Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C COMMENTS OF VONAGE HOLDINGS CORP.

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1 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C New Docket Established to Address Open Internet Remand GN Docket No COMMENTS OF VONAGE HOLDINGS CORP. I. INTRODUCTION AND SUMMARY Vonage Holdings Corp. ( Vonage ) applauds the Commission s decision to move forward with open Internet regulations. Vonage encourages the Commission to cast a wide net as it considers the multitude of options available to it under the broad authority affirmed by the Court of Appeals for the D.C. Circuit in Verizon v. FCC. Vonage supports strong rules that recognize the importance of an open Internet to innovation and investment in America s broadband infrastructure. These rules should be coupled with effective enforcement mechanisms. First, Vonage supports the Chairman s decision to leave Title II on the table. We believe the Commission should carefully consider the merits of Title II. Nevertheless, given the Commission s request to consider the scope of the Commission s 706 authority we will direct these comments to that topic. Vonage notes that Title II rules are not necessarily inconsistent with the rules to be promulgated under Section 706; indeed, the two sets of rules may complement one another. 1

2 As further discussed below, the Commission, in focusing on rules under Section 706 of the Telecommunications Act of 1996, 1 should consider special rules for broadband access providers that are affiliated with upstream competitors. Rules that prohibit such providers from favoring their own, affiliated content are sufficiently different from a Title II blanket prohibition on discrimination to pass muster under Verizon v. FCC and Section 706. The Commission may also consider a baseline throughput access requirement for access providers. For wireline access, that floor may be higher than the threshold throughput that qualifies an access service as broadband today. II. OPEN INTERNET PROTECTIONS REMAIN A KEY SAFEGUARD Open Internet protections remain a key safeguard to investment in the nation s telecommunications and Internet infrastructure, services, and content. Vonage s VoIP subscribers must access Vonage s service over the broadband access networks of providers that market their own, competing voice service offerings. In addition, Vonage s subscribers rely on an open Internet in order to complete calls to emergency services through E-911 dialing. As the Commission has already acknowledged, competition, consumer choice, innovation, public safety, and continued investment in new technology are threatened without safeguards against anticompetitive conduct by dominant broadband access providers. 2 As the Verizon v. FCC Court found, the Commission has the authority and the tools it needs to adopt, implement, and enforce such regulations. 1 See Telecommunications Act of 1996, Pub. L. No , codified at 47 U.S.C Preserving the Open Internet, Report and Order, 25 FCC Rcd , 648 (2010) ( Open Internet Order ). 2

3 III. SECTION 706 IS A BROAD GRANT OF AUTHORITY The Verizon decision affirmed the Commission s broad authority to preserve the open Internet. The Court held that [S]ection 706 of the Telecommunications Act of 1996 vests [the Commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure. 3 The Court held that the Commission reasonably concluded that open Internet rules would preserve and facilitate the virtuous circle of innovation that has driven the explosive growth of the Internet, 4 where Internet openness... spurs investment and development by edge providers, which leads to increased end-user demand for broadband access, which leads to increased investment in broadband network infrastructure and technologies, which in turn leads to further innovation and development by edge providers. 5 The Court further upheld the Commission s conclusions on the public interest harms that might occur without open Internet protection. According to the Court, the Commission convincingly detailed how broadband providers position in the market gives them the economic power to restrict edge-provider traffic, and established that the threat that broadband providers would utilize their gatekeeper ability to restrict edge-provider traffic is not, as the [Commission] put it, merely theoretical. 6 And, while neither the Commission nor the Court made a determination about market power, the Court agreed with the Commission that broadband access providers act as terminating monopolists with the ability to act as gatekeepers to the determinant of end users and edge providers alike. 7 In short, the Court 3 Verizon v. FCC, 740 F.3d 623, 628 (2013). 4 Id. at Id. at 634 (citing Open Internet Order 14). 6 Id. at 646, See id. at

