THE CABLE PIPELINE

Broadband providers are not taking the recent move by the FCC to reclassify broadband under Title II; i.e., put broadband under its regulation arm along with the likes of telephone companies, very lightly and have come out swinging to stop that effort. See (Obama’s Internet Takeover: Telecom giant challenges FCC role in broadband)

Seemingly at issue; an appeal brought by Comcast with the D.C. Court of Appeals and the subsequent defeat of the FCC’s perceived role as a broadband regulator, ruling the communication had no authority under current legislation to sanction Comcast over a 2008 Internet throttling incident. That defeat prompted the FCC to go back in an attempt to move broadband under its umbrella of regulated services. In a recent YouTube video commissioner Julius Genachowski stated that his intentions in moving to regulate broadband was to foster an environment that would encourage competition, lower prices, increase Internet speeds, and increase access to quality broadband.

Division on Capitol Hill

Regulation of any industry is seen as anti-business and a jobs killer by Republicans, See (Boehner slams FCC for ‘takeover of Internet’) while Democrats, See (FCC’s Democrat members rally behind Genachowski on broadband reform) see the need to regulate big business as more of a tool to reign in prices and create options for consumers. Both sides have points of contention from runaway mergers with resulting job losses, to a (hands off) approach, in letting the market determine competitive outcomes. Each thinks they are right, and while a healthy debate is stamped in our government system, the resulting stalemates can prove too problematic. It’s is time to work on a compromise, a win-win for all concerned, and if not, why not?

Regulatory Ramifications

The thinking of FCC commissioners center on the idea that the Internet has become a necessity for both consumers and businesses, like electricity, telephones, water, sewer which must be cultivated, tended too, and watched over as a “mother hen”, and its authority regarding our communications infrastructure should be regulated to ensure equality for all. It is just too important of an entity not to regulate, and it has the votes to do so. While it has the votes to create regulation without going through congressional approval, it will certainly be challenged in court over this authority again. See (FCC Understating Systemic Risks of “Third Way” — Why It’s a Disaster Waiting to Happen)

Is not regulation after all, a “slippery slope”, which does not distinguish between the inherent ramifications of mandating competition, pricing, access, and Internet speeds? Genachowski made the point that only six of forty-eight current Title II rules would be applied to broadband, See (Who’s more neutral? Republican bill would forestall FCC’s ‘Third Way’), leaving one to think lightness in regulatory oversight, but just the mention of future regulation sent broadband provider stocks tumbling on Wall Street.

Without any legislative update of the Title II rules for many years, the FCC is viewed as being forced to adopt its own rules for broadband which will promote its established agenda for the National Broadband Plan. Once you go down the regulatory path it is hard to pull back on the reins, and the FCC has taken those first steps. Be careful what you as for and what you do with it once obtained. It will be slippery and may turn into mud very quickly.

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Utopia: the definition brings about visions of an “ideal place or state”, or “a system of political and social perfection.” Thus became the name chosen for a consortium of sixteen Utah cities building their own broadband infrastructure with a fiber-to-the-premise architecture, while offering residents a clear and alternative choice to incumbent operators, including Quest and Comcast.  Is it perfection or fantasy?

UTOPIA, billed as providing light-speed to your door while connecting you with friends, family, entertainment, businesses, healthcare, and education, highlights itself as being part of your home, not owned by any network provider. It is unique in that UTOPIA is part of a combined network owned by connected cities, and therefore citizens of each community. It allows any network provider to use the infrastructure to offer related consumers services in an effort to create more competition within the broadband universe, and to provide rural residents state of the art fiber connections to their homes.

Overview:

• Maintained by city employees, UTOPIA requires a deposit to participate just as citizens would pay for a sewer connection to their home
• A monthly service fee is charged to maintain the system which includes maintenance, and billing just as with electric, water & sewer services
• Open Access Network – open to various service providers which have access to the network

 UTOPIA Service Providers:

Currently with eleven listed service providers using the network, UTOPIA is offering a variety of services to residents within its service area. In the past two years since hiring new management, subscriber growth has doubled from previous levels beginning from 2002. UTOPIA indicates a need to add another twenty thousand customers quickly to ensure the long-term viability of the consortiums investment. 

