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Pai challenges the notion of government providing a free, open internet

Federal Communications Commission chairman Ajit Pai today laid out his vision for removing broadband access from under Title II regulations imposed in 2015 by a 3-2 Democratic majority on the Commission.  Two decades prior to the Commission’s net neutrality order that imposed Title II regulations, the internet was already free and open. Companies such as Google, Facebook, and Netflix came into being under a non-Title II regime. Title II was an archaic regulation designed in the 1930s for plain old telephone services.

Title II boiled down to a solution in search of a problem, Mr Pai further argued. Rather than energizing a demoralized Democratic Party base licking its wounds from the butt hurt of the 2014 mid term elections, Former president Barack Obama and the rest of his Title II proponents wound up disincentiving $5.1 billion in capital investment and dissuaded companies to not hire or lay off 75,000 to 100,000 laborers.

What particularly caught my attention in Mr Pai’s remarks was his highlighting the belief that Title II proponents have about government and freedom, namely that government was going to guarantee freedom on the internet. A close read of the American Constitution tells you that its framers were concerned about the natural propensity of government to squash freedom. This is why the document put in place checks and balances against attempts to usurp power over individuals. Net neutrality opponents and members in Congress who support continued imposition of the rules confuse “rights” with “freedom.” The rights issued by government are permission slips that say “a person can be, but only up to the limits we allow them to be” versus freedom which is innate.

This is not to say that freedom doesn’t have its limits. You can’t just violate another person’s spectrum without facing the consequences that result from moving into another person’s space. But how those consequences are managed should be left up to the individuals or in the case of broadband, the broadband access providers and their customers. Allow customers and access providers to define the limits, terms, and consequences of their relationship, including price and type of service. In the 21st century, this type of strategic partnership between customer and access provider is very possible.

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Minorities should seek a bigger slice of new media pie

The digital divide argument, that there is a disparity between non-whites and whites when it comes to broadband access, is losing its mojo for me. While broadband access for minority households via hard line may fall behind that of white households, since the mid 2000s, access via mobile wireless devices by minorities has been on par or exceeded that of whites. Stroll into the Starbucks near I-285 and Cascade Road and see every Black American patron connecting their lap tops to WiFi while checking messages on their smart phones. Even our kids have at least two wireless devices and we parents brace ourselves annually for our teenager’s request for the latest phone even when the one they currently own is still pristine.

Plenty of politicians and civil rights groups have been pushing for greater access to high speed broadband, making the argument that more broadband facilities should be deployed in communities of color especially since Black Americans and Latinos have been spearheading the “cut the cord” movement and going 100% wireless over the past 15 years or so. Minority leadership is demonstrating, however, that it has not been paying attention to changes in business models that would provide entrepreneurs in communities of color exposure to more lucrative opportunities versus following the same consumption of end-use product model that has been plaguing communities of color for decades.

Broadband access providers such as AT&T, Comcast, and Verizon are leveraging their customer data in order to attract advertising dollars. Verizon’s recent disclosure that it lost 307,000 subscribers in the first quarter of 2017 in part due to competition from Sprint and T-Mobile has some analysts on Wall Street wondering if Verizon is up for merger. Bloomberg has reported that the wireless company has considered Comcast, Walt Disney, or CBS for corporate marriage.  Ironically the aforementioned companies are content providers who could probably do well leveraging Verizon’s wireless infrastructure to get content out including use of the company’s spectrum.

While Black Americans and Latinos are, unfortunately, known primarily for providing entertainment content, both communities should consider exploring creating and investing in content storage and content delivery systems. Constructing these facilities in neighborhoods with large numbers of Blacks or Latinos means access to short term and long term employment. High tech labor will be needed to design, construct, and operate server farms and other facilities that result from the decision to do more than buy another cell phone or activate some unlit fiber from the old MCI days.

This is an opportunity for a young Black or Latino entrepreneur or engineer to break from the herd mentality and not wait for permission from the Jesse Jackson posse on whether or not it should be done. One would think that the old heads from the civil rights movement would have the capital or access to capital that would assist outside-the-box minority entrepreneurs in getting capital, but since these leaders have not demonstrated that they even understand the emerging business models in communications, this may be a closed avenue.

In the end, the minority entrepreneur should be prepared to abandon the collective mindset that has communities of color thinking only about the next smartphone and form new, smaller, leaner, profit seeking collectives that generate ideas of value and use these ideas to create their own data and media companies.