4 found ample support in the economic literature for the Commission s conclusions, and concluded that there was no basis for questioning the Commission s determination that the preservation of Internet openness is integral to achieving the statutory objectives set forth in Section While the Court vacated the specific rules promulgated by the Commission on the grounds that they regulated broadband access providers as common carriers when the Commission had declined to classify broadband access as a telecommunications service, 9 the Court also pointed the Commission in the direction of rules that would pass muster. Rules made under Section 706 must leave sufficient room for individualized bargaining and discrimination in terms. 10 The Commission should avoid imposing common carrier obligations on broadband access providers to the extent that such broadband services are not regulated telecommunications services. Within these parameters, however, the Commission enjoys a wide berth. A. DIFFERENT DOES NOT MEAN LIGHTER OF LESS EFFECTIVE The mandate of Section 706 is strong: the Commission must encourage infrastructure investment by using price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment. 11 And the Commission must take immediate action to accelerate deployment of [advanced telecommunications] capability by removing barriers to 8 Id. 9 Id. at 657 (citing 47 U.S.C. 153(51) ( A telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services. ); see also id. (citing 47 U.S.C. 332(c)(2) ( A person engaged in the provision of a service that is a private mobile service shall not, insofar as such person is so engaged, be treated as a common carrier for any purpose under this [Act]. ). 10 Id. at U.S.C. 1302(a). 4

5 infrastructure investment and by promoting competition in the telecommunications market, having determined that such capability is not being deployed to all Americans in a reasonable and timely fashion. 12 Thus, while rules under Section 706 must be different enough from common carrier rules to pass muster, they must also have teeth. Many possible rules meet these specifications. B. THE COMMISSION SHOULD ADOPT STRONG RULES TO PREVENT BROADBAND PROVIDERS FROM FAVORING AFFILIATED CONTENT The presence of affiliation between a broadband access provider and an upstream competitor justifies restrictions on favoring the upstream affiliate that would comfortably pass muster under Verizon v. FCC. Affiliation matters for two reasons. First, as the Commission has recognized, affiliation provides gatekeepers with the incentive to discriminate: A broadband provider might use [its] power to benefit its own or affiliated offerings at the expense of unaffiliated offerings. 13 The Verizon court agreed: [N]othing in the record gives us any reason to doubt the Commission s determination that broadband providers may be motivated to discriminate against and among edge providers[,] including by interfer[ing] with the operation of third-party Internet-based services that compete with the providers revenue-generating telephone and/or pay-television services. 14 Second, affiliation permits the offering of bundled products that increase switching costs, increasing in turn the extent to which a broadband subscriber is captive to his or her access provider. Cable and telephone companies are, of course, paradigmatic examples of this, offering triple and quad-play packages that often come with substantial early termination charges for non-broadband components of the bundle. 12 Id. 1302(b). 13 Open Internet Order Verizon v. FCC, 740 F.3d at

6 Wireless providers also make it difficult for subscribers to switch providers, using significant discounts on handsets and early termination penalties to dissuade subscribers from defecting to competitors. Market position also matters, as the Commission and the Verizon Court have both recognized. 15 While a formal finding of market power is not required in support of open Internet rules, 16 the fact is that the cable and telephone companies between them constitute a virtual broadband access duopoly, in addition to the position of each as the terminating monopoly for its respective end users. 17 Thus, when these dominant providers also offer their own, affiliated content in competition with third party edge providers, there is ample sufficient basis for additional safeguards. A prohibition against broadband providers favoring their own affiliates is a far more tailored rule than the blanket prohibition on discrimination applicable under Title II. After all, the rules would only come into play if the broadband access provider (or its affiliates) offers a service in competition with edge services. 18 Thus, the Commission has wide latitude under Section 706 to adopt rules that prevent broadband providers from favoring affiliated content. Under such rules, the Commission should 15 Id. at ; Open Internet Order 32 ( The risk of market power is highest in market with few competitors, and most residential end users today have only one or two choices for wireline broadband Internet access service. ) 16 See id. at 648 ( [T]he Commission s failure to find market power is not fatal to its theory. ). 17 Verizon v. FCC, 740 F.3d at See Verizon v. FCC, 740 F.3d at 655 ( In its briefs, the Commission contends only that if the Open Internet Order imposes common carriage requirements, so too would the regulations at issue in United States v. Southwestern Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968), which the Supreme Court declined to strike down. Southwestern Cable involved a Commission rule that, among other things, compelled cable operators to transmit the signals of local broadcasters when cable operators imported the competing signals of other broadcasters into the local service area. Id. at 161, 88 S.Ct Such a rule is plainly distinguishable from the Open Internet Order 's anti-discrimination rule because the Southwestern Cable regulation imposed no obligation on cable operators to hold their facilities open to the public generally, but only to certain specific broadcasters if and when the cable operators acted in ways that might harm those broadcasters. As the Court later explained in Midwest Video II, the Southwestern Cable rule was limited to remedying a specific perceived evil, and did not amount to a duty to hold out facilities indifferently for public use. 440 U.S. at 706 n. 16, 99 S.Ct ). 6

