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FCC overlooks the word proprietary

The Federal Communications Commission refers to customer data as “proprietary” in its privacy order set for vote this coming Thursday. Webster’s New World Dictionary defines proprietary as something belonging to an owner like a patent, trademark, or copyright. By placing the qualifier “proprietary” on customer data, the Commission gives the impression that the data is compiled by the consumer for possible placement into the stream of commerce and by transferring this data can receive something in return. Is the consumer doing this; getting something in return for putting her data out there?

The relationship between a consumer and her broadband internet access service is one where she provides certain personal information along with a network access fee to her broadband provider and in exchange receives access to the internet. An informed consumer is aware that sharing some personal data is part of her total cost for receiving access to the internet via her broadband provider. The best way to ensure privacy of her data is to not buy access service to begin with but public and social policy currently promotes universal deployment of and access to broadband so discouraging her purchase is not a policy option.

In my view, the consumer has created a negative externality by providing property, in this case her personal information, for free. The rate the consumer pays for broadband access overcompensates the service provider given the value the broadband service provider receives. What the Commission should encourage is a pricing regime where consumers can charge for the use of their proprietary information. This way, the prices paid for access provide a better reflection of what is actually being exchanged.

The Commission may find that with this market solution concerns of privacy will be abated as the consumer exercises more control over her market relationship with the broadband service provider. Allowing for consumers compensation for providing data may create a ripple effect in the internet eco-system. Go onto Facebook and you see consumers sharing a lot of personal information for free. Advocates for consumer empowerment should like this approach but these so called advocates would lose too much control of the consumer protection debate if consumers were to enjoy this type of market freedom over compensation for their data.

Bottom line, if the Commission is truly concerned about protecting proprietary consumer information, it should give the consumer the front line tools to protect her data and in a market system, that front line tool is the ability to be compensated for one’s property.

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Telling a media company to not buy content is like telling a car company to not buy tires

Earlier today The Wall Street Journal reported that AT&T may close on a deal to buy Time Warner. Time Warner (not to be confused with Time Warner Cable) is a content play with popular properties HBO, CNN, and Warner Bros. in its inventory. AT&T has seen the light flowing from convergence and is rapidly becoming a media company, an exciting move away from being just a broadband access provider.

The boo birds are out, providing the usual “this is bad juju” arguments against a merger should merger talks go just beyond speculation over the weekend. Michael Copps, former member of the Federal Communications Commission, reportedly refers to talks of merger as an action that would result in monopoly power, a power that is “incompatible with democracy.”

Last time I checked, democracy was simply about the masses having the ability to enter a ballot box and choose the lesser of two political evils.  Mr. Copps is conflating a supposed monopoly on content with freedom of expression. If there is a merger, freedom of expression and democracy would not be harmed. To use such arguments is like saying that a car company shouldn’t be allowed to buy a certain tire for its SUVs and refrain from marketing its SUVs as using such tires. AT&T is a media company and should be able to establish an inventory or library of content that reflects its brand. I would argue that it would be undemocratic to stop it from choosing the content that best expresses what type of media company AT&T wants to be,

Besides, there is no monopoly harm here. AT&T won’t get the most out of its content if it does not make it available to as many outlets as possible. Also, the merger doesn’t stop any other content producer or media company from producing and distributing their own branded content.

Content is near infinitesimal in its creation and distribution. This makes the argument of favoritism toward one’s own content ridiculous. What the favoritism argument really indicates that protesters don’t have the talent to compete on quality of content and could do us all a favor by sitting down and taking a chill.

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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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Somewhere along the information highway, we forgot about entrepreneurial freedom and value

About fifteen years ago I started writing for a publication that was transmitted to its subscribers via e-mail.  We published twice a day on regulatory events on the federal and state level.  The content we provided had great value and our clients paid us for it.  Not only did the staff get paid for the production work, but I’m sure the company had to pay an internet service vendor to transmit our content to the end user.  It’s called business.

