Level 3-Comcast Dispute Harbinger of ‘Management Crises,’ Arbogast Says
The dispute involving Comcast, Level 3 and Netflix heralds Internet “management crises” that may not be resolved until Congress enacts permanent net neutrality rules, Stifel Nicolaus analyst Rebecca Arbogast said Friday. There’s a divide over whether it’s a peering dispute -- the position of Comcast and allies -- or a content-discrimination dispute, as Level 3, Netflix and allies say, she told a Practising Law Institute event. “The fact is, it’s both.” Another panelist, from Google, worried about lawsuits over however the FCC proceeds on net neutrality rules. Commissioner Robert McDowell said later that he shares those worries.
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"We're going to have more and more of these management crises,” Arbogast said, saying investors are worried most about how much control network operators will have over pricing. After President Gigi Sohn of Public Knowledge repeated her group’s argument on the panel that the best way to proceed on net neutrality and a host of other matters is to reclassify broadband under Title II, Arbogast said, “It may be too late for Title II. … The ideal solution is a legislative solution. I don’t think there will be one. The FCC should say, ‘We'd like a legislative solution. We're happy to work with you on it. But in the meantime, we're going to go on as best we can.'” Sohn agreed it may be too late for the agency to reclassify. She said her group is committed to passing FCC Chairman Julius Genachowski’s proposed net neutrality order -- a Title I solution -- as a lesser evil.
Panelist Brad Gillen, aide to Commissioner Meredith Baker, said market conditions are changing so quickly that reclassification may be a waste of time. Baker opposes the neutrality item to be voted on Dec. 21 (CD Dec 10 p2). Adding broadband to the Universal Service Fund may well “complicate” USF reform, because “voice was pretty easy -- it was cheap and there was only one big provider,” Gillen said. Broadband is more expensive than voice service and the market is much more dynamic, he said. Baker is also concerned that any USF overhaul not create “a shock to the system,” so that companies that currently rely on USF subsidies have “a path to readjust their business,” Gillen said.
Google, long a supporter of net neutrality rules, is worried that whatever order is adopted this month will be subject to years of litigation, said Senior Policy Director Richard Whitt. He said the company’s chief concern is over paid prioritization. Genachowski’s proposed order would condemn but not outlaw that. Google, Yahoo and other big Internet companies can afford paid prioritization, but “the little guy can’t,” Whitt said. Any neutrality rules should have “a presumption against” paid prioritization and companies should have to overcome the presumption case-by-case before prioritization agreements are allowed, he said.
Whitt’s concerns about litigation were echoed later by McDowell, an opponent of the net neutrality proposal. Just because Genachowski is not proceeding under Title II doesn’t mean the chairman can’t impose restrictive rules on the market, McDowell said in a Q-&-A led by former FCC commissioner Henry Rivera. “For those of you breathing a sigh of relief that the Title II wolf is away from the door, keep in mind that the general counsel said in oral arguments in January,” in the Comcast case “that price regulation could come under Title I,” McDowell said.