7 prohibit broadband providers from blocking, impairing, or otherwise degrading unaffiliated content and from affording their own, affiliated content faster or better access than any other comparable content, whether or not such content goes over the Internet or the access provider s dedicated bandwidth. In addition, the Commission should adopt rules that prevent broadband providers from charging non-affiliated content for network access. 19 The Commission may also consider a number of additional restrictions based on affiliation and dominance, including ones that focus on anticompetitive and discriminatory practices. C. THE COMMISSION SHOULD REQUIRE A BASELINE THROUGHPUT FROM BROADBAND ACCESS PROVIDERS Although the Court overturned the Commission s no blocking rule, it indicated that the Commission could craft a baseline throughput rule for all content that would avoid the hallmarks of a common carrier regulation. The Court illustrated with an example: [If] all edge providers content, applications and services are effectively usable, at download speeds of, say, three mbps, a broadband provider like Verizon could deliver all edge providers traffic at speeds of at least four mbps and distinguish somewhat among edge providers for delivery at higher service levels. 20 The Court further speculated that not only could Verizon negotiate separate agreements with each individual edge provider regarding the level of service provided, but it could also charge similarly-situated edge providers completely different prices for the same service See, e.g., Comments of Vonage Holdings Corp., GN Docket No , WC Docket No , at (filed Jan. 14, 2014) and Reply Comments of Vonage Holdings Corp., GN Docket No , WC Docket No at (filed Apr. 26, 2010). 20 Id. at 658 (internal quotations, citations, and editing marks removed). 21 Id. 7

8 Vonage urges the Commission to follow the roadmap that the Court has laid out for it and define a baseline throughput level for broadband access providers. This baseline should reflect changing consumer expectations while recognizing legitimate technical constraints. 22 This is consistent with the Court s reference to a level at which all edge providers content, applications and services are effectively usable. For wireline providers, this baseline is likely well above 3 Mbps and closer to 6 Mbps or higher. Above this baseline throughput, broadband access providers would be free to negotiate both price and terms of service, subject to other appropriate rules to be adopted by the Commission. D. THE RULES SHOULD BE BACKED BY STRONG ENFORCEMENT MECHANISMS Without the prospect of swift and effective enforcement, open Internet rules will fail to protect and nurture infrastructure and competition. Therefore all of the Commission s open Internet rules should be accompanied by enforcement mechanisms with required time frames for resolution. The Commission should be able to be initiate enforcement actions and should also allow third parties to bring complaints against broadband access providers for violations of its rules. Finally, the time frames for resolution must be concrete and prompt, both for any Bureaulevel action and for any action by the Commission itself. 22 In determining such level, the Commission should naturally take into account the technical parameters and limitations of the mode of service provision. 8

9 VI. CONCLUSION Vonage is pleased to offer its perspective on the Commission s options as it moves forward in establishing open Internet protections that will promote competition, innovation, and investment in America s broadband infrastructure. The Commission has many options before it, and Vonage urges the Commission to consider all of its alternatives as it builds a comprehensive toolkit based on the expansive authority confirmed by the Verizon Court. Vonage looks forward to working with the Commission on these efforts. Respectfully submitted, /s/ Brendan Kasper Vonage Holdings Corp. 23 Main Street Holmdel, NJ (732)