valley is squandering its opportunity to have a voice. Right now, Google is the primary voice Silicon Valley has, and as it stands, Google appears to be selling the Valley down the river.

27 Comments

Studley Doright

Way to play the Man Card on that loser. This guy is getting his nads handed to him on a platter by the telecoms. He is truly a ball-less wonder.

Corey Recvlohe

The only way to solve this issue is to introduce competition into the 4G LTE / WiMax space. As we all know, Lightsquared is attempting to raise $7 Billion in capital to build and expand it’s 4G network, which will exclusively be for independent service providers.

Wireless will be the defacto connection medium for most consumers and devices 10 years from now, so we better get started now. This is a battle over the “Internet of Things,” which in many ways will not be an Internet, but will be a Locknet if AT&T and Verizon are successful in destroying future long-term-value for consumers and businesses.

Johnny A

I believe the internet has already become a predominately WIRELESS network having more concurrent connections via mobile devices than wired ones.
BTW, that noise you hear when you place your ear on the internet backbone (dark fiber) that would be the sound of all those iPhone users downloading the entire net to their phones everyday. Thank you Steven Paul Jobs.

Jim Swanson

As someone who spent 20+ years in the broadcast industry, this talk of Net Neutrality should either have been taken place at least
seven years ago and perhaps, not at all.
The thought that the telecommunication companies would even THINK of playing with the freedom of speech on the internet, tells us that these behemoths of the industry should NOT have ANY control over what gets sent fast and what is slowed down.
The internet is SUPPOSED to be another method of communications FOR the people and BY the people, not corporate hacks.
FCC Chairman Genakowski was appointed to watch over this. His closed door meeting with the telcos should get him shown to the door and a replacement named immediately.
When in radio, especially during the seventies and eighties, just the thought of hearing that the FCC was coming to YOUR radio station was enough to have the station’s management and personnel running in circles to make sure everything is perfect. Now, the FCC gets about as much fear from radio stations as the pizza delivery guy.
Congress should DEMAND the internet be open and free from censorship and the FCC should not only agree, but be sure to enforce that Congressional mandate.
-Jim

Joe Cassara

As someone who has to deal with FCC regulations and meddling every day of his life just to turn on the lights, I can tell you all you’re entering a “world of hurt” thinking the agency is your magic pill. You’ll learn that the hard way, I’m afraid.

Joe Cassara
Operations Manager
WDNA-FM

Brenton

I think you misunderstand the point of this “regulation”. This isn’t about telling companies what they have to do, it’s about telling them what they CAN’T do.

Kevin Walsh

Stacey,

You state that “78 percent of the U.S. has only two broadband providers to choose from, while 13 percent have only one.” Ignoring the FCC’s NBP, which states that 95 percent of Americans have access to broadband and 80 percent of those can chose from multiple suppliers, here is the true test of broadband competition: go outside your house and count how many copper wires or fiber optic cables you see (and, if you can see fixed wireless connections, count those too). In almost all cases in North America, the answer is two—telco connections and cableco connections. Many of those wanting to compete with telcos and cablecos don’t want to go to the trouble of actually building, ya know, networks. While they’re free to lay new fiber and compete for your business, they’d rather ride on the backs of those that’ve already built them.

This is not competition. This is structural separation, ala the UK and many other countries. Let’s not confuse the two. With structural separation you get lower prices but no further innovation in network technologies (i.e., faster speeds). If that’s what you want, fine, but understand that the network you have today is the one you’ll have to live with for a very, very long time.

Harold Feld

Well, it seems frustration with Genachowski certainly reached a boiling point this week. I had posted something similar on Monday, although pointing out that JG’s risk-averse management style effectively screwed up every single FCC initiative.
http://tales-of-the-sausage-factory.wetmachine.com/content/genachowskis-fast-fading-star-and-how-he-can-still-salvage-his-term-as-chairman
(which was an extension of my call at Supernova for Silicon Valley to stage an intervention with JG to get him to actually act on stuff).

Gotta correct @John Thacker. Exclusive franchise agreements have been illegal for years. The problem is the whole “intermodal competition” model. How many networks can a geographic area support? The economics for this mode of competition don’t work. You need either some sort of sharing/separation agreement, or accept the “natural monopoly” model.

OTOH, I’ve also argued that regulation here is not merely about competition concerns.
http://www.publicknowledge.org/blog/why-do-we-care-about-fcc-authority-over-broad

Brett Glass

Harold’s feigned outrage at Google — from which his outfit in DC receives substantial amounts of money and for which it lobbies — is part of an old fashioned “good cop/bad cop” routine.

Google and its astroturf lobbyists are pushing different (though only slightly different) definitions of “network neutrality,” and the astroturfers are pretending to be outraged at Google over the differences. But in fact they’re on the same team — and are pulling for regulations that would ultimately benefit Google, protect its monopolies, and harm consumers.

This ruse is as old as the hills.

John Thacker

In any case, from the government end, the lack of wireline competition has very little to do with the FCC, and quite a lot more to do with local governments preferring to sign monopoly franchises with cable and telephony operators.

