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Fifteen percent of Americans don’t go online … and that’s okay

A survey released yesterday by the Pew Internet and American Life Project has me wondering if broadband providers have been put in the position of Doctor John Faustus, having to be in league with a regulatory devil in order to attain the very resources needed to meet its mobile broadband needs. The Federal Communications Commission has touted for the last four years its social policy of making broadband services available to 100 million households; the number of households for a list of reasons that has not adopted broadband services.

The FCC finds less that socially acceptable anything less than universal access e.g. 100% connected. Broadband carriers have recommended public policy for garnering spectrum based in part on the FCC’s goal of universal broadband, but the FCC seems to overlook (as usual) the consumer side of the market in terms of what consumers are demanding and according to Pew, that demand is not 100%.

Fifteen percent of American adults do not use the Internet at all, and an additional nine percent may use it at work, but do not use it at home. Among the Internet non-users, 34% fail to see the relevance of the Internet, either having no use for the Internet, seeing it as a waste of time, or too busy to use it. In addition, 32% of non-users question the usability of the Internet finding themselves too old to use it, concerned about their privacy, or thinking themselves physically unable. Some non-users cite affordability or lack of access to the Internet to even bother to adopt Internet use.

The FCC is aware of these barriers to consumer demand and the wireless industry, in my opinion, has gone along with the FCC’s zeal to get the unimpressed online whether or not the unimpressed consumer sees that broadband as being important to their daily lives. The problem with this zeal is that it serves as premise for unnecessary regulations, notably net neutrality. “More transparency is needed to ensure consumers adopt broadband”, says the FCC. “Without broadband, consumers won’t get a job”, says the FCC.

The FCC should not be about playing Madison Avenue nor should broadband providers feel relegated to being the FCC’s national broadband plan cheerleaders. Internet access providers have been meeting the needs, whether by dial-up, wired broadband, or wireless broadband for two decades. Those with higher levels of education and income have always driven and will continue to drive demand for access to the information markets via broadband. The primary focus should be on removing bottlenecks to spectrum and barriers to rights-of-way.

By removing these barriers we may see decreases in broadband rates as more service gets to those willing and able to pay for it. We shouldn’t stubbornly pursue the stubborn 15%.

Alton Drew serves as a managing director of The Drew Fonza Project, a public policy research and consulting firm. He provides public policy analysis for municipal bond investors, private equity firms, hedge funds, investment banks, industry associations, and individual investors. Visit http://www.drewfonza.com to purchase reports on political environments surrounding municipal bond issues or to request a customized report. E-mail him at alton@drewfonza.com.

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I thought the FCC liked it by the numbers

I admit while I respected their passion for consumers and telecommunications, I didn’t agree much with former Federal Communications Commissioners Michael J. Copps and Jonathan Adelstein. They had no problem keep the screws on the broadband industry. If a phrase started with the word “regulation” they were probably all for it. One thing I did appreciate them for, especially Mr. Copps, were their calls for better data collection by an agency allegedly driven by data.

Mr. Copps called for better data collection by the FCC back in 2009 as the agency addressed broadband adoption, determining competition in the video marketplace, and diversity in the ownership of broadcast media.

I never see progressive advocates for net neutrality or restrictive access to the reverse broadcast spectrum auctions make quantitative arguments for their positions. It’s as if mere assertions about how large broadband providers, such as Verizon and AT&T would foreclose the ability for smaller national or regional carriers, like T-Mobile and Sprint, from getting licenses necessary to access airwaves and provide service.

Last week, Verizon gave the FCC what it allegedly wants: data and quantitative analysis, this time in support of the New York-based broadband provider’s position that its participation in upcoming spectrum reverse auctions should be capped or otherwise restricted in any way. The study was conducted by Duke University professor Leslie M. Marx. Ms. Marx knows a little about telecommunications having served as the FCC’s chief economist. Here are some of her major findings:

1. Proposals to restrict the participation of Verizon and AT&T in the Incentive Auction do not address any real world problem, according to Professor Marx. The assertion that some smaller wireless operators are at risk of being foreclosed from the spectrum necessary for them to compete is inconsistent with those firms’ own behavior, including their repeated decisions to forego opportunities to acquire low frequency spectrum. Other evidence, including Sprint’s and T-Mobile’s marketing of unlimited usage plans, further belies the assertion that those operators face capacity constraints that could be exploited though a foreclosure strategy.