This venture is similar to what Google has committed to accomplish with its advertised foray into the broadband infrastructure arena touting network speeds one-hundred times faster than those typically offered today. Goggle will also operate an (open access network) allowing multiple service providers to offer subscribers a wide variety of enhanced applications and services. See (Think big with a gig: Our experimental fiber network)    

Divergent Industry Infrastructures

Historically, Cable operators have chosen the hybrid-fiber coax architecture to build out their networks, with Docsis 3, and GPON to gain efficiencies in bandwidth. Others like Verizon, UTOPIA, and now Google have opted to use fiber-to-the-premise, a total fiber network to connect customers to a true high-powered and hefty bandwidth architecture, which can offer deep access to both existing and future applications.

While the hybrid-fiber-coax construction is less expensive on the front end, it is not considered the long-term or end game solution. Total fiber construction is more expensive on the front end, but as costs continue to come down more service providers will opt to consider this solution.

Perfection or Fantasy

UTOPIA, Verizon, and Google’s networks will have to be proven profitable both in the short and long-term to be considered viable alternatives in private industry adoption. The heavy capital expenditures on the front end for fiber-to-the-premise construction must be coupled with robust adoption by customers to not only reach a break-even cash flow standpoint, but go on to make a reasonable profit.

This will be critical in obtaining needed capital for companies going forward, where UTOPIA is using bond issues along with pre-paid deposits and long-term subscription agreements to fund its venture. There is no doubt that fiber-to-the-premise is robust alternative from an operational standpoint with its high speeds, hefty bandwidth, and future applications potential.

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In a decision awaited by many since the FCC’s 2008 admonishment of Comcast’s throttling of file sharing sites, the District of Columbia Court of Appeals ruled to vacate the FCC’s order.

The courts seemed to be following the letter of law when making its decision to vacate. See (D.C. Circuit Court of Appeals’ Comcast/BitTorrent Decision is Out) In essence, the court, in a unanimous decision implied the FCC showed no statutory link under its Title I ancillary authority to mandate that Comcast not throttle file sharing in what has become an ISP network management issue based on Net Neutrality. It did not link that authority under current oversight powers, which currently does not include the Internet, to govern the issue, and remains that simple. Comcast on the other hand is right, under current law, to challenge the FCC. The question remains, how does this affect both Comcast and the FCC going forward?

Comcast Statement:

“We are gratified by the Court’s decision today to vacate the previous FCC’s order.  Our primary goal was always to clear our name and reputation. We have always been focused on serving our customers and delivering the quality open-Internet experience consumers want.   Comcast remains committed to the FCC’s existing open Internet principles, and we will continue to work constructively with this FCC as it determines how best to increase broadband adoption and preserve an open and vibrant Internet.”

FCC Statement:

“The court decision earlier this week does not change our broadband policy goals, nor the ultimate authority of the FCC to act to achieve those goals”

Bottom Line:

The FCC must decide whether it will ask Congress for authority to regulate the Internet as a common carrier, as Net Neutrality proponents have suggested, or move to reclassify the Internet as a telecommunications service, under which it already has authority to govern. As a governing body, comfortable in mandating what telecommunications providers can do with respect to public practices; it now will have to go back to the drawing board to include the Internet. It clearly overstepped its boundaries in the Comcast issue, and without a clear legislative definition of its authority, will face future court dates with any further mandates, at least concerning the Internet.

In addition, Comcast must have the uncomfortable feeling that while it many have won this battle, which it was entitled too, it may lose the inevitable war. How will the long range implications of a pending NBCU merger and the future of a growing and increasingly profitable Internet business be affected, not only for itself, but all other Internet providers as well? It is still too early to imply in a surely heated battle of control forecast to come.

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I believe everyone can agree that Broadband Competition and Pricing are high on their lists of (all things broadband). Yes, consumers and businesses alike want a high quality broadband experience with dynamically fast upload and download speeds, and with seamless and unbridled applications to fill their Christmas wish lists.

It seems as though we are going in that direction, at least on the applications front, with innovators like Apple, Cisco, Motorola, and others, where competition is a daily fact of life; where CEO’s champion innovation, and speed to market, while continuing to find cost savings ways to offer a competitive product.

How are the incumbent land-line Broadband ISP’s fairing in the realm of innovation, speed to market, and cost innovation in producing a high quality product at a competitive price? I will give them a (C) on any standardized testing metric. And the reason remains that without sufficient competition, see (New FCC Report Boosts Case for More ISP Competition), a company’s desire or motivation to innovate; to produce a high quality product; provide the best customer service, at the lowest possible price, is just not there.

