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African American communities shouldn’t wait on the State to close the digital divide

I have to wonder if the broadband digital divide is more a question of the broadband financing management. I believe more could be done with revenues collected by the black church when addressing the digital divide, particularly in the area of ownership of technology and content delivery platforms.

By some estimates, black churches have collected $420 billion in revenues since 1980. That’s close to $12 billion in annual revenues. I know some black churches invest in businesses within their communities; and while a very small fraction of the venture capital community, African Americans are joining the ranks of venture capital firms.

Venture capital likes areas of that offer large returns and for venture capital those areas are primarily technology. Historically when we talk about the digital divide we talk about access to broadband, but I don’t buy into that definition. African Americans are over-indexed on smart phone ownership and use of social media. Where African Americans are not over-indexed on is platform ownership. While on the energy end the argument has been that the capital intensity for building a grid makes it near impossible for minority ownership of electric utilities, the open architecture of the internet chips away at that notion.

And waiting on government is not a wise plan, if you want to call waiting a plan. The Federal Communications Commission is more concerned with underwriting broadband providers via its Connect America Fund versus promoting the deployment of content delivery networks. Private sector initiatives like those taken by Facebook, Google, and Microsoft to build their own global private networks are best for deploying content delivery networks, not only for the delivery of content but to capture and analyze data as well. This is where the money is, in my opinion, for communities of color and where venture capital generated in communities of color should be going.

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How Congress and the FCC can avoid future Section 257 proceedings

On 25 March 2016, the Federal Communications Commission circulated an item regarding a Section 257 market entry barriers proceeding. The purpose of the proceeding is to prepare and distribute a report to Congress detailing regulatory barriers to entry faced by telecommunications and information service providers. The Commission is also expected to promote policies that favor diversity of media voices, vigorous economic competition, and technological advancement.

I think the biggest barrier to information services providers is not a bunch of rules or the Communications Act itself. It is the philosophy behind describing information services; a philosophy that is still silo-based; that separates broadband access providers from websites, information portals, and search engines. All these platforms have the exchange, gathering, repackaging, and sale of data or information in common and it is time that the Commission recognize this basic characteristic of the digital jungle.

The anti-ISP posse will argue that firms like Verizon and AT&T should not be viewed as mere information service providers because they also sell access services; that content providers and consumers rely on these gateways to access information. The anti-ISP posse have a very limited point when they distinguish Verizon or AT&T from other information services based on their access services. The New York Times, an online digital content provider, may be able to hire delivery boys but it won’t shell out billions for deploying networks just to deliver one publication to their subscribers. Paying last mile, mid-mile, or content delivery networks is more economically feasible for them to get their content out. But if we treated the information markets as an exchange, I believe there is an opportunity to create a model that increases opportunities for smaller content providers while getting the Commission and probably Congress out of the business of trying to make the information markets efficient.

Congress and the Commission should explore a blended exchange/independent system operator model for internet service providers. ISPs trade on information. The information markets in this blended model would be coordinated by a “central ISP”, similar to the regional transmission or independent system operators found in the electricity markets. Carriers, such as AT&T or Verizon, would voluntarily turn over functional control of their networks to this central ISP. In order to trade on this central ISP platform, information service providers such as Facebook, Hulu, Amazon, Google, etc., would buy seats on the central ISP’s exchange, similar to a stock market exchange. As a member, the information service provider would have a say in how the exchange is managed. As long as the information service provider has the annual fee to get a seat or membership, they must be allowed to join.

Yes, I hear your next question. “But what about the lone blogger who wants to get his content out there or the start-up information service provider who can’t afford a seat?” My first response would be “value.” ┬áMy second response would be, “tough nookies.”

ISPs are looking for content of great value. Smaller content providers will have to step up their game and demonstrate to ISPs that their content should be added to the ISPs portfolio of video and text goodies. And if a content provider cannot demonstrate this value, then tough. The content provider will have to either find another way to distribute content digitally or accept that the digital content world isn’t ready for her…yet.

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Verizon makes it clear. They are a media company

Verizon’s Craig Silliman published a blog post discussing the appropriate regulatory framework for the application of net neutrality principles. He reiterated the broadband provider’s support for no blocking, no throttling, no paid prioritization, and a general conduct standard for protecting consumers and competition. What I found interesting was Mr. Silliman’s description of Verizon’s media efforts. In Mr. Silliman’s words:

“We have invested billions in businesses that depend on the ability to reach customers over the networks and platforms of others. We invested in digital ad technology through our $4.4 billion purchase of AOL and own content through properties like the Huffington Post, MapQuest, and TechCrunch. We have an expanding presence in the digital media and entertainment space; Verizon Digital Media Services helps content companies deliver their services in digital form to any screen or device, anywhere in the world.”

