Rolling, rolling,
rolling on the
(Madison) River
Fred Goldstein, October 2005
... They were rolled. Mike Powell rolled them like a drunk on the sidewalk. And because it was Madison River, even people who know he was wrong weren't going to do anything about it....
... Vonage's very existence was being flaunted by the Bells as an excuse for cutting the throats of the legally-ordained competitors, the CLECs, who had been investing money over the past decade according to rules that Vonage claimed to be exempt from....
...Just settling the case out of court, the way a small town cop -- not one as nice as Andy of Mayberry -- would stare at an out-of-state driver to whom he had just given a ticket for allegedly going 36 MPH in a 20 zone. A cop who would settle a $50 "fine" by being paid right there on the spot, in cash...
Here's a little story that the press hasn't gotten right. One of the reasons people don't think that the ILECs are planning to put Fat Wasteband in place of the Internet is because they assume that the FCC wouldn't allow it. And they usually cite the sorry tale of Madison River, the North Carolina phone company that allegedly paid $15,000 as a penalty for blocking Vonage. If Madison River was "fined" for it, then VoIP providers are safe from ISP blockage, right?
Wrong.
Madison River wasn't fined. It entered into a "consent decree", which is a way of settling a case without formal adjudication. And it was a curious one, because it never cited a law or rule that was actually violated. Now it's possible that Madison River did break a rule, if their tariffed DSL wholesale common carriage service, as sold to any willing ISP taker, was poking around inside the content of the packets, blocking Vonage-bound ones. Common carriers don't have a right to do that. But ISPs can basically do whatever the hell they please. Now I frankly doubt that too many ISPs, other than Madison River's captive one, use Madison River's DSL, at least in their Mebane, North Carolina home market. And the distinction between the DSL and the ISP riding on it has gotten a lot weaker since August's reversal of Computer II. But the rural phone companies like Madison River didn't even want that rule changed. They want to remain common carriers, because telecommunications common carriers, not ISPs, can receive Universal Service Fund subsidies.
So what happened? Why did Madison River pay up if they didn't do anything wrong? The answer seems pretty simple. They were rolled. Then-FCC Chairman Mike Powell rolled them like a drunk on the sidewalk. And because it was Madison River, even people who know he was wrong weren't going to do anything about it. When the worst bully in the school beats up the most annoying kid in the class, nobody tattles, even if they feel a little guilty about letting the bully get away with something. So what really happened? Here's how it looks to me.
Vonage was the weak competitor of choice
Michael Powell was, it appears, good friends with Jeffrey Citron, head of Vonage. With Vonage, he had a well-publicized company that had Wall Street's and the press' attention. The press loved them too because they threw around advertising dollars like confetti at a New Year's Eve party. Here was a company that, at first glance, could really compete with the Bells by using the sexiest buzzwords of the day, "Internet" and "VoIP". Never mind that it had no profits, and never mind that its call quality was, by definition, inferior to real local exchange carriers' (ILEC and CLEC alike) services. Never mind that it depended upon its subscribers' having a costly broadband service from an operator that almost certainly had a voice service of its own. Never mind that said operators' voice service was more expensive because of its concern for profit margins, not higher underlying cost. (Of course Vonage didn't have to pay for the loop, since that was covered by the customer's broadband ISP subscription; that is one reason why its many competitors can undercut it on price so easily.) Never mind that Vonage's very existence was being flaunted by the Bells as an excuse for cutting the throats of the legally-ordained competitors, the CLECs, who had been investing money over the past decade according to rules that Vonage claimed to be exempt from.
In other words, Vonage needed to look like a real competitor, without actually being a real threat to the Bells' profits.
The Vonage business model -- parasitic VoIP -- depends on riding upon an ISP's packet stream from the subscriber to the Vonage PSTN gateway. ISPs are legally classified as information providers, not common carriers. They are subject to no content regulation. They are not licensed, and can set their own terms and conditions. Madison River's DSL consisted of two distinct components. One was the aforementioned ISP service. The second was the telephone company's raw DSL pipe, provided under an FCC tariff as common carriage.
Raw DSL is not an IP service; it doesn't even know that the IP packets exist. (Typically it's ATM; sometimes it's Frame Relay.) As common carriage, the network provider is prohibited from so much as looking at the passing data; it has to pass the bits as they are. Madison River's "ISP" has to purchase this service from Madison River's telephone company under the same tariff used by third-party ISPs, if there are any who choose to use it. Madison River's ISP may consist of the same people as its telephone company, and it may pay its phone company to put its service on the same bill, but it's technically a separate offering, and has a separate set of books.
An Information provider grew selective
Somewhere along the line, Madison River apparently began blocking Vonage from its DSL subscribers. Now had its telephone company begun doing this on its raw DSL, by peeking inside the ATM cells or Frame Relay frames, then it would have been in serious violation of the rules of common carriage, and that could have been cited. But if its ISP was doing this within its ISP network, then it was violating no FCC rule, because the FCC has no rules for ISP behavior. Nor were or are there laws about it, other than standard contract law, which is not something that's enforced by the FCC, and other non-FCC issues like, say, antitrust or fair trading (FTC, not FCC, jurisdiction).
