The future of broadband: uncertain

This was not Kevin Werbach’s first “Future of Broadband” rodeo.

The Wharton professor organized a similarly-titled workshop back when he worked at the Federal Communications Commission. “Basically, nothing has changed.” Werbach said. “That was January of 1998.”

That drew laughs from the crowd of lawyers, consultants and telecommunications industry experts.

Werbach’s joke — hardly the nerdiest of last Thursday’s afternoon event — illustrated the regulatory challenges facing the FCC, which is trying to keep up with the rapidly evolving, constantly changing and ever more important telecommunications industry.

Regardless of the net neutrality rule's actual substance, the panelists emphasized it must be clear and easily understood.

The panel was organized by the Philadelphia chapter of the Federal Communications Bar Association and Harris, Wiltshire & Grannis, a boutique telecommunications law firm based in Washington, D.C. It was hosted by Drinker Biddle & Reath, at the firm’s law offices overlooking Logan Square.

Amazingly enough, it took over 20 minutes for the panel to mention the elephant in the room: net neutrality.

More amazingly, they did so without explicitly acknowledging the other elephant in the room: the handful of Comcast employees in attendance.

###

Net neutrality, for the uninitiated, refers to a current debate over whether internet service providers (ISPs) should be allowed to prioritize some kinds of internet traffic over others — in other words, whether ISPs (like Comcast) — should be allowed to create fast and slow lanes on the web.

In 2010, the FCC adopted an “open internet” rule that effectively required net neutrality, but those regulations were shot down in January in a ruling by the Court of Appeals for the D.C. circuit.

The FCC has recently proposed new rules that would allow some amount of traffic prioritization, drawing criticism from the net neutrality activists, but praise from ISPs.

The panel avoided answering whether the FCC should support net neutrality or allow traffic prioritization. Instead, the panelists emphasized that, regardless of the rule’s actual substance, it must be clear and easily understood.

Paul Margie, a partner at Harris Wiltshire & Grannis and former legal advisor to former FCC Commissioner Michael Copps, said, “I’ll be looking at whether the rules create a system that produces predictability and certainty, produces an easily administered solution by the regulatory agency where if there are disputes, they can be resolved effectively.”

Margie added, “If you got rules that create a lot of uncertainty in the marketplace or it ties up the FCC staff in knots … then you’re going to create a troubling outcome.”

###

While Margie acknowledged that focusing on the rule’s implementation — rather than on the rule itself — sounds like a dodge, he has sound footing for his assertion, at least in theory.

The reaction about net neutrality isn't so much about net neutrality. It's about people seeing rising prices, lack of competition and increased consolidation.

Ronald Coase won a Nobel for his eponymous theorem that basically says that if property is privately owned, and the laws regulating transfer of that property are clear and easily understandable, then that property will be utilized in an economically optimal manner. Here, if the FCC sets clear rules on net neutrality, regardless of whether it benefits the Netflixes or the Comcasts of the world, the market will adjust. It’s when the regulations are baffling that problems arise.

Of course, not everyone agrees with Coase, who ignored the fact that even if there is economic efficiency, there are still winners and losers. Weak net neutrality laws will benefit large ISPs and hurt content providers.

Gigi Sohn, special council for external affairs at the FCC, argued that the increasingly heated debate over net neutrality has less to do with that arcane policy, and more to do with prevalent consumer anxieties. Sohn noted that our lives have become more dependent on broadband access.

“The reaction about net neutrality isn’t so much about net neutrality,” she said. “It’s about people seeing rising prices, lack of competition and increased consolidation.”

###

Two other major topics dominated the afternoon discussion.

Preston Marshall, principal wireless architect at Google, returned repeatedly to the highly technical issues facing spectrum constraints: we’re running out of room on the radio frequency spectrum for all our telecommunications needs as wireless, cellular, TV, radio and other technologies all compete for a finite number of frequencies.

When asked about disruptive developments in telecommunications, Sohn pointed to municipal broadband. Some municipalities have developed gigabit broadband capabilities as an economic investment tool. Sohn highlighted Chattanooga, Tenn., and Wilson, N.C., as towns that planted high-speed fiber optics and then reaped economic rewards: Volkswagen moved a plant to Chattanooga and an animation studio moved to Wilson from Hollywood.

The case for municipal broadband.

Municipal broadband’s real beneficiaries are mid-sized businesses, schools and local government agencies, said Paul de Sa, a VP and senior analyst at Sanford C. Bernstein. Large businesses can pay for high-speed on their own, and small businesses and startups are less likely to need it, but the middle market business “could need to send a lot of data, but its tough [for them] to pay for that connectivity,” de Sa said.

As Marshall pointed out, applications follow bandwidth — developers will design technologies to match existing capabilities. As bandwidth supply grows, demand follows. “No one has ever built a pipe that wasn’t completely filled 10 years later,” he said. That makes municipal investment in gigabit speed fiber optics look more reasonable.

On the other hand, de Sa raised two basic questions: do you want local governments to be ISPs? And do you want local government to spend money on this, or do you want them to spend money on schools, police and roads?

As Philadelphia looks to make itself more business and tech friendly, these are legitimate questions to ask. Our previous experiment in city-provided broadband crashed and burned. But this level of high-speed broadband could make Philadelphia a more attractive place for small and mid-sized businesses. Maybe, the handful of Comcast representatives in attendance were listening.