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The role of the FCC

Yesterday the Brookings Institution hosted a forum on broadband. What stood out to me was a discussion by the panelists on the role the Federal Communications Commission should play in the evolving broadband industry. One role mentioned was that of consumer protection.

I don’t have a problem with the FCC being a clearing house of information. Consumers tend to make mistakes when they are not armed with information about the carriers they are negotiating with for service. The FCC can be a resource for information on service quality and pricing. Any consumer services beyond that would be a waste of resources.

There are a number of state consumer agencies that can address consumer complaints about communications services. Also, state courts can address contractual disputes between communications companies and consumers. There is no need for the FCC to go granular on consumer protection.

The FCC should devote its resources to the role it plays in regulating commerce. As guardian of spectrum, the FCC’s primary mission should be to ensure that spectrum gets into the hands of firms that can put it to best use. This does not include trying to ensure every little company gets to sit at the table. It also does not mean redistributing rents (profits) to company A from company B because some grass roots groups believe that company B should divest itself of some of its holdings in order to expand into new markets.

The FCC typically pursues divestiture during its review of mergers, but has yet to show how forcing a company to give up market share has done anything to increase consumer welfare. I agree with the panelists to the extent that the FCC has never made a strong qualitative or quantitative argument showing the benefits to consumers of divestiture. Merger reviews should be left exclusively to the United States Department of Justice.

While I have abandoned the theory of market failure as a reason for government intervention into what should be free markets, I can’t see how the FCC can claim it’s protecting consumers without demonstrating how consumer value is being increased by its actions. The FCC should not be attempting to create competitive markets using a merger review process that has not demonstrated any value to either broadband firms, shareholders, consumers, or the process for distributing spectrum.

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Connect America Fund

Posted November 21st, 2012 in Broadband and tagged , by Alton Drew

It seems like the Federal Communications Commission has a little hard time getting broadband providers to scoop up $185 million of universal service funding. The FCC recently issued an order addressing phase I of the Connect America Fund, the FCC’s revamped universal service fund initiative designed to move subsidies from supporting plain old telephone service and legacy networks to high-speed broadband network deployment. The FCC froze subsidies at a baseline of $3,000 times the number of year 2011 lines eligible for support, but added an additional $300 million to the pot to incentivize broadband providers to serve unserved wire centers.

The order would modify rules to incent broadband access providers to take advantage of the remaining $185 million in the subsidy pot. Carriers have only claimed $115 million of it so far. Proposed rules call for funding to go toward the construction of second mile fiber. The rules also introduce the opportunity for interested parties to raise challenges to the areas broadband access providers claim as eligible for Connect America Funds.

What the FCC, based on the order, appears interested in is having interested parties, who will more than likely be made up of consumer advocates, identify additional eligible wireline centers. The more eligible locations, the more Connect America Funds that should be claimed along with an increased level of broadband deployment.

What’s also interesting is that the FCC did not address why broadband providers left so much money on the table. Maybe I should not have said “so much money”. Almost $200 million in subsidies compared with $65 billion a year in investment by the industry is chump change. Broadband carriers might not see the benefit, yet, of taking $200 million and the compliance headaches that go along with it. Until the FCC addresses why broadband access providers are not taking full advantage of subsidies, the FCC won’t be certain as to whether their new rules will be effective.

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Online ad exchanges: Consumer welfare v. chattel

The New York Times yesterday posted on article on real time bidding for online advertising that I found interesting. The article cited a petition filed with the Federal Trade Commission by the Center for Digital Democracy, where the CDD alleged that real time bidding, a process where advertising space on web sites is sold via an electronic trading platform, amounts to an unfair and deceptive practice.

Specifically, CDD alleged that electronic trading systems for advertising, where marketers can bid for consumers within milliseconds of a consumer visiting a web page, can unfairly stratify consumers, relegating some to inferior treatment while offering better pricing to others. According to CDD, not only does it resemble a cattle auction while reducing consumers to a “chattel” status, but these trading systems also threaten consumer privacy because advertisers are using consumer data obtained via data mining practices by third party aggregators. Consumers are not reaping the financial benefits of their very own data while advertisers, web sites, and third-party aggregators reap the profits.

Under section 45(n) of the Federal Trade Commission Act, the FTC applies a standard of proof and other public policy considerations when determining if an act is unfair and deceptive. There has to be, under the Act, a showing of substantial injury to a consumer from the party exhibiting bad behavior. The substantial injury must be a kind that is not reasonably avoidable by the consumer and not outweighed by countervailing benefits to the consumer and competition.

When reaching its conclusion on whether an action is unfair or deceptive, the FTC may consider, on a secondary basis, public policy.

