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The FCC, Net Neutrality and the Future Enrons of the Internet

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Posted on Feb 24, 2011
Illustration from Mr. T in DC

By Derek Lazzaro

America’s largest Internet service providers, which own most of the network backbone, have decided that Internet content providers such as YouTube are using too much bandwidth, and becoming too rich, and now the ISPs are demanding a bigger piece of the pie. Amid surprisingly little public debate, the ISPs have engaged in a focused campaign to lobby Congress and win court cases with the goal of stripping the government of any meaningful authority to regulate their price structures or data-routing policies.

The question that remains is whether the government will have the authority, or even the will, to regulate the ISPs and the future of the Internet. If Republicans in the House of Representatives have their way, the battle will be over before it ever really begins, with the ISPs emerging as undisputed victors.

The House voted early Saturday morning to pass H.R. 1, the federal budget bill for 2011. The bill included an amendment, H.AMDT.80, sponsored by Oregon Republican Greg Walden, which defunds any attempt by the Federal Communications Commission to regulate ISPs. The amendment was approved by a vote of 244 to 181, along party lines.

The vote on Rep. Walden’s amendment is the latest in a string of skirmishes over the regulation of the Internet. In December 2010, the FCC passed a set of rules giving itself limited authority to regulate Internet service providers. The FCC rules were an attempt at compromise, and they specifically deregulated wireless Internet providers, which are increasingly important. Some consumer groups said they were toothless, and several ISPs even cautiously supported the rules.

But Rep. Walden’s amendment will block the implementation of those rules if the budget passes the Senate and is signed into law by President Barack Obama.

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Philosophically, Walden and the ISPs pushing for deregulation are following in the footsteps of Enron, Lehman Brothers, Bear Stearns, Citigroup, JPMorgan and the rest of the modern financial services industry.

Enron, the disgraced and defunct energy trading firm, lobbied for the deregulation of the U.S. energy market, and argued that the company should be allowed to enter into private agreements to sell energy and create complex derivatives based on speculative investment positions.

Similarly, Wall Street firms demanded and were granted unlimited freedom to create unregulated private contracts which evolved into “toxic assets,” including collateralized debt obligations and credit default swaps, which nearly destroyed the global economy in 2008.

Now, the ISPs are demanding the right to enter into private agreements with anyone who connects to the Internet, from any location in the world, on any pipeline. These private agreements would not only apply to the direct customers of the ISPs, but would include any parties identified by the ISPs as special users. The agreements could also allow ISPs to slow or block data traffic that the providers deemed to be burdensome or unacceptable.

For years, the largest owners of the Internet’s infrastructure, including Verizon and Comcast, have lobbied strenuously against almost all regulations, saying that private companies must be free to set prices and route Internet data traffic based on market conditions.

Both companies have also turned to the courts, suing to strip the FCC of the authority to regulate the Internet. They have also argued that they should have the right to slow or even block data that interferes with their priority traffic. Some ISPs, including Comcast and Level 3 Communications, have engaged in semipublic battles over the flow of data traffic. And some ISPs have considered the possibility of a “metered” Internet, where consumers would be charged based on their daily usage.

More extreme possibilities have been explored, including surcharges for individual Web pages, higher prices for video streams, on-demand payments for various features, and the “deep inspection” of customer data streams to prioritize traffic.

Consumer advocacy groups, some media companies and the FCC have pushed for various forms of regulation, saying that consumers must be protected from price gouging and the quasi-monopolistic telecommunications market, in which most consumers have only a handful of choices for Internet access.

Both sides of the debate have laid claim to the phase network neutrality. Internet service providers have said neutrality is defined by the ability of private companies to structure their services according to market conditions. Consumer groups have defined network neutrality in terms akin to the “common carrier” concept applied to telephone companies since 1934, saying that consumers should be able to pay for an open pipeline, without worrying about surcharges or interruptions based on disputes between pipeline providers.

In truth, this issue is not simple, and both sides have some valid points.

Three primary arguments are made by the champions of the free market and deregulation. First, they say, it is expensive to run a large Internet backbone, and new technologies such as YouTube are dramatically increasing pipeline requirements. Second, some data traffic is more important or time-sensitive, and ISPs, not government regulators, are best positioned to assign priorities to data traffic. Third, the government cannot be trusted to regulate the Internet, and any government regulation could lead down a slippery slope of government censorship and control.

Certainly, these arguments should not be dismissed too quickly. Internet backbones are very expensive. Some network applications, such as video games and videoconferencing, do need special priority to function properly. And recent headlines from China to Egypt have proved that governments will manipulate the Internet to the detriment of their own peoples.

