Legal Tech & society

Net neutrality, erh, network discrimination, is again in the news

Dutch ruling highlights the perils of “network discrimination” but sidesteps U.S. structural problem of network and entertainment sector consolidation.

A Dutch regulator has found T-Mobile in violation of net neutrality (more accurately framed as “network discrimination”) rules. T-Mobile must “stop offering a streaming music product” that doesn’t count towards a customer’s monthly data cap.

T-Mobile is the third largest US carrier; here, T-Mobile calls this plan Music Freedom (there’s an equivalent Binge On plan for video). Consumers pick the “Simple Choice” rate plan and escape data caps! However, as Henk Don points out in the Dutch news statement: “Free data does not exist: other services will be more expensive.”

Often the arguments about net neutrality center on this truth: there is no such thing as a free lunch. Privileging one bit makes another bit more expensive. And “privileging” means “discriminating.”

However, in the United States, net neutrality is inextricably linked with the omnipresent issue of media consolidation: having mega information and entertainment companies also own distribution networks.

Network neutrality is the principle that internet service providers should not be allowed to favor bits from one source by delivering them faster than similar bits from a different source. In other words, an internet service provider should treat streaming video from Amazon like it does Apple, ESPN, Netflix, or YouTube. This fairness principle is mirrored in centuries-old common carrier law; that’s the law that prohibits telephone companies from discriminating against out-of-network phone calls (calls made from Verizon to AT&T, for example).

Of concern: the vertical integration of infrastructure (“pipes”) and content: news and information, social media messages, texts, music (what we used to call “radio”), voice (“telephone”) calls, and video (what we still call “television” and “movies”).

In the United States, the largest home Internet service provider by subscriber, Comcast Corporation, is the largest broadcasting and cable television company in the world by revenue ($74.5 billion, with a nod to NBC Universal). It is the second-largest pay-TV company and third-largest home telephone service provider.

AT&T-DirecTV is the largest pay-TV company (25 million subscribers), and AT&T Mobility is the second largest wireless carrier (total revenue, $146.8 billion). Verizon is the nation’s largest wireless carrier ($131.8 billion) and has 9.2 million home broadband internet subscribers.

Charter Communications, the nation’s number two cable provider, now owns Time-Warner, making it the third largest media conglomerate in the world ($33.5 billion). The Walt Disney Company is number two ($53.9 billion) but, as yet, owns no cable or Internet networks: just ABC and assorted other television channels.

media market share

This vertical integration presents clear competitive conflicts, like the behavior of NBC-Universal-Comcast in New Jersey. See how that’s currently playing out for Charter Communications, a Comcast competitor:

Comcast-owned NBCU has prepped a marketing campaign designed to appeal to Charter customers to pressure the cable provider into taking a more flexible negotiating stance. That campaign was set to launch late Thursday afternoon (December 29) with a crawl that would run across the screens of Charter’s Spectrum customers watching NBCU channels, alerting them to the possibility of a programming blackout.


In 2014, we were talking about Comcast throttling Netflix:

netflix chart


Look. We’ve walked this highway already! Why are we in a centuries-long equivalent of Ground Hog Day? (Thank you, Bill Murray.)


Net neutrality discussions mask the perils of market concentration

To whit: In 1948, the U.S. Supreme Court ruled (7-1) in United States versus Paramount Pictures that the Hollywood practice of vertical integration was anti-competitive.

In other words, when movie studios also owned the theaters, they privileged their own movies. Surprise! Unregulated competition (market concentration is antithetical to free market competition) means less choice for consumers (and niche competitors).

Courts ruled that this practice was discriminatory (ie, not neutral) with respect to small studios that did not own distribution channels. In 1946, the Supreme Court had upheld the concept of privileged distribution in Bigelow v. RKO Radio Pictures. In this case distributors who also owned movie theaters, like RKO, privileged their own films, enabling “conspirators…to show movies before independent theater operators.”

What makes the parallel with 2016 mind-boggling, however, is this: in 1945, a handful of Hollywood studios owned (fully or partially) only 17% of the theaters in the country and accounted for less than half of film-rental revenue.

Concentration in distribution today: home delivery

The top threepaid TV providers” (Comcast/NBCU, Direct/ATT, Charter/Time-Warner) account for two-thirds of all cable and satellite customers. Charter and Comcast account for almost three-quarters of the high-speed Internet market.

This summer, Comcast and Netflix announced that Netflix offerings would be integrated into at least one of Comcast’s “interactive television boxes.” This means no need for a third-party box like Roku, Chromecast or AppleTV. It probably means that Netflix content would no longer “count” against a monthly data plan, since it would no longer be streaming via traditional Internet channels.

In addition to discriminating against independent “television” producer Amazon, the deal undermines companies with bridge technologies (Roku, Google and Apple) because the cable box holds a monopoly position in the entertainment center.

Concentration in distribution today: entertainment networks

The three biggies here — Comcast/Disney/Charter — control or partially control nine of the top 15 (by audience) television networks.

Hulu, the streaming alternative to cable or over-the-air television programming, is a joint venture of NBC Universal Comcast, Disney (via ABC), Time-Warner (via TBS), and Fox.

CBS and Viacom (respectively number five and six broadcasting/cable companies by revenue) are controlled by privately owned National Amusements, Inc. An American theater company, National Amusements controls 80% of the voting shares of CBS and Viacom (Paramount Pictures).

