Communications Taxes Going up in 2011

Get ready for new taxes on your mobile services in 2011.

When you buy a Kindle e-book in 2011, a buyer living in New Jersey who purchases a $10 e-book housed on a server in Texas might pay $1.52 in taxes (7 percent sales tax in N.J.; 8.25 percent in Texas). Mobile phone service generally saw tax increases of about two percent a month in 2010, compared to 2009. But 2011 could be far worse.

Some observers say tax hikes could amount to as much as 75 percent in some localities next year, as governments shift more of the communications tax burden to mobile services, where those levies used to primarily be carried by wired services.

On average, 15 percent of a monthly mobile phone service bill is already made up of taxes and fees, compared to 7% for most other goods and services, according to CTIA.

But in 23 states, taxes run even higher, including Washington at 23.64 percent, Nebraska 23.44 percent, Florida 21.31 percent and New York at 21.1 percent.

Municipalities can tack on a tax, as well. Maryland's Montgomery County, for example, raised its telecommunications tax by 75 percent to $3.50 per month for next year. Oregon's Keizer City Council has voted in favor of a similar tax hike of three percent.

Taxes on e-book downloads to an e-reader could add up to 21 percent of the total price, assuming multiple states apply taxes to the same transaction, according to MyWireless.org , a nonprofit consumer advocacy group.

Taxes on cable TV bills are likely to get hiked as well.

 read more here

UN Gives Governments a Monopoly on Internet Governance

The United Nations Committee on Science and Technology has decided that governments alone would be able to sit on a working group set up to examine improvements to the Internet Governance Forum.

This move has been condemned by the Internet Governance Caucus, the Internet Society, the International Chamber of Commerce and numerous other organizations, who have published a joint letter and launched an online petition to mobilize opposition. Read the letter here: http://isoc.org/wp/newsletter/files/2010/12/IGF-Working-Group-Decision1.pdf

The petition is here: http://isoc.org/wp/newsletter/?p=2710

Official Google Blog: Governments shouldn’t have a monopoly on Internet governance

A Bit More Clarity on FCC's Net Neutrality Order

Following are key excerpts from the Report and Order adopted by the Commission to preserve the open Internet, released by the Federal Communications Commission. Though the language will be fleshed out when the formal order is issued, the language hints at the amount of work yet to be done to flesh out what it all means.

Rule 1: Transparency

A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.

Rule 2: No Blocking

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management.

A person engaged in the provision of mobile broadband Internet access service, insofar as such person is so engaged, shall not block consumers from accessing lawful websites, subject to reasonable network management; nor shall such person block applications that compete with the provider’s voice or video telephony services, subject to reasonable network

Rule 3: No Unreasonable Discrimination

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service.  Reasonable network management shall not constitute unreasonable discrimination.

Select Definitions

Broadband Internet access service:  A mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.  This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.

Reasonable network management.  A network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service. Legitimate network management purposes include: ensuring network security and integrity, including by addressing traffic that is harmful to the network; addressing traffic that is unwanted by users (including by premise operators), such as by providing services or capabilities consistent with a user’s choices regarding parental controls or security capabilities; and by reducing or mitigating the effects of congestion on the network. 

Pay for Priority Unlikely to Satisfy “No Unreasonable Discrimination” Rule

A commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the connection to a subscriber of the broadband provider (i.e., “pay for priority”) would raise significant cause for concern.  First, pay for priority would represent a significant departure from historical and current practice.  Since the beginning of the Internet, Internet access providers have typically not charged particular content or application providers fees to reach the providers’ consumer retail service subscribers or struck pay-for-priority deals, and the record does not contain evidence that U.S. broadband providers currently engage in such arrangements.  Second this departure from longstanding norms could cause great harm to innovation and investment in and on the Internet.  As discussed above, pay-for-priority arrangements could raise barriers to entry on the Internet by requiring fees from edge providers, as well as transaction costs arising from the need to reach agreements with one or more broadband providers to access a critical mass of potential users.  Fees imposed on edge providers may be excessive because few edge providers have the ability to bargain for lesser fees, and because no broadband provider internalizes the full costs of reduced innovation and the exit of edge providers from the market.  Third, pay-for-priority arrangements may particularly harm non-commercial end users, including individual bloggers, libraries, schools, advocacy organizations, and other speakers, especially those who communicate through video or other content sensitive to network congestion.  Even open Internet skeptics acknowledge that pay for priority may disadvantage non-commercial uses of the network, which are typically less able to pay for priority, and for which the Internet is a uniquely important platform.  Fourth, broadband providers that sought to offer pay-for-priority services would have an incentive to limit the quality of service provided to non-prioritized traffic.  In light of each of these concerns, as a general matter, it is unlikely that pay for priority would satisfy the “no unreasonable discrimination” standard.  The practice of a broadband Internet access service provider prioritizing its own content, applications, or services, or those of its affiliates, would raise the same significant concerns and would be subject to the same standards and considerations in evaluating reasonableness as third-party pay-for-priority arrangements.

