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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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Universal service doesn’t encourage capital for entrepreneurs

Regulating commerce is one thing. Failing to encourage capital formation and distribution of capital to entrepreneurs cannot be acceptable. Section 214 of the Communications Act demonstrates how out of touch current law is with today’s technology and the entities that deliver that technology. The 115th Congress and the next Administration need to revamp universal service such that funding actually encourages new entrants into the broadband market and the innovations that come along with that entry.

Under section 214 of the Act, common carriers designated as eligible telecommunications carriers (ETC) qualify for receiving universal service funds. A common carrier is engaged in providing foreign or interstate communications by wire or radio.  The Federal Communications Commission revamped its 20th century based support program, originally designed to subsidize voice services, to now support deployment of broadband services in high cost areas, areas where broadband providers argue it is cost prohibitive to provide high-speed access services.

Among the criticisms of the program is its inefficiency. Specific concerns have been raised about funds supporting services in areas where competition already exists. On reflection why is this a problem? If a carrier sees the opportunity to take a single-digit percent of market share where garnering such a share covers her fixed and variables costs while generating a profit, so what if other choices already exists? New entrants enter the fray when they believe that they have an innovative way of providing services and eventually taking market share. This is part of the adventure of applying venture capital; digging in for a period of time a generating returns based on new ideas.

The Commission’s concerns about funding services in areas where there is already competition also stems from locking itself into an approach that results in common carriers being funded as opposed to wireless internet access providers. Again, current law paints a box where only common carriers can play. Wireless internet access providers may not want to build infrastructure for the purpose of being common carriers. It is too expensive and unnecessary to duplicate existing networks where instead their focus is rightfully on bringing value to those networks and consumers alike by providing alternative methods of accessing them. The Commission speaks of innovation too frequently to then turn around and pass up an opportunity to put its money where its mouth is.

Until the Commission decides to recognize the value that non-common carrier innovators bring to broadband deployment, the universal service fund as currently constructed will continue to be a pool of capital unavailable for use by certain new entrants.

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Is there enough flexibility for innovation in the high frequency spectrum space?

I wouldn’t exactly say that a political battle is brewing per se around the Federal Communications Commission’s proposed rule making on opening spectrum use beyond 24 gigahertz but some interested parties would like to see the Commission open up this portion of the electromagnetic wave opened up to more technology than just mobile wireless.

For example, the Consumer Electronics Association wants the Commission not to focus solely on mobile broadband but on a wider range of services.  Harold Furchgott-Roth in apiece for Forbes argues that the Commission should allow for flexibility in spectrum use by not limiting the type of technology that can be developed and commercialized in the high frequency bands.  Like CEA, Mr. Furchgott-Roth believes just limiting the 24 GHz to 39 GHz to mobile broadband would be a waste of spectrum’s final frontier.

During the comment period on the Commission’s proposed rules we may get a better view as to how the private sector wants the spectrum real estate developed.  From an entrepreneurial and investor perspective, Mr. Furchgott-Roth and the CEA make good arguments.  Can the markets afford a restriction on innovation in the high-frequency space where the Commission for the most part limits use of this spectrum to mobile wireless?