The Rules of the Game: Fandor’s response to the FCC’s NPRM on Open Internet

SaveOurInternet-2

The following are Fandor’s comments to the  FCC’s Notice of Proposed Rule Making on the “Open Internet”.  You can see more at the FCC’s website. Learn more about how infrastructure affects creativity at the final Reinvent Hollywood Roundtable on The Rules of the Game, live at 11:00am PT on Tuesday, August 5th. 

This is a tough age for independent filmmaking. Outlets for independent film makers are shrinking. Art Houses are closing.Distribution has flattened out and the decline of DVD and Blu-Ray media could further reduce the ability of fans to access this important art form.[1]. Filmmakers are earning less and less and having a harder time getting funding for their projects. Fandor is pushing to support the independent filmmaking community, making sure innovative cinema doesn’t disappear completely.

ABOUT FANDOR

Founded in 2009, Fandor is an online community of film lovers and makers. USA Today recently depicted Fandor as a “magnet for movie lovers”. Fandor and its community of film lovers connect over thousands of films which span genres and decades; a diverse library of independent and international cinema specially handpicked to make discovering new and classic favorites easily accessible. “In terms of the breadth and depth of the cinematic experience, it would be hard to beat Fandor” stated TecHive recently. Fandor’s member-based service allows audiences to watch unlimited movies wherever they are: on TVs, desktops, tablets and mobile devices. Fandor supports the world’s best filmmakers by returning half of its revenue to them. For more information, visit Fandor.com.

THE WORLD CHANGING INTERNET

In the last ten to twenty years, open source and cloud infrastructure have significantly reduced the barrier to entry for Internet presence. The open source movement has created many important development and publishing tools, all with little or no cost to new individuals and organizations. Cloud infrastructures like Amazon’s Web Services means all costs are all usage based, and anyone with a good idea can, for very little up-front expense, start a business on the Internet. Garage companies like Google and Yahoo would have had to have spent millions more to even get to the point of sending their first byte on the net. In many cases, raising this investment would have prevented many companies from being able to try out their idea, as investors would see a much higher risk.

This low barrier to entry has an amplifying positive feedback, as recognized by the NPRM:

The Commission has specifically found that the Internet’s openness enables a “virtuous circle of innovation in which new uses of the network.”

This is true in just connecting to the Internet and it was recognized early on by Kevin Kelly:

“The number of nodes in a network increases arithmetically, the value of the network increases exponentially.”— Kevin Kelly – New Rules for the New Economy (1998)

Early standards were critical for inter-operability. Standards were developed and vetted through the Request For Comments (RFC) process wherein everyone had a chance to give feedback and help codify the standard. Standards are just as critical today, in order to support privacy (eg. TLS) and commerce.

This multi-trillion dollar new economy, that Kevin Kelly recognized over fifteen years ago, could not have occurred without open standards, open software, Moore’s Law and computation combining to create a cheap and level field for competition.

“COMMERCIALLY REASONABLE” IS TOO VAGUE

To quote USLegal.com, “Commercially reasonable efforts is a term incapable of a precise definition and will vary depending on the context in which it is used.[2] It is fraught with problems as a subjective term and will need to be tested in courts in the future. In many cases it is not even legally recognized on the level of “best effort”. This is a concern to Fandor and even the NPRM recognizes this in giving itself three goals of:

(1) an enforceable legal standard of conduct barring broadband provider practices that threaten to undermine Internet openness, providing certainty to network providers, end users, and edge providers alike,

(2) clearly established factors that give additional guidance on the kind of conduct that is likely to violate the enforceable legal standard, and

(3) encouragement of individualized negotiation and, if necessary, a mechanism to allow the Commission to evaluate challenged practices on a case-by-case basis, thereby providing flexibility in assessing whether a particular practice comports with the legal standard.

When a “commercially unreasonable” challenge occurs, the FCC will rule on it and then it will be immediately tested in, or even thrown out by, the courts. This means that many smaller companies will think twice about not only bringing up a problem with the FCC due to its economic burden, but also exposing themselves to further litigation. This will have the opposite effect of what this NPRM intends, as it will add risk to smaller companies and individuals attempting to create new markets.

