FCC's Interconnection Withdrawal Plan Raises Concerns About Lack of Regulatory Backstop

“Incumbent ISPs used interconnection to block, throttle and extort fees before and we are sure they will do so again," said Incompas CEO Chip Pickering in a statement. "We don't want the FCC prescribing interconnection rules," said NTCA Senior Vice President Mike Romano, but "there has to be somebody to turn to if you get into a dispute. ... A cop on the beat." CenturyLink, which also asked the FCC not to relinquish all interconnection oversight, backed Pai's general "light-touch" approach and "looked forward to working with the FCC to ensure that the internet experience for consumers and businesses" and "the exchange of internet traffic between providers" remained "beneficial to all."

Cogent CEO Dave Schaeffer has concerns about the draft, though he said its interconnection agreements generally won't expire for several years. "There was really no substantive analysis of interconnection and the role it plays in fostering the growth of the internet," he said, criticizing the draft overall. "This is bad for the entire ecosystem. I think it will stifle innovation, stifle investment and most likely" create "a cloud of uncertainty" as FCC actions are challenged in court, he said.

Schaeffer doubts antitrust enforcement that the FCC envisions could pick up slack, but is more hopeful about consumer protection, including from state attorneys general. He said Title II helped Cogent secure interconnection agreements with large carriers such as AT&T, Verizon, CenturyLink, Comcast, Charter Communications, Deutsche Telekom, Telefonica and Orange. The FCC's proposed "change in regulation will not necessarily impact those," since they generally last until 2020 or beyond, he said, though counterparties could seek to block automatic renewals. Mostly, "we feel like we're pretty well covered," he said. "The only party that has breached its agreement is DT, and we've sued them in German court," he said. DT didn't comment. Schaeffer is hopeful others wouldn't cause problems during expected court challenges to the FCC's planned order: "While it’s being litigated, I think the bad actors will behave."

ISP Leverage

Some observers believe large ISPs will exercise leverage over time.

"It opens the door to higher interconnection pricing" eventually, "but you can assume that ISPs will tread very carefully on the way to get there," said MoffettNathanson's Craig Moffett. CCMI telecom consultant Andrew Regitsky said: "While I don't think there will be many disputes, the ones that occur will either be between large companies or more likely small companies seeking deals similar to large ones. Such complaints are more likely to receive FTC attention than consumer complaints about transparency."

Pai's draft said the FCC 2015 Title II order "cast a shadow" over interconnection by applying an "asymmetric" common-carrier duty to last-mile ISPs that's "likely to inhibit competition and innovation." The draft welcomed the growth of alternative arrangements, including direct interconnection and content delivery networks, crediting "market dynamics," not Title II. "We anticipate that eliminating one-sided regulation" and "restoring regulatory parity among sophisticated commercial entities will allow the parties to more efficiently allocate the costs," the draft said. It expected popularity of major edge providers backed up by antitrust and general consumer protection laws would "constrain any anti-competitive" ISP actions. The FCC and telco and cable ISP interests didn't comment. AT&T cited its previous statements, including a Dec. 5 filing in docket 17-108 that said "the interconnection marketplace is functioning efficiently" with no need for regulation.

The "two-sided market" creates incentives for ISPs and others to "spend the money" to improve consumer service, said Dan Rayburn, StreamingMedia.com executive vice president. "The idea that an ISP is going to purposely slow down or degrade the experience of their user by harming Netflix, Amazon, or Apple’s content is ludicrous," he blogged Nov. 27. "It doesn’t benefit them in any way to do this and if they are dumb enough to, people would revolt and investors would panic and their stocks would get crushed. It's simply bad business and they know it."

Filings

Parties have been lobbying the regulator.

Incompas said the FCC "should not abandon" its interconnection regulatory oversight. Large ISPs "have shown their propensity and ability to block lawful internet traffic," said a Nov. 29 filing on a meeting with aides to Commissioner Mignon Clyburn. "Since the 2015 Open Internet Order such behavior has decreased," but "without FCC oversight, we expect that large [ISPs] will revert to their previous behavior."

The FCC should "clearly state that it can and will be available to resolve significant issues" if it reclassifies internet traffic under Title I, such as whether "terminating access charges" would apply to "underlying telecommunications and associated voice communications," said a CenturyLink filing Thursday on meetings with aides to every commissioner except Pai.

NTCA pressed for a "regulatory backstop" on interconnection, in a Dec. 5 filing on meetings with aides to all five commissioners. Romano said NTCA agrees with the draft's view that the current "one-way" interconnection duty is inappropriate but doubts its reliance on FTC consumer protection or DOJ antitrust enforcement. "We think that's insufficient because when those sorts of things arise, consumers are immediately affected. Someone has to be there," he said. "We believe the FCC still has a role in ensuring networks exchange data seamlessly, including CDNs, middle-mile networks and the like."

Other net neutrality news: on dueling partisan congressional moves (see 1712120037), on physical security at the FCC's Thursday meeting ( see1712120043), and on congressional Democrats' concerns about FCC commenting system cybersecurity (see 1712120052). And for concerns on the draft and paid prioritization (see 1712110002).