WSJ: The iPhone, Net Neutrality and the FCC

AT&T's Picturephone, shown at the 1964 World's Fair, was a huge flop. Apple's new iPhone 4, announced this week, has a front-facing camera for video chats. It might succeed, except that AT&T isn't providing enough bandwidth capacity.

First, the company won't allow two-way video to work over its data network. Second, AT&T just made bandwidth-intensive video expensive by dropping iPhone and iPad's $30 per month unlimited data plans and replacing them with a two-tiered plan of $15 a month for under 200 megabyte usage or $25 for two gigs. Not that I have a problem with AT&T charging me or the 2% of its customers who are heavy data users. I can always sign up with a competitor. Oh, wait. There are none. AT&T has an exclusive contract with Apple.

AT&T can easily build out enough capacity to handle heavy data users. But it may be playing a game of chess with the FCC over its attempt to impose "network neutrality" rules. The FCC (plus Google and friends) wants all users to have free rein to do what they want on the Internet and smart phones. AT&T just wants users to pay for excess bandwidth.

Both are fine and not incompatible goals, except that competition, rather than rules, will best set the right price and make it happen. But without more broadband capacity and much higher speeds, the productivity applications needed to drive the next wave of growth in the economy will be stillborn.

Why the neutrality battle? Let's go back. In 2007, Comcast was caught throttling bandwidth hogs on the popular file-sharing service BitTorrent. Big deal, these users are just copyright pirates, right? Not really. In one case, the Associated Press was throttled back using BitTorrent to transfer the Bible, whose copyright is long expired. Comcast was more likely concerned that users will download TV shows for free rather than pay for its Digital Premier cable service.

In August of 2008, the FCC jumped in and ruled that throttling traffic was illegal, in violation of the agency's network neutrality rules. In April, after almost two years of legal wrangling, the U.S. Court of Appeals for the D.C. Circuit ruled that the FCC did not have the authority to enforce network neutrality. Congress would have to pass a law giving it the authority to impose this regime.

A simple word play is the FCC's next chess move. Back in 2002, the Bush FCC reclassified cable modem Internet service from a heavily regulated, common carrier-like status as a "telecommunications service" (Title II of the Communications Act) to a hardly regulated "information service" (Title I). This reclassification was upheld by the Supreme Court in 2005, and it meant cable companies didn't have to share their physical cables with other providers such as EarthLink.

And so a month ago, on May 6, the FCC announced its intention to reclassify portions of broadband as a common carrier telecommunications service and start regulating like crazy—imposing net neutrality, setting rates and data speeds, and who knows what else. This reclassification will surely damage new applications. Is Twitter a telecom or info service? Should regulators make that decision? The reality is that everything digital is an information service.

AT&T Wireless smartly avoided this mess by changing the economics of wireless data. Yes, that change is all for the better, but it's being done for the wrong reason. And it leaves consumers like you and me worse off.

Few of us chew up two gigs of data per month—yet. But that is the beauty of technology and progress. Two million of us didn't even know we can't live without an iPad until we got one and began spending hours downloading music and video without regard to how much bandwidth we're using.

And in the future? Think of real-estate agents or graphics designers or physicians who will incorporate wireless broadband into their business. Usage caps or pricing tiers will be nasty road bumps or even brick walls on the decades-long path of progress and productivity that has driven the U.S. economy since the early 1980s.

I think competition fixes all that. But according to a study a few years ago by Smartmoney.com, less than 1% of 30,000 cable markets had more than one provider in 2000 and 2005. Any guesses for 2010? In Paris and Tokyo, competition is vibrant, with eight to 10 competitors, speeds higher, and prices much lower than in the U.S. More competition here is the way to keep bandwidth charges reasonable.

Thinking a few more chess moves ahead, the FCC can use the threat of regulation to kick-start real competition in wireless data and cable broadband. How? Just threaten local cable companies with common carrier/telecommunications service regulations, unless they can prove that there are viable competitors, municipality by municipality. And not pokey phone-company DSL competition, but real broadband providers offering service at, say, 10 megabits per second.

To do this, the FCC would set common-carrier pricing for consumers of now-Title I designated cable-modem Internet service just below the debt-servicing level of the cable companies. Comcast has almost $30 billion in debt, Time Warner Cable $24 billion, and Cablevision $11 billion. With potential negative cash flow, see how fast cable companies will start lobbying for competitors. We would all get fiber to our homes in a heartbeat and network neutrality would happen naturally. Plus, the stock market will gladly fund the new and hopefully less debt-laden competition. The same tactic can work with wireless data.

Competition is the only way we can stop talking about allocating scarce resources via regulation and network neutrality and start talking about how we are going to use a future bandwidth bounty of 100 megabits per second. Maybe video calls will finally come of age.

 

Comments

[David Ulevitch]

Your article is good, but nothing you mention will speed adoption of fiber to the home. And what Verizon is doing, owning the fiber with FIOS, doesn't help anyone.

Historically, the state has paid for copper to be deployed, and we were lucky DSL could sit on top of it and just require new CPE. But the state still paid (or subsidized) the deployment of copper. They have to do the same with Fiber. In metro's, it's getting to the point where it can be $1000/household. At those prices, surely the benefits of having a nationwide fiber infrastructure outweigh the cost when spread over 10-15 years.

[elliptical reviews]

No offense, but i suggest admin adding a google+ button for easy share!

[Cheap snapback hats]

the company won't allow two-way video to work over its data network. Second,

[licensed real estate brokers]

Do you have a twitter or Facebook page cause i'll be happy if i am the one your fans and followers.

Thanks

[air max 90 pas cher]

I'm afraid the Gravity is Joomla 1.5.x compatible template only. In this article we share knowledge related to Joomla 1.6 templates for community users.

[Lacoste Shoes Men]

color dots ribbon as an embellishment for this summer is to increase the color oh. Flower of pure fabric as the main material,