This kind of mindset can permeate throughout an organization where the (status quo) is accepted and championed; where being first to market with a great product is not needed, with no significant competition to worry about, see (ISPs Raise Broadband Costs — And Advocates’ Ire), and where a mature and declining linear programming market is continuing to produce significant returns, albeit in the short term. But wait, these companies built their networks with private funding and made them hard to emulate, while producing their innovations (during their day), and are now enjoying the spoils.

However, incumbents must act as though they have competition, simply because they will at some point – maybe sooner than later, and this must be drilled into every employee throughout the organization; not just in the isolated places where some level of competition exists. They must model themselves after the Apple’s, Cisco’s, and Motorola’s, and other innovators of the world.

This is a defining moment for the industry, as legislatures through the mantra of the FCC look for ways to create a Broadband competitive market, either through legislation or competitive factors, see (What Would Broadband Competition Look Like?). Now is the time to let go of the status quo and create new markets defined by innovation and price competitiveness. It is happening with the likes of Apple, Netflix, Boxee, Hulu, YouTube and others that value customer service and retention. So, roll up those sleeves and get to work; time is running out.

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The announcement by Google that it would delve into the Broadband ISP arena in select markets is quite interesting in the fact that it looks to be marrying a public advocacy with a public initiative, and where it counts the most, in broadband infrastructure. To me it seems more of a logical move, putting your money into a venture which supports your core competency, Internet openness, proliferation, adoption, and access.

In addition, Google seems to be promoting its core legislative agenda of having a free and open internet along with proposed high speeds that would be 100 times faster than most other ISPs. Does it matter that the initiative will not access every home in the United States, not particularly? The point remains that Google is transparently moving to promote broadband proliferation at speeds only accustomed to users outside the United States, such as Europe and Japan.

It is an experiment, albeit small and concerted with a maximum 500,000 customer goal; the initiative could have lasting ramifications within the ISP community. Per Google’s press release their agenda has three goals:

• To test developer apps and what they can do a super high speeds
• To test new ways of deploying fiber networks while sharing that information for deployments elsewhere
• To promote open Internet access to give users access to multiple providers therefore aligning with their advocacy

The RFI associated with the company’s test specifically asks for municipal participation where inadequate funds or expertise hindered startup of those plans. While it is not time to jump on the competition  bandwagon with this small test sample, it does make for interesting news which could spur more future competition within the marketplace. It also has the research criteria desired to bring in collaboration and innovation that all markets need in moving to the next level. It will also serve to enhance the existing ISP’s step up their game.

There is nothing more refreshing in business than having a company willing to put up capital in promoting an agenda to help both itself and the majority of current and future Internet users, in bringing next generation communications to the forefront of development and deployment.

I like the move Google’s made, but it, along with many other ventures will have to stand the test of viability, acceptance, bottom line financials, expertise, and research and development to be successful. But most of all, I’m impressed with marrying its advocacy with initiative.

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Through continued research of the Net Neutrality debate, distinct realizations come to mind for Regulators’, Consumers, and Network Providers alike in pondering the heated discussions around whether either regulation, or a (hands-off) approach, are sufficient to allow unfettered and equal access, including clear competition, and that all are present on the Broadband pipelines. 

First there has continued to be somewhat of a hysteria and possibly pre-ordained fear, albeit without serious incidents of record, that network providers both have and will continue to throttle speeds and limit access of their customers to the copious amounts of content becoming available through the Internet. Perhaps the hysteria has unfolded as a result of one BitTorrent case, or associated with a fear of other industry debacles as seen with banks, Insurance companies, Investor Management companies, and Wall Street, driving the public to government as their interventionist in reigning in these industries; but how realistic are these fears based on the current Internet model?

Regulation can hamper Broadband Access and Adoption

Increased regulation of a burgeoning Internet on the verge of offering just the recipe the FCC is mandating could backfire in helping startup companies materialize and grow while slowing the proliferation of increased infrastructure, and network upgrades. Without the freedom to invest and seek sufficient ROI’s network providers will cut costs rather than invest for the future. This could stunt job creation, a by-product of innovation and free-flowing investment, in an industry with a broad potential to produce applications and services for the Internet.

Network Management Polices will continue to improve and evolve to handle varying Traffic Needs

It is in the best interest of private network providers to provide the best network management policies for all users in continuing to build their consumer and business base. This correlates to (Business Management – Best Practices-101). If a company cannot offer the best experience for its customers all businesses, whether an Internet Provider or a Wal-Mart, cannot survive the long term.

