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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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To get the best out of broadband, be extraverted

Posted March 14th, 2014 in Broadband, economy, employment, entrepreneurship, social network, urban and tagged , , , , by Alton Drew

Yesterday I met with my old friend Phyllis for lunch.  We met at Florida State and would meet at 5:30 in the mornings a couple times a week to play racquetball.  I think in 21 years I’ve only won two games against her.  In addition to friendship, as business people and lawyers, it’s also good to trade information and knowledge that may benefit both of us or someone we may know who is in need of help.

Yesterday’s lunch also helped me to put this article in to some better context.  Mashable.com’s Samantha Murphy Kelly wrote an article recently about who she describes as the world’s most connected man.  The subject of the article, Chris Dancy, reportedly has from 300 to 700 systems running at any given time, systems that constantly provide him with real time data.  The data gives him feedback on how well he’s sleeping, his fitness levels, etc. According to Mr. Dancy, ”I’m much more aware of how I respond to life and take steps to adjust to my environment. I’ve also formed better habits thanks to the feedback I’m getting.”

Wireless devices, mobile-ready websites, and consumer demand for data combine to create a bundle of personal information that either we use, as Mr. Dancy does, to determine where we are at and how well we are doing in order to get there.  We are creating and connecting to our digital mirrors, mirrors, ironically, that reflect a lot about ourselves to other people which raises privacy concerns.  I wonder, however, if we are using wireless broadband to meaningfully connect with others who may be able to share knowledge and information leading to economic opportunities?

Networking maybe an overused word.  I prefer connections, but focus on the concept is more important.  For minorities entering the labor market, skills may not be enough as Nancy DiTomaso pointed out in May 2013 in a piece for The New York Times.  Inclusion versus exclusion may be the problem for blacks and other minorities seeking higher-wage opportunities.  People tend to share information about jobs with their family and friends so if you are shut out of a network based on skin color the search for work becomes harder.

Is broadband a panacea, a quick fix?  No, it is not, but it provides access to other platforms that provide alternatives to the human social networks that minorities are shut out off.  Broadband access is also fundamental to creating independent social networks through which minorities can share information on job and entrepreneurial opportunities.

It’s time to divert that feedback loop of information we have on ourselves and use broadband to share it with the right people and develop strong connections.

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Georgia PSC five dollar fee for Lifeline impacts Georgia’s black citizens

There are a lot of “brothers and sisters” living here in Georgia, and the Georgia Public Service Commission rule imposing a five dollar monthly fee on recipients of free cell phones through the Lifeline program could have a disproportionate impact on blacks in Georgia, particularly as internet access and broadband adoption are concerned.

According to data from the U.S. Census Bureau, 31.2% of Georgia’s residents are black, more than double the percentage of all Americans.  Nationwide, 80% of black adults use the internet, according to a report issued yesterday by the Pew Research Council.  This compares with 87% of white adults that travel the information superhighway.

The gap is wider when you compare broadband adoption at home between blacks and whites.  Sixty-two percent of black adults have broadband internet access at home versus 74% of white adults, according to Pew.

The picture levels somewhat when considering wireless access to broadband internet.  According to Pew’s findings, 92% of blacks and 90% of whites own cell phones.  Ironically in households where income is under $30,000, 90% of black adults own a cell phone while 82% of adult whites in these households own a cell phone.  Black adults edge out white adults in smart phone ownership, with 56% of black adults owning a smart phone compared to 53% of white adults.  In addition, 10% of black adults indicate that while they have no broadband connection at home, they connect to the internet via their smart phones.

According to data from the Kaiser Foundation, 35% of blacks nationwide live in poverty.  In Georgia, that percentage rate is 33%.  In its federal lawsuit seeking to overturn the Georgia PSC’s rule, the CTIA cited a position taking by the Federal Communications Commission on imposing a minimum fee on Georgia Lifeline recipients:

“The FCC found that a minimum charge could potentially discourage consumers from enrolling in the program and could result in current Lifeline subscribers leaving the program.”

If we assume a close relationship between national data on adoption of broadband and internet access by blacks with Georgia’s black residents, a minimum charge would have a negative impact on broadband adoption and continued internet access by blacks in Georgia.  This means reduced access to mobile wireless health services and employment opportunities for a significant portion of Georgia’s black population.

In an economy that is not yet fully employing its labor resources, reducing access to broadband by continuing to impose this fee would be devastating to blacks.

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Broadband helps disrupt the information markets

This morning I’m listening to a segment on C-SPAN’s Washington Journal where Greg Ip, U.S. economics editor for The Economist, is discussing whether the economy is growing.  A caller to the show, a former car salesman, raised the point that thirty years ago when a person went to a car dealer to buy a car, the dealer had very little competition when it came to information on pricing.  The caller pointed out that today’s consumer can access the Internet to obtain information on car prices and remove the car dealer as a bottleneck to information.

