The Bell Two-Step

W. Scott McCollough, an experienced telecommunications attorney who has represented many companies trying to compete against the Bells, has taken apart the legal argument underlying their latest claims against "network neutrality" and submits the following:

They are carriers
or they are not. There is a market for broadband or there is not. (Image from Goodlogo.Com.)

If we take what Whitacre said
last week clarifying his prior remarks:

1. AT&T/Verizon are not trying to
   charge Google et al for use of the local network. The consumer pays for that so
   the network provider is made whole.
2. When Google  et al buy big fat pipes to
   get to the backbone they presumably also pay compensatory prices for those
   facilities and services. They are acting in a consumer capacity, not a
   provider capacity. I’ll ignore the slap about cheap servers since it is
   irrelevant unless the telcos want to charge different prices depending on the
   edge device (and/or the price and functionality of it) that is used.
3. What the network providers want to recover is the alleged extra cost
   of connecting to the "Internet Cloud" and any peering/transit costs relating to
   sending consumer requests up and delivering "content" (my gripe about
   using "content" to describe information is fodder for another post some other
   day) down. Apparently, they think that a "content provider’s" "content"
   when composed of many bytes that often "require" "preferential" treatment
   in
   order to actually work for the consumer imposes additional cost that
   the network providers think is better assigned to the "cost causing"
   "content provider." (Note: I’m not agreeing with this analysis, just trying
   to articulate what I interpret their position to be.)

There are ratemaking analogies to what is going on. Care to follow along?

There is also an additional economic element here: finding the "cost
causer." Those who have been doing access charges for lo these 25 years
will recall the ILECs (Incumbent Local Exchange Carriers or the
original Baby Bells)) and IXCs (Inter-Exchange Carriers, the former
long distance carriers) insisted for a very long time that "long
distance" and IXCs were not the cost causers of access line costs. They
said the end user caused the cost to be incurred when they ordered up
the access line.

Hence the End User Common Line Charge (EUCL) and ultimate
(mostly) elimination of the carrier common line charge for common plant (the
loop). The "interoffice" plant used to get to access tandems, etc, however is
still recoverable as part of access charges.

Ed Whitacre seems to be likening the
charges he wants to levy on Google et al to the way access charges presently
assign interoffice cost responsibility to IXCs.

This is a rate design
question.

But there are some real questions about whether this
is a proper way to look at the rate design. First, ESPs such as Goog et al
are not IXCs. They are "end users." From a ratemaking perspective, they may
not be not like "providers" or carriers; instead they are merely another
point at the edge — a customer that buys transport and connectivity to and
across "the cloud."

Traditionally in the Internet world the ISP
serving the "customer" has been responsible for arranging sufficient
transport to and connectivity across "the cloud" (including peering and
transit costs) to support the needs of their customer base. And the customer
base pays for it through their charges
from the ISP. So here, the network
provider needs to get whatever it takes and that is part of the costs it must
recover from its users. The ISP providing Google et al access to the Internet
charges Google et al. The ISP serving the consumer with broadband Internet
access charges its customer.

AT&T and Verizon and the cablecos fought
mightily to be deemed ISPs for broadband. But now they want to act like
carriers and do telecom rate design by outsourcing cost responsibility to non-customers that "use" the network to reach the customers since the
unregulated market they fought to enter on an unregulated basis likely won’t
let them recover all the cost from their
customers.

They are carriers
or they are not. There is a market for broadband or there is not. They will
recover their costs from the customers or they will not. Reaching out and
taxing non-customers is not something that would be sustainable in a
competitive, unregulated market.

We have a choice. We impose regulation
and do rate design in the public interest (with implicit or explicit
cross-subsidies as necessary), and give them the guaranteed return they seek.
Or we let them operate — and succeed or fail — in the unregulated 
market they clamored they had to have. What they are trying to do is one of
those artificial cloned hybrids. And as we now know from our President that
this is something to be outlawed, not encouraged.