On the other hand, it’s important for the debate to be grounded in reality, and the U.S. Internet system, as it exists today, is anything but a free market.


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By pyrrhon, March 1, 2011 at 11:53 am Link to this comment

When the other media forms, newspapers and TV became a threat to the way our government rules, the corporations purchased control.  Since it is not easy to purchase control of the Internet, they will make sure that they can control content.
Rule of human behavior: When men are left to their own devices, they behave badly.  That is why we have laws. Regulation is just another word for law.

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By Virginia777, March 1, 2011 at 3:09 am Link to this comment

I agree with everything you say Rgyle, thank you for your thoughts.

And yes, they have nothing good to offer but
destruction, I know this for a fact, and I sure hope they ultimately will turn on themselves.

I will keep fighting but the ferocity of the opposition is scary, many more people need to get involved in fighting back.

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By Rgyle, February 26, 2011 at 3:21 pm Link to this comment

Virginia777, you took that out of context. I’m not conceding defeat. The point is
they will destroy until they can’t anymore. The process is accelerating and will
not take as long as you indicate. We’re living now on the echo of a better time,
blowback is imminent. Humanity must get real, at least enough of us to make a
big shift. The question about who wittingly or unwittingly wants to go down
with them is for all of us to ask and answer ourselves.

By all means fight ‘em. I’m fighting Chase Home Loans right now. But I also see
the beginning of the end for the dark ones. They have nothing good to offer but
destruction, which ultimately will turn on themselves. Think how pitifully empty
the laughter on their yachts must be…

With love in one’s life, one easily takes delight in the simplest things. That
alone is a great victory.

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By Virginia777, February 26, 2011 at 2:33 pm Link to this comment

I wanted to address this point:

“it would be foolish to give the FCC unlimited authority to muck up the freedom of the Internet.”

The “freedom” of the Internet, has allowed for never before levels of disinformation, lies, slander, libel, racism, hatred and cruelty to exist in contemporary media.

I’m all for free speech, but where is the Left when it is used to make death threats and spew hatred, not to mention disinformation and criminal activity? The Left has supported unregulated free speech on the Internet, and then not applied any vigilance, or hardly any, to the massive spread of disinformation and hatred on the Internet. Its logic and advice, has often been to ignore it. Which is no logic at all.

That is like saying there is a massive fire burning, and believing fires have the “right” to burn, so to ignore it to keep the “rights” of fires in place.

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By Virginia777, February 26, 2011 at 2:20 pm Link to this comment

I don’t necessarily agree with this:

“maybe letting them referee their own game will hasten the process to its tragic end.”

Refereeing their own game is exactly what they have been doing, what is needed are people willing to fight back. The problem won’t solve itself, the players won’t destroy themselves, and even if this potential exists, it will take so long to happen our country will be left in tatters.

Fighting back is not easy and I can more than vouch for this, these people are brutal and tough and empowered. What is needed is real courage and strength and the willingness to take corporate America and the military industrial complex, head-on.

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By Morpheus, February 25, 2011 at 9:34 pm Link to this comment

The people in this country will eventually get fed up. We are all tired of being screwed. What are we to do?

“JOIN THE REVOLUTION”

Read “Common Sense 3.1” at ( http://www.revolution2.osixs.org )

We don’t have to live like this anymore. “Spread the News

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By berniem, February 25, 2011 at 8:02 pm Link to this comment

Congress is nothing but a shill for the corpoatocracy and the plutocrats that own them! We live in a neo-fascist country under the delusion that we actually have control over our governance. Those who see thru the sham are derided and quieted using varying degrees of coercion and the rest of the citizenry has been made too afraid and dumbed-down to seriously question what is being done to them here at home and in their name abroad! FREE BRADLEY MANNING!!!!!

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By Rgyle, February 25, 2011 at 4:48 pm Link to this comment

Addicts won’t stop until they’ve destroyed enough, maybe even themselves. So
maybe letting them referee their own game will hasten the process to its tragic
end. Who of the media-entranced minions wants to go down with them?

Lafayette: Brilliant commentary, thanks.

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By John in Kerrville, February 25, 2011 at 4:41 pm Link to this comment

The deregulation disaster is usually blamed on the Reagan Administration. 
Actually it started earlier, with the abolishing of the Civil Aeronautics Board during
the Carter Administration.  We should blame Henry Kahn, the Economist at Cornell
University, who gave me a D!

