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How can the FCC help expand the broadband economy

Yesterday Michael O’Rielly provided a definition of the internet economy during remarks made before the Internet Innovation Alliance.

“Here is a simple truth.  The Internet thrives today on aggregating information for the purposes of increasing advertising revenues and the use of data analysis for multiple purposes.  Data and advertising are why Internet-related companies are valued so highly by investors and Wall Street, and why those companies that cannot monetize such activities face harsh realities and uncertain futures.”

In other words, regulators need to understand that the commercial internet is an infrastructure that facilitates data trade and that the regulations they implement can limit the type of data collected over the internet by internet-related companies.  Broadband operators are involved in this data trade.  For example, Comcast collects non-personally identifiable data that they may share with third-parties for the purpose of targeting advertisement.  This non-personally identifiable data may include IP and HTTP header information; a consumer’s device address; a consumer’s web browser; or a consumer’s operating system when using Comcast’s web services.  Where a Comcast subscriber is trying to personalize the use of Comcast’s web services, the consumer may provide to the broadband provider for storage the consumer’s zip code, age, or gender information.

The competition that gets ignored by regulators is the competition broadband providers face in the capture and sale of consumer data.  This competition includes cloud storage companies, content creators, and app developers.  It also includes companies in the internet, publishing, and broadcasting industry with familiar names like Facebook, Google, and Yahoo. According to Hoover’s, these companies publish content online or operate websites that guide information consumers to the content they are seeking.

Demand for this industry’s services is driven by consumer or business needs for information and other forms of content. Profit is created when these companies deliver relevant information to consumers while offering advertisers a targeted audience.  According to Hoover’s, sales of online advertisements account for just over half of U.S. industry revenue with 75% of advertising revenue coming from search and display advertising formats.

Comcast was hoping to make major inroads into advertising with its proposed acquisition of Time Warner.  Writing for in February 2014, Jeanine Poggi wrote:

“Assuming the deal is approved, however, it will make Comcast become a more important partner for advertisers, said Ken Doctor, affiliate analyst, Outsell. Its expanded role as both a content producer and content distributor will make it all the more competitive for ad dollars with companies like Yahoo, AOLGoogle, and Facebook. “It will become more of an ad competitor as selling of TV [and] digital inventory blurs,” he said.”

Writing further, Ms. Poggi points out that:

“A merged Comcast reaching 30 million U.S. households, along with the national reach of DirecTV and Dish Network, creates an alternative to buying national advertising from the TV networks, said Jason Kanefsky, exec VP-strategic investments, Havas Media.”

Unfortunately for Comcast investors, the Federal Communications Commission and the U.S. Department of Justice bought into the pseudo net neutrality argument pushed by grassroots groups and Netflix that mergers such as Comcast and Time Warner would somehow thwart the average man’s ability to express themselves online and that a larger Comcast would be a detriment to competition in broadband access.  Allowing the merger it appears would have given advertisers, from large corporations to small entrepreneurs, alternatives for online advertising.  The economies of scale that a Comcast-Time Warner marriage would have produced may have lead to lower advertising rates especially for smaller companies.  The FCC’s new Title II rules for broadband companies may only serve to further foreclose such scale.

The issue is, under the current rules and statutes, should broadband providers be prohibited for sharing data with advertisers or other third-parties seeking to target ads at a broadband provider’s subscribers?  I believe the answer is no and investors should lobby the FCC to ensure that no such rules are drafted.

47 CFR 8 of the FCC’s rules for protecting the open internet provides no explicit prohibition on a broadband operator providing third-parties with subscriber data that could be used to deliver advertisement.  Section 8.11 of the rules, in my opinion, gives broadband operators an argument for providing customer data to third-parties, particularly edge providers.  Specifically, the rule says:

“Any person engaged in the provision of broadband Internet access service, insofar as such person is so engaged, shall not unreasonably interfere with or unreasonably disadvantage end users’ ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of their choice, or edge providers’ ability to make lawful content, applications, services, or devices available to end users. Reasonable network management shall not be considered a violation of this rule.”

Section 222 of the Communications Act does not expressly prohibit use of consumer information for advertising purposes, but given that the statute is written for telecommunications companies, Congressional action would be needed to amend the section with language that reflects how broadband and other internet companies use consumer information.

If the FCC wants to help expand the broadband economy, it will have to persuade Congress to make these language changes lest leave investors in a state of uncertainty.







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No. More telecom mergers won’t adversely impact net neutrality

In an opinion piece written for by Professor Warren Grimes of Southwestern Law School argues that there is a link between mergers in the telecommunications industry and net neutrality regulation.  Specifically, Professor Grimes argues that:

“Large telecom providers usually favor mergers and oppose government regulation. Meanwhile, content providers and consumer groups typically hold opposite views: they oppose the mergers and favor the regulation. Sound policy requires more nuance. The public interest and the long term interests of industry participants are best served by limiting mergers and, as a direct result,  minimizing the need for government regulation. Competition, not government regulation, is the best way to ensure that consumers receive what they want at a fair price. But this result is possible only if mergers do not create powerful firms that suppress competition and undermine consumer sovereignty.”

