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Why can’t agricultural interests and web companies fund rural broadband deployment

Sections 214(e), and 254 provides that certain telecommunications companies contribute to a universal service pot from where certain eligible telecommunications carriers can recover the costs for providing services, deemed by Congress and the Federal Communications Commission as “universal.” Section 214(e) requires that only carriers designated as eligible telecommunications carriers receive funding to help deliver universal services, an, according to section 254, “evolving level of telecommunications services that the Commission shall establish periodically …. taking into account advances in telecommunications and information technologies and services.” These evolving services include access by schools and libraries; access by rural healthcare facilities. access by low income subscribers, and access to advanced services such as broadband.

The individuals that foot the bill for funding these pots are the end-users, the consumers, who may not be recipients or beneficiaries of the universal services. Not only is the State determining what services should be provided in order for a carrier to receive funding, but the State, using the carriers as licensed fee collectors, is requiring that consumers foot the bill. Broadband providers have long made the valid economic argument that servicing rural customers is a more expensive proposition due mainly to population and density and topography. By law the Commission is required to bring about an efficient, nationwide wire and radio communication service and brings this about by “regulating interstate and foreign commerce in communication by wire and radio ….” Since telecommunications carriers literally provide the channels through which commerce in communications flows, they are naturally the low hanging fruit that gets picked by the Commission.

But interstate and foreign commerce in communication by wire and radio has evolved since 1934. Commerce by wire and radio is no longer about charging a consumer for the privilege of sending and receiving voice calls no matter the content of the message. The commerce now takes the form of video, voice, texts, and graphics sent via wire and the use of various bands of spectrum. The commerce now takes the form of various content delivery entities storing data and information either for future distribution or data analysis by data mining companies or marketers. The commerce by interstate and foreign communication via wire or radio has morphed into an internet protocol eco-system that is home to internet service providers, broadband providers, content providers, and app providers. However, after eighty-two years, investors in telecommunications companies are the ones still holding the regulatory bag and shouldering the expense for getting broadband services to the underserved.

When we think of rural consumers, I wonder if we focus too much on the stereotypical family of eight living on a couple acres with a tractor riding mower in the yard. The chemicals-agricultural sector has operations in rural areas and with a $19.7 billion market cap has incentive to invest in getting broadband into its surrounding market areas. And Google and Facebook have not been shy about wanting to connect the underserved, particularly in India and on the African continent. Get the chemical-agricultural sector to pitch in and the United States could lessen the temptation to spread the costs over the entire population and allow those with the most skin in the game to bear the burden of funding access.

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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.”  My 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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Al Franken up in arms about the false concept of competition

Posted July 22nd, 2015 in Department of Justice, economy, edge providers, Facebook, Government Regulation and tagged , by Alton Drew

Multichannel News‘ John Eggleton today reported that Senator Al Franken, Democrat of Minnesota, is up-in-arms about Apple’s streaming service.  He believes that Apple is preventing competitors to its streaming service from communicating with consumers about similar streaming products.  According to the Multichannel News:

“Apple’s licensing agreements have prevented companies from using their apps to inform users that lower prices are available through their own websites, to advertise the availability of promotional discounts, or to complete a transaction directly with a consumer within their app,” he said. “These types of restrictions seem to offer no competitive benefit and may actually undermine the competitive process, to the detriment of consumers, who may end up paying substantially more than the current market price point.”

Subject to check, if the alleged snub is the result of a licensing agreement, then tough cookies for the app developers.  They didn’t have to sign the agreements. If terms agreed upon included a “no informing customers of your service because we are afraid of the competition clause, then the app developers are obligated to follow the agreement.

I’ve discussed before how unnerving the “it’s not fair. I can’t compete” argument is.  Unless you are admitting that consumers are pieces of capital just like land, labor, and air is, then competition for consumers needs to be a mantra that goes the way of the dodo bird.  Competing for the finite resources that go into making products for end-user consumption is a valid argument.  You need financial capital in order to purchase the labor and land resources necessary for creating and distributing a product so pushing against the bottlenecks to these resources is expected.

