Fox, Cablevision and the Demise of the Terminating Monopoly

By Hank Hultquist, Vice President-Federal Regulatory, AT&T

Day three of “House” Held Hostage.

While many (ok, just a few) folks are focused on the fate of “House,” the medical TV drama on Fox, we here in Tech/Telecom Policy Land are watching a sea change in what the Fox/Cablevision drama is telling us about the net neutrality debate.

Earlier this year, we filed comments in the FCC’s Open Internet proceeding, explaining, at great length, exactly why the “terminating monopoly” theory of net neutrality regulation (one of the policy justifications used for imposing rules on ISPs), just didn’t make sense in the Internet ecosystem.

Well, in a semi-controlled experiment still underway, Fox and Cablevision are doing a pretty good job proving that point. Some would even say the (ISP) King is dead. Long live the (Content) King. Fox and Cablevision are embroiled in a dispute over retransmission consent that has resulted in Cablevision customers losing access to Fox channels. Over the weekend, the dispute briefly escalated to the point where Fox was allegedly blocking Cablevision’s Internet customers from accessing Fox content on Hulu and Fox.com.

Several prominent supporters of net neutrality regulation, including Representative Ed Markey and Public Knowledge rushed in to complain that such action was inconsistent with the FCC’s Open Internet principle that protects the right of users to access the lawful content of their choice – an irony given that many of those same folks insisted that the FCC’s net neutrality proposals should focus solely on ISPs not content providers like FOX. By way of example, see this comment from Public Knowledge, remarking that the FCC’s Open Internet draft rules only apply to ISPS: “The proposed Open Internet rules make no attempt to regulate broadband access providers in their role as content providers and editors. In fact, the Open Internet rules make no attempt to regulate anyone in their roles as content providers or editors.”

Parenthetically, I sincerely hope everyone’s enjoying irony #2 of this drama – Cablevision being denied access to programming, while it simultaneously refused to provide Verizon with access to a NY gubernatorial debate…IN THE MIDDLE of this dispute with Fox. While Cablevision has never shied away from taking an “aggressive” view of its rights to deny programming to its competitors, you gotta admire the chutzpah in this case.

So, how does Fox’s temporary blocking of Internet content to Cablevision customers show that there’s no terminating monopoly problem on the Internet? Simple, here’s how. As any telecom lawyer/policy wonk will tell you, the so-called terminating monopoly on the PSTN was created by the confluence of two factors that arose from common carrier regulation: the ability of local phone companies to file tariffs requiring long distance companies to pay them access charges and the INABILITY of long distance companies to block calls to those local phone companies.

On the unregulated Internet, we’ve got the opposite situation. Cablevision (the local phone company in this analogy) has no tariffing power, and Fox and presumably other content providers (the long distance companies in this analogy) appear ready to block the transmission of content when they think it’s in their business interest to do so. By the way, this same type of thing occurs every day when ESPN blocks certain premium content for Internet users whose ISPs don’t pay ESPN for the privilege of accessing that content. Far from being the victims of a terminating monopoly as some pro-regulation advocates predicted, these content providers clearly see themselves as possessors of an “originating monopoly.”

The demise of the “terminating monopoly” school of thought has profound implications for the debate over net neutrality. If content providers can collect “tolls” on the Internet and ISPs don’t have the unilateral power to force third parties to pay to “use their pipes,” then what is the point of the net neutrality debate anyway?

Additionally, many people are questioning whether the “Incident at Hulu Hill” represents a net neutrality violation or not? We don’t know the answer for certain, but the question reminded us of a rather prescient statement by Commissioner Michael Copps that might just hint at the FCC’s ultimate answer: “In particular, we need to recognize that the gatekeepers of today may not be the gatekeepers of tomorrow. Our job is not so much to mediate among giants as it is to protect consumers.”

Reprinted from the AT&T Public Policy Blog.