Inside net neutrality with FCC Commissioner Robert M. McDowell

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In 2007, I cast the only dissenting vote against auction rules for the 700MHz band because they included "open access" mandates concerning devices and applications for some, but not all, blocks of that spectrum. I dissented partly because evidence in the record convinced me that new rules were unnecessary. Marketplace forces, otherwise known as consumer demand, were moving network providers in that direction anyway.

I also feared that the open access mandates would undermine the commission's goal of encouraging entry of new providers into wireless services. I was especially concerned that larger carriers would avoid the nationwide, encumbered spectrum and outbid smaller players for the regional, unregulated spectrum blocks. It gives me no joy to report that my fears proved to be correct -- the smaller providers did indeed lose out.

Here's how: the price for the "open access" C Block was 77 cents per megahertz by population in the license area (known as "megahertz pop"), and it was purchased not by a new entrant, but by Verizon Wireless. On the other hand, the average price of the unencumbered B Block was an unprecedented $2.65 per pop. AT&T Wireless was the largest winner of B Block spectrum. Even the A Block, unencumbered, but which some had argued was "less desirable" because it neighbors with higher-powered broadcast operations and thus might be susceptible to harmful interference, went for an average of $1.13 per pop.

The bottom line is that the smaller unencumbered blocks sold for up to three times more than the larger, more regulated block. Large and small players have already commented that the encumbrance on the C Block had an effect on pricing because bidders put a premium on the clean spectrum. Acting in an economically rational manner, large incumbents outbid many smaller players in smaller blocks. Smaller players had nowhere else to go, all while no new broadband provider emerged. In short, the open access regulation not only failed to deliver on what was promised, but it actually harmed competition.In order to mandate net neutrality, the commission employs a rationale to regulate telecommunications services, which entail no information processing, as a means to regulate Internet services, which depend on information processing. This seems anomalous. This approach will not survive judicial scrutiny, your comments indicate. Why?

Another possible unintended consequence of the open access mandate has recently been brought to our attention. This issue pertains to design and manufacture of equipment for operating in the 700MHz Band. A coalition of A Block auction winners has complained to the FCC because: (1) Verizon Wireless, the C Block auction winner, is allegedly contracting to purchase equipment capable of operating only in the C Block; and (2) AT&T, which won the largest share of B Block spectrum, is allegedly contracting to purchase equipment capable of operating only in the B and C Blocks. These A Block auction winners argue that their customers will be left without viable and widely operational equipment options. They have requested that the FCC suspend the authorization of any equipment not capable of operating over all commercial 700MHz Band spectrum.

Here again, it appears that the encumbrance on the C Block may be having an effect on equipment design and purchasing decisions.

Since 2002, the Commission has continued on a path of classifying broadband services as less regulated information services under Title I of the Communication Act. As such, proponents of net neutrality rules have had to argue that the commission has jurisdiction to impose these rules through its ancillary authority under Title I -- rather than directly through Title II. But, some question whether the commission can use its ancillary authority for network management regulations.

That specific jurisdictional question is currently before the U.S. Court of Appeals for the District of Columbia in the Comcast/BitTorrent case. Oral arguments have already been held in that case, and it will be interesting to see how the court rules regarding the commission's ancillary jurisdiction. If the court rules that the commission does not have jurisdiction, the proposed rulemaking will be on a shaky legal foundation.

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Copyright © 2010 IDG Communications, Inc.

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