Use of Anti-Trust Statutes to curtail (Bad-Actors)

Absent a serious history of abuses within the Internet pipelines the FCC should concentrate on harnessing (bad-Actors) with Anti-Competitive Statues, not regulation, allowing that these companies will receive stiff penalties, and will certainly be brought to the forefront via customers and competitors having been abused, disenfranchised, and denied access to fair treatment.

Incentives rather than Regulation

Broadband Stimulus Plan funds should be used to incent companies to build new infrastructure and upgrade their networks to realize an adoption and access vision which the FCC has been mandated to accomplish.  First, detailed maps must be created to determined where the infrastructure is located, and where it is not. Then current providers of Telephone, Cable, or Wireless are incented to build and upgrade their networks in rural areas to provide needed Internet services. Monies will be better spent with incentives associated to quantifiable results rather than regulation and mandates of an existing industry.

The Cable Pipeline has written about both sides of the Net Neutrality issue. It is without question a passionate and personal debate with results having far reaching implications in the lives of individuals, businesses, and public sectors alike. The FCC has been prudent in seeking comment from all stakeholders which will hopefully produce the right results for all concerned. When the dust settles, my preference would lean more toward less regulation and more incentives therefore spurring economic growth and job creation. 

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Comcast is appealing a ruling before a three-judge appeals court panel concerning the FCC’s sanctions in 2008 of the operator, and whether it has jurisdiction under current Net Neutrality rules to do so, for what has become known throughout the media as past throttling of BitTorrent. (See FCC formally rules Comcast’s throttling of BitTorrent was illegal). This could be an important decision for ISP industry operators, who have many (irons-in-the-fire) when it comes to a business model that depends on both residential Internet and business customers, in helping it pay for a broadband pipeline created with private investment.

It also has implications for consumers who are increasingly using more file sharing applications to watch video content from their Internet Service Provider connections, and Internet giants like Google (Nasdaq: GOOG)who depend on free access to its information sharing business model. While Comcast (Nasdaq: CMCSA,CMCSK) has indicated their Internet management practices have since been changed, as a result of the issue, and it no longer throttles customers, what remains is a court challenge this past week in which the court grilled the FCC on its authority to regulate ISP’s under current Net Neutrality rules without a legislative mandate. (See Comcast Scores Against FCC in Court Battle over Net Neutrality).

The wider ramifications is whether the ruling will apply to business applications, which require special and unique service agreements for much larger file sharing and speeds in offering these programs. In essence, ISP’s need the flexibility to charge differing rates depending on the requirements of certain applications, which in-turn allow for infrastructure investments to accommodate these needs. This is their (Bread and Butter) of profitability.

On the one hand the FCC is under a mandate by the current administration to have a free flowing Internet with consumers and file sharing applications having unfettered access, and on the other, private investors which have created the pipeline are mandated by economics to make a profit depending on differing needs, from both consumer and business. If the FCC loses this current battle in court, then future challenges will likely occur concerning any new Net Neutrality rules that are adopted.

It seems from opening arguments before the courts that the FCC may have overstepped its boundaries in taking Comcast to task over BitTorrent, and may have to back up and ask Congress for a legislative mandate in regulating broadband as an information service.

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Now that the broadband experience is reaching a milestone in bridging the gap between digital content and consumers, we all may soon be accessing our Home Gateways to maximize the experience of downloading and viewing relevant content on TV’s, PC’s, Laptop’s, DVR’s, and Mobile Devices. 

The term Residential Gateway is not new and has been used in VoIP, and DSL applications by the Telecoms. Corporations have long been using Gateways for application connections. So, it makes plenty of sense to have one (in-home device) to act as a digital storage system, server, modem, and router to connect consumers with all of the broadband related devices, and content becoming widely available from a multitude of Internet sources.

Comcast (Nasdaq: CMCSA, CMCSK), Time Warner Cable (NYSE: TWC), and Cox Communications are partnering with The Digital Living Network Alliance (DLNA Certified device), to bring consumers a more integrated home network device to play back premium content HD/digital shows, photo slideshows, and music offerings for their customers. This Home Gateway device would work seamlessly with all consumer devices within the home to connect content to the TV.

NetGear (Nasdaqgm: NTGR), is introducing such devices at the Consumer Electronics Show with its award winning NETGEAR Stora , putting music, video, and photos at your fingertips, and the NETGEAR Wireless-N Router with DSL Modem – Mobile Broadband Edition, to connect wireless devices with content.  

