Wednesday, February 18, 2015

Will Title II Lead to App Provider Charges Even Higher than "Paid Prioritization?"

Unintended consequences are among the reasons why intended policies rarely work as expected.

Is there a danger content providers would have to pay Internet access providers termination charges if Internet access is regulated as a common carrier Title II service? Yes, say economists and analysts as the Phoenix Center for Advanced Legal & Economic Public
Policy Studies.

“Reclassification turns edge providers into customers” of access providers, argue George Ford, Phoenix Center chief economist, and Larry Spiwak, Phoenix Center president.

This new “carrier-to-customer” relationship (as opposed to a “carrier-to-carrier” relationship) would then require all access providers (telephone, cable, and wireless) to create, and then
tariff, a termination service for Internet content under Section 203 of the Communications Act, Ford and Spivak argue.

Though skeptics will argue that is not going to happen (that the Federal Communications Commission will not impose such obligations, though it can), the potential outcome could be far worse than the hypothetical “content delivery network” fees some have argued should be outlawed.

With the caveat that the arguments--however important--are “in the weeds” for most people, the FCC  “would likely be prohibited from using its authority under Section 10 of the Communications Act to forbear from such tariffing requirements because the Commission has labeled all BSPs as ‘terminating monopolists.’ Spiwak and Ford argue.

In other words, the FCC cannot avoid having ISPs impose such charges, even if the FCC now claims it can apply a “light touch” Title II regime that does not create such obligations.

Historically, edge providers (application providers) have not been considered “customers” of
the Internet access providers.

By reclassifying broadband as a telecommunications service, this termination service becomes a common carrier telecommunications service, thereby formalizing this “customer” relationship between application providers and ISPs whose facilities they use, Phoenix Center argues.

In other words, application providers are customers of the ISPs, just as end users are.

What the “just and reasonable” tariffs ought to be, and how much application providers must pay, is the issue. The only certainty is that the tariff cannot be “zero.”

In a perhaps terrifying new development for content and application providers, it could turn out that most of the revenue IPSs earn will come from content and app providers, not end users.

That unanticipated outcome could be the worst outcome of any Title II regulation for application providers, though oddly enough ISPs could benefit. Ultimately, the ecosystem would suffer, as economics suggests higher prices will lead to lower usage.

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