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The FCC should pay attention to the overall economy

Posted January 21st, 2016 in AT&T, Broadband, capital, economy, Verizon, Wall Street and tagged , , , , by Alton Drew

Yesterday at the World Economic Forum in Davos, Switzerland, AT&T chief executive officer Randall Stephenson shared with The Wall Street Journal his opinion on economic growth. Mr. Stephenson shared that he is not optimistic about growth in the economy. Expected growth of two percent is unacceptable, according to Mr. Stephenson. Tax policy changes are needed but there is no expectation that there will be any fiscal action this year.  Without fiscal action there is the potential of more downside than upside.

Mr. Stephenson added that lower oil prices were expected to lead to increased consumer spending but that has not panned out because consumers have been price conscious about mobile services. Discounts as  little as ten dollars could prompt a consumer to change mobile carriers.

There has been little if any evidence that the Federal Communications Commission is taking into account the state of the economy and its impact on consumer demand for broadband services. In comments before the Brookings Institution, FCC chairman Tom Wheeler argued that the success of broadband services leads to increases in demand for broadband which increases the incentive for competitive broadband.

Mr. Wheeler might not buy AT&T’s argument that lack of national economic growth is constraining carriers like AT&T. Mr. Wheeler believes that 75% of AT&T’s network will be controlled software by 2020. The replacement of hard physical switching systems by software is expected to reduce Verizon’s real estate costs by 80%, according to Mr. Wheeler. Powering a few computers can save up to 60% of energy costs versus endless hard switches, according to Mr. Wheeler. As the cost of delivering broadband goes down, says Mr. Wheeler, the opportunities for innovation increase. “This means we’re not going to let imaginary concerns about investment incentives and utility regulation cause us to let up on policies to encourage fast, fair, and open broadband.”

If the concerns are imaginary then maybe equity analysts are sleep deprived. We shared in a 28 December 2015 post that analysts believed that the wireless industry participated in a competitive market. The large wireless service companies are subject to pricing squeezes brought on by smaller entrants, analysts found, and extremely high prices for spectrum were further compounding pricing squeezes.

The reality of market concerns are further highlighted when one considers how much the information sector impacts gross domestic product. According to the U.S. Bureau of Economic Analysis, the information services portion of the economy has been playing an increasing role over the last three years. Information represented 9.3% of gross domestic product in 2013. By 2014 this percentage increased to 9.5%. At the end of the third quarter in 2015 the percentage has climbed to 9.6%.

Given Wall Street’s assessment of wireless markets and the impact information services plays on the overall economy, the FCC should look beyond the switch to software-based communications infrastructure when ascertaining the competitiveness.

 

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FCC measures quality of the broadband market

Posted January 6th, 2016 in Broadband, Federal Communications Commission and tagged , by Alton Drew

Last week the Federal Communications Commission released a report that measured the quality of broadband services offered in the broadband access market. It’s overall assessment was that the market offered significant growth in broadband speeds although growth was not uniform across all platforms, i.e. digital subscriber line (DSL), data over cable service interface specification (DOCSIS), satellite, fiber.  The disparity is such that DOCSIS and fiber are leaving DSL in the dust. Also, actual download speeds were either close to or exceeding advertised speeds in most cases.

Fortunately, neither the report or individual commissioners discussed tinkering with the market for broadband access based on these findings. The telecommunications sector has been up just over one percent over the past 12 months, according to The New York Times. Other than encouraging technology improvements in DSL or asking telecoms to come up with incentives that encourage subscribers to move from DSL to fiber or some other platform, there appears to be nothing else the Commission can do.

Nor should the Commission be increasingly engaged. A politicizing of investment priorities isn’t necessary when competitors such as cable are offering consumers greater download speeds as a result of deploying a superior DOCSIS platform and making the choice on their own to deploy this platform.

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The FCC’s net neutrality hole

Posted January 4th, 2016 in net neutrality and tagged , by Alton Drew

As a regulatory agency it’s impossible for the Federal Communications Commission to avoid political discourse. When the likes of John Oliver goes about explaining net neutrality to the public (and getting it wrong in the process), the result is four million American consumers applying political pressure on the Commission to ensure that the agency preserve the democratic spirit of the internet; that each piece of content stand equally shoulder to shoulder no matter who produces the content or whether the content reaches one million people or one hundred. When it comes to the economics of the internet then network management be damned.

But for all its rhetoric on equality of access, the Commission appears to have dug a hole into which to throw economically disadvantaged consumers. As Mark Jamison argues in this piece for TechPolicyDaily.com, net neutrality has a negative impact on low income consumers who may not be accessing online content because of the cost of purchasing broadband. Net neutrality hurts the poor by:

1. Prohibiting pricing plans that help the poor pay for what they can afford;

2. Imposing injunctions on the free delivery of some content or zero-pricing; and

3. Prohibiting access to net work features such as fast lanes by fledgling firms.

If the Commission is serious about furthering the closure of the digital divide then it should not allow a delusional argument that all traffic should be treated equally to stop access by the poor to some online content for free. Supporting an erroneous political position as advocated by net neutrality proponents forces the Commission to take a public policy position that is adverse not only to its stated goals but to the poor.