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By Virginia777, February 25, 2011 at 3:57 pm Link to this comment

There are no future Enrons of the internet, they are here already.

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By Lafayette, February 25, 2011 at 5:59 am Link to this comment

The rant on this thread is rife.

Remember, gridlock works both ways. The bill as written/voted in the House will have tough going in the Senate.

And even if by some miracle it makes it to the Oval Office, it will die there. Or be seriously modified by a line-veto.

No, they (the Replicants) do not hold all the marbles.

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By Lafayette, February 25, 2011 at 3:27 am Link to this comment

MARKET OLIGOPOLIES (Part 1)

DL: Amid surprisingly little public debate, the ISPs have engaged in a focused campaign to lobby Congress and win court cases with the goal of stripping the government of any meaningful authority to regulate their price structures or data-routing policies.

Oligopoly = a state of limited competition, in which a market is shared by a small number of producers or sellers.

CAVEAT

I am no enemy of capitalism. It is “natural”, meaning it reflects best the mechanism by which mankind seeks and creates value that is shared by the collective (community, city, state, nation) as a whole.

But, capitalism, when justified by Free Enterprise, can get very wrong the distribution of the value generated.  Let’s see how.

TWO OLIGOPOLIES:

The US Health Care Market

The US Health Care Insurance map of the US, which indicates the fundamental lack of competition is found here.

The “Bell System”

The US made the decision to break up MaBell into the regional BabyBells, which simply instituted the MaBell monopoly on local telephony in the regions.

Let’s not forget that “MaBell” (the system established as a result of the invention of Alexander Graham Bell) was a company largely regulated by the FCC, because it was a monopoly.  Some facts:
* In 1934, the government set AT&T up as a regulated monopoly under the jurisdiction of the Federal Communications Commission, in the Communications Act of 1934.
* In 1949, the United States Department of Justice alleged in an antitrust lawsuit that AT&T and the Bell System operating companies were using their near-monopoly in telecommunications to attempt to establish unfair advantage in related technologies, especially the fledgling computer industry.
* The 1984 Bell System divestiture brought an end to the affiliation branded as the Bell System. It resulted from another antitrust lawsuit filed by the U.S. Department of Justice in 1974, alleging illegal practices by the Bell System companies to stifle competition
* Bell System Divestiture: Before the 1984 break-up, the Bell System consisted of the companies listed below (see here ). These companies were divested from AT&T in 1984, except as noted. The former operating companies of the Bell System listed below are organized according to the current owners of the companies (or their successors). Almost all of these companies belong to AT&T, Verizon, or Qwest, the three remaining Regional Holding Companies (RBOCs).

Just like the Health Care situation, noted above, this market is an oligopoly.

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By Lafayette, February 25, 2011 at 3:25 am Link to this comment

MARKET OLIGOPOLIES (Part 2)

MY POINT

Oligopolies have been the central thrust of market consolidation in the US for two purposes; the first of which is to obtain economies-of-scale from which large operations benefit and the second being that such larger operations derive higher profit levels.  Thus derives bonuses and equity capital gains for the TopManagement that run the companies.

Yes, of course; dividends do show up in the asset portfolios of equity holders. (It is estimated that about half of all profits are shared between the companies (that do not distribute them, but keep them for internal disposition, and dividends rendered to equity holders. It will surprise no one to understand that the first instance can be measured in thousands and the latter in millions – so is that sharing out “equitable”? And that case is even more acute in market oligopolies or monopolies.

Supposedly, these profit levels are to be “self-regulating” due to the market mechanism of competition. However, as regards an oligopoly, such is not the case. In fact, as regards the two markets (Health Care and Telephony) we find that both can and are monopolistic, which is even worse.

The notion therefore that Free Enterprise also means the ability to price-gouge market oligopolies/monopolies for the personal gain of a comparatively small group at the expense of the general public is pure greed - once again raising its ugly head as it did in the Subprime Mess.

An oligopoly is also the reason why the US has some of the highest ISP-tariffs of any modern world. Contrary to popular Replicant belief, there is insufficient competition in the market for Internet access.

FOR ANOTHER DAY

How Microsoft became a “natural monopoly” in the market for personal computing Operating Systems. A modern tale along the lines of “Ma Bell”.

POST SCRIPTUM

In European countries, the government run Telephony Service was devolved to a private company, but only the telecom network, for which everybody pays a fixed line modest fee (that covers maintenance, renewal and development). However, the private company is obliged to allow any ISP to interconnect - meaning ISP fees are highly competitive.