I had to agree with the caller.  I bought my first car back in 1985, admittedly on a whim.  You could do that back then.  All you needed was proof of a college degree and a bank account.  If I wanted to verify the price the dealer was offering, I could have referred to a Kelley Bluebook to check what the dealer was offering, but like I said, I bought on a whim.  Today, not only can I go online to the Kelley Bluebook website, I can review car ads online; go to Craig’s List, or shop the websites of multiple car dealers in the vicinity.

Broadband addresses what we wonks refer to as information asymmetry.  Markets fail where there is a lack of sufficient information held on both sides of the market such that an optimal outcome is realized.  Where a delaer may have enjoyed a 20 or 30 percent mark up on a vehicle’s price, the increase in available information may force that mark up significantly lower with savings passed on to the consumer in the form of lower prices; all because the consumer was able to walk onto the lot with additional info literally in the palm of their hands via a smartphone.

This disruption brought about by additional information means a disruption in other markets as well.  Prices paid to labor falls because prices and revenues fall as the result of consumers being better informed.  As prices on vehicles fall, the financial markets are forced to offer lower rates on loanable funds because the consumer is no longer cornered into an overly priced purchase.  They can exercise other options.

Broadband’s disruption of the information markets is great for consumer welfare.

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Broadband connectivity and productivity go hand in hand

The following excerpt from a U.S. Telecom research brief released in March 2013 provides substance to the argument that broadband plays an important role in the future expansion of the American economy.

“Broadband networks are critical enablers of productivity and growth enhancing innovation. As noted above, Marshall Poe describes the attributes of five historical communications media: speech, writing, print, audio-visual, and the Internet.

Among these, he identifies the Internet as especially powerful in generating economic activity, spillover effects, and novelty,another word for innovation. Steven Johnson, in “Where Good Ideas Come From,” offers an even
broader perspective on the role of what he calls “dense liquid networks” in the innovative process, from the formation of the first life forms in the so-called “primordial soup,” to the biodiversity of coral reefs, to the generation of novel ideas through neural networks, to the flourishing of civilization when humans settled in cities. Johnson argues—paraphrasing—that dense liquid networks enable increasingly large numbers of innovative agents to come into contact with one another, colliding and sharing ideas, rethinking and building on existing ideas, and exploring new combinations and possibilities. 

Broadband networks are the essential fluid medium through which today’s information-based
innovative processes occur. Extensive broadband networks connect and make possible
interactions among individuals, businesses, academics, governments, connected computers and
other things, and the information generated by all of these. Broadband networks are an essential
enabler of the creation and diffusion of new ideas across the modern information-based
economy.

In the specific context of data-based innovation, promising technologies such as cloud
computing, RFID-enhanced logistics, smart electrical grids, electronic health records, social
media applications, and big data analytics all thrive in this context. Through the broadband
medium, applications are able to gather, process, and analyze information, and distribute useful
insights, products, and services. Such applications require the transmission of large and growing
volumes of data, to and from widely distributed network nodes, and increasingly in real-time.

Thus, continuous innovation and investment in broadband networks themselves will be necessary
to accommodate ever growing demand and to realize the potential productivity benefits so
essential to economic growth. Competitive investment by the private sector has generated
widespread benefits, bringing broadband to the vast majority of the country and accommodating
usage that grew by a factor of approximately 4,000 from 1996 to 2010. Providers have invested over a trillion dollars in the last decade and a half to provide the essential capacity, quality of service, and application-based innovations needed to accommodate ever increasing network demand from users at the so-called “edge.” 
Policy must now aim to encourage the maximum levels of continuing investment by broadband
providers and the widespread adoption, by consumers and enterprises, of productivity-enhancing
applications. We can accomplish this in part by removing barriers to investment by broadband
providers, removing legacy burdens and encouraging the migration to Internet Protocol networks
for consumers and enterprises.”

US Telecom’s research tells me that as demand for the efficient and fast transfer of information increases, not only will more information consumers need to maintain their connections to the Internet, they will need networks that provide the capacity or bandwidth for maintaining high-speed connections.  That can’t happen if there is the persistent threat of net neutrality petitions constantly being filed and slowing down the deployment of these networks.

Facilitating the flow of data at high-speed won’t happen if AT&T, Verizon, and other owners of legacy telephone networks are forced to spend finite resources on legacy telephone networks that cannot provide the capacity demanded by the businesses, researchers, academics, and consumers mentioned in the report.

The Federal Communications Commission will have to go beyond thinking about tweaking regulations.  The FCC will have to start thinking about repealing regulations.  Just as importantly, the FCC will have to look itself in the mirror and reconsider its overall mindset when it comes to innovation and the knowledge markets.  The question should not be what regulations do we apply.  The question should be how do we get the knowledge market to fly.