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Do we really need a rule to get consumers to buy a power supply?

The Federal Communications Commission wants to do a little more hand holding.  Yesterday it released a notice of proposed rulemaking that requires that communications companies give notice to their subscribers when changes are made to their networks.  In particular are changes to their networks that involve replacing copper with the fiber optics networks upon which digital information rides.  The Commission is also concerned that the transition to internet protocol-based services may leave consumers in the dark about the performance of communications services during power outages.  Unlike old school, copper-based, analog networks, the new optical networks are not capable of driving backup power to a customers equipment.

With a phone connected to an old analog network, all the lights could go out in your house, but the phone will keep working allowing you to call the power company to complain about having to make a call while holding a candle.  Fiber optics, on the other hand, don’t have that capability.  If you are a Vonnage customer or get your wireline phone service from a cable operator, you may have to purchase an uninterruptible power supply device.  This device is a rechargeable battery system that senses when there is not enough power for your phone.

According to the website, Voip.com, there are three types of UPS equipment: the Standby UPS; the Line Interactive UPS; and the Online UPS.  The Standby version is the most efficient, licking in when the alternating current power supply to your residence goes out.  The Line Interactive version, while slightly less efficient than the Standby version, provides the benefit of smoothing out power surges.  The Online version is the least efficient but reduces the time between power failure and switch over to direct current.

These back up power supplies can provide power from fifteen minutes to several hours and researching their availability on the internet was rather straightforward.

I understand the need to maintain a communications network that facilitates commerce and contributes to public safety, but wouldn’t it be less intrusive if the Commission acted as a clearinghouse for information on backup supplies and allow the supply component of the market to address an obvious consumer need for backup energy supply?

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Michael Powell, Nick Gillespie, chime in on Obama and net neutrality

Posted November 19th, 2014 in Broadband, Federal Communications Commission, Internet, net neutrality by Alton Drew

President Barack Obama’s direct call for action on net neutrality has some in the broadband industry and political punditry asking if he has crossed the line with his unprecedented attempt to publicly influence the Federal Communications Commission.

On 17 November 2014, former FCC chairman Michael Powell opined at NARUC’s annual convention in San Francisco that he’d never seen a president make such an attempt given that the FCC is supposed to be an independent agency.

Mr.Powell also noted that since the FCC’s chair was appointed by Mr. Obama, this makes the President’s public policy recommendation even more interesting.

Meanwhile, Reason.com’s Nick Gillespie chides Mr. Obama for not properly considering the impact of regulating broadband access as a utility in this piece for Time.

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Mr. Obama drinks the net neutrality kool-aid

Posted November 10th, 2014 in Federal Communications Commission, net neutrality, Obama and tagged , , by Alton Drew

Mr. Obama, unfortunately, has fallen for the #TitleII argument for regulating the #internet, erroneously arguing that the internet has been operating via net neutrality since the beginning of time. Wrong.

Certain traffic has always been sent before others because of the traffic’s makeup i.e. e-mail versus video. Title II would create various levels of internet service just like it did for telephone service. Also, Title II regulation means FCC and state approval of new services, just like Title II required of telephone services.

For those of us who worked in telecommunications regulation, we witnessed first hand how long and burdensome the approval process is for new services. Bottom line, if you want to see a slow down in the introduction of new internet services, go ahead and throw your support behind the President and Title II/net neutrality.

The President may have been a great constitutional law professor, but on telecommunications law, he needs to do his homework…..

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Wheeler’s speech to venture capitalists should leave them a bit concerned

Posted November 6th, 2014 in Broadband, digital divide, economy, Federal Communications Commission and tagged by Alton Drew

“Competition, competition, competition”, chanted Federal Communications Commission chairman Tom Wheeler during remarks before the Mid-Atlantic Venture Association, a trade group of venture capitalists.  Mr. Wheeler stuck to the usual theme of competition in broadband access, an open internet, and the availability of spectrum.

Mr. Wheeler, a former venture capitalist, reminded the audience that as the chief executive officer of the federal government’s “network agency”, he was also responsible for optimizing the public’s interest in public safety, competition, and consumer choice.  What would have been more helpful is if Mr. Wheeler adequately fleshed out how the FCC intended to create a competitive market place for broadband access networks.

Just based on the definition of competition I don’t see how the FCC can introduce more competition in either market short of literally determining which and how many players can participate as producers and how many citizens can participate as consumers.  In addition, given the dynamism of the broadband access market, I don’t see why the FCC should be concerned about intervening in markets in order to bring about competition in the first place.

Michelle Connolly and James E. Prieger analyzed broadband market data from the FCC and determined that for the period 2005-2008 there was a tremendous amount of simultaneous entry into and exit out of the broadband markets.  On the national level, broadband market entry rates were between 14% and 19%, rates that are greater than many other industries.  When you account for exit rates at the national level, net rate of entry was determined as approximately 3.1% per year.

When the broadband access market is shrunk down to local levels including zip codes, entry rates increase.  Another dynamic, according to the findings of Connolly and Prieger, is the size of new entrants and firms that survive market entry.  They tend to be the larger firms on average and enter new markets via different tiers or packages of service.  The authors also found that entry and exit activity lessened with the maturity of a market.

When I consider barriers to market entry faced by broadband access providers, I’m not surprised that larger firms contribute significantly to entrance into and viability in a market.   Progressive proponents of competition tend to delete from the discussion economic and regulatory impediments to market entry.  New entrants have to consider sizes of local markets and average income in an area.  Education and age profile also impact broadband access service penetration, according to Connolly and Prieger.  Population density and topography impact deployment of services in rural areas.  Also, in my experience, franchising requirements, such as rights-of-way fees or access channel requirements for broadband operators that provide cable create a barrier to entry for smaller, less financially able companies.

There is also research that describes how competition can be delayed where potential entrants into a vacant market may think twice about entry if they have determined that the market will become contestable due to potential of growing demand.  In other words, according to analysis by Mo Xiao and Peter Orazem, a potential entrant may look for a market where demand is not as high, creating a monopoly or entering an oligopoly that keeps out other entrants.  It may not be worth the expenditure of profits to fight off new entrants into a vacant, high demand market first the first few market entrants.

What kind of policies should the FCC create to increase the number of broadband access provider entrants into a market where smaller companies may not have the scale or financial wherewithal to stay in a market?  Will the FCC continue to subsidize these firms?  If so, what type of support will the FCC give to the consumer?  Demand has to want supply.

And where potential entrants are thinking twice about dipping their toes into a contestable market because of the fear of profit erosion in a relatively near future, will the FCC pursue a policy of subsidizing potential lost profit resulting from the very competition the “network agency” espouses?

Only by honestly grasping the reality that having three or four competitors in a market is not a bad thing will the FCC be able to get off of the competition rant and focus on more important issues such as spectrum allocation and ensuring that section 706 is the only basis for any regulation of broadband access.