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I don’t see how the FCC set top box policy adds value to content

On 27 October 2016 the Federal Communications Commission will take up the issue of competition in the navigation device or set top box space. The Commission wants to see the video content distribution industry move from requiring subscribers use of set top boxes to the use of free apps to find content. The main driver of the proposed policy, according to the Commission, is subscriber avoidance of onerous set top box fees that allegedly average $231 a year. With today’s app and internet technology, argues the Commission, subscribers should be able to find content without paying navigation device fees.

The process for getting to a decision is driving some content developers bonkers.  According to a report in Broadcasting & Cable, some content developers are concerned about the proposal’s lack of transparency and whether the Commission will play an intrusive oversight role in contracts between content distributors and content programmers.  Contracts lay out terms for compensation and channel placement, items I would think that the Commission should not really be interested in. Rather, the Commission should be interested in whether the telecommunications sector is bringing value to the overall economy. While content creation is ancillary to the sector, without information, data, or knowledge flowing over networks, the network itself loses value.

From the content programmer’s perspective, while concerned with carving out a niche in a competitive content space, the content developer, where he can seize the opportunity, wants to recover as much of a premium as he can from his product. That means cashing in on as much exclusivity as he can. He will do this in two ways. One, produce content that generates traction. Two, make sure that given the traction, he makes the content as exclusive as possible so that he can extract higher rents. Free apps do not meet either of these conditions. Free apps providing you navigation to licensed and unlicensed content eliminates exclusivity. Content competition is increased which drives down the prices content programmers can charge. This leads to lower returns on capital. If returns on capital are seen as too low, no investment is made, no infrastructure deployed, no workers hired.

All this to save $231 a year.

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FCC does not recognize the value cable creates for content

Recently the Federal Communications Commission released a plan for increasing the number of ways consumers can navigate video content. The Commission wants cable companies to provide pay television subscribers with a free app that allows the subscriber to access their video content. The Commission believes that at an annual amount of approximately $231 for set top boxes, households are getting hosed and that additional choice is needed in order to reduce this financial burden.

The Commission appears to be ignoring the capital side of set top box equation. No where in his plan does Commission chairman acknowledge the billions cable companies spend on obtaining licensing to programming or creating their own content.  To extract value from this content, cable companies charge consumers a positive premium for using platforms necessary for accessing the content including set top boxes. The Commission is blatantly circumventing the ability of cable companies to extract the value of the content by requiring that cable companies provide consumers with apps that allow the consumer to avoid monthly fees altogether.

The Commission believes it is correcting some type of market failure by providing consumers access to content at a reduced cost, but by interfering with a market transaction, the Commission is creating an environment that sends a false signal to content providers and navigation technology providers. Device makers may think twice about investing resources into developing hardware where the use of free apps freezes the hardware provider out of the market. Small, non-cable affiliated app developers may have second thoughts as well, especially going up against deeper pocketed cable companies or internet portal companies such as Google who can leverage its advertising revenue to provide video navigation apps for free.

In addition, with the requirement that cable companies provide free apps and the expectation that established internet portals will enter the video navigation application market, smaller entrepreneurs will have a harder time accessing capital as investors view their business model as a source of lower returns.

Sending skewed market signals and reducing small app developer access to capital doesn’t make for good video marketplace policy.

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One end game for broadband adoption: digital currency

The message for broadband adoption is incomplete because there is nary any mention of how adopting broadband aids capital accumulation or deployment for the consumer. I talked last week about how the only thing that slowed down capital expenditure by broadband providers is an economic slowdown. But what inroads on the consumer side should we see at the intersection of capital and broadband?

One intersection I find appealing is digital currency.  Digital currency allows users to exchange online credits for goods and services. Digital currency exchange may involve the use of a mobile app or can be conducted from a computer. With the use of a digital wallet, digital currency can be sent to or received by a consumer.

Transactions are made with no middlemen. International transactions are cheap and are currently not subject to regulation although governments are concerned about taxation and the lack of control over the currency. These concerns conflict directly with the philosophy underlying the development of digital currency; to take power out of the hands of the government and central bankers, a philosophy I believe that is much in keeping with the freedom and openness of the internet. With talk of central banks considering the issuance of digital currency, I’m concerned that the speed and freedom of transactions stemming from the use of digital currency like Bitcoin would be lost.

Digital or more accurately cryptocurrencies offer an alternative medium of exchange especially for communities underserved by traditional mediums of capital exchange. With a computer a consumer could “mine” her own currency, enter into markets where it is accepted and purchase goods and services in those markets. As more goods and services are purchased in digital exchanges with digital currency, not only will the value of the digital currency increase but so to will the value of the broadband networks that sustain these exchanges. More consumers would have incentive to get on board with broadband as broadband and digital currencies combine to give consumers increased access to local, regional, national, and global markets.