Applying the argument to end-users gets no points with me, however.  If your product is whacked and you can’t convince the consumer to buy it in an open market as we have here in the United States, then belly-aching how unfair it is that you can’t sell said product is noise wasted on closed ears.  America’s antitrust concept is weak for this reason.  No one is guaranteed success in our economic environment.

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How can the FCC help expand the broadband economy

Yesterday Michael O’Rielly provided a definition of the internet economy during remarks made before the Internet Innovation Alliance.

“Here is a simple truth.  The Internet thrives today on aggregating information for the purposes of increasing advertising revenues and the use of data analysis for multiple purposes.  Data and advertising are why Internet-related companies are valued so highly by investors and Wall Street, and why those companies that cannot monetize such activities face harsh realities and uncertain futures.”

In other words, regulators need to understand that the commercial internet is an infrastructure that facilitates data trade and that the regulations they implement can limit the type of data collected over the internet by internet-related companies.  Broadband operators are involved in this data trade.  For example, Comcast collects non-personally identifiable data that they may share with third-parties for the purpose of targeting advertisement.  This non-personally identifiable data may include IP and HTTP header information; a consumer’s device address; a consumer’s web browser; or a consumer’s operating system when using Comcast’s web services.  Where a Comcast subscriber is trying to personalize the use of Comcast’s web services, the consumer may provide to the broadband provider for storage the consumer’s zip code, age, or gender information.

The competition that gets ignored by regulators is the competition broadband providers face in the capture and sale of consumer data.  This competition includes cloud storage companies, content creators, and app developers.  It also includes companies in the internet, publishing, and broadcasting industry with familiar names like Facebook, Google, and Yahoo. According to Hoover’s, these companies publish content online or operate websites that guide information consumers to the content they are seeking.

Demand for this industry’s services is driven by consumer or business needs for information and other forms of content. Profit is created when these companies deliver relevant information to consumers while offering advertisers a targeted audience.  According to Hoover’s, sales of online advertisements account for just over half of U.S. industry revenue with 75% of advertising revenue coming from search and display advertising formats.

Comcast was hoping to make major inroads into advertising with its proposed acquisition of Time Warner.  Writing for Adage.com in February 2014, Jeanine Poggi wrote:

“Assuming the deal is approved, however, it will make Comcast become a more important partner for advertisers, said Ken Doctor, affiliate analyst, Outsell. Its expanded role as both a content producer and content distributor will make it all the more competitive for ad dollars with companies like Yahoo, AOLGoogle, and Facebook. “It will become more of an ad competitor as selling of TV [and] digital inventory blurs,” he said.”

Writing further, Ms. Poggi points out that:

“A merged Comcast reaching 30 million U.S. households, along with the national reach of DirecTV and Dish Network, creates an alternative to buying national advertising from the TV networks, said Jason Kanefsky, exec VP-strategic investments, Havas Media.”

Unfortunately for Comcast investors, the Federal Communications Commission and the U.S. Department of Justice bought into the pseudo net neutrality argument pushed by grassroots groups and Netflix that mergers such as Comcast and Time Warner would somehow thwart the average man’s ability to express themselves online and that a larger Comcast would be a detriment to competition in broadband access.  Allowing the merger it appears would have given advertisers, from large corporations to small entrepreneurs, alternatives for online advertising.  The economies of scale that a Comcast-Time Warner marriage would have produced may have lead to lower advertising rates especially for smaller companies.  The FCC’s new Title II rules for broadband companies may only serve to further foreclose such scale.

The issue is, under the current rules and statutes, should broadband providers be prohibited for sharing data with advertisers or other third-parties seeking to target ads at a broadband provider’s subscribers?  I believe the answer is no and investors should lobby the FCC to ensure that no such rules are drafted.