I define business in the following way.  Business is the activity that you partake in to create, develop, market, and sell a product for income.  Business is dynamic and along your production line you are going to pay employees and contractors in order to get your product to market.  Business also requires you to look for opportunities to reduce your costs for getting your product to market and in so doing may require you to strategically partner with another entity to meet the objective of being better and faster.  That strategic partner may develop a method for helping you be better and faster and would rightfully expect to be compensated for the value their innovation bestowed on you.

The end user or consumer may observe three alternative developments resulting from the value provided by the strategic partner and all resulting in an increase in consumer welfare.  One, the consumer may see improvement in speed or quality of service with no change in the price she pays.  Two, the consumer may see an increase in price but faster service and better quality.  Although her costs have gone up, they are offset by the increase in value that she identifies in the increased quality of service.  Third, she might see her prices fall as the innovations brought by the strategic partner increase efficiencies in the way the product is delivered.

The business provider has to pay for the innovation but given the increase in consumer welfare realizes that his welfare also increases because the consumer is satisfied.

Notice in my example that the “F” word, “free”, is missing.  It’s that word that has confused content providers and consumers.  Over the past two decades, content providers and consumers have been misled by the notion that access to and delivery of information on the internet was supposed to be free.  This thought was spawned by the misinterpretation of the phrase, “open internet”, which referred not to consumption of and access to information but to the ability of application entrepreneurs to develop services that made the movement and placement of content online easier.

The edge providers, such as Google, Facebook, and Twitter, benefiting from the ability to interconnect their servers and applications with the world wide web were able to turn around and ironically compound the myth of free access by offering certain services to end users for free.  ”Free” had a network effect all on its own and open internet provocateurs such as Free Press and Public Knowledge have been milking it for years.  From free consumer access to ignoring intellectual property rights by promoting the Aaron Schwartz paradigm that all data online should be freely accessed by everyone, they have fanned the flames of contagion, creating such nausea that consumers overlook or ignore the market nature of the internet: the production and delivery of a product called information and knowledge, and like all products moving through a free market its value should be recognized and monetized and the creators of the information and knowledge should expect not only to be compensated but to pay the cost of its delivery.

Yesterday’s opinion in Verizon v. FCC failed to acknowledge the true, core market characteristic of the net neutrality debate.  Net neutrality, which has nothing to do with the open internet, denigrates the market signaling between content providers and internet service providers such as AT&T, Comcast, and Verizon.  Google, Facebook, and other edge providers have signaled the need for greater capacity and speed and internet service providers wanted to address this demand.  Rather than recognizing this demand, the Federal Communications Commission, egged on by the open internet provocateurs, preferred to disrupt the basic law of supply and demand and risk upsetting the flow of commerce.

The opinion is a mixed bag when it comes to freedom of the entrepreneurial spirit of the internet service provider.  It still leaves open the door to regulating broadband providers and, in my opinion, by leaving in place transparency rules, violates the freedom of speech of internet service providers by forcing them to communicate information for a reason that no longer exist, namely compliance with anti-blocking and anti-discrimination rules correctly vacated by the court.

Freedom got a boost yesterday, but the boost was not high enough.  Policy and the law need a change in mindset to recognize that it’s okay to allow markets to work.

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Public Knowledge and Free Press want the state to stifle business judgment

Free Press and Public Knowledge would like the Federal Communications Commission to prevent internet service providers such as AT&T and Verizon from providing an innovative method of giving consumers more access to online content without taking a hit to consumers’ data plans.  Ironically, the pricing method, sponsored data, has some precedence from back in the days when AT&T and other carriers offered 1-800 number services to small businesses.  Unfortunately for consumers, Free Press and Public Knowledge use of selective memory is resulting in consumers receiving misleading information about the impact sponsored data plans may have on their buying power and consumer welfare.

As Richard Bennett describes it in a piece posted today, sponsored data plans, where a content provider would pay an internet service provider to allow the ISP’s customers to view certain pieces of content, is a fee shifting mechanism.  Rather than consumers running the risk of running over their data caps when viewing, say a rebroadcast of my Florida State University Seminoles winning the national championship, the content provider, say ESPN, would pay Verizon to allow customer access.

How would a content provider benefit?  If it can get more eyes streaming an event at no extra charge in terms of data usage, consumers may find themselves wanting to view other paid content or purchase an advertisers goods and services from ESPN’s website.

