Convergence refers to the combining of communications, computing, and content. It can largely be understood as technological evolution, but also one of industry and services. In the last 50 years we have seen the merging of the telephone, television and personal computer. While the benefits may seem obvious, these profound changes create difficulties, particularly in the area of regulation. Each one of these systems is governed by a different set of rules and regulatory agencies. Who then should be in charge when all these networks, devices, and services merge?
It is exactly this question which is being investigated as part of a bipartisan Congressional effort to update the Communications Act. This act, which dates from 1934 and calls upon railroad regulation going back to the 19th century, created the Federal Communications Commission (FCC) and stipulates how America regulates its vital communications networks. It was envisioned in the era of the radio, telephone, and the emerging medium of television. The Internet did not exist at the time.
Consider just a few examples of the convergence which challenges the efficacy of the Communications Act.
Microsoft, a desktop/laptop software developer, acquired Skype, a voice and video over internet conferencing service that rivals traditional voice service. One third of the world’s long distance calls are delivered by Skype. Microsoft also offers an operating system for mobile phones. Even though it is a substitute for voice service, Skype is not required to integrate with public safety authorities or to interconnect with other networks, unlike traditional telecom operators.
Facebook, a digital social network with 1.3 billion users acquired WhatsApp, a texting app that competes with the SMS services of wireless broadband providers for $19 billion. WhatsApp users text 5-10 times as much as traditional SMS users, and the daily text traffic of WhatsApp exceeds the traffic of most traditional telecom operators. However WhatsApp has no requirement to connect with other networks, unlike traditional SMS providers.
Apple, a leading provider of electronics, introduced a free SMS service and video telephony service, Facetime. Both products are bundled on Apple devices and compete with the services of traditional telephony providers. Apple need not comply with the Communications Act even though it offers communications services.
Google, a search engine and video provider, operates the world’s leading mobile operating system Android installed on 750 million devices. In addition to its range of communication services (Google Voice, GTalk, Google Hangout etc), the company entered the wireline broadband market with fiber deployment in Kansas City, Austin, TX; and Provo, UT; with another 34 cities targeted. Rather than comply with the traditional regulations required by cities such as kickbacks and payments for rights of way. Google conducted a competitive process amongst cities to see which would give it the best conditions, such as tax breaks; free rent, utilities and accommodation; access to existing infrastructure and so on. Google is also a de facto Tier 1 provider, having built not only massive servers centers and data farms, but an undersea network to deliver its own data, cache videos and so on. Google prioritizes traffic on its massive network, larger than most of the world’s telecom operators, but is not required to comply with net neutrality.
Amazon, founded as an online marketplace for physical goods, offers streaming video service Amazon Prime. Amazon is on track to overtake the traditional publishing industry through its Kindle, Paperwhite and Fire ereaders, each equipped with SIM cards that connect to communications networks. To deliver books digitally, Amazon became a de facto MVNO (mobile virtual network operator) by buying traffic from telecom operators and reselling it to publishers and authors who are charged a fee to cover the cost of book delivery, similar to postage. For its physical goods, Amazon uses free shipping to win market share. This program, a “sponsored data” for the physical world, is supported by customers with a $99/year fee.
Aereo, a company that deploys individual remote antennas allows viewers to watch broadcast television via the internet, provides a competitive alternative to cable television.
Streaming video provider Netflix, which accounts for some 30% of traffic on America’s network at any time and more than 30 million customers in the US (more than any telecom or cable provider), announced its services to be viewable from proprietary set-top boxes, as well as different pricing tiers corresponding to different qualities of services for video. Net neutrality would make offering different quality tiers for a fee illegal for telco/cable companies but not Netflix.
Presently there is a double-standard in regulation for communication services. Traditional telecom, cable, television, and radio services have to abide by 1934 standards while internet providers which also offer voice, video, text, data services are only subject to general competition law. That means they are not disciplined unless there is proof that they’ve done something wrong. This is a problem not just for competition, because clearly there is not a level playing field, but this is also a problem for consumer protection. Consumers have a different set of protections and methods of redress depending on which service they use.
There are two ways we can go: we can either add regulation to all the internet providers, or we can transition all traditional communications providers to a general competition law framework. The Federal Trade Commission, which has the most experience and knowledge in competition law and consumer protection, makes sense to oversee this.
In any case, if we are going to the trouble to protect consumers from discrimination (as net neutrality supporters claim), then we should ensure that they receive the same protections across the board without regard to the type of technology they use, whether network, device, content, application, or business model.
Technology advances too quickly to apply technology-specific rules. It’s time to retire the regulatory silos created in 1934 in favor or general framework that applies equally regardless of technology, provider, or business model. The goal should be to create a common regulatory framework that is technology neutral so that all technologies are treated the same. In a world of convergence, this is the only way to a level playing field for competition and to ensure that consumers have a fair and transparent experience.
