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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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Verizon makes it clear. They are a media company

Verizon’s Craig Silliman published a blog post discussing the appropriate regulatory framework for the application of net neutrality principles. He reiterated the broadband provider’s support for no blocking, no throttling, no paid prioritization, and a general conduct standard for protecting consumers and competition. What I found interesting was Mr. Silliman’s description of Verizon’s media efforts. In Mr. Silliman’s words:

“We have invested billions in businesses that depend on the ability to reach customers over the networks and platforms of others. We invested in digital ad technology through our $4.4 billion purchase of AOL and own content through properties like the Huffington Post, MapQuest, and TechCrunch. We have an expanding presence in the digital media and entertainment space; Verizon Digital Media Services helps content companies deliver their services in digital form to any screen or device, anywhere in the world.”

To me, Verizon sounds more like a content delivery network. A content delivery network is a large distributive system of servers deployed in multiple data centers across the internet. The goal of a CDN is to serve content to end users with high availability and high performance.

Akamai, a company that touts itself as the global leader in content delivery services, might vehemently disagree with me about Verizon being a content delivery network given Verizon’s position as a gatekeeper to end-user customers. End-users don’t use Akamai to get on to the internet. Access is that functionality that pulls Verizon into the Federal Communications Commission’s sandbox.

As Verizon continues to evolve in the media space, however, it increasingly distinguishes itself from T-Mobile and Sprint whose claim to broadband fame is strictly as a mobile broadband access platform.

Although Verizon has expressed its willingness and the importance of complying with net neutrality principles, should those principles intrude into its content delivery operations? If yes, then should content delivery services provided by edge providers like Akamai also fall under the Commission’s transparency principles? Why should Verizon’s content delivery components be treated differently from Akamai’s content delivery services? Verizon’s evolution will force the Commission to address these questions.

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One end game for broadband adoption: digital currency

The message for broadband adoption is incomplete because there is nary any mention of how adopting broadband aids capital accumulation or deployment for the consumer. I talked last week about how the only thing that slowed down capital expenditure by broadband providers is an economic slowdown. But what inroads on the consumer side should we see at the intersection of capital and broadband?

One intersection I find appealing is digital currency.  Digital currency allows users to exchange online credits for goods and services. Digital currency exchange may involve the use of a mobile app or can be conducted from a computer. With the use of a digital wallet, digital currency can be sent to or received by a consumer.

Transactions are made with no middlemen. International transactions are cheap and are currently not subject to regulation although governments are concerned about taxation and the lack of control over the currency. These concerns conflict directly with the philosophy underlying the development of digital currency; to take power out of the hands of the government and central bankers, a philosophy I believe that is much in keeping with the freedom and openness of the internet. With talk of central banks considering the issuance of digital currency, I’m concerned that the speed and freedom of transactions stemming from the use of digital currency like Bitcoin would be lost.

Digital or more accurately cryptocurrencies offer an alternative medium of exchange especially for communities underserved by traditional mediums of capital exchange. With a computer a consumer could “mine” her own currency, enter into markets where it is accepted and purchase goods and services in those markets. As more goods and services are purchased in digital exchanges with digital currency, not only will the value of the digital currency increase but so to will the value of the broadband networks that sustain these exchanges. More consumers would have incentive to get on board with broadband as broadband and digital currencies combine to give consumers increased access to local, regional, national, and global markets.

 

 

 

With all the talk of pending recession, why implement net neutrality rules?

So far 2016 has not been the best year for the equity markets. Over the past four weeks the Dow Jones average has fallen almost three percent and year-to-date decline is approximately 8.7%.  The telecommunications, media, and technology sector hasn’t fared much better. The NYSE TMT Index has seen a fall of 13.72% over the last twelve months. In the past four weeks, the index fell 2.38%. Last month the investor adviser firm Charles Schwab rated the telecommunications sector as under-performing due in part to the sectors move away from the steady cash flow of a monopoly land line business to the cut throat competitiveness found in the wireless arena.

Just about the only thing that has slowed down capital expenditures in the digital economy has been recessions. Capital expenditure outlays in the information sector, which includes television, radio, publishing, wireless and wireline telecommunications and internet portals, peaked in 1999 at an annual $120.1 billion. The impact and aftermath of the 2000-2001 and 2007-2009 recessions were the two major economic bumps in the road that caused decreases in capex. After hitting a bottom of $87.7 billion in capital expenditures in 2009, the information sector, of which roughly 74% is made up of wireline and wireless telecommunications, has seen an uptick in investment from $97.4 billion in 2010, to $99.7 billion in 2011, to $105.5 billion in 2012.

This increase in spending has occurred when broadband while broadband has been treated as an information service. But if talk of recession becomes solidified over the next twelve months, a slowdown in spending can be aggravated where a recession is compounded by rules that go back to the depression-era 1930s.

Depression-era rules applied during a pending recession. The irony.

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Any regulation of zero rating is unnecessary market interference

Members of the wireless industry got together yesterday in Washington, D.C. to debate what the Federal Communications Commission’s next move on zero rating ought not to be. Inside Sources reported that the wireless confab included T-Mobile, Verizon, Facebook, and other parties. Zero rating allows wireless services subscribers to access certain content providers without that access being charged against the consumer’s data plan. T-Mobile’s “Binge-On” service is a recently deployed example of this type of service.

Pro-net neutrality groups like Free Press, Public Knowledge, and the Electronic Frontier Foundation believe that zero rating violates the Commission’s open internet order by throttling data streams while favoring certain content providers over other providers.  For example, under 47 CFR 8.7, a person engaged in the provision of broadband internet access service shall not impair or degrade lawful internet traffic on the basis of internet content, application or service, or use of a non-harmful device, subject to reasonable network management.

One issue will be whether a service like “Binge-On” actually throttles traffic pursuant to this rule. The Commission so far has opted to a light touch approach to zero rating-type services, which wireless carriers have likened to 800-number services where the 800-number customer or its telephone service provider ate the cost of a long distance call from a customer. The Commission should find that there is no throttling because treatment of data traffic will be the same for all content providers, whether access to their content is done via “Binge-On” or not. The Commission’s political constraints go beyond the letter of their rules.

The Commission has been fervent about its clear and fair “rules of the road”; that all traffic be treated equally, that it may not want to rock the boat with the pro-net neutrality posse or their alleged four million post-card writing supporters. There is a chance that the Commission may opt for the safety of saying no to “Binge-On” with the claim that its best to err on the side of caution and avoid having its net neutrality rules go sliding down a slippery slope.

A call against “Binge-On” and other zero rating services is a strike against investor interests especially for investors in smaller carriers like T-Mobile. If T-Mobile is to acquire more market share it will do so with bolder offerings like “Binge-On.” The service appears to be an effective way for promoting the company’s other offerings, so much so that T-Mobile is finding that some customers, having had free access to participating websites are opting for additional and more expensive service. If there is an opportunity for government to show how anti-investor some policies can be, treating zero rating as anti-net neutrality would be one of them.