Prepaid Wireless Survives Net Neutrality … Sort Of

February 2, 2011 - Openet

Prepaid wireless providers have been somewhat spared by the FCC Network Neutrality rules approved in December – but new 4G networks stand to test those regulations and just how legal emerging wireless business models will be.

The FCC’s Network Neutrality rules bring with them two major changes: the first being that broadband networks and services are subject to the same regulation as traditional telecom networks. The second is that broadband providers must not limit in any way the type of content and applications that run on their networks, or the kinds of devices that connect. The goal is to preserve fair competition amongst content and application providers without limiting the potential of carriers or network operators.

While wireless broadband providers will have to meet most of these new fairness rules, loopholes have been built in that will allow them to charge for specific applications and limit others that unfairly overload their networks. That means there is still a future for prepaid plans that include flat-rate voice and data minutes, but charge per application – a business model most industry watchers believe will emerge in coming months.

On the flip side, there is still a lot of room for interpretation of these rules, and some fear they could prevent prepaid wireless providers from charging a range of prices for varying levels of service quality. That’s especially an issue when it comes to new 4G networks that enable easy traffic prioritization so that service providers could charge users less money for lower quality, or more money for better quality.

Where Exactly Did Network Neutrality Come From?

Network neutrality rules first emerged in 2004 when then-FCC Chairman Michael Powell called for the preservation of Internet freedom during a speech. In 2005, after a local telephone company blocked connection of Vonage VoIP services on its network, the FCC proposed four basic principles of an open Internet, including consumer choice of broadband content, applications, device and provider.

The rules aimed, for example, to prevent a cable broadband provider from blocking access to a third-party streaming video vendor, or a telecom company from blocking VoIP services that might compete with their own. The rules also aimed to prevent network providers from prioritizing some content or applications while de-prioritizing others.

“They were looking to avoid separate agreements that let a big company come along and pay providers to make their websites load faster than someone else’s,” explains Weston Henderek, principal analyst at research firm Current Analysis. “So if you’re Amazon, you can’t come and say I will pay you X-amount to make sure my site loads more quickly.”

The first two Net Neutrality bills proposed by Congress in 2006 and 2007 were killed. In 2008, a third Net Neutrality bill was proposed. Representatives behind the bills believed these rules needed to be actual law in order to penalize violating companies. The FCC didn’t have that ability since the Commission didn’t control these networks the way they did telecom networks.

Meanwhile that same year, the FCC censured Comcast for blocking peer-to-peer services on its network (including video transfer), which later spurred the cable company to sue the Commission. The FCC lost that battle, but current Commission Chairman Julius Genachowski moved to reclassify high-speed broadband as a regulated telecommunications service under Title II of the Telecommunications Act, making it subject to FCC rules – and penalization. The Commission then laid out the Open Internet or Net Neutrality rules approved this winter.

The Difference for Wireless Providers

The new rules still prohibit broadband providers from blocking lawful content and applications or specific devices on their networks, as well as from discriminating against certain types of traffic. But there are two additions: one being the requirement of transparency – or educating consumers about exactly what services they are receiving. The other is the inclusion of wireless broadband providers in the rules and some loopholes that take into account congestion on their networks.

While wireless providers are prohibited from blocking content that competes with an offering or application of their own, they are still able to block certain material and applications that would unreasonably congest their networks.

“There is the potential for certain mobile applications to hog more bandwidth or potentially cause harm to the network and the rules allow for a wireless carrier to block certain apps without repercussions,” said Henderek.

However, “if a carrier offers their own mobile video chat, they couldn’t just block Skype” and claim that it is congesting their networks, said Henderek. This means that providers “still have the ability to come out with their own applications and charge for them,” but they can’t unfairly block a competing service.

The first of the problems with Net Neutrality and wireless is that “there is a real gray area” about which applications overload the network and which are currently or will eventually be offered by service providers. Overload becomes especially hazy since hours of congestion on wireless networks have gone from about two hours a day to 10 or 12 hours a day in recent years. It may be hard for wireless providers to prove that their networks are unfairly congested for the better part of a service day. It is expected that this area of the regulation will be heavily challenged in appeals.

Other questions lie in whether service providers will be able to charge different rates for varying levels of service or to charge various rates for premium content such as video streaming, which could be considered prioritization.