47 CFR 8 of the FCC’s rules for protecting the open internet provides no explicit prohibition on a broadband operator providing third-parties with subscriber data that could be used to deliver advertisement.  Section 8.11 of the rules, in my opinion, gives broadband operators an argument for providing customer data to third-parties, particularly edge providers.  Specifically, the rule says:

“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.”

Section 222 of the Communications Act does not expressly prohibit use of consumer information for advertising purposes, but given that the statute is written for telecommunications companies, Congressional action would be needed to amend the section with language that reflects how broadband and other internet companies use consumer information.

If the FCC wants to help expand the broadband economy, it will have to persuade Congress to make these language changes lest leave investors in a state of uncertainty.

 

 

 

 

 

 

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Taking “toll free” to the 21st century level

If you want to see the true colors of net neutrality rule proponents look no further on their stances on zero rating.  A zero rated site is a site that a wireless carrier has exempted from its fee structure or data cap.  The company behind the site may have decided that exempting access to its site via its app may be good for attracting additional eyeballs which means more people viewing the ads that may be appearing on the site.  For a wireless carrier wanting to heat up the competition with other carriers, offering their subscribers data cap exemption when accessing popular websites like Facebook may help garner subscribers.

So far it looks like when 12 June 2015 rolls around and the Federal Communications Commission’s net neutrality rules kick in that the strategic partnership between mobile carriers and app developers in the form of zero rating may remain unharmed.  Carriers, according to published reports, are turning to zero rating because of the additional revenues that can be generated by advertisers.  And as I allued to earlier, app developers or advertisers are taking advantage of the traffic they can create by making it easy for consumers to avoid additional data charges when viewing their sites.

The FCC, in some deference to the net neutrality advocacy groups, will apply additional scrutiny to these arrangements because at the core of the net neutrality debate is whether content providers that bring better value, better marketing, or both, should be able to dominate a market against those content providers who are not able to market their content as valuable.  The FCC will, on a case-by-case basis, determine whether a consumer’s lawful access to internet content is being hindered by broadband access providers.

The “case-by-case” review will cause snarls on the way to product deployment and those delays will increase an app developers cost of deployment combined with lost ad revenues as the FCC makes up its mind as to whether a strategic partnership between app developers, advertisers, and broadband access providers violates net neutrality.  I believe that such arrangements even under the FCC’s net neutrality rule shouldn’t be viewed as violations.

First, there is apparently no blocking on the part of a broadband access provider pursuant to Section 8.5 of the FCC’s net neutrality rules.  The app providers are, by definition, edge providers and they are offering sponsorship of subscriber data as such.  Nothing in a zero rating scheme appears to prohibit any broadband access provider from visiting sites that compete with a zero rated site.

Second, zero rating a site is not the same as throttling according to Section 8.7 of the FCC’s rules.  Throttling is defined as impairing or degrading lawful internet traffic; slowing it down and negatively impacting the quality of the traffic’s flow.  Nothing in the definition of zero rating implies that a broadband provider would have to slow down traffic to site B in order to meet its zero rating promise to site A.  There would be no incentive since the company behind the app is reimbursing the broadband provider for revenues lost when exempting subscribers from data caps.

Finally, I wouldn’t equate zero rating with paid prioritization, and apparently not even net neutrality proponents are doing so.  Under Section 8.9 of the FCC’s net neutrality rules, paid prioritization sees a broadband access provider managing its network in order to favor one content provider’s traffic over another provider’s traffic in exchange for compensation.  In the case of zero rating, a content provider’s traffic is not being given any higher priority treatment.  Nothing in the definition of zero rating says that one provider’s traffic moves through a faster lane.  Neither can an argument be made that consumers are being disadvantaged.  On the contrary, the consumer benefits because they are accessing more content at a lower cost.

Zero rating is a win for consumers and content providers. The FCC, while expected to scrutinize these relationships, should not go overboard with oversight in this area.

 

 

 

http://www.npr.org/blogs/alltechconsidered/2015/02/25/388948293/what-net-neutrality-rules-could-mean-for-your-wireless-carrier