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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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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

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Google has answers and maybe we should pay for them

Posted February 10th, 2015 in Google, Internet search and tagged , , , by Alton Drew

According to this post in The Wall Street Journal, Google is upping the stakes in the market for data moving away from just providing links to providing answers to your search questions.  Critics like the European Union argues that Google is favoriting its own inventory of information and that this is a no-no because it puts other information providers at a disadvantage, particularly those deemed to be providing more relevant data.  Google, according to the Journal, is driven to move from just providing to links to providing answers in part as a result of consumers using smart phones with smaller screens seeking out facts.  In addition these consumers are speaking their searches versus typing them into a search.  Competitive information providers such as Yelp are providing apps that help consumers bypass Google’s search product.

So far U.S. are not as critical of Google’s move to providing answers versus just providing links, but the European view appears to favor a coordinated delivery of information from data generating websites through search engines to the end using data consumer.  What the Europeans appear to be saying is that Google should act akin to an electric grid independent system operator; identifying the electricity generator that can meet the consumers’ electricity needs on demand and at the best price and transmitting that electricity to the consumer. Consumers are free to bypass Google by using an app from Yelp or any other data provider or going directly to the site they desire.  Google is free to play both data provider and data broker.  There are no legal restrictions saying that Google cannot occupy both spaces.

As Andrew Keen shares in his latest book, “The Internet is Not the Answer”, Google could charge for its search services.  If the consumer values the data they are searching for, why not pay their data broker, Google, to find it for them.  This way Google has a financial incentive to submit the most relevant data sources to the consumer.

Regulators can’t force Google to charge a fee for its services but assessing a fee would address a number of concerns like putting a value on search activity including information.

Net neutrality advocates. It’s not too late to give equity and markets a chance

Ask immigrants to the United States and most will tell you is that what they admire about the United States is the ability to actualize economic expectations through the application of entrepreneurship, will power, networks, and capital.  When I hear net neutrality advocates express fear that broadband companies penultimate goal is to block their access to the latest useless app or YouTube video of a cat staring into space (with the end game being domination of the known universe), my thought is, “If you are that afraid of Goliath, why don’t you start your own shit?” (I’m not an edge provider but I like to keep it edgy.)

As much as these Silicon Valley types like reminding us of their tech shortages due to immigration laws that keep good talent away from America, maybe it’s time these tech loving Goliath haters start acting like we immigrants.

As Scott Cleland reminded us in a recent piece for The Daily Caller, the Internet was commercialized back in 1995.  That meant that access providers could sell access at a profit; that content providers could sell content at a profit; and that app developers could sell there programs at a profit should they ever decide to stop giving away their damned intellectual property for free.

In short, net neutrality advocates should expect all of us in this Internet eco-system to go out and make a buck.  Maybe they should try that to.  Instead of using the administrative state as a hammer to squash a little profit making, these so called advocates should use their Apple iPads and Macs to network, develop business plans, raise capital, and compete.  Instead of urging the Federal Communications Commission to apply a failed Title II, regulated common carrier regime in a dynamic economic eco-system, net neutrality scions should create real competition.  Stop using government as a false source of capital.

I have read some of your backgrounds.  Some of you are very bright and well connected.  If you sincerely believe that broadband access has been monopolized, put your energies into writing a business model, raising capital, getting the rights-of-way permits, buying the plant and facilities, hiring employees, and deploying broadband access yourself.

Private entity is doing this everyday and provides a model for you net neutrality types to follow.  Take for example Pamlico Capital.  They announced last month that they were purchasing rural broadband assets in South Dakota from Clarity Telecom.  Imagine if these alleged millions of net neutrality advocates diverted the tithes and offerings they reserve for the great god called government to creating an investment fund for the purpose of buying broadband assets and leveraging them to purchase more assets every year.  Capital would follow and competition, real competition, would be created.

Take it from this immigrant Led Zeppelin fan.  ”Crying won’t help you.  Praying won’t do you no good.”  If the levees are breaking as you so vehemently argue, isn’t  it time to take real action to create sustainable competition, growth, and employment?