“Everybody talks about trying to get more revenue per bit and I spend a lot of time on the road in front of customers who are all trying to figure out how to be part of that value chain,” said Gary Rieschick, director of wireless and broadband solutions at Openet, a company that provides technology for mobile operators to monitor application usage on the network in order to charge with new rate plans.

Openet routinely meets with customers about ways they can “creatively partner with customers like Netflix for an extra $20 a month,” explains Rieschick.

This becomes more of an issue as new 4G LTE networks go live across the nation. On 4G networks, carriers can prioritize traffic as easily as they could on an enterprise VPN, and if they choose they can offer very high quality video service using traffic shaping techniques, said Rieschick. So, many network providers have specifically looked at this as an opportunity to offer different rate plans for different levels of quality or to earn extra money on top of flat-rate plans.

Prepaid wireless provider Metro PCS has already been blasted by the FCC for its tiered 4G network rate plan announced in January. That plan offers consumers $40 for unlimited talk, text and 4G Web browsing with unlimited YouTube access; $50 for unlimited talk, text and 4G services with unlimited YouTube, mobile instant messaging, international text and 1 gigabit of additional data access. Then there’s a $60 plan that includes everything in the $50 plan plus unlimited data access and MetroSTUDIO premium content, such as 18 video-on-demand channels and audio downloads.

Consumer groups are demanding that the FCC investigate this new plan, saying that users who pay less money are being placed into a “walled-in” version of the Internet – the very type of limitation that Net Neutrality rules are designed to stifle.

Metro PCS appears ready to be the first to go to bat with the FCC over the new rules.

“The recent complaints about our new, pro consumer, pro competitive 4G LTE rate plans are erroneous. We continue to offer consumers a full service, unlimited data plan. We increased consumer choice by adding two new rate plans that are less expensive and enable consumers to select the service and content they want at a price point they can afford. These new rate plans comply with the FCC’s new rules on mobile open Internet,” said Roger D. Linquist, president, chief executive officer and chairman of the board of MetroPCS in a statement. The company declined an interview for this story.

In fact, every single mobile provider contacted for this article declined interviews, instead releasing statements that were somewhat warm to the new rules.

For its part, the CTIA Wireless Association stands against Net Neutrality as a matter of principal, but approves of the FCC’s special consideration of wireless networks.

“While we agree with Commissioners McDowell and Baker that net neutrality rules are unnecessary, and we continue to maintain that net neutrality rules are particularly unnecessary for the wireless industry that continually innovates, competes and significantly invests in our nation, we recognize that the Chairman has attempted to bridge the differences among the various stakeholders,” the CTIA statement reads.

“We appreciate that the Commission’s action today appears to recognize the important differences between fixed and mobile broadband. Whether it is the competition within the industry, the technical characteristics of the service or the distinct deregulatory framework adopted by Congress under which wireless currently operates, wireless is different.”

Sprint – having the largest portfolio of prepaid wireless offerings at this point – gave a similarly borderline-warm response.

“Sprint commends the FCC for the careful and deliberate approach it has taken on this issue. It is an important next step in ensuring the freedom and openness of the Internet, while also recognizing the differences between fixed and mobile networks and the importance of providing all broadband providers with the flexibility to manage their networks,” said Vonya B. McCann, Sprint’s senior vice president of government affairs.

Similarly, AT&T CEO Randall Stephenson called the rules “livable” after years of the telecom giant bitterly battling any existence of Net Neutrality regulations.

Transparency Leaves an Opening for Varied Plans

It’s possible that the wireless providers see hope in the new transparency requirement. While Metro PCS’s new plan could, for example, land in an FCC appeals hearing, it’s just as likely that complaints will be dissolved with the company making the various rates extremely transparent to consumers through marketing material and contract papers.

“With the transparency rule you’ll see that there’s going to be a major push toward explaining the type of services they are offering,” said Henderek. That way if service providers do cap certain content or applications due to network congestion – or should they charge higher rates for better service and lower rates for lesser service – they will not be penalized as long as they explain clearly to the user upon subscription.

“If the network supported 10 megabits per download, you could still offer a 1 megabit service as long as you explain that,” said Henderek. “As long as you are transparent, you can explain what consumers should expect in their coverage area.”

Future is Still Blurry

The bottom line is that because the rules are so new, only time will show how all of this will shake out. In the best case scenario, there will remain an open dialogue between the FCC and wireless providers so that these gray areas are cleared. Otherwise, months of legal action will likely be the deciding factor.




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