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Virgin Islands senator raises concern about power outages and communications

Posted December 29th, 2015 in Broadband, cable company, economy, U.S. Virgin Islands by Alton Drew

The following is a press release from U.S. Virgin Islands senator Tregenza Roach regarding recent power outages in the U.S. Virgin Islands and the impact on subscribers with bundled internet, cable, and telephone services:

TAR# 80-2015

Senator Roach is Concerned with Loss of Communication Services during Blackout

Senator Tregenza A. Roach, Esq. says the recent power outage which left St. Thomas, St. John, and Water Island without power for several hours has revived his concern that residents who rely on one connection for telephone service, Internet services, and cable television will be left without access even to emergency services in the event of an extensive, long-lasting outage.

Senator Roach said he has raised the concern with both Innovative and the Public Services Commission (PSC) on previous occasions, and that these entities have both responded with assurances connected to the use of a back-up battery which should ensure connectivity for several hours of an outage.

But clearly Tuesday’s outage which left many residents without telephone, Internet and cable services proves otherwise, Senator Roach, said. To compound the problem, the Senator observed that the situation also extends to the Territory’s business community, as all card transactions which require a telephone phone line are also affected. The same applies to ATM transactions as well.

At the least, the telephone company should be required to provide each of its landline households a low-cost cell phone which can be used only in the event of an emergency. Certainly our residents are worth such an investment, Senator Roach said.

“This is huge,” Senator Roach said, “It can cripple the Territory just like that.” Roach said he will bring his concerns to the PSC again and believe that VITEMA, the Virgin Islands Territorial Emergency Management Agency, should also have the concern about the inability of residents to communicate in the event of another outage, a hurricane, or other type of emergency.

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Is the FCC signaling political risk by not declaring wireless competitive?

Posted December 28th, 2015 in capital, Federal Communications Commission, wireless communications by Alton Drew

On 23 December 2015, the Federal Communications Commission issued a report analyzing the competitive environment of the wireless broadband market. Although the Commission found that 90% of American households have access to at least four wireless providers, the Commission failed to find that the market for wireless broadband access was effectively competitive.  The Commission’s failure to make a finding on whether the market is effectively competitive should raise some concern among investors about how far the Commission could go in creating a competitive marketplace in its own image.

For example, how restrictive would future auctions for spectrum be for incumbents should the Commission pursue policies that restrict rights by incumbents to bid on certain bands or portions of spectrum. Such restrictions may impact decisions to invest in additional base stations and other infrastructure used to deliver wireless calls. As the Commission’s report pointed out, the amount of investment a carrier makes in its network is a drawing card for subscribers.

In a report on Verizon, Morningstar strategist Michael Hodel cited concerns about the overall growth of the wireless market finding that the market for wireless services was a competitive one.[1] Pricing power of the incumbents was being squeezed by increased competition. Among analysts specific concerns was the price of spectrum:

“One of the biggest detriments to the competitive position, in our view, is U.S. spectrum policy. The AWS-3 spectrum auction demonstrates the extremely high prices spectrum can fetch given that the U.S. government ultimately determines how and when additional spectrum is made available to the industry.”

Mr. Hodel went on to say that spectrum purchases at high prices would constrain future returns on invested capital, returns that would modestly exceed the cost of capital.

If the Commission wants to see the wireless industry remain attractive to capital, a spectrum policy that creates lower prices for obtaining spectrum is a start. Unfortunately, the Commission failed to make that clear in this report.

1. Hodel, Michael. “We expect Verizon’s scale advantage will overcome a choppy wireless competitive environment.” Morningstar.


Will the FCC be naughty or nice when it comes to sponsored data

The Federal Communications Commission wants to determine if broadband access providers such as T-Mobile, AT&T, and Comcast, are complying with the Commission’s net neutrality rules. A report in Reuters stated the following:

“As you may be aware, concerns have been expressed about these programs, for example, some have argued that sponsored data unfairly advantages incumbent content providers,” the letter to AT&T said. “We want to ensure that we have all the facts to understand how these services relate to the commission’s goal of maintaining a free and open Internet while incentivizing innovation and investment from all sources.”