Measured Steps for Mobile Broadband

Mobile broadband presents special considerations that suggest differences in how and when open Internet protections should apply.  Mobile broadband is an earlier-stage platform than fixed broadband, and it is rapidly evolving.  For most of the history of the Internet, access has been predominantly through fixed platforms -- first dial-up, then cable modem and DSL services.  As of a few years ago, most consumers used their mobile phones primarily to make phone calls and send text messages, and most mobile providers offered Internet access only via “walled gardens” or stripped down websites.   Today, however, mobile broadband is an important Internet access platform that is helping drive broadband adoption, and data usage is growing rapidly.   The mobile ecosystem is experiencing very rapid innovation and change, including an expanding array of smartphones, aircard modems, and other devices that allow mobile broadband providers to enable Internet access; the emergence and rapid growth of dedicated-purpose mobile devices like e-readers; the development of mobile application (“app”) stores and hundreds of thousands of mobile apps; and the evolution of new business models for mobile broadband providers, including usage-based pricing.

Moreover, most consumers have more choices for mobile broadband than for fixed broadband.   Mobile broadband speeds, capacity, and penetration are typically much lower than for fixed broadband,  though some providers have begun offering 4G service that will enable offerings with higher speeds and capacity and lower latency than previous generations of mobile service.   In addition, existing mobile networks present operational constraints that fixed broadband networks do not typically encounter.   This puts greater pressure on the concept of “reasonable network management” for mobile providers, and creates additional challenges in applying a broader set of rules to mobile at this time.   Further, we recognize that there have been meaningful recent moves toward openness, including the introduction of open operating systems like Android.  In addition, we anticipate soon seeing the effects on the market of the openness conditions we imposed on mobile providers that operate on upper 700 MHz C-Block spectrum, which includes Verizon Wireless, one of the largest mobile wireless carriers in the U.S.  

In light of these considerations, we conclude it is appropriate to take measured steps at this time to protect the openness of the Internet when accessed through mobile broadband

Specialized Services

In the Open Internet NPRM, the Commission recognized that broadband providers offer services that share capacity with broadband Internet access service over providers’ last-mile facilities, and may develop and offer other such services in the future.  These “specialized services,” such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide consumers valued services, supplementing the benefits of the open Internet.  At the same time, specialized services may raise concerns regarding bypassing open Internet protections, supplanting the open Internet, and enabling anticompetitive conduct.  We note also that our rules define broadband Internet access service to encompass “any service that the Commission finds to be providing a functional equivalent of [broadband Internet access service], or that is used to evade the protections set forth in these rules.”

We will closely monitor the robustness and affordability of broadband Internet access services, with a particular focus on any signs that specialized services are in any way retarding the growth of or constricting capacity available for broadband Internet access service.  We fully expect that broadband providers will increase capacity offered for broadband Internet access service if they expand network capacity to accommodate specialized services.  We would be concerned if capacity for broadband Internet access service did not keep pace.  We also expect broadband providers to disclose information about specialized services’ impact, if any, on last-mile capacity available for, and the performance of, broadband Internet access service.  We may consider additional disclosure requirements in this area in our related proceeding regarding consumer transparency and disclosure.  We would also be concerned by any marketing, advertising, or other messaging by broadband providers suggesting that one or more specialized services, taken alone or together, and not provided in accordance with our open Internet rules, is “Internet” service or a substitute for broadband Internet access service.  Finally, we will monitor the potential for anticompetitive or otherwise harmful effects from specialized services, including from any arrangements a broadband provider may seek to enter into with third parties to offer such services.   The Open Internet Advisory Committee will aid us in monitoring these issues.

Australia National Broadband Network Pricing Clues

Australia's planned National Broadband Network (NBN) expects, over a decade, to build a fiber-based broadband access network providing 93 percent of Australian homes and small businesses with 100 Mbps service. Some locations will be served by wireless or satellite services that will operate at 12 Mbps. Fixed wireless will be used to supply service to about four percent of locations, while satellite is used to deliver service to about three percent of locations.

In total, about 13 million connections will be supplied.

"Retail pricing structure for fiber products is based around bundled (cheap or free) voice, fast broadband access and multi-channel TV," the NBN plan suggests. That little tidbit largely reflects the prevailing view that voice communications, though still a huge part of the overall value proposition, will not be the revenue driver for the network. Some might wonder about the relative contribution of multi-channel TV, over the medium or longer term, as well.