Regulation as whipping dog

Intertwined into any discussion about net neutrality is an implicit judgment about the role of regulation. Does regulation “take something away” (curb behavior through prohibition) or “make something available” (guarantee access or opportunity)?

The concept seems simple and straightforward, not unlike how we treat telephone calls and electricity.

AT&T cannot legally treat an incoming call from Verizon any differently than it treats one from its own subscriber. This market behavior is not natural: it’s required by law and regulation(Kinda like laws and regulations to prohibit theft and murder.)

The power company doesn’t care if your electricity is running a microwave, a computer, a washing machine, or a hair dryer. It may try to shift behavior by charging a different rate at different times of day, but not for different home uses.

With net neutrality, the same anti-discrimination ethic is focused on zeros-and-ones, bits. In other words, the carriers — the infrastructure owners — should not be able to block, slow down or speed up the bits based on their points of origin or destination. The FCC made this a regulatory truth in 2015.

All infrastructure owners (cable, fiber, copper) should be considered “common carriers.” This designation means that they would have to lease their infrastructure to other organizations and they would not be able discriminate based on the origin of a bit.

And just like the Supreme Court forced Hollywood studios to divest their movie theaters, the companies that own internet infrastructure should split from the content side of the house.

We have to separate content (the bits that represent text, photos, sound, moving pictures) from the delivery channel. That’s in part because we (society) can’t afford to have competing infrastructure: multiple “cable” or “fiber” wires on each-and-every neighborhood street. That sort of competition is economically inefficient: infrastructure is characterized by very high fixed costs relatively low marginal costs (the cost of attaching the line to one-more-house).

Economic inefficiency means consumers pay more than than we should, enriching a few shareholders and CEOs in the process. Perhaps this expains why we pay more for less broadband than other countries around the world.

Draw a line in the sand. Tell the FCC, the incoming president, your Senator, and your Congressperson to say no to Internet discrimination.

Learn more

My net neutrality soapbox

Testimony and regulatory comment

My letter to the FCC, September 2014

Seattle FCC Media Ownership Hearing, November 2006 (emphasis added)

[I am Kathy Gill from the Department of Communications] at the University of Washington… Thank you for the opportunity to speak briefly about my concerns about the increasing concentration of media ownership in America.

A lot of other people have already talked about the oligopolistic nature of the market. But, we also have to realize that this comes along with something called lack of transparency in ownership… We can be pretty sure that when the Harper Collins person came on the air, no one said ‘And, oh by the way, we own this company.’

The key issue that I am concerned with today, though, is that of the digital commons which has only been briefly and gently mentioned so far. The current Congress considered but – thankfully – did not pass legislation that would have radically changed the relationship between local government and cable firms. Now, one of the arguments for this, of course, was efficiency. This is always the argument for consolidation. The bill (HR5252: The Communications Opportunity Promotion and Enhancement Act of 2006) would have set up a national franchise for cable companies replacing the current system of locally negotiated contracts. It would have pre-empted state and local consumer protection laws, pre-empted local government authority over municipal rights-of-way, and pre-empted state laws prohibiting local government from offering certain services to provide internet access – and that is all from the Congressional Budget Office.

Now, some of the controversy around this bill came about because efforts designed to ensure that the network underlying the internet retains a common carrier ethic. So, imagine for a moment that your cell phone provider is Cingular and your closest friend has only a landline provided by Qwest (that is our local phone company in case you didn’t know that). Currently, because of common carrier regulations, each telephone provider has to treat each incoming call the same as though they were on the same network. This neutrality was mandated by Congress because telephone networks were – and at least still are for the time being – considered important public infrastructure.

But, the proposals being promoted in Congress today by [telecommunications] and cable firms like AT&T, Verizon, Comcast, and Time-Warner (which is also the nation’s largest media company) are laying the groundwork for dismantling this network neutrality for the internet. Now, as a rallying call, this is a horrible name. And, what we really should be saying is that we are resisting network discrimination. This issue – who will control how data move across the internet – is of vital importance.

There has been a lot of talk tonight about public airways, but we are in a transition between public networks and private ones. He who controls the channel has the power to privilege certain voices and data and to deny others. When you consider that one player alone (Time Warner) appears in the top five in both media ownership and broadband ownership… I think we should all pay close attention to this issue.

This digital commons is also important because one of the cries that you will hear and that you have heard to dismantle the prohibitions on media consolidation is that there is this great big ‘Wild West’ of competition out there on the internet. When we are talking about connectivity… that is not the case. Lawrence Lessig talked to Financial Times last month, where he said ‘We have fewer competitors offering broadband connectivity today in the United States than we did eight years ago’. The U.S. ranks 16th in the world with citizens who have access to broadband. And those are inflated data.

The market of ideas in a functioning democracy rests solidly on the vision of Jefferson and Adam Smith. This is the antithesis of the vision of consolidation exhibited by media giants like Fox or Time Warner, Verizon, or Comcast. Please resist all forms of network discrimination and network consolidation.

A backwards glance at writings

By Kathy E. Gill

Digital evangelist, speaker, writer, educator. Transplanted Southerner; teach newbies to ride motorcycles! @kegill

2 replies on “Net neutrality, erh, network discrimination, is again in the news”

In 2006, Google CEO Eric Schmidt wrote “A Note to Google Users on Net Neutrality.”

Google has removed the post.

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