2. According to Professor Marx, even if a strategy by Verizon and AT&T to attempt to foreclose rivals was rational, implementing it would be difficult. A foreclosure strategy is particularly difficult to implement in the context of the Incentive Auction because higher bids on the part of buyers result in a greater quantity of spectrum being made available from sellers, thus increasing the costs of foreclosure. In addition, says Professor Marx, in an auction with anonymous bidding, it would be difficult for AT&T and Verizon to know whether they are bidding against the foreclosure targets or against one another. Furthermore, even if a foreclosure strategy were feasible, Verizon and AT&T would each have an incentive to “free ride” on the other’s willingness to pay supra-competitive prices for spectrum.

3. Based on the economics literature, empirical data from past FCC auctions, and a model of a two-sided auction mechanism, Professor Marx concluded that restricting Verizon and AT&T in the Incentive Auction would put at risk its twin priorities of raising significant revenue and reallocating a substantial amount of spectrum from broadcast to mobile wireless services. Her simulations of past auctions showed that, without Verizon and AT&T, revenue in the 700 MHz auction would have been 45% lower and revenue in the AWS-1 auction would have been 16% lower.

4. Professor Marx also analyzed bidding restrictions that would not fully exclude Verizon or AT&T, such as spectrum aggregation caps. According to her findings there are indications that any restriction that causes a material reduction in the participation of Verizon and AT&T risks a significant reduction in auction revenue and a failure of the auction.

In short, Sprint and T-Mobile don’t act like they are hurting for spectrum and have ample access to it given their recent mergers with SoftBank and MetroPCS respectively. Good old fashioned economics doesn’t support their policy position either given that the more bidders participating in an auction, the greater the bids and the revenues that come along with it.

Rather than listen to David vs. Goliath assertions as espoused by the U.S. Department of Justice, the FCC pay attention to the numbers and admit to the conclusion that everyone else has arrived at: that capping access to spectrum is bad public policy.

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The FCC needs to relieve itself of self-importance mindset

Last Tuesday, Federal Communications Commission acting chairman Mignon Clyburn delivered remarks at the Competitive Carriers Association annual convention in Las Vegas, Nevada. Ms. Clyburn laid out some social policy goals for mobile communications for the commission post the 700 MHz interoperability solution committed to by AT&T over a week ago. Among the goals are:

1. Promoting competition
2. Empowering consumers
3. Unleashing spectrum
4. Spurring investment

Ms. Clyburn took the mantle from her predecessor, Julius Genachowski, crediting the FCC with market powers the FCC simply does not have and shouldn’t admit to having even if it did. I made reference to this in a tweet a couple nights ago: the Genachowski Syndrome. Let’s take, for example, the FCC’s promotion of competition in mobile services.

The type of competition the FCC refers to is the layman’s version of competition where each firm in the market is concerned about what the other one is doing. Sure in the real world T-Mobile is aware that Verizon and AT&T are the big dogs in the wireless market, but T-Mobile’s primary concern, as it is with any firm in a competitive market, is with the desires and demands of the consumer. If this were not the case then T-Mobile would not have successfully carved out a niche in the pre-paid wireless market. It would have paralyzed itself wondering what Verizon or AT&T’s next moves were, finding itself counting Euros instead of dollars. The FCC had nothing to do with T-Mobile carving out this niche. This had more to do with T-Mobile reading the demographics of the nation and where the economy was going.

In a competitive market, the market the FCC allegedly wants to promote, there would be free mobility of the resources wireless carriers need in order to produce their services. For mobile carriers that includes spectrum, access to towers, and public rights-of-way. Guess who provides bottlenecks that restrict access to these resources. To steal a phrase, it’s not that complicated. Local governments seek to extract tribute from carriers via franchise fees, rights-of-way permits, and zoning delays for towers. Meanwhile, the FCC and the U.S. Department of Justice scare investors with proposals to cap access to spectrum auctions.

