The reality for BDS is increased prices

The Federal Communications Commission, based on a review of its April 2016 order on tariffs and pricing methodology for business data services, doesn’t pay attention to pending decisions of its sister agency, the Federal Reserve. This Friday, Federal Reserve chairman, Janet Yellen, is expected to give a speech in Jackson Hole, Wyoming that may provide some signals on what the U.S. central bank may decide to do regarding its federal funds rate. The federal funds rate is the overnight rate banks assess each other when lending their reserves to one another.

The Federal Reserve has set a target federal funds rate between .25% and .50% and if there is to be a rate increase this year, it is expected to occur after the November general elections.  Raising rates, the theory goes, is a part of a central bank’s strategy for moderating the growth of a heated economy. Raising overnight rates incentivizes banks to keep their reserves in the Fed’s vaults thus limiting the supply of money. Following the laws of supply and demand, money gets more expensive because banks are lending less to the public.

What does this have to do with telecommunications services, particularly business data services? As a capital intensive industry, telecommunications providers will depend on the bond markets to finance the construction and deployment of facilities necessary for delivering future services. For example, Verizon, in its February 2016 10-K filing with the U.S. Securities and Exchange Commission, argues that adverse changes in the credit markets could increase its borrowing costs and access to financing. The company, as of December 2015, has $110 billion in debt. Verizon argues that an inability to retire debt could make it more difficult to access the additional financing necessary for obtaining working capital or making additional capital expenditures.

Placing restrictions on a telecommunications service provider’s ability to raise prices signals the markets that there is increased risk to the rate of return investors expect from selling money to telecommunications providers.  Pricing restrictions by the Commission combined with a Federal Reserve decision to raise the fed funds rate could work to reduce the supply of business data services, an outcome that runs counter to the Commission’s stated public policy of increasing choice for consumers of business data services.

The Commission should take the external economic environment into account, an environment heavily influenced by the Federal Reserve, when it considers going forward on regulating business data services prices.

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Nothing in Wheeler’s Aspen Institute Remarks sparked my investment juices

Posted August 16th, 2016 in Broadband, Federal Communications Commission and tagged , by Alton Drew

Yesterday, Federal Communications Commission chairman Tom Wheeler made remarks to the Aspen Institute. He focused on the evolution and importance of networks as conduits for social and economic growth. As usual his analysis was more consumer-centered than producer centered with no specific discussion of how the Commission would facilitate signals for domestic or foreign direct investment in the telecommunications sector. There was not much to note here at all other than subtle a couple swipes at the GOP mantra of “making America great again.” Mr. Wheeler reminded the audience that America’s greatness didn’t have to be rebooted but was going through continuous evolution.

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My filed comment with the FCC on special access

Posted August 3rd, 2016 in Broadband, capital, special access and tagged , by Alton Drew

In re: Docket No. 16-143, Business Data Services in an Internet Protocol Environment

The Federal Communications Commission should implement a light touch regulatory model for business data services. Where a carrier needs to purchase for resale facilities provided by an incumbent local exchange carrier, a competitive local exchange carrier, or a cable company, prices should be market-based where negotiations are conducted based on an exchange of value determined by the parties. Also, the Commission should re-evaluate what it means by the term “competition.” Competition has been erroneously interchanged with “consumer choice.” I provide my reasoning below.

Special access services have evolved seemingly exponentially since the early 1990s. Prior to the 1996 amendment of the Communications Act of 1934, special access services were indeed dominated by incumbent local exchange carriers. By the middle 1990s cable companies, the only other facilities-based entities that had any chance of competing with incumbent local exchange carriers, had a very small share of the alternative access or by-pass markets. What they did have was vision to develop and use, at that time, what was considered innovative DOCSIS technology, a technology that would help them acquire more of the residential and enterprise markets for internet access.