Home Gateways are the next generation of devices to offer universal access and in-home-networking to speed along the delivery of broadband seamlessly within the home. Having a Broadband Pipeline which is Hybrid/Fiber/Docsis3 enabled, or a Fiber-To-the-Home connection, via your ISP to the Home Gateway will be the critical to the adoption process. This all-in-one device would be able to handle all the functions universally which are now separated like modems, Set-Top-Boxes, WIFI, routers, home networking, Blu-Ray Players, gaming, etc…

In essence, the Home Gateway will be the device that will connect families to entertainment, education, healthcare, security, communications, and a global world of information. This scenario may not be quite here yet, but the Consumer Electronics Industry and Cable-Telecom companies are certainly moving in that direction. The bottom line will be consumer costs of these devices and the deciding factor in its proliferation for a near-term broadband solution, rather than a long-term one.

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What will 2010 bring for the Cable-Telecom-Wireless Industry’s? Broadband and Wireless will continue an evolution of defining the way we communicate and make decisions that affect our daily lives in significant ways. Relevant companies will struggle to deal with an ever increasing shift of consumer preferences in their business and home information, communication, and entertainment needs.

Here are my Top 10 Predictions for 2010:

1. The FCC will move to increase regulation of ISP’s as a way to open broadband options for both business and consumers
2. The Universal Service Fund will be re-directed to increase broadband access to the underserved
3. The FCC will gain spectrum back from the broadcasting industry to advance Wireless industry initiatives and will continue to grow exponentially in 2010
4. Consumers will look for economical and alternative ways to connect to the things that are important to them through a broadband global universe, including information, entertainment, education, and health
5. Cable TV companies will struggle with a dwindling demand for linear programming and the consumers demand for viewing content on their own terms. TV Everywhere will be a success in the short term
6. Cable-Telecom companies will continue to struggle with customer satisfaction issues and will begin to focus more on this issue as subscribers continue to migrate elsewhere. Companies like Cox Communications will continue to thrive due to a focus on quality engineering and customer service
7. Demand for access to content on an A-La-Carte basis will gain ground with Over-The –Top Access Providers making significant head-way during the year
8. Cable-Telecom companies with underperforming networks will be subject to buy-outs and take-over’s as the industry continues to consolidate and upgrade infrastructures
9. Verizon (FIOS) will continue to gain market share where rolled-out due to its advanced capabilities for consumers and businesses
10. The Cable-Telecoms will continue to make their bundles more competitively attractive as they compete for the one-stop-shopping experience

2010 will be all about the customer experience and a continued change in broadband dynamics. The Cable Industry will struggle with a diminishing demand for linear programming, and the success of alternative Over-The-Top models of content access.

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At issue, the language the FCC crafted in its proposed rule making, specifically FCC NPRM Paragraph 106 as implicated by Digital Society. (see FCC NPRM prohibits good network management)

The crux of the debate for those seeing paid-peering-agreements as essential to increased participation by innovative content, application, or service providers, whether they be start-ups or seasoned, seem to be an open ended interpretation which would ban prioritization. See (What is true neutrality in the network?)

With the wide range of content flowing through the pipelines, and increasing at a rapid pace, the network cannot become a (dumb pipeline). Network management seems to be an essential characteristic needed to handle the flexibility of constantly differing requirements from Internet users. This is not a linear format with constant speeds and demands.

The network must constantly adjust to those varying needs which may require one user to demand more capacity than others at unique times. This management will not degrade the network for other users. It is a matter of choosing one higher demand over a lower demand without degrading the demand for both. It manages the requirements of each user.

As private networks, ISP‘s should know their responsibilities regarding consumer and commercial traffic, and the management issues of prioritizing. Obviously, paid peering is needed for those whose products depend on increased speed and bandwidth for business survival. The consumer wants the same whether they are streaming movies, or downloading PDF’s or just sending e-mail attachments.

It comes down to understanding how the Internet works regarding network access management capabilities across a wide variety of circumstances and geographical locations. In essence, what will it take for both large and small ISP’s to handle the varying traffic over their networks and upgrading to a standard that reasonably doesn’t degrade the user experience?

Hence, the NCTA’s recent reference to First Amendment issues in discriminating against ISP providers in Paid-Peering Agreements. The FCC should revisit NPRM Paragraph 106 and make sure proposed Net Neutrality rules do not discriminate against one party in favor of another. 

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