Of course, since the NBN will only supply wholesale access and transport, the specific retail plans will be determined by the retail providers themselves. Some may elect not to provide any one of the potential constituent services. Also, the NBN and its retail partners will continue to compete in a market with existing cable competition and expected growing competition from mobile networks as well.

One might guess, based on prior instances of robust wholesale regimes, that Telstra's current 70-percent-plus share of voice, and nearly-70-percent share of fixed broadband, could drop to about 40 percent, as already is the case in the wireless services domain. Market share of about 40 percent for fixed services would be consistent with other markets where robust wholesale competition is possible.

Some idea of the "retail pricing floor" can be gleaned from planned NBN pricing. Wholesale prices for a single 12 Mbps circuit are set at $24. A retail service provider will add operating, sales and capital costs to derive retail pricing. Other prices include wholesale charges of $27 for a 25 Mbps service with 10 Mbps return; $30 for a 25/20 service and  $34 for a 50/20 access; $38 for 100/40 service.

Wholesale pricing for a 250/100 plan will cost $70; $100 a month will buy a 500/200 service and $150 is the wholesale price per month for a 1 Gbps/400 Mbps service. The charges intentionally are designed to encourage wholesale partners to buy and retail services running at 100 Mbps.

The NBN also will sell symmetrical services with guaranteed quality of service (committed information rates).

NBN Co will "provide a layer two bitstream service only, using a GPON (gigabit passive optical etwork) architecture. The company is not preparing for the provision of layer one services, layer one unbundling, functional or structural separation. Retail partners will not be able to buy "dark fiber," in other words.

Wholesale products will be sold supporting downstream bandwidths of 12 Mbps, 25 Mbps, 50 Mbps, 100 Mbps, 250 Mbps, 500 Mbps and 1 Gbps, with upstream bandwidths ranging from 1 Mbps up to 400 Mbps. The NBN also will offer wholesale voice capabilities.

The NBN will add video streaming delivery, but will not supply the rest of the video infrastructure. Also planned are features to support multi-location enterprises and 1 Gbps virtual LAN services, as well as protected diverse-routing services.

The entire fiber network will take 9.5 years to build, assuming no materials or labor delays, and is projected to cost $36 billion. Revenues to 2020 are expected to be about $21 billion and operating costs are expected to run about $22 billion through 2020. The Australian government is contributing R27.5 billion, with debt financing of about $13 billion. The internal rate of return is expected to be seven percent.

For Telstra, the stakes are high, as Telstra will essentially be out of the infrastructure business, and purchase access and transport services from the NBN. Telstra also will divest its cable network customers as well.

You can read the full report here

FCC Net Neutrality "Rules" are More Like "Principles"

To me, this reads more like a statement of principles and direction than "rules." That likely is by design. That also means if the court challenges do not invalidate the entire order, we are in for a long period of gradual testing of what each of the principles actually means.

It appears we don't really know much, yet, especially since the actual language hasn't been released.

http://www.scribd.com/doc/45749183/Net-neutrality-statement-by-Julius-Genachowski-the-FCC-chair-on-Dec-21-2010

Netflix CEO Reed Hastings Disagrees with Investor "Shorts"

You would not expect any CEO of a public company to do anything but defend the company's valuation. Reed Hastings, Netflix CEO, facing what might be termed significant concern in some quarters that the firm is over-valued, does so in this post, a response to investor Whitney Tilson's stated reasons for shorting Netflix.

You can read the original here: http://seekingalpha.com/article/242320-whitney-tilson-why-we-re-short-netflix

Both sets of arguments are cogent. The one point where the Hastings response seems to me to miss the mark is Tilson's argument about higher broadband costs, incurred by consumers, not by Netflix, to consume Netflix or any other provider's streaming content.

Hastings rightly points out that on a cost-per-megabyte, backbone transport costs are declining. He's right about that. But Tilson seems to be pointing to the money end users have to pay, for their broadband access subscriptions, to consume streaming content.

As users begin to watch more online video, it is highly likely they will need to spend more money on their broadband access plans, and that will play some role in any consumer's evaluation of their costs to watch streaming video. It does not appear that Tilson was commenting on Netflix costs to move video across the Internet backbone, but about potential higher costs borne by end users to watch online video.

Netflix CEO Reed Hastings Responds to Whitney Tilson

FTC Wants Do-Not-Track for Online Ads

Any industry can run into consumer issues that are troublesome from a business perspective, and can lead to problems from a legal or regulatory perspective. It isn't yet clear whether the online advertising industry has done enough, or can do enough, to self police itself before outside intervention occurs.

It might now be too late for online advertising to escape outside intervention. The Federal Trade Commission wants a "Do-Not-Track" program for online advertising, saying the industry has moved too slow.

FTC Wants Do-Not-Track for Online Ads