Resellers, on the other hand, could never, in my opinion, be considered serious providers of telecommunications services. Take residential services. There was nothing more disconcerting to me as a young staffer at the Florida Public Service Commission during the 1990s to see complaint after complaint filed against resellers only for resellers to blame an issue on an underlying carrier. In my opinion, if a carrier wanted to seriously serve the public interest, it should have entered the capital markets and raised the financing to build out its own facilities. Consumers would have been better served under that model.

Fast forward to the 21st century and it cannot be denied that cable companies and other facilities-based competitive local exchange carriers have entered the special access markets offering business and enterprise customers alternatives to incumbent local exchange carriers. Business and enterprise customers can choose between incumbent local exchange carriers, competitive local exchange carriers, and cable companies for special access services.

Regarding the pricing of inputs i.e. lines that one type of carrier may have to purchase from another type of carrier for the purpose of providing special access services, prices should be determined in the market during negotiations between carriers. The Commission is not in a position to determine the value that the parties place on an exchange. That is not the Commission’s expertise. Only the carriers can best determine the value of the consideration being exchanged and the appropriate price. Each construction, deployment, or sale of special access facilities will differ for a number of reasons including location, business climate, capital markets, etc., information that private parties have better access to and more incentive to gather and get right.

The Commission believes it should insert itself heavily into pricing matters based on the premise that by doing so, it will bring about competition and garner better results for the consumer. This premise stems from an incorrect meaning of competition. Consumers have a greater number of carriers to choose from when there are a greater number of carriers that have determined that there are ample resources at a reasonable price to compete for in order to provide a service. Before an entity competes for a single customer, the ultimate resource that allows the entity to pay for all other resources, it has to compete for financial capital, land, labor, and entrepreneurial skillsets necessary for creating and selling its product and services. The Commission, in arguing a lack of “competition” in the business data services market, has not demonstrated that sufficient financial and natural capital exists in order to incentivize a provider to enter a market and meet consumer demand. Even if the Commission could make such an assessment, the Commission would next have to document the level of market failure, an exercise I doubt the Commission would want to endeavor given its knack for avoiding in-depth economic analysis.

Lastly, where a reseller or facilities-based carrier wishes to purchase facilities from another carrier, carriers should not be compelled to maintain legacy analog networks for this purpose. If consumer welfare is the Commission’s concern, then resellers should purchase digital facilities thereby furthering the use of more advanced technologies for the provision of broadband access.

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FreedomPop applies to FCC to resell services at all international points

On 29 July 2016, STS Media doing business as FreedomPop applied to the Federal Communications Commission to provide resold services from all international points. FreedomPop provides free mobile broadband plans, devices, digital services, and social sharing that allows its subscribers to share data across accounts.

The company was formed in 2011 and counts among its investors Mangrove Capital, DCM, and Atomico. According to its website, the company provides services in the United States and the United Kingdom and plans to roll out services to a dozen more countries this year.

FreedomPop uses Clearwire’s 4G WiMax data network and Sprint’s 4G LTE network.

The California-based start-up has avoided being acquired so far opting instead for raising private capital in a number of rounds. In June of 2015 it was reported that FreedomPop would invest $50 million in raised funds to invest in European and Latin American markets while expanding here in the United States.

STS Media’s application is filed under ITC-214-INTR2016-01757.

 

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Ted Cruz’s voice on broadband

Posted July 25th, 2016 in Broadband and tagged , by Alton Drew

Ted Cruz caught a little media heat for not endorsing Donald Trump for president of the United States. His snub may provide additional ammo to a party establishment that have never really cared for the U.S. senator from Texas. Mr. Cruz, however, has been a consistent voice against additional or onerous regulation of broadband services. He reiterated his opposition to more regulation during his convention speech which was refreshing to hear given that neither Hillary Clinton or Donald Trump have spoken at any length on the importance of broadband, especially for economic development.

I don’t pretend to be a Ted Cruz fan, but if the Democrats were to take the Senate and the Republican establishment continues its snub, then an important voice in opposition to more broadband regulation would be made even less relevant.