PRIORITIZATION OF TRAFFIC

In Chairman Wheeler’s comments to this NPRM he opens with:

I strongly support an open, fast and robust Internet. This agency supports an Open Internet. There is ONE Internet. Not a fast internet, not a slow internet; ONE Internet.

And then later says:

In this Item we specifically ask whether and how to prevent the kind of paid prioritization that could result in “fast lanes.”

Prioritization of traffic is a particular concern to any content provider dealing with time-sensitive content. Streaming audio and video applications like Voice over IP (VoIP) phone services for audio and SVOD used by Fandor are prime examples of this content. If a packet gets lost or delayed then service will be significantly impacted. Smaller content providers that will need to pay fees to prioritize their traffic over a congested network will be at disadvantage from the start.

So far, we haven’t seen a situation where a “last mile”, or Internet Access Provider (IAP), has required this, but we have seen IAPs float this idea. Typically the argument advanced is that they have overly provisioned last mile infrastructure (eg, wireless and cable) and are trying to subsidize additional infrastructure to accommodate this traffic. Of course, what this actually means is that the IAP was short sighted in their deployment and could be (separately) trying to figure out additional revenue models.

ADDITIONAL OVERHEAD FOR STARTUPS

Although the Internet has reduced the cost of putting up an “open for business” sign, there are still costs for programming, operations, marketing, content, etc. As “commercially reasonable” is too vague, companies will be required to have additional tools, like the technical skills to navigate whether their traffic is impaired and the legal skills to understand potential recourse. Even the NPRM understands that the way it is proposed, there would be a requirement for an FCC Ombudsman to be a liaison between the content providers and Internet Service and Internet Access Providers (ISPs/IAPs).

THESE COSTS JUST STRENGTHEN THE DIGITAL DIVIDE

Simply put, companies and organizations that are well invested will have a “leg up” on those that don’t. Content providers like Fandor, that are not aiming for 90 percent of the public and have less resources to begin with, will be at an even greater disadvantage.

THERE ARE ALREADY RULES IN PLACE THAT CAN AVOID THESE PITFALLS

The FCC understood the critical role that telecommunications plays in the economy of the United States, which is why they created Title II in the Communications Act of 1934. This was not a new idea; it was spawned from the need to regulate the railroad transportation industry as a “common carrier”. The Internet is as critical an infrastructure as the rail industry was in the late 1800s (and is still today) and the telephone was throughout the 20th century. In fact, looking at traditional voice communications, VoIP has been steadily growing and traditional TDM/PSTN growth has been slowing[3]. Voice telecommunications is now based in the Internet.

Title II provides oversight on contracts between carriers and consumers. It also provides transparency to understand when a contract is “unreasonable”. The FCC does not have to create new framework to create network neutrality; it just needs to reclassify IAPs under Title II.

THE FCC SHOULD ALLOW MUNICIPALITIES TO PROVIDE LAST MILE SERVICES

The United States and local communities understood the need to supply universal access for telephone and cable services, and created legal, regulated monopolies. These monopolies guaranteed enough profit to pay the enormous costs in deploying copper twisted pair (Telephone) and coax (Cable TV) to every resident.  Competitive Local Exchange Carriers (CLECs) were created to provide competition for local and long distance service. Rather than compete, the Regional Bell Operating Companies (RBOCs) have reduced maintenance of the copper infrastructure, replacing it with fiber and essentially cutting off CLEC access. In some instances, for example with AT&T U-Verse, CLECs are even cut off from access to the copper pairs.

In this way the telephone companies have cut out last mile competition (CLECs) and avoided maintaining aging infrastructure that won’t support the current broadband demands[4].

Cable companies have enjoyed a similar monopoly arrangement wherein they franchise a community. The cable company sees guaranteed profits in order for universal buildout, and the community has increased access to public access channels, etc.

Cable companies are currently running into problems supporting the broadband demands of their customers using the standards they developed in order to leverage the cable infrastructure they used for CATV delivery. DOCSIS is a shared over a neighborhood’s cable plant. If everyone wants to stream Game of Thrones at the same time, more often than not, the cable plant is under-provisioned for that demand and time sensitive data like video streaming fails. This is why end users see pauses and delays in playback or even video artifacts (glitches).

