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.

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What FCC approval of AT&T-DirecTV means for bond investors?

Posted July 25th, 2015 in AT&T and tagged , by Alton Drew

We saw a big regulatory event last week when the Federal Communications Commission approved DirecTV’s request to transfer its spectrum licenses to AT&T, clearing the path to AT&T’s acquisition of the satellite service provider.  For debt holders their concern may be how does approval impact yields on the bonds that they hold.

Consolidation in the telecommunications industry may cause event risks to run high where that risks is an increase in the debt burden of the company doing the acquiring.[1]  The telecom industry is plagued right now with declining consumer spending, falling profits, rising expenses, and heavy debt loads.[2]

AT&T will assume $18 billion of DirecTV’s debt.[3] In light of the impact on debt consolidation may have in the telecommunications industry, investors may be happy with the FCC’s decision because of the increase in earnings AT&T is expected to enjoy as a result of enhanced video offerings and reduced programming costs. [4]

1. Harper, David. “Corporate Bonds: An Introduction to Credit Risk.” Investopedia. http://www.investopedia.com/articles/03/110503.asp

2. Sorensen, Brad. “Telecommunications Sector Rating: Underperform.” Charles Schwab. 11 June 2015.  http://www.schwab.com/public/schwab/nn/articles/Telecommunications-sector

3. Lindenberger, Michael A. and Gary Jacobson. “FCC Approves AT&T Merger with DirecTV, with Conditions.” Dallas Morning News. 24 July 2015. http://www.dallasnews.com/business/technology/headlines/20150724-fcc-approves-att-merger-with-directv-with-conditions1.ece

4. Zack’s Equity Research. “AT&T (T) Q2 Earnings Beat as Wireless Subscribers Increase.” 24 July 2015. http://www.zacks.com/stock/news/183161/atampt-t-q2-earnings-beat-as-wireless-subscribers-increase

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Today’s data markets require data that brings value

Today’s data markets require that there be valuable data to trade but the Federal Communications Commission doesn’t quite see it that way.  Last week the Commission voted to accept a report that concludes that 17% of the American population or approximately 55 million people, do not have access to advanced broadband.  The Commission’s determination is based on new speed standards based on the speeds that approximately 70% of broadband customers are purchasing today.

From my view of the world here in Atlanta I can’t say that the Commission has much of a case when it argues that there is no choice among competing broadband providers even when you take income into account.  Here in the West End where median income in the 30310 area code is approximately $24,606, we have seven wireline and wireless providers of internet access.  They are Comcast (100 Mbps to 1 Gbps); AT&T (10 Mbps to 25 Mbps); Verizon (10 Mbps to 25 Mbps); T-Mobile (10 Mbps to 25 Mbps); Platinum Equity (6 Mbps to 10 Mbps); Sprint Nextel (6 Mbps to 10 Mbps); and MetroPCS (768 kbps to 1.5 Mbps).

The 30331 area code has a median income of $36,349 and the same choices in internet access carriers, with the only difference being the decrease in speed provided by Platinum Equity (3Mbps to 6 Mbps).

Our more affluent neoghbors to the north in Buckhead enjoy median incomes of $65,642.  Sprint is not available as a service choice for the residents of Buckhead, but no worries.  Platinum Equity provides service speeds of 25 Mbps to 50 Mbps while Level 3 provides 1 Gbps speeds.

You can see these speeds yourself using a nifty broadband-by-zip code calculator provided by the National Broadband Plan Map.

Not to completely dis my neighborhood but the West End is not the epicenter of finance and industry.  While we have a couple grocery stores, a community and arts center, too many churches, a middle school, and a few banks, we are not generating the income that puts us on the list of high value data providers, not at an income of $24,606.  You find that action up in Buckhead.  There are enough banks, law firms, and high tech firms for you yto throw a cat at.  These are the sources of high value data.