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By Virginia777, February 25, 2011 at 2:10 am Link to this comment

Be afraid, be very afraid. The reason they don’t want to regulate the internet is that they are attempting to Control the internet via extremely devious methods. For instance, I have been pummeled online ever since I published this Open Salon post, asking whether Topix was sharing its user’s data with the NSA. Topix has SO over-reacted, I have to assume I was dead-on here:

http://open.salon.com/blog/virginia888/2010/12/02/is_topix_giving_out_users_personal_data_to_the_nsa

And check these posts out. Guess who is investing in identity-hiding software development to allow for trolls to invade social media:

http://www.rawstory.com/rs/2011/02/22/exclusive-militarys-persona-software-cost-millions-used-for-classified-social-media-activities/

Sure they don’t want regulation, that way they can carry on with the covert activity they are sponsoring. Yikes!

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By rtb61, February 25, 2011 at 12:25 am Link to this comment

People just don’t realise how bad a business model based upon extortion and censorship will get before the government does something about it, right about that point that the US becomes a global laughing stock as it’s communication services start to collapse as a result of across the board retaliatory slow downs and disconnections.

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By Alan, February 24, 2011 at 9:22 pm Link to this comment
(Unregistered commenter)

True Untrue Stories.
Reported by: Your Man in/on/under The Street
Feb. 24, 2011

FOX-Comcast Merger to install Limbaugh not only
as bad ass mouth piece, but also as chief internet
throttle jockey.

A scene from things to come:
-Well, ditto heads, copy this! I’ve now got my
hand on the master internet throttle. 
Watch this… FOX stream…okay..bOOST priority…
...hmmm..truthdig.com..who the hell are they?...
why I don’t see’m on my demote priority on sight
list…oh…there they are…okay..THROTTLE
priority! squeeze throughput! quarantine packets!
Okay ditto heads, copy this!  We’re back to
our enlightening incitement chat now that we have
net-neutered the opposition!

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By Leefeller, February 24, 2011 at 5:33 pm Link to this comment

Here here Queenie stated, “I have lived quite a while without tv. I can do the same without my pc.”

Actually I have lived quite a while without watching TV, and I may have to do the same with gas and food shortly, I suspect the pc will be first.

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By Curtis Bash, February 24, 2011 at 3:26 pm Link to this comment
(Unregistered commenter)

The radicals have won and none of leaders have the courage to stand up and fight for us so now if you care about your freedom you’ll to get up off your lazy chair and do something about. Start a petition, sign petition, do something but don’t bitch about it because it is your fault. They have taken over the media and now propaganda will rein.

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By SarcastiCanuck, February 24, 2011 at 1:34 pm Link to this comment
(Unregistered commenter)

Yo,look what happened when they de-regulated the banks.Middle class America got it straight up the keester and are still hurting.Now get ready for the internet goose.Remember regulating corporations isn’t communism or even socialism,it is survivalism.Survival from the corporate predators that squeeze every dime that they can out of you….Your government’s prime responsibility is to protect its citizens,which it seems to have forgotten;Or they’re on the take,you decide..You guys have to bitch louder at your alleged leaders.Remember,they work for YOU!!!

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By Queenie, February 24, 2011 at 1:03 pm Link to this comment

Wrong! Both sides do NOT have valid points. The internet needs to be open to all without corporate interference, in as far as that is possible.

The corporate world is a pit of vipers. Look what happened to the cable tv with its “tiered” services. 200 channels- all crap- while we have to go overseas to get real news or decent entertainment.

I have lived quite a while without tv. I can do the same without my pc.

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By SoTexGuy, February 24, 2011 at 8:15 am Link to this comment

Whoa! Enron? That’s ancient history! We’ve all moved on from those dirty days of profit first and let grandma freeze to bump up the transmission rates.. right?

More seriously, this is an informative article and I thank the author.. but about the move by the Legislature to defund or prevent big bad government from intervening in internet matters.. What hooey!

When Homeland security or the CIA or the NSA wants to block or tap anything they’ll do it (are doing it) with the help and cooperation of these businesses.. and we won’t even have the privilege of knowing about it… If it turns out to have been illegal then Congress will step in and give everybody a retroactive hall pass.

.. oh no? They just did it after the flap overt all our phone traffic being routed through a big secret computer somewhere..

It’s a Modern World!

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By Miko, February 24, 2011 at 5:50 am Link to this comment
(Unregistered commenter)

The analogy in the title is ridiculous.  Enron never
met a regulation they didn’t like, as their whole
business was based on exploiting regulations to their
profit.

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