Due to these past agreements and contracts that supported monopolies for last mile telephone and cable providers are by far the only providers that will service a municipality or rural area. Competition really doesn’t exist for the Internet Access Providers. The problem is the enormous costs of creating a second or third provider to compete and lower costs and provide alternatives, say if a customer doesn’t agree to using a IAP that doesn’t agree with Network Neutrality. Investors want a Return On Investment (ROI) in the single digit number of years. A company that wants to compete with the RBOC or Cable company with fiber may end up paying about $750 per street address[5]. A city the size of San Francisco with 300,000 street addresses could be spending 225 million USD. On top of that, with competition this new company has to build in the lower profit margins so a ROI may take decades.

All of this argues for allowing municipalities to step in when competition is not there. They can support ROIs in the decades and also reap secondary income such as increase in property values (property tax) and other taxes. Municipalities can run last mile infrastructure where the resident can pick their Internet, Voice or TV content provider providing true competition.

For instance, traditionally the end users (content providers and consumers) will pay to be carried on the Internet. In most cases this is known as Transit; where the provider that the end user connects to, will transit traffic through their network to the the rest of the Internet. Content providers will typically deploy their servers at data centers where they can leverage the competitive nature of multiple transit providers at these locations. Competition in the datacenter has been so good that we have seen wholesale pricing of Internet bandwidth fall from $5,000 per Mb/s per month in 1990 to under $1 per Mb/s per month [6] [7]. A carrier neutral last mile provider can leverage this same competition at the data center and bring it out to the residents.

Alas 20 states now restrict municipalities from providing broadband[8]. Even at the Federal level bills like the “Community Broadband Act of 2007” that would have supported municipalities in providing broadband was not successful. The incumbents plainly do not want competition.

We would like to see FCC regulations that prevents these state restrictions and promotes municipalities in providing broadband.

THE FCC SHOULD MAKE NETWORK NEUTRALITY AN OVERALL POLICY AND A CONDITION FOR NETWORK FUNDING

The FCC manages substantial broadband deployment and adoption resources that are being invested through universal service programs, including Connect America Fund, Lifeline, E-Rate, and rural telehealth programs.

All of this universal service program funding directed by FCC should be treated as long term investments in open networks—so an absolute requirement for any universal service funded program should be that the services and networks funded are fully open and meet the net neutrality test.

CONCLUSION

Fandor would likely not exist if it wasn’t for the level playing field of the Internet. Internet Access Providers are looking for additional revenue from content providers and their own customers. We need a regulatory framework to insure that we have a network where everyone has the same voice. Therefore we would like to see the FCC:

  • Reclassify Internet Access Providers under Title II in order to provide transparency and a method to challenge unreasonable practices. Creating new rules will likely take time and be diluted by parties that are not interested in network neutrality and seeing “One Internet”.
  • Adopt rules that would allow municipalities to provide last mile broadband and prevent states or counties from passing laws that would restrict such.
  • Make Network Neutrality a requirement for FCC funding of the programs it oversees.

[1] http://www.consumerreports.org/cro/news/2013/05/blu-ray-discs-we-re-not-dead-yet/index.htm

[2] http://definitions.uslegal.com/c/commercially-reasonable-efforts/

[3] http://www.telegeography.com/page_attachments/products/website/research-services/telegeography-report-database/0004/6341/TG_executive_summary.pdf

[4] ADSL2+ is 24Mb/s down and 3Mb/s up. The proposed ADSL4 will support up to 54Mb/s down and 5Mb/s. These speeds require very short distances over copper pairs and these peak speeds are not supported after a couple of thousand cable feet. Most RBOC customers will not be able to experience these speeds and will be prevented from experiencing new applications and content such as 4K video).

[5] http://www.cnet.com/news/verizon-nears-fios-network-completion/

[6] http://drpeering.net/white-papers/Internet-Transit-Pricing-Historical-And-Projected.php

[7] http://www.telegeography.com/research-services/ip-transit-pricing-service/index.html

[8] http://arstechnica.com/tech-policy/2014/02/isp-lobby-has-already-won-limits-on-public-broadband-in-20-states/

One thought on “The Rules of the Game: Fandor’s response to the FCC’s NPRM on Open Internet

  1. Pingback: Support for Title II–the Only Sound Basis for Open Internet Rules | Marvin Ammori

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