June, 2016

Net neutrality decision—we all win

In these corporatist times replete with the second coming of the Robber Barons, it was particularly gratifying yesterday to see that a three judge panel sitting on the United States Court of Appeals for the District of Columbia sided with the Federal Communications Commission (FCC) to ensure net neutrality. Why the 2-1 decision was not unanimous is baffling.

The case pitted the FCC against a posse of trade groups and broadband companies that wanted to charge different rates thus enabling some Internet companies with greater resources to buy faster delivery of their services than other companies that might be relegated to providing their services through slower pipes.

But we should not be uncorking good French champagne yet because the split decision can easily be appealed all the way to the Supreme Court and some broadband providers have considerable experience arguing successfully there. From my last book, Solve for the Customer, we have this example:

Below a March 27, 2013, New York Times headline that read, “Court Rejects Antitrust Suit in Victory for Comcast,” reporter Edward Wyatt wrote that the U.S. Supreme Court had thrown out a proposed class-action lawsuit by a group of more than two million Comcast cable subscribers. According to the article, “The plaintiffs accused Comcast of creating a monopoly by buying cable groups in the Philadelphia area that gave it 69 percent of that market in 2007, up from 24 percent in 1998.”¹ The subscribers were suing for $875 million in damages. Put simply, the suit alleged that Comcast had created a monopoly so that it could raise prices; the present and former customers wanted some of their money back.

Comcast’s tactics, which were well documented in Susan P. Crawford’s excellent book, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,² are relatively common in the cable industry, where providers engage in what Crawford calls clustering: trading service areas so that each provider ends up with contiguous territory to make it easier to string cables and service their respective customer bases — all without competition.

The practice also affects traditional telecommunications providers, since cable and phone services have been seeping into each other’s businesses for many years. Through clustering, cable companies could more or less select their customers and reduce the cost of providing service, something that telecommunications providers couldn’t do. Telecoms had to take all comers according to rules put in place by the Federal Communications Commission (FCC) — rules that mysteriously don’t apply to cable.

Clustering tactics aren’t new, though the underlying technologies may be. Railroads tried a version of this approach in the 19^th century, and just about any new service that requires a heavy investment in infrastructure is prone to it.³ The way to make a profit in an infrastructure-intensive business is to minimize the necessary infrastructure while using it to serve the greatest number of customers. The more people you can serve, the more profitable you can be. That’s why heavily populated urban areas get new infrastructure first and rural areas always seem to be the last to get things like electricity, telephone, and cable.

To an untrained eye, the class-action suit seemed to have merit and it was odd to see the Supreme Court take on such a case. But too often in the run up to a court date, attorneys play a game of inside baseball, perfectly legal, in which they attempt to prevent a trial by discrediting their opponent’s case in pretrial motions. Comcast’s legal maneuvering involved questioning whether or not the two million angry subscribers were, in fact, a class that was homogeneous enough to sue under the rules of class actions. A federal appeals court had already decided this point in favor of the plaintiffs, ruling that they were indeed a class; the issue ended up before the high court after Comcast appealed. So, from the Supreme Court’s perspective, the case turned on the narrow definition of a class — not on the merits of the class’s claims against Comcast. The majority, in an opinion written by Justice Antonin Scalia, said no, they weren’t a class, and threw the case out in a 5-to-4 decision.

A 5-to-4 majority is as thin as it gets, but it’s enough to win an argument in this democracy. The minority, though, was as aggrieved (they don’t get mad on the Supreme Court) as a cat dropped in a toilet by a two-year-old.

The minority quartet, led by Justice Ruth Bader Ginsburg, wrote in its dissent that the majority had produced a ruling that “…is good for this day and case only,” and sets forth a profoundly mistaken view of antitrust law.”⁴ You could interpret this as the minority accusing the majority of being the bagman for Comcast.

Comcast’s behavior doesn’t seem to be very CRM-ish to say the least. Nonetheless, I am confident about net neutrality’s chances at any level of appeal and much of my optimism stems from Susan P. Crawford’s, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.

Crawford traces the meaning of a common carrier through most of our history paying special attention to railroads, building the electric grid, telecommunications, and today’s discussion of how the Internet ought to work. Let’s back up a moment and review what a common carrier is. According to Wikipedia,

A common carrier in common law countries (corresponding to a public carrier in civil law systems,^[1] usually called simply a carrier) is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport.^[2] A common carrier offers its services to the general public under license or authority provided by a regulatory body. The regulatory body has usually been granted “ministerial authority” by the legislation that created it. The regulatory body may create, interpret, and enforce its regulations upon the common carrier (subject to judicial review) with independence and finality, as long as it acts within the bounds of the enabling legislation.

There’s a lot more on the subject if you elect to follow the link and I recommend it.

So, the FCC is one such regulatory body, granted authority by legislation to bring order to all things communication oriented in the United States. Its rulings in favor of net neutrality are what the plaintiffs in the case were appealing but the court correctly ruled that the FCC did, indeed, have the power to regulate. That should end the discussion but it likely will not. In this country you never give up just because some appeals court rules against you. That’s what checkbooks and the Supreme Court are for, so count on an appeal.

The Plaintiffs will likely want to make the point that they are not simply common carriers providing what amounts to infrastructure services, but that they are content providers more in line with a contract carrier, again according to the same Wikipedia entry:

A contract carrier (also called a public carrier in UK English),^[2] which is a carrier that transports goods for only a certain number of clients and that can refuse to transport goods for anyone else, and from a private carrier.

This might seem to enable the likes of Comcast and others to charge different rates for its services. But the reality is that Comcast is at bottom, a common carrier that happens to have surrounded itself with content through the acquisition of providers like the NBC television network. But so far at least the courts have recognized these sandwiches of content and carrier for what they are. Further to the point and again relying on Wikipedia, we have this defining characteristic of a common carrier,

A common carrier holds itself out to provide service to the general public without discrimination (to meet the needs of the regulator’s quasi judicial role of impartiality toward the public’s interest) for the “public convenience and necessity.” A common carrier must further demonstrate to the regulator that it is “fit, willing, and able” to provide those services for which it is granted authority. Common carriers typically transport persons or goods according to defined and published routes, time schedules, and rate tables upon the approval of regulators. Public airlines, railroads, bus lines, taxicab companies, cruise ships, motor carriers (i.e., trucking companies), and other freight companies generally operate as common carriers. Under US law, an ocean freight forwarder cannot act as a common carrier.^{[2] https://en.wikipedia.org/wiki/Common_carrier}

This would seem to nail the case for net neutrality but it’s impossible to assume that on appeal the Supreme Court might not come up with another decision that Justice Ruth Bader Ginsberg could label as good for this day and this case only. But wait a minute, the court will probably deadlock 4-4 because they’re down one justice courtesy of senate intransigence. Who let that happen?