Three of the Commission’s members would no doubt nake the argument that with higher speed broadband, the high value data economic activity I allude to would exist in the West End or even Camp Creek.  I would argue with them.  The SnapChats of the world are being bought and sold for billions while only having a staff no larger than the numerous fast food joints that pepper the West End.  These firms are not generating high value data that is made available for trade via data markets that consumers and producers access via broadband links.  The data comes from high income consumers who may not be necessarily employed in tech.

No. Raising speed standards out of sense of duty to equate everyone with everyone is not the approach our progressive friends on the Commission should be taken in order to promote broadband deployment.  Also, trying to preempt state law in order to encourage the deployment of municipal broadband is not the answer especially in neighborhoods like mine.  Half of us simply can’t afford broadband.

Links to the internet should grow organically with broadband providers meeting demand for their services when consumers signal they are ready to purchase them.  We will need to see a turnaround in economic development and incomes to see the broadband speed equality that progressives on the Commission desire.




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The FCC shouldn’t risk creating market failure by issuing a blanket ban on prioritization

In a letter filed yesterday with the Federal Communications Commission, broadband access provider AT&T made an argument for promoting user-directed prioritization of internet traffic.  AT&T wants to ensure that the Commission does not lump user directed prioritization together with paid prioritization agreements entered into between a content producer and a broadband provider.  The narrative has been that paid prioritization, where a content producer pays for faster throughput via a digital high volume lane, discriminates against other content providers who may not have the scale or capital to leverage in return for an express lane.  AT&T is basically saying, if you aren’t going to cut the big content producers some net neutrality slack, at least let end-users determine which traffic they would like coming their way at a faster speed.

AT&T does provide an internet traffic management service for its enterprise customers.  AT&T Managed Internet Service allows business customers to prioritize certain internet traffic.  Business customers designate certain performance sensitive traffic for special handling in the event of network congestion.

So, if a medical office places greater value on receiving data on whether a patient is taking their medication versus whether the mailroom boy gets his favorite Felix the Cat video, the patient data will take higher priority.

What this service implies from a consumer welfare perspective is that certain consumers of content transmitted over the internet have made determinations about the value or quality of information they choose to consume.  In the example of the medical office, they know what content is important to them.  They, through trial and error and search experience have eliminated some amount of information asymmetry and choose to enhance the value of time spent consuming data by receiving the most important information first.

This may also be the case in publishing.  When I wrote for a trade magazine back in 1999, we subscribed to a rich data base of media information online.  That data base took precedent over other sources of information. Through experience we had made a determination on the quality of data.

From an efficiency and market failure view, end-user directed prioritization makes sense.  It would be good if broadband access providers could create and market similar services to non-enterprise consumers who, in the new emerging world of quasi a la carte content viewing may also want to prioritize HBO or CBS’ video traffic over other content.  Consumers won’t see this benefit if the Commission issues a blanket ban on prioritization.

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No response to Wheeler’s response on wireless

There was no appreciable response to Federal Communications Commission chairman Tom Wheeler’s comments at the CTIA show in Las Vegas mentioning that the FCC may reconsider the distinction between fixed broadband and wireless broadband as it draws closer to issuing new rules on net neutrality or the Open Internet.

The goal of the Open Internet proceedings “is to establish rules of the road for Internet openness that will provide certainty in the market place and facilitate the continuation of the virtuous cycle of investment and innovation”, Mr. Wheeler said.

Consumers are increasingly relying on mobile broadband, noted the chairman, and acknowledged the wireless industry’s position that mobile broadband carriers face constraints that their fixed broadband cousins do not.

AT&T(T:NYSE); Sprint (S: NYSE); and Verizon (VZ: NYSE) saw their share values fall today but it wasn’t clear from media headlines whether the fall was in response to the possibility that fixed and mobile may be treated the same under net neutrality rules or his policy of challenging wireless broadband company mergers such as the attempted AT&T-T-Mobile combination or the more recent attempt by Sprint to acquire T-Mobile.