Powell, however, was concerned that Madison River's behavior would be copied by other ISPs, including the Bells' capitives, to whom he wished to hand 100% of the DSL-ISP business (vs. the 90+% they already had), and the cable-ISPs. He knew that it was legal for them to do so, but if it caught on too quickly, it would hurt his ability to use the existence of Vonage as a weapon against CLECs. And he was dealing with Madison River, of all telcos! Madison River Communications, the former Mebane Home Telephone Company. The ones who fought Carterfone, the 1968 decision that allowed subscribers to attach their own equipment to telephone lines, to the bitter end. The poster child for anti-competitive behavior. The Mayberry-esque telco with Goldman Sachs and other big money behind it, but the same small town types running it. Small town types who probably have no real understanding of the law, of rules, of what ISPs were. It's one thing that Powell and the pro-competition forces could agree upon: Nobody likes Madison River.
So Powell simply stared hard at their eyes. You blocked Vonage? He didn't have a rule to cite, but he was a Big Dude, and Madison River couldn't stand up to his stare. They blinked. Just like that. And so they entered into a consent decree, and paid a "voluntary payment" to the treasury. Not a fine, which is a penalty for adjudicated or admitted wrongdoing. Just settling the case out of court, the way a small town cop -- not one as nice as Andy of Mayberry -- would stare at an out-of-state driver to whom he had just given a ticket for allegedly going 36 MPH in a 20 zone. A cop who would settle a $50 "fine" by being paid right there on the spot, in cash, with no paperwork. Madison River of Mebane, North Carolina. Consent Decree, yeah, that's the ticket. Promise not to do it again until the FCC issues real rules, or a couple of years, whichever comes first. Enough to get the public to think that there's a rule, and to continue the myth that VoIP cannot be blocked by an ISP.
What does the Consent Decree actually say? "The Parties agree that this Consent Decree does not constitute either an adjudication on the merits or a factual or legal finding regarding any compliance or noncompliance with the requirements of the Act and the Commission’s orders and rules." So there is no real case, just an agreement. What does it actually mean to Madison River? Pretty simple: "Madison River shall not block ports used for VoIP applications or otherwise prevent customers from using VoIP applications." It applies to Madison River Communications LLC the parent corporation and all of its subsidiaries, remarkable imprecision when the regulatory requirements of its different units are so different. But it's only temporary. The FCC is still deciding, in pending WC Docket 04-36, how to treat VoIP. So "the requirements of this Consent Decree shall expire on the earlier of thirty (30) months from the Effective Date, or the effective date of a federal statute or Commission rule or order declaring or clarifying that the conduct described ... above does or does not violate the Act or Commission rules." Maybe the FCC will even decide that Docket within 30 months. Though given the many appeals that are almost inevitable, an effective rule could take longer than that.
Will VoIP blocking become illegal in the future?
In the meantime, the FCC has just opened up a new docket, WC 05-27, laughably entitled "Consumer Protection in the Broadband Era", which addresses the obligations to be placed on "wireline broadband Internet access service". It doesn't impose common carrier obligations upon ISP operations, even those of the ILECs, and even though it treats these services as regulated for accounting purposes. Instead, the Commission has namby-pamby "policy statement" that does not carry the force of law, and which, if applied to the carriage of VoIP, would no doubt be rife with loopholes. This is the supposed consumer protection side of their recent decision which essentially puts most independent ISPs out of business.
Indeed, there probably are reasons why a competitive ISP might want to block VoIP, if it were a well-understood part of its offering. (Streaming applications and VoIP are already banned by Verizon Wireless on their high-speed data service, whose draconian terms of service largely limit it to web browsing and a few other constrained applications. One can argue that given their high cost of raw bandwidth, this is economically rational, but it also helps protect their voice revenues, especially their outrageously high international calling rates.) An Internet version of "must carry" is not practical. If all ISPs were required to act as common carriers and not block any content, then spammers would no doubt be the prime beneficiaries. Small ISPs would probably be big losers, because they would lose the ability to customize their service offerings or protect themselves, or their subscribers, from the Katrina-sized floods of unwanted "information" that would overwhelm their networks. Selective filtering,or at least the threat thereof, is what keeps ISPs in line, discouraging "pink contracts" with spammers or the web sites they advertise.
Yet instead, without competition for ISPs, we are being threatened with selective filtering of beneficial content, be it VoIP or merely politically-sensitive web sites or email. The telecom industry, emboldened by the lack of regulation imposed by this FCC, is moving whole-hog to roll out IMS or other filtered "services" in lieu of VoIP-friendly true Internet access. Until competition is restored and the United States joins the rest of Planet Earth in recognizing a layered model of communications, consumers will be the losers. Myths about fines levied on errant carriers are no substitute.