And can we really say that the FCC’s 2011 rules mandating data roaming helped promote a competitive market? Roamers aren’t looking for new services or new service providers when trying to make a call outside of their carrier’s network. The expect their carrier to connect their calls no matter where they are. The FCC’s roaming rules only made it okay for a consumer to stay with a regional carrier when instead the consumer should have been exposed to the consequences of being with a lower tier carrier.

The lower tier carrier shouldn’t take all the blame. Some of the blame falls on larger carriers for not marketing a brand of service customers of smaller tier services would want to switch to. In addition, if competition drives innovation and infrastructure development as Ms. Clyburn alludes to, then why promote roaming, a policy that disincentivizes carriers from building national networks?

Bottom line, mandating roaming is not a public policy that promotes competition and the FCC should stop confusing being around during innovation with actually influencing competition.

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FCC’s broadband policy: “Miami Vice” surrealism vs. “Southland” gritty reality

Today the American Enterprise Institute held a forum on capital and broadband deployment. Among the takeaways from the panel discussions were the need for agencies such as the Federal Communications Commission to make decisions that would help grow the economy; that regulations, particularly any policies promoting unbundling, would only constrain investment; that government should stop subsidizing private companies that serve areas where competition exists; and that the Internet has thrived without regulation.

In all the arguments drove home the point that the FCC is conflicted with social policy cognitive dissonance. The FCC utters a preference for market place competition for broadband services and light touch regulation for the Internet along with a host of consumer protections, but its actions cause a drag on the market for services, negatively impacting consumer welfare by failing to allow broadband carriers a full transition to Internet protocol services, even in the face of consumer demand for advanced broadband services.

Its contemplation of capping access by AT&T and Verizon to the reverse auction for broadcast spectrum is another example of cognitive dissonance, claiming a market-based method for reallocating spectrum while considering keeping two efficient players out of the market for spectrum; two players serving a majority of broadband consumers, who, if the Department of Justice had its way, would risk reduced quality of wireless broadband access.

As Steve Pociask and Barry Umansky argued in a recent article for The Hill, the FCC can’t have it both ways. We can’t tout the proliferation of wireless devices, app development, and IP technology while asking broadband providers to continue maintaining a legacy network. It is like comparing the 1980s surrealism of “Miami Vice” with the gritty reality of “Southland”.

It’s time for us to move into the 21st century.

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Obama administration unveils initiative to encourage broadband deployment

Posted September 17th, 2013 in Broadband, capital, economy, Obama, wireless communications and tagged , , by Alton Drew

Yesterday the Obama administration announced the latest policy that it hopes encourages greater deployment of broadband facilities. The policy is centered on providing broadband carriers with data that shows which government properties are available for access in order to deploy an antenna or run cable.

Last year there was some chatter out of the administration about granting providers a right-of-way in easements held by the federal government along its highways and interstates. With a mapping feature, broadband providers can identify roof tops for placing antennas. For example:

“An interactive mapping tool that allows carriers and communities to view and identify opportunities to leverage Federal properties for the deployment of high-speed Internet networks. For example this map can help the wireless industry identify Federal rooftops where commercial antennas can be placed to support wireless networks. The national map includes data on broadband availability, environmental or historic information, property locations, and contact information so companies can easily obtain more information. The map was built with open government data, displayed in a new way to make it easier for carriers to take advantage of Federal assets in planning or expanding their networks.”

According to the executive order upon which the initiatives are based, the Administration believes the social goal of expanding broadband to all American households can be facilitated by providing the broadband sector with data on existing opportunities for placing facilities. With 10,000 buildings and 30% of all land under federal ownership, it appears that the Administration believes making the private sector aware of these spaces will lead to greater broadband availability for consumers.

The Administration did mention some operational costs savings to a broadband provider. For example, the “Dig Once” initiative allows carriers to time their deployment activities to coincide with an ongoing road or highway construction. The Administration estimates cost savings on deployment at a rate of 90%.