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FCC Creates "Abundant" Uncertainty -- Part 12: Broadband Internet Pricing Freedom Series

Unfortunately, the FCC Chairman's remarks to a Silicon Valley audience last week -- trumpeting his new concern for "anything that depresses broadband usage" -- are creating abundant uncertainty for broadband businesses and investors.

Specifically, Gigaom reported: "When asked about the impact of data caps on broadband innovation by my colleague Janko Roettgers and how his thinking had evolved on the topic, the chairman said he was concerned about data caps. He added, “Anything that depresses broadband usage is something that we need to be really concerned about.” And he further said, “We should all be concerned with anything that is incompatible with the psychology of abundance.”

This appears to signal a stupefying 180-degree reversal of the FCC Chairman's well-established policy position on broadband usage pricing.

Remember less than four months ago at the Cable Convention, the Chairman said the opposite of what he told his Silicon Valley audience last week.

“Business model innovation is very important particularly in new areas like broadband.  There was a point of view that said a couple of years ago that really there was only one permissible pricing model for broadband, and I didn’t agree with that and the Commission didn’t agree with that."

"And we said that business model experimentation and usage based pricing could be a healthy and beneficial part of the ecosystem that could help drive efficiency in networks, increase consumer choice and competition and increase fairness because it can we said result in lower prices for people who consume less broadband.  So experimentation in this area with those goals in mind is something that’s completely appropriate.”

Moreover, it is also in opposition to what the FCC's official Open Internet Order says.

Para 72 clearly states: "…prohibiting tiered or usage-based pricing and requiring all subscribers to pay for the same amount for broadband service, regardless of the performance or usage of the service, would force lighter users of the network to subsidize heavier users."

"It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks. The framework we adopt today does not prevent broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more."

To fathom how stupefying this apparent new FCC policy position is, consider that "anything that depresses broadband usage" would obviously capture what a free market calls "pricing." Pricing is the essential market mechanism for equilibrating supply and demand in a classically-defined open market. Without pricing, free markets can't function.

Central to the entire discipline of economics is that pricing is the mechanism that fairly and efficiently resolves the real world problem of scarcity. Increasing prices, or employing usage-pricing, naturally and purposefully "depresses" usage. That's the point. Usage-based or tiered pricing is an obvious and perfectly reasonable network management tool per mainstream economic thinking and the FCC itself.

What is the broadband sector to make of the FCC Chairman's confounding remarks? Are we now to assume that for the FCC, the real world economics-of-scarcity, which govern the American and world economies, are now somehow no longer operative for America's broadband Internet economy, but some utopian uneconomics-of-abundance should?

If he was accurately quoted, the FCC Chairman specifically said: “We should all be concerned with anything that is incompatible with the psychology of abundance.” Predictably, the broadband sector is extremely concerned that no one knows or can define what the heck a "psychology of abundance" is, and what it might mean for a broadband Internet, let alone what might be "incompatible" with it?

This out-of-the-blue policy pirouette creates abundant uncertainty because how is the broadband sector to know, how not do something, the FCC Chairman apparently thinks is now a problem, if no one knows what he's talking about or means?

If we are talking about net neutrality, which the Silicon Valley context of the Chairman's remarks seem to imply, then the net neutrality "solution in search of a problem," appears to have spiraled into "an aspiration in search of a definition."

Given the pro-net neutrality, open Internet coalition makeup of the Silicon Valley audience, the "psychology of abundance" appears to be Lakoffian code for the "economics of abundance." Tellingly, Wikpedia redirects a search for "economics of abundance" to "post-scarcity economics." The "open" Wikipedia defines post-scarcity economics as: "a hypothetical form of economy or society in which goods, services, and information are free, or practically free." Wikipedia also links the "economics of abundance" to technological utopianism and techno-progressivism.

The FCC Chairman is creating abundant uncertainty in intimating he has concerns that broadband providers may not be complying with what is expected in a "hypothetical form of economy or society." Can anyone at the FCC clue the broadband sector in on what hypothesis they are talking about, what congressional or court authority this hypothesis comes from, how this hypothesis is defined, what scientific tests have been conducted on this hypothesis, and most importantly what does this hypothesis mean practically for how a broadband company should operate going forward -- just for starters?

Chris Anderson, author of the Long Tail, popularized the "economics of abundance" concept in 2006, to encourage Silicon Valley to imagine how very low marginal costs of processing, bandwidth, and storage effectively have ended scarcity-based economics online and effectively have spawned a new era of abundance economics.

The elementary and fatal assumption of abundance economics is imagining that because marginal costs online may asymptotically approach zero cost, that somehow magically total costs are not important by conveniently completely ignoring fixed costs, like infrastructure, which comprise the vast majority of the costs in a broadband business model. It is completely uneconomic and fantastical to pretend that infrastructure and other fixed costs don't exist. It certainly is not compatible with a data-driven, scientifically-sound, policy decision-making process that the FCC claims to embrace.

In sum, "net neutrality," "open internet," "Internet freedom," and "psychology of abundance," are successive Lakoffian code words for an Internet information commons, where the "economics of abundance" makes property, prices and profits obsolete, and free universal Internet access, unlimited information sharing and unfettered freedom of speech birth global human flourishing.

Apparently economics is not the only discipline in which the FCC has fantastical notions of "abundance." A close examination of the FCC's legal justification for their Open Internet Order exposes an FCC legal theory of "abundance authority" where the FCC on the margin has unbounded legal authority to regulate however it wishes.




Broadband Internet Pricing Freedom Series

Part 1: "Netflix' Glass House Temper Tantrum Over Broadband Usage Fees"

Part 2: "Netflix Uneconomics"

Part 3: "Debunking the Carping Over Broadband Usage-Pricing"

Part 4: "Is Netflix the AOL of Web Streaming?"

Part 5: "Consumer Groups Advocacy Hypocrisy"

Part 6: "Leaf Vision and Broadband Usage Caps"

Part 7: "Broadband Pricing is Naturally Evolving to Tiers"

Part 8: "Obsolete Analysis Will Doom DOJ's Antitrust Probe of Cable"

Part 9: "Video: Scott Cleland Discusses Netflix' DOJ Complaint"

Part 10: "SCOTUS Indecency Ruling's Effect of Net Neutrality"

Part 11: "U.S. Net Neutrality Movement in Retreat"