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Internet Providers – Telecommunication Carriers or Not?

We believe there is a strong case for Internet Providers to be regulated as “Common Carriers” by the FCC. Our reasons follow.

A tangle of Cat-5 network cabling

“There is a strong case for Internet Providers to be regulated as common carriers by the FCC.”

Over the last several years, there has been some controversy over the role that the FCC should play with regard to telecommunications companies. In part, this controversy has been fuelled by the right-wing’s love of laissez-faire capitalism: they demand that government avoid regulation, even when such regulation would ‘even the playing field,’ as between large corporations and individual subscribers. For years, the FCC has caved in to these demands, and has ‘forborne’ to act on its appointed role as communications regulator, with regard to these ‘new’ Internet services.

We make the case that the FCC has an OBLIGATION to regulate ISPs, just as it regulated the ubiquitous communications service which preceded the Internet: Telephone companies. Really, Internet Service Providers (ISPs) are merely the inheritors of the mantle formerly worn by the phone companies, and like the phone companies, the ISPs tend to be large corporations with much more power and money than the individuals and small businesses who use their services. We will not discuss the relationship between ISPs and large corporations here, because those large corporations are well able to look after themselves, in their business dealings with their ISPs.

The first consideration is the power imbalance between the ISPs and their customers. Small businesses and retail customers are ‘price takers’ and ‘service takers,’ because they have few choices for their local ISP, and they are forced to depend on them for the delivery of their communications. They are also dependent on the ISP to deliver services to them in a fair way. If government fails to look out for their interests, there is NO ONE ELSE that they can appeal to. Monopoly and oligopoly markets are not bastions of fairness; in the absence of regulation, they tend to be bully pulpits where the “*opoly” says to the customer, “If you don’t like it, go to ANOTHER ISP. We don’t care! What? You can’t? How sad. Guess you’re forced to buy from us. Tough.”

This is one of the situations that government regulation is designed to overcome. In a market with only a few service providers, the service provider’s position creates an unfair advantage. Government regulators are created, to ensure that the “*opolist’s” position does not cause harm or market distortion affecting the less powerful customers. The job of the regulator is to provide a balancing hand, and to make sure that the small number of competitors in the market does not lead to abuse of the public.

Well back in the 20th century, we created the Federal Communications Commission, (FCC) to be the regulator for the telephone industry. We defined companies which provided telephone service to be “common carriers,” meaning that they took telephone calls from their subscriber area, and delivered the call to another subscriber, possibly located far away, over their telephone network. If necessary, they would interconnect with another telephone company to deliver the call. The “common” part was that the call was going over their network, along with many others. Over time, the phone companies expanded their service to include microwave data links, and other corporate data links, such as T-1 lines, rated at 1.544 megabits per second. All these services became regulated, as part of the delivery systems of the common carriers, now called “telecommunications providers,” instead of “telephone companies.”

OK, that’s enough background. Let’s look at where we are today.

Today, landline telephone service is dying. Microwave links and T-1 lines are almost things of the past – relics of an earlier age. But data communications has grown enormously. Today, we still have only a relatively few service providers – mostly businesses which were called “phone companies” and “cable companies,” and which are sometimes still mentioned in those terms. Today, phone companies and cable companies provide both phone and cable services, along with Internet access. Their list of services has expanded, but the number of companies has not grown so much. Government regulation should cover all these services, just as it covered the services of phone companies and cable providers in the 20th century.

Over the past many years, the FCC has forborne regulation of ISPs. This is a mistake; they have a legitimate claim to ISP regulation, because ISPs are the common carriers of today’s digital traffic, just as the telcos and cablecos were the common carriers for telephony and TV in the last century. We believe that the FCC should initiate regulation of today’s common carriers, and should act in the public interest, instead of fearing that its members may not be able to get a job in industry when they leave the FCC.

Below, we have included a definition of the term ‘telecommunications carrier’ provided in CALEA. By this definition, the companies that now provide the bulk of our nation’s Internet services certainly qualify as both telecommunications providers and as common carriers. Therefore, the FCC has a legal basis for declaring the ISPs to be common carriers, and for regulating them in the public interest, as they did with the cable companies and the phone companies.

Definition of Telecom Carrier under CALEA 18 USC 2510

(8) The term `telecommunications carrier’–
(A) means a person or entity engaged in the transmission or switching of wire or electronic communications as a common carrier for hire; and
(B) includes–
(i) a person or entity engaged in providing commercial mobile service (as defined in section 332(d) of the Communications Act of 1934 (47 U.S.C. 332(d))); or
(ii) a person or entity engaged in providing wire or electronic communication switching or transmission service to the extent that the Commission finds that such service is a replacement for a substantial portion of the local telephone exchange service and that it is in the public interest to deem such a person or entity to be a telecommunications carrier for purposes of this title; but
(C) does not include–
(i) persons or entities insofar as they are engaged in providing information services; and
(ii) any class or category of telecommunications carriers that the Commission exempts by rule after consultation with the Attorney General.

A yes, and B Yes, then C Discretionary,

Consequence: it’s discretionary. A & B are qualifiers, if both are yes C applies. If either A or B is No then it is not a Telecommunications Carrier.

If there is competition the FCC does not want to regulate, which was the case with the Internet in the ‘90s and early ‘00s, here’s some indication that regulation is appropriate. Just look at the number of households affected.

Medium Percent Market Share Number of Market Share
Cable digital Voice n/a 27,000,000
Cable High Speed Internet 39% 52,000,000
Cable Video n/a 54,000,000
Mobile Internet 43% 57,300,000
DSL Internet 11% 14,600,000
Fiber to the Home Internet 6% 8,000,000
Other Internet 1% 1,300,000
Households, 2008-2012 115,226,802
Cable Market share for Internet connections (155,000,000 = 100%) 45%
Fixed line (excluding mobile) Cable Internet Share 68%

The best way of thinking about monopolies and oligopolies is not in an absolute term of whether a firm is a “*opoly” or not, but to think of a firm in terms of how much monopoly/oligopoly power it has, i.e. how influential that firm is in determining market price, policy, and quantity.

From the market shares given (68% of high speed internet connections) yes the cable would definitely be able to influence the price. Because Cable markets do not overlap and cable companies do not compete, then the cable industry dominates Internet access.

Given these high level numbers, with 68% of households served by Cable Internet (and not considering mobile internet any form of competition for cable based internet) we can see clear reason or the FCC to regulate the internet as a Telecommunications or Common Carrier.

It is the responsibility of the FCC to state their reasons in a Public forum and hold open and transparent hearings into their decision making and their duty to regulate.

Photo by Jessica Merz released under a Creative Commons license.

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