I think the primary public policy consideration the FTC needs to take is whether a transaction has taken place where consumers are seeing degradation in their welfare. First of all, real time bidding does not directly involve the type of consumer that CDD is apparently concerned about. Consumers visiting web sites may not be interested in purchasing anything. Even if a consumer has a fetish for Gucci handbags and as a result of real time bidding finds her looking at ads for designer accessories, that’s not a deceptive act. It would be as if she walked into her favorite store and the attentive clerk who is aware of her penchant for these items lets her know that the store has some in stock. It’s simply information being shared.

Real time bidding gets information to a consumer faster because it leverages the history of the consumer’s tastes, desires, and ability to pay to get product in front of the consumer that she, based on these consumer characteristics, may be interested in. Back in my merchant days, we called this good marketing. The consumer’s welfare is also increased because she is receiving information that she can take into the market place and use when the time is right for her to make a purchase.

Also, the FTC needs to stay mindful that as households who have not yet adopted broadband continue to see other households take advantage of goods and services marketed directly to them based on their perceived tastes and desires, these unconnected households may choose to join the 21st century and get connected to e-commerce via broadband access. Following CDD’s lead and tainting cyberspace as a scary space to transact in will only delay the closing of a digital divide too many households are still facing today.

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The Spectrum Cliff

Posted November 14th, 2012 in FCC, Government Regulation, spectrum and tagged , , , , by Alton Drew

Yesterday Federal Communications Commission member Jessica Rosenworcel delivered a speech on spectrum policy. Overall I was not impressed with the speech, but two things stood out.

First, Ms. Rosenworcel coined the term, “spectrum cliff”, in reference to the shortage of spectrum the nation is facing. It’s obvious what influenced the creation of that moniker.

Second, Ms. Rosenworcel recommended a way to incentivize federal agencies to give up the spectrum they are using: cut them in for a piece of the action by giving them a share of the proceeds. I admit this is outside the box thinking on the part Commissioner Rosenworcel and shows her appreciation for profit as a motivator.

The other cliff, the fiscal cliff, may be motivation enough for taking a cut of spectrum auction proceeds. If an agency is about to lose funds as a result of budget cuts, Ms. Rosenworcel’s proposal may alleviate some fiscal pain, at least in the very short run. I say short run because an agency would only have so much spectrum to give up if it wants to carry out its primary mission.

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The Hallelujah Chorus?

Posted November 14th, 2012 in AT&T, Broadband, FCC, Government Regulation, spectrum and tagged , , , by Alton Drew

Nobody would ever accuse Harold Feld of playing nice with big telecom companies, so when Harold finds something to like about AT&T the rest of us should pay attention. Thanks to a prod by Harold, a long time telecom industry observer, consumer advocate, and senior vice president at Public Knowledge, I took a closer look at AT&T’s pledge last week to invest an additional $14 billion in its advanced high speed Internet protocol (IP) based wired and wireless broadband networks and its simultaneous proposal to the FCC to begin a dialogue about the future of Internet communications. Like Harold I found a lot of good things.

For one, the new investment, including plans to deliver its U-Verse television service to more consumers, is good for competition because it will push cable operators as well as wireless carriers to respond with their own investments and upgrades to keep customers happy. As Harold says: “This is how competition is supposed to work.”

It might even help consumers save money. I don’t think anybody should run out and spend big bucks with the dollars they think they will save on cable bills, but in Harold’s words: “This upgrade potentially restores DSL as a viable low cost alternative able to put price-pressure on cable systems and force cable operators (especially in mid-size markets) to accelerate their own upgrades.”

Perhaps equally important, AT&T’s investment plans indicate that the company is helping push the United States toward high-speed all-fiber IP networks in which all our communications services work seamlessly together on this Internet-based infrastructure. Once older technology is fully retired, Americans who use AT&T (and this should ultimately be true for other carriers as well) will be able to count on reliable and ultra-fast service for voice and video. That could carry special benefits for minority communities and rural areas that haven’t always been on the cutting edge of new technology.

Again, let me quote Harold: “There is no question that, handled correctly, this massive investment in infrastructure could prove a tremendous boon to communities that have been in danger of marginalization.”

Harold hasn’t joined the Hallelujah choir and neither have I. As he notes, AT&T is looking out for its own business interests, and as regulators consider the implications of fully shifting to 21st century technology, there may be some tough fights on policy and regulatory issues. But AT&T has taken the unusual step for Washington of proposing dialogue with regulators over managing the transition rather than trying to muscle its preferred outcome.

Bottom line, according to Harold: “We want this investment to happen. This investment will create a combined wireless and wireline network that is truly greater than the sum of its parts.” I couldn’t have said it better.