To me, Verizon sounds more like a content delivery network. A content delivery network is a large distributive system of servers deployed in multiple data centers across the internet. The goal of a CDN is to serve content to end users with high availability and high performance.

Akamai, a company that touts itself as the global leader in content delivery services, might vehemently disagree with me about Verizon being a content delivery network given Verizon’s position as a gatekeeper to end-user customers. End-users don’t use Akamai to get on to the internet. Access is that functionality that pulls Verizon into the Federal Communications Commission’s sandbox.

As Verizon continues to evolve in the media space, however, it increasingly distinguishes itself from T-Mobile and Sprint whose claim to broadband fame is strictly as a mobile broadband access platform.

Although Verizon has expressed its willingness and the importance of complying with net neutrality principles, should those principles intrude into its content delivery operations? If yes, then should content delivery services provided by edge providers like Akamai also fall under the Commission’s transparency principles? Why should Verizon’s content delivery components be treated differently from Akamai’s content delivery services? Verizon’s evolution will force the Commission to address these questions.

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FCC’s set top box policy displays no understanding of markets

On 18 February 2016, the Federal Communications Commission issued a notice of proposed rulemaking that would allow third parties access to a consumer’s cable television set top box (STP) to gather information that could be used to provide competitive viewing services. Specifically, the third party would have access to:

1. Information about what programming is available to the consumer, i.e., channel listing, video-on-demand lineups;

2. Information about what a device is allowed to do with content; and

3. The video programming itself.

The Commission’s rationale for allowing a firm like Google access to these information streams is that with this information, third parties could create services i.e., apps and hardware, to compete with a cable company’s STP.

Will this policy increase demand for content thus driving up prices, revenues, and returns on the capital it takes to create content? No, it won’t. What the Commission’s policy will do is create a shell game for content. It’s not clear whether there will be a change in demand for content and while alternatives for accessing content will increase incrementally, unless the policy entices more consumers to go online, the policy won’t do much for increasing economic activity in the content markets.

In addition to not creating additional demand in the content markets, the Commission ignores the competition that already exists for cable and the movement from STP to apps. Steve Pociask makes this observation in a recent piece for Forbes.com where he argues that:

“Absent the plan, cable competition already exists and its growing”, and that, “the market is currently moving away from STB to apps, but the plan would forever require STBs.”

The Commission’s proposed policy is indicative of an ongoing problem of failing to focus on the primary market that its policy impacts, in this case the content market. Where information is proprietary, the Commission should protect the content owners’ rights. Otherwise, the Commision should advocate policy that promotes content flows.

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Do the markets see an entry problem for new content providers?

On 18 February 2016, the Federal Communications Commission issued a notice of inquiry asking for comments on how regulation can best address reducing barriers to entry to the video content provider market. The Commission believes that cable companies and other multi-channel video programming distributors are in a position to impede the entry of smaller video content providers into the video market. But do video content providers really need the Commission’s help to enter the content provider market? I don’t think so. Rather than going through the twists and turns of a legal argument on whether the Commission has the authority to address the question, why not let the markets determine what content gets offered and accepted by its participants?

Take for example Netflix. Netflix started out as a supplier of rented DVDs distributed via the U.S. mail. While the company still rents out movies in DVD format, it’s its online format that Netflix is best known for today. Consumers now download video content that Netflix has a license to present or can download content produced originally by the online content provider. While its stock has taken a beating over the last twelve months, traders still look at the online video provider as competing ably with the likes of a Comcast or Time Warner’s video product.

From the programming perspective, Netflix produces original content i.e. “House of Cards”, “Orange is the New Black”, and “Marco Polo”, as a hedge, according to Morningstar analyst Neil Macker, against other content programmers that may be holding back their own content from distribution. Netflix, as a result of data captured from its user base, is able to develop or purchase content that suits its viewers’ needs. In other words, Netflix has properly reinvested its capital and other resources to provide a superior content experience as well as built rapidly on an older business model after recognizing and taking advantage of new technology.

Other content providers are going down Netflix’s path. Amazon not only distributes content via the internet but also produces its own content. Hulu is reportedly purchasing original content for distribution as well.

The Commission is running the risk of promising a more open environment for all content imaginable; sending a message that all content is created equally. The Commission is ignoring the fact that there are limited number of distribution channels, whether via cable or over-the-top, and that this natural limit in distributors will create a bottleneck through which only the content deemed attracting the greatest demand will be able to wiggle through. Content that attracts the greatest demand will draw the most see capital investment creating the vicious cycle that smaller entrants will face and the Commission naively assumes it will regulate away.