The premise that an alleged lack of competition for broadband access or content provision has a negative impact on net neutrality is faulty because net neutrality has nothing to do with either. Net neutrality is about content providers’desire to pay zero for sending traffic across a broadband provider’s last-mile network. Just look at Commercial Network Services’ complaint against Time Warner Cable that it should be allowed to interconnect with the broadband provider for free.  To CNS, Time Warner Cable is “degrading its ability to exercise free expression.” And here we thought the “attack on democracy” argument was being used to advocate for consumer rights to internet traffic, not for corporations.

Do consumers really want a diverse amount of content? No, they don’t. Out of an average of 129 available cable channels, consumers watch an average of 17, according to an article in  And of the 961,554 active websites today, consumers visit less than ten a day for their news, entertainment, shopping, and other information.  The British communications industry regulator, Ofcom, determined in 2012 that the average number of domains visited per month by an internet user was 82 in January 2012.

Mergers may be an appropriate way for less viewed sites to gain not only viewership but capital, especially if they have a niche brand that an acquiring firm wants to leverage for growth in market share. Writing off mergers on the false pretense that they stifle a competitive offering of content is the wrong approach. Instead, regulators should view mergers as strategic partnerships that help get little viewed content some more traction.

If net neutrality really has anything to do with treating all traffic equally then regulators should be interested in ensuring that content providers have an organizational structure that can best help a content provider get eyeballs to its traffic.  Just saying traffic should be treated equally does not make traffic worthy of equal treatment by the market.

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Lifeline is about promoting a good society

Today the Federal Communications Commission voted on a notice of proposed rule-making to extend Lifeline services to include access to broadband.  The internet provides modern society an enhanced conduit for sending and receiving messages and data.  This capability allows businesses to provide innovative services on a cost-effective basis and allows consumers an efficient mode for accessing services.

For example, yesterday I met with my new primary care physician.  Not only was I impressed with her personality and knowledge but I was also impressed with how her office uses the internet to manage patient health.  Her patients can get online and register with her information portal in order to review their prescriptions, other medical information, and contact the doctor or her staff with questions.  I can do all this with a laptop and a high-speed internet access connection.

The internet and the high-speed broadband access services that allow us to connect to it provide mechanisms for society to carry out its purpose: to help spread the risks that threaten the abundance of life.  We join societies in order to share resources, maximize our wealth, and increase our security.  Broadband access does that by giving society’s members access to multiple sources of information and data.

Today’s discussion at the FCC unfortunately got hung up on issues such as fraud and waste.  FCC member Mike O’Rielly was correct when he said that today’s vote should have been a five to zero slam dunk but as Chairman Tom Wheeler also noted, it was unfortunate that the issue had become politicized.

If waste and fraud are an issue then the FCC should take consider a couple approaches shared by AT&T’s vice president for external affairs, Jim Cicconi.  In a blog post posted 1 June 2015, Mr. Cicconi  offered the following:

“First, AT&T believes that the government, not carriers, should be responsible for determining Lifeline eligibility and enrollment.  This is the way most federal benefit programs work, and there’s no good reason for handling Lifeline in a radically different way.  Many of the problems associated with Lifeline are rooted in this flawed approach.  Administrative burdens on carriers today are huge, and innocent mistakes can lead to disproportionate punishment—which in turn discourages carrier participation.  And the potential for fraud by less reputable players is very real.  Moreover, consumers are saddled with difficult burdens if they simply want to change carriers.  Government itself should determine eligibility, and can provide the benefit through a debit card approach much like food stamps.  Consumers could then use the benefit for the service of their choice.”

The FCC should keep its eyes on the prize.  It can play an important role in keeping society’s members connected to today’s most important piece of capital, knowledge.  Waste and fraud, albeit important considerations from an operational standpoint should not be a barrier to implementing equitable social policy.

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Should investors be concerned about FCC Lifeline funding policy? No

Posted June 8th, 2015 in Uncategorized by Alton Drew

Back on 28 May 2015, Federal Communications Commission chairman Tom Wheeler announced a policy initiative to target the Lifeline $9.25 per household subsidy toward broadband services for low-income consumers.  Lifeline was established in 1985 during the Reagan Administration and was designed to help low-income consumers maintain telephone services on a monthly basis.  The subsidy is funded via a monthly charged assessed on telephone subscriber phone bills.

Lifeline is not a threat to the typical telephone company’s business model.  If you take a look at AT&T or Verizon’s 10-K filings you will not find mention of Lifeline eating into company profits in any meaningful way.  Instinctively one would think that a program that encourages an increase in wireline or wireless subscribers would be a good thing anyway, especially when that increase is being funded by the vast majority of consumers.

The Commission is slated to discuss Mr. Wheeler’s initiative on 18 June 2015 during their monthly open meeting.