FCC Chairman Tom Wheeler hasn’t posted any official statements on the Commission’s request for a January 15, 2016 meeting with AT&T, Comcast, or T-Mobile. Nor are there any docketed items addressing the matter of sponsored programs or other initiatives that allow consumers to use streaming or other data services while avoiding the application of this usage toward their data plans.

The Commission’s net neutrality rules do not speak specifically to a “1-800-number” approach to providing broadband access. The section of the rule that comes closest to addressing the concerns that sponsored data unfairly advantages incumbent broadband access providers is section 47 CFR 8.11.  This section reads:

“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.”

A broadband access provider interfering with an end-user’s ability to select or access a competitor’s broadband access service or lawful content is not at issue here. Edge providers are arguing that they won’t be able to get their content in front of consumer eyeballs if larger content providers can leverage their content by offering it at a discount when they decide not to apply the data used against a data plan cap.

We can’t say whether there is a definitive political risk to the telecommunications sector since the Commission has yet to take any formal action. The “sit down” with broadband access providers is not for another three weeks and speculation at this point would be built on shaky ground.

Additional regulation of special access devalues invested capital

Larry Downes, senior research fellow at the Georgetown Center for Business and Public Policy, wrote a paper describing how additional regulation of the special access market may have a negative impact on continued innovation. I agree that the added uncertainty stemming from the Federal Communications Commission’s regulation of the special access market would make firms think a little longer about upgrading facilities. I don’t see why it’s necessary for the Commission to favor competitive local exchange carriers a quarter of a century after they started posing a threat to incumbent local exchange companies. Just the very distinction between CLEC and ILEC seems a bit anachronistic. In the 21st century Comcast and Verizon are competing on the same playing field. I don’t see why the Commission needs to go back to the 1990s.

In addition, such a regulatory tack back to the past should make investors shudder. Additional regulation creates a heightened risk that discounts the capital put into the enterprise communications services market. That’s business geek for special access. Increased competition from CLECs not only increases the supply of special access providers but drives down prices and revenues for incumbents. According to Mr. Downes in the 1980s incumbents controlled over 90% of the special access market. Now that control is down to 40%. A decrease in expected revenues serves to reduce the value of capital invested. Investors may take their capital elsewhere.  CLECs and ILECs alike may find themselves competing for capital in addition to enterprise customers. Markets are already uneasy about expected increases in borrowing rates. Declining revenues brought on in part by regulatory policy that favors some special access players over another does not help.

So far the bulk of the comments by Commission members on the special access proceeding has been on the necessity for data collection that gives an accurate view of the special access markets. Given the Commission’s issuance of Title II rules for net neutrality, I expect that the Commission will continue down the path of more regulation in the special access markets as well.

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The markets don’t tell me that net neutrality rules are working

Posted December 9th, 2015 in Broadband, Federal Communications Commission, net neutrality and tagged , by Alton Drew

The telecommunications services sector is in the red, and has been in the red for the past year. If net neutrality was such an enabler of the virtuous innovation cycle as Federal Communications Commission chairman Tom Wheeler is fond of mentioning, then the concept gets an “F.”  The market value of the telecommunications sector is down 4.14%, according to The New York Times. Within the sector, the integrated telecommunications services industry (companies that provide telecom services minus wireless) has seen market value fall 5.05% over the last year.  The wireless industry didn’t fare that badly, falling 2.09% over the same period.

The irony regarding the Commission’s application of Title II/net neutrality regulation is that it assumes that the sector’s broadband operators are monopolist deserving of utility type regulation in order to protect consumers and grow competition.  On the contrary. Investors in the sector, while historically viewing the sector as a hedge during the valley of a business cycle, are wary of the sectors performance as companies face an increasing amount of competition. Title II/net neutrality policy doesn’t appear helpful to a sector that sees declining pricing power as consumers seek out better pricing plans; falling profits that come along with decreasing pricing power; rising expenses as broadband providers spend more to upgrade their networks; and heavy debt loads, given its position as having the highest debt-to-equity ratio of any non-financial sector, according to an analysis by Charles Schwab. With the Federal Reserve expected to increase rates next week, credit markets may get even tighter for the telecom sector.

If the Commission is really concerned about a robust, competitive telecom sector, Title II/net neutrality public policy is not where you start.