An Epiphany at Free Press on Reclassification?

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Yesterday, the Phoenix Center held a Teleforum to present our paper Tariffing the Internet: Pricing Implications of Classifying Broadband as a Title II Telecommunications Service and to discuss its implications with a series of experts. (We hope to post the video of the event on the Phoenix Center’s Phoenix Center’s YouTube Channel shortly.)  To summarize the paper, we show that if the Federal Communications Commission uses Title II common carrier telecommunications regulations to protect the “Open Internet,” then all edge providers (e.g., Google, Netflix, and your personal website) will be required to make direct payments to Broadband Service Providers (“BSPs” like Comcast, AT&T and Verizon) for a newly created termination service.  Today, edge providers pay nothing for this service (BSPs, by choice, don’t charge for it), so placing Internet service under common carriage will lead to a radical change in the nature of Internet transactions. Whether the creation and tariffing of this new termination service is a good thing or a bad thing we left for others to decide.  Our point was merely to show people how this reclassification issue plays out, which is something no one else has bothered to do.

In Communications Daily’s press coverage of the event (subscription required), they sought comment from Matt Wood, the Policy Director at Free Press, on our paper (and perhaps the event, although Matt’s name did not appear on our final RSVP list).  According to the coverage, Matt was quoted as stating that that edge providers “are not in fact the customers of the end-user ISP.  There is no service there.”  Matt is incorrect.  There’s obviously a service there, and plenty of evidence to prove it.

First, some mobile carriers have attempted to enter into agreements with edge providers that allow the edge providers to help pay the bills of the end-user consumer.  Oddly, the FCC appears poised to block a company from paying a consumer’s bill, but that’s another (already written) blog.  If there’s no “service” there, then such a deal could not happen.

Second, the entire Open Internet debate is about this service. What, after all, is “paid prioritization” all about?  Here’s what the Free Press, Matt’s employer, says it is: “Paid prioritization is a financial arrangement in which a content owner pays a broadband provider …”.  If the “content owner” (otherwise known as an edge provider) pays the “broadband provider,” then there must be a service between the two.  Indeed, as recognized unequivocally by the FCC, the Open Internet is about “the second side of the market—between broadband providers and edge providers ….”  (2014 NPRM at ¶ 37.)  If there’s no service, then there’s no market.  The FCC apparently believes there is a market, so the FCC apparently believes there is a service.

Despite the obvious fact that the Open Internet regulations target the “the second side of the market—between broadband providers and edge providers,” Matt believes there is no such market and that the recognition of such a market “[is] a real danger,” because “quite literally every website in the world becomes a customer of Comcast’s just because I view that site on my Comcast connection.”  Indeed.  It appears we have an epiphany; Matt finally grasps the consequences of the policies he is proposing.  And, he offers a nice, concise summary of our paper.

For both, I am grateful.