The internet service provider could also benefit because it is one less piece of content that it would have to pay for in order to provide to its subscribers.

Is there some precedence for this?  For we old heads ( a group that the likes of Free Press and Public Knowledge don’t bother to hire it seems) we remember the 1-800 number days.  Large and small businesses and even residential consumers purchased 1-800 number services from long distance carriers in order to incentivize customers to make the long distance calls necessary to place orders for goods and services.  Heck, even I had one so that my fiance at the time and my mom could call me for free.  No one bitched and moaned at the time about businesses using these numbers.  It was good business judgment and smart competitors jumped on the band wagon and bought the services.

Fast forward over twenty years and all of sudden what is basically a 1-800 number service for content providers is a no-no in the net neutrality world.  All of a sudden the “open internet” is under assault because internet service providers and content providers wish to exercise autonomy in developing a strategic partnership that can increase traffic while earning profits for shareholders.

Let’s take a closer look (let me pause here as I hold my nose) at some of Free Press and Public Knowledge’s arguments.  I’ll start with Public Knowledge’s argument first because it is the most unconscionable.  It comes from Michael Weinberg, Public Knowledge’s acting co-President:

“The FCC needs to protect consumers and creators from internet service providers (ISPs) who want to pick winners and losers online. This is but the latest example of how data caps are increasingly becoming used to threaten the open internet.  As AT&T CEO Randall Stephenson announced in May, data caps are all about forcing content creators to pay and are no longer about any sort of network congestion. In December, Stephenson admitted to investors that they had addressed the network capacity issues that were used to justify data caps in the first place. It is time for the FCC to heed Public Knowledge’s over two year old call to investigate data caps and gather basic information about their use. It is impossible for the FCC to examine the impact of today’s announcement on net neutrality until it develops an understanding of data caps.    

“When it was reported in May that ESPN was in negotiations with a major carrier to pay to be exempt from data caps, Public Knowledge highlighted that this was an obvious violation of net neutrality. The company that connects you to the internet should not be in a position to control what you do on the internet. AT&T’s announcement positions itself to do just that.  

“In addition to being a ripoff for both consumers and content creators, AT&T’s plan erects a massive barrier in front of anyone hoping to be the next big thing online.”

The FCC needs to do what?  At the first sentence it should be game over.  Why would we want the government to step in and regulate a contractual arrangement?  Aren’t firms free to enter into a fee shifting agreement like this?  Is there a rule somewhere in the Communications Act that prohibits this?  How does allowing free access to content violate net neutrality rules?  Is there any mention of tier packaging or tolling of data speeds here?  Public Knowledge’s argument is way off.

Let’s look at Free Press’ argument.  This one comes from Free Press’ policy director Matt Wood (Take a deep breath. Now hold nose and dive in):

“While sponsored data will be pitched as a way to save customers money, it’s really just double charging.  The customer is still paying for the connection, and won’t get a refund just because Facebook or YouTube or ESPN are also paying for some data usage now. Both the customer and the content or app provider are paying for the same data. Only AT&T makes out better.”

Really?  Why wouldn’t the customer pay for their connection?  And why should the customer expect a refund?  If a cable subscriber got access to HBO free for six months as part of a promotion, would Free Press and Public Knowledge expect the customers access to the cable company’s network to be free also for that six months?  I hope not.  There are fixed and variable costs of the network that have to be recaptured regardless of the freebies a consumer may be receiving.  Also, in the days of 1-800 number services, did consumers see their access line and subscriber line charges go to zero when they used an 800 number service?  The answer is no.

Free Press and Public Knowledge are staffed by very bright and articulate people, but there comes a time when you have to allow reason to take over and take a break from singing at the windmills.  AT&T’s sponsored data service is a strategic partnership that the FCC should not intervene in.  Consumers won’t be harmed because it will be up to them to choose whether to access sponsored content.  Smaller content providers are free to find alternative methods of financing their own sponsored data arrangements should they find investors or underwriters who believe that type of business model would be feasible for the content provider.

 

Fee sh, select