But some of the names that claim to support network neutrality strongly oppose any sort of statewide video franchise or other attempts to get competitive franchises around those local monpolies. (E.g., http://saveaccess.org/inthestates) In some cases, that’s because they are comfortable with and know how to work the local systems. They DON’T want “robust competition,” they prefer regulated monopolies and see net neutrality as a way to achieve that. For some people (not all, certainly) their definition of net neutrality means that they don’t want Verizon building FIOS anywhere unless it commits to building it EVERYWHERE, so they’d rather that we all have the same mediocre bandwidth rather than densely populated (and wealthy) areas leap ahead.

They like the FCC Telecommunications Model, where we’re all forced to subsidize phone lines for people in the middle of nowhere that cost tens of thousands of dollars to install, and everyone has the same phone line. It’s the way of ensuring that everyone has the same service, even if it means that progress in the wealthy and urban areas has to be held back for both poor and rural areas.

John Thacker

“The U.S. broadband network was in sad shape as well, unless one was lucky enough to live in an area with a cable provider that was deploying DOCSIS 3.0 or within range of Verizon’s fiber network. An FCC survey this year discovered that 78 percent of the U.S. has only two broadband providers to choose from, while 13 percent have only one.”

A causal person might think that the people lucky to live in an area with FIOS or a DOCSIS 3.0 deploying cable company also live in areas with lots of broadband providers. It’s not so. ( http://arstechnica.com/telecom/news/2010/04/arkansas-rules-when-it-comes-to-isp-competition-but-so-what.ars ) Actually, the slower and more backwards an area’s broadband choices, the more broadband competitors it has.

Both fiber optic services and DOCSIS 3.0 take enormous capital investment, which limits the number of competitors, but once installed it’s very difficult for a startup to compete with that kind of throughput and bandwidth. So the big companies end up driving out competition. The result is that the wealthier areas, which have FIOS and DOCSIS 3.0, have a lot less broadband competition than, say, Arkansas, which has 8 broadband ISPs with reasonable marketshare but no one offering the kind of speeds available in DC or NYC or Rhode Island.

Stacey Higginbotham

That’s a good point. I am stuck in an area where my options are low-end DSL or non-D3 cable so I do have a case of fiber envy. But I suppose unless you’re in Manhattan, you’re out of luck.

Brett Glass

No, Stacey, those are NOT your only options. Wireless is available in your area, and is superior to cable and DSL.

John Thacker

“The U.S. broadband network was in sad shape as well, unless one was lucky enough to live in an area with a cable provider that was deploying DOCSIS 3.0 or within range of Verizon’s fiber network. An FCC survey this year discovered that 78 percent of the U.S. has only two broadband providers to choose from, while 13 percent have only one.”

A causal person might think that the people lucky to live in an area with FIOS or a DOCSIS 3.0 deploying cable company also live in areas with lots of broadband providers. It’s not so. ( http://arstechnica.com/telecom/news/2010/04/arkansas-rules-when-it-comes-to-isp-competition-but-so-what.ars ) Actually, the slower and more backwards an area’s broadband choices, the more broadband competitors it has.

Both fiber optic services and DOCSIS 3.0 take enormous capital investment, which limits the number of competitors, but once installed it’s very difficult for a startup to compete with that kind of throughput and bandwidth. So the big companies end up driving out competition. The result is that the wealthier areas, which have FIOS and DOCSIS 3.0, have a lot less broadband competition than, say, Arkansas, which has 8 broadband ISPs with reasonable marketshare but no one offering the kind of speeds available in DC or NYC or Rhode Island.

In any case, the lack of wireline competition has very little to do with the FCC, and quite a lot more to do with local governments preferring to sign monopoly franchises with cable and telephony operators.

But some of the names that claim to support network neutrality strongly oppose any sort of statewide video franchise or other attempts to get competitive franchises around those local monpolies. (E.g., http://saveaccess.org/inthestates) In some cases, that’s because they are comfortable with and know how to work the local systems. They DON’T want “robust competition,” they prefer regulated monopolies and see net neutrality as a way to achieve that.

JC

“Instead, it will lie there bleeding while the industry takes over the network neutrality regulations and comes up with a compromise that works for Google, Verizon, and possibly those who met behind closed doors at the FCC. Those folks include representatives of Skype, AT&T, the National Cable and Telecommunications association, and the Open Internet Coalition, which is also somewhat neutered because Google is a member, and Google is now in bed with the ISPs.”

What the fuck? How do you possibly have a resolution without talking to the ISPs? Biased, “internet is a basic right” crowd. Why would you cheer on the FCC to reclassify the internet in an outmoded, 20th century system anyway? Is that the progressive answer? I can’t believe what I’m hearing. Oh wait I can.

Stacey Higginbotham

Google conducted side negotiations with Verizon, while everyone else–including ISPS– attempted to negotiate a compromise on network neutrality at the FCC. As for the reclassification, I think the FCC’s promises of forbearance were an attempt to modernize the “outmoded, 20th century system” while staying within the confines of the authority Congress granted to them. It wasn’t particularly progressive as some of the more progressive organization would tell you.

Conquistador

Didn’t both Google and Verizon (a little slowly) both deny that there was any deal? (Cue Brett Glass comment in 5, 4, 3…..)

Stacey Higginbotham

Google did. Verizon has not denied the talks seeking to reach a compromise framework of some sorts. Verizon said the NYT piece assigned the incorrect motivation to their efforts.

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