To FCC: Try functional separation of Internet

FCC’s Internet net neutrality dilemma seems impossible – either permit paid fast lanes and regulate closely to prevent commercially unreasonable deals or apply public utility regulation to the Internet and prevent any operator discrimination based on content.  But there is a logical solution to the conundrum that will keep the Internet open with only a light regulatory touch. 

There are two distinct elements to the Internet: the physical transmission facilities or pipe - whether cable, fiber or DSL lines – and the content – whether movies or blogs.  Public utility-type regulation may be perfect for the pipe, but all wrong for the content.  The FCC should take a functional approach by requiring the separation of the transmission pipe and the content, applying regulatory oversight of access to the pipe and completely steering clear of regulation of content.

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We had the chance to prevent integration of the pipe and the content in the early days of cable. Thirty years ago cable was emerging from its role as a supplement to TV broadcasting into a new role as a medium for communication in its own right.  No one anticipated a marvel like the Internet then, but cable caught the imagination of pundits and policy wonks, who thought its multi-channel “broadband” capacity could offer something radically different from television broadcasting and telephone communications. 

In an attempt to create a new policy for this new medium of communications, a Cabinet-level committee was formed and in early 1974, issued its report.  In language that today could describe the Internet, the Committee foresaw a technology in which there would be: “unfettered access for those who wish to use its channels to promote their ideas, state their views, or sell their goods and services….”  The policy that would create this open medium of communications was one that “would create an essentially neutral distribution medium and require control of the medium to be separated from control of the messages on it.” - Net neutrality in its infancy!

This “separations” policy was not adopted.  While today everyone has a stake the Internet and is vocal about its regulation, thirty years ago, few were aware of the potential of cable as an open platform for information and ideas.  The cable industry, therefore, had little resistance to its opposition. 

In the intervening years, vertical integration of content and the pipeline became the norm for all telecommunications networks, not just cable.  The FCC and the courts treated the integrated network as an information service, rather than as a regulated telecommunications service.  This effectively gave network operators the upper hand as gatekeepers and toll-takers.  It also set up an inherent conflict of interest in their dealings with content providers, who need access to the network, but often to compete with the operator’s own content. 

This thorough integration of content and “pipeline” reached a crescendo with the merger of Comcast and NBC-Universal.  Now further consolidation of cable and satellite pay-TV and Internet service providers is in the offing with ATT and DirecTV and on and on.  While the FCC can always apply conditions to the grant of each merger that are intended to prevent the inherent dangers of granting the merger in the first place, it is time for the FCC to adopt a functional separation alternative and then keep hands off the Internet .

As widely acknowledged, the U.S. broadband network industry is uncompetitive - 67 percent of U.S. households have access to only two or fewer cable or fiber broadband networks – and it is rapidly becoming more concentrated, giving the few remaining network operators considerable market power.  When the content supply and content distribution functions are mixed, the network operator has an incentive to favor its own content over others, whether it is charging a programmer for access to the fast lane but giving its own programs a free ride or applying subscriber data caps to competitors’ offerings but not to its own.  If it can find an appropriate statutory hook, the FCC may regulate to prevent such discrimination, but sometimes they do and sometimes they don’t, and even when they do it takes a very long time and great expense for the company bringing the challenge.

Under a separations policy, network operators would be required to create a wholly-owned, but structurally separate, subsidiary to operate the network facilities – separate board of directors, separate management, separate balance sheet – dealing on an arms-length basis with its sister subsidiary and all other companies seeking to use those facilities to distribute their Internet content – if Amazon has to pay for priority access for its movies, Comcast would have to do the same.  Financial relations between the “pipe” subsidiary and the content subsidiary could be overseen without the danger of regulation intruding on Internet content.

The separated subsidiary’s only business would be in providing bandwidth to consumers – if they wanted to meter the charges for bandwidth so that heavy users would pay more, they could do so without the potential for mischief that metered service provided by a vertically integrated operator might involve.

Network operators may say that a separations approach is unworkable and would discourage their investment and innovation in their broadband facilities, but their performance to date in that regard has not earned them an uncritical acceptance of that argument.  The separations model works in the United Kingdom. In 2006, British Telecom agreed to create Openreach, a functionally-separated entity to provide non-discriminatory access to BT’s infrastructure. 

Closer to home, a more compelling analogy may be found in the smart phone or tablet that you carry around with you: imagine the device to be like the broadband pipeline and the apps on the device to be like the content of the Internet.  With only minimal involvement by the provider of the network service, innovation flourishes and consumers are offered an almost limitless number of choices to satisfy their needs.  So too a separated, neutral broadband pipeline could serve as a conduit for the full richness of the creativity of Internet content providers. 

Functional separation is the best path to a truly open and neutral Internet.

Goldberg has practiced telecommunications law since 1966 and, in the early 1970s, was General Counsel in the White House Office of Telecommunications Policy. The views expressed here are his own.