Verizon Wireless CEO fires back at FCC over throttling brouhaha

Verizon Wireless CEO Daniel Mead says he was "very surprised" to receive a cutting letter from the FCC last week that accused the wireless giant of unfairly singling out its unlimited data customers as it expands a network management tactic it's used since 2011.

Mead defended his company's policy in spite of harsh criticism from the commission's chairman.

During a discussion with reporters in New York City on Monday, Mead said he believed that the Federal Communications Commission's chairman misunderstood the company's policy and that some of the assumptions the agency made regarding the program were "flat out wrong." He added that the company has already formally responded to the commission.

Mead emphasized that under a different chairman three years ago in 2011, when the policy was first put in place for 3G users, the FCC seemed fine with how Verizon managed its network. He said he doesn't understand why the agency would have a problem with it now as Verizon expands the policy to include 4G LTE customers later this year. He also added that the FCC hasn't been troubled by other wireless operators implementing similar network management policies.

"We were very surprised to receive that letter," he said. "There were many parts that were incorrect. We have great respect for the FCC, but I'm not sure the chairman understood what we're doing exactly."

Verizon's defense

The whole issue began on July 25 when Verizon notified customers via a blog post that its "network optimization" program, which slows down heavy 3G users in a given cell site during times of congestion, would be expanded to include customers using its 4G LTE network starting October 1.

Within days, FCC Chairman Tom Wheeler "="" "="" shortcode="link" asset-type="article" uuid="49d2753d-b980-4b59-93fd-371fcc9968b3" slug="fcc-chairman-puts-verizon-in-hot-seat-over-new-throttling-policy" link-text="sent a letter noting that he was " section="news" title="FCC chairman puts Verizon in hot seat over new throttling policy" edition="us" data-key="link_bulk_key" api="{"id":"49d2753d-b980-4b59-93fd-371fcc9968b3","slug":"fcc-chairman-puts-verizon-in-hot-seat-over-new-throttling-policy","contentType":null,"edition":"us","topic":{"slug":"mobile"},"metaData":{"typeTitle":null,"hubTopicPathString":"Tech^Mobile","reviewType":null},"section":"news"}"> that Verizon Wireless would "base its network management on distinctions among its customers' data plans, rather than on network architecture or technology." Wheeler's main beef with Verizon's policy expansion is the fact that unlimited subscribers are the only customers subjected to the slower speeds.

He also accused the company of violating terms in a spectrum license agreement with the FCC that require Verizon to keep its 4G LTE network open. And the letter asked Verizon to answer a series of questions justifying the new policy.

In a letter dated August 1, Verizon responded to the FCC's inquiry. Neither Verizon nor the FCC has made Verizon's response public, but CNET obtained a copy of the letter. In it, Kathleen Grillo, senior vice president of regulatory affairs for Verizon, defends the new policy as not only being consistent with reasonable network management definitions set out in the 2010 Open Internet Order, but she says it is also consistent with how the FCC and Verizon have interpreted the rules established by the 700MHz C Block Order.

"With network optimization, our customers continue to be free to go where they want on the Internet and to use the applications, services, and devices of their choice," she writes. "Although the policy may result in slowed throughput under very limited circumstances, neither the C block rules nor the Open Internet rules requires any particular minimum speeds, so long as providers are transparent with their customers."

In the meeting with reporters, Mead also defended Verizon's policy and highlighted points Grillo made in the official letter. Specifically, he said that Verizon's network management practices are no different from the policies of other wireless operators. He said the expansion of the network optimization policy to 4G subscribers likely affects far fewer customers than similar policies from these other wireless companies. He explained that the policy goes into effect only when a small percentage of customers dominate a particular cell site, which prevents others from accessing data. In those instances, Verizon will limit the network connections on those customers using a disproportionate amount of bandwidth. When demand subsides in that cell site or when the user moves to a different cell site, full network speeds are restored.

"It doesn't happen on a particular cell site very often," he said. "But when it does we know where it occurs and who is involved."

Mead went on to say that the policy targets unlimited data customers because they are most often the customers hogging the bandwidth.

"When you look at the activity, that is where nearly all the problem occurs," he said. "So that is why we have focused on that."

Grillo added in her letter to the FCC that customers on usage-based plans already have a financial incentive to moderate usage.

As for Wheeler's accusations that Verizon is using a network management policy to encourage customers to drop their unlimited plans and sign up for more lucrative usage-based plans, Mead said the company is not trying to coerce unlimited data customers to change their plans.

"We still have the unlimited date plan," he said. "We haven't taken it away. But we don't subsidize those handsets if customers want to stay on those plans. Most customers have moved to our other plans."

A sign of more regulation to come?

The brouhaha over Verizon's new network management policy comes at a time when the chairman of the FCC has been criticized for his handling of the FCC's rewrite of Net neutrality rules after previously adopted rules were thrown out by a federal appeals court earlier this year. Everyone from consumer advocates to politicians in his own party to comedians on cable TV have slammed the chairman for bowing too much to corporate interests when it comes to keeping the Internet open. Specifically, these critics fear the FCC will adopt rules that will allow for a so-called fast lane of service on the Internet, which could ultimately lead to fewer content choices on the Net.

Wheeler's probe into the expansion of Verizon's network management policy has been viewed as a sign that the FCC may be considering stronger regulation for wireless networks. Under the old Net neutrality rules, standards were more lax for wireless providers than they were for wireline broadband providers. Wireless operators argued and the previous FCC agreed that because wireless spectrum is a finite resource, these networks should be given more leeway in determining how their networks are managed.

Under the old 2010 rules, wireless networks were excluded from bans on blocking applications. But in public comments on the newly proposed rules, some companies, such as Google, Netflix and Amazon, say that wireless networks should be treated the same as wireline networks, since they all provide access to the Internet.

This is important to note given that so far wireless service providers are the only network operators that have even begun testing "priority" services that favor content from one content provider over another. For example, T-Mobile recently announced that it will allow customers to access certain music services without counting that data usage against subscribers' monthly data caps. Sprint has also announced a similar program that allows customers to access certain social media sites without tapping into their monthly data plans.

These new plans have been viewed by some as a slippery slope when it comes to Net neutrality as it allows wireless operators to pick winners and losers in the content business. So far, the FCC has not officially commented on these new services.

Verizon has yet to announce such a plan for its consumers, but Mead, who is also serving as chairman this year of the wireless industry's largest trade group CTIA, defended the notion that the FCC should refrain from implementing any further regulation, including new Net neutrality rules that would treat wireless and wireline networks the same.

"I'm 100 percent against that," he said. He added that it would be very bad for the industry as a whole.

Though he acknowledged that the wireless industry has existed for more than three decades, he said it is still in its "infancy," and therefore a "light" regulatory touch is warranted in order to keep the $35 billion a year investment momentum going.

"I don't think there is a problem," he said. "People are trying to say there are issues with wireless providers. But I just don't see it."

He emphasized that network operators need to be able to make a reasonable return on their investment. And it should be up to the companies and not the government to decide how they choose to generate revenue, regardless of whether the business model is to ask consumers to pay for a service or require content companies to pay for access to wireless customers.

He added, "If a company chooses to pay us for priority access on our network, that is not a regulatory decision. It's a business decision."