Comments Off

Verizon to FCC: We are a media company. Leave us alone

Verizon sent another clear signal this morning to regulators and the financial markets.  We are transitioning from a broadband company to a media company.  Suppose Verizon takes it another step and also declares that they, say five years from now, will get out of the broadband access to the internet business and settle for being a channel solely for their own branded content or content that they get a license to retransmit solely on their servers?  Such a move would get them from under the Federal Communications Commission’s Title II/net neutrality rules while opening the door to smaller internet service providers to fill the broadband access to the internet market vacuum.

First, the news.  Today, The Wall Street Journal reported that Verizon Communications Inc., agreed to buy AOL, Inc., for $4.4 billion.  The purchase will be made with cash on hand and the issuance of commercial paper and make Verizon a player in the digital media content market.  According to The Journal:

“The acquisition would give Verizon, which has set its sights on entering the crowded online video marketplace, access to advanced technology AOL has developed for selling ads and delivering high-quality Web video.”

Verizon goes on to say that its principal interest in the purchase is access to AOL’s ad tech platform probably for use with Verizon’s mobile video service scheduled to launch this summer.  The service will offer snippets of video content, live sports, concerts, and on-demand programming.

Verizon and AT&T believe video content will drive demand for their wireless services as consumers, particularly millenials, (who have passed Generation X-ers as America’s largest consumer group), prefer get their content anywhere on the go, unlike their more sendentary Baby Boomer elders.

Verizon can also leverage its relationships with content providers.  For example, according to the article:

“Verizon already has relationships with many media providers because of its FiOS TV service, which is available in 5.6 million U.S. households. And it has shown prowess in mobile video already, including through a partnership with the NFL that allows it to stream some games over phones.”

It sounds like Verizon is ready to step up to being what I consider all broadband providers to be: media companies.  Regulatory wise, I think Verizon and AT&T could circumvent the FCC’s net neutrality rules by making the declaration that not only are they media companies, but they are no longer in the business of providing access to the 67,000 interconnected networks known as the internet.  Verizon instead should declare that it provides IP-access solely to its website of original and licensed content.  If you want to see “Game of Thrones”, you’ll use a broadband access provider that connects you with HBO’s website.

A broadband internet access service, according to Section 8.2(A) of the FCC’s net neutrality rules is “a mass retail service by wire or radio that provides capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communication service, but excluding dial-up Internet access service.  This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.”

If Verizon describes in its service agreement that access to its particular content found on its website does not include access to the other endpoints found on the remaining 67,000 networks, should that take them out of the FCC’s net neutrality stranglehold?  I would hope so.  Yes, the FCC and the grassroots groups will still utter in their last gasps that even if this new media model held that Verizon’s subscribers would still need consumer protections, but in my opinion those protections would come under contract law and a better equipped Federal Trade Commission since Verizon and any other broadband provider opting for a new media model would fall in the category of edge provider.

Let’s shake it up a little, Verizon.  This is the right step toward bringing well needed disruption into the media market.


Comments Off

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.

Comments Off

Why can’t broadband competition proponents focus on the real picture?

The Center for Public Integrity released a post yesterday that has me questioning their economics integrity.  In the post, the Center describes how broadband providers avoid competition by arguing that the “Internet service grew out of the old telephone and cable TV systems, where only two companies owned direct lines to U.S. households.”  Sorry, but that’s only half the story.  As I shared in my comments on the post:

“Advocates for competition in the broadband access platform market need look no further than the localities that ensure that only the provider with the deepest pockets are able to get entry into a market. Onerous financial, regulatory, and technical barriers keep ouyt smaller players. Richard Bennett makes a powerful point about legacy carriers having no incentives to go beyond service territories they negotiated for or acquired when initiating services.

In addition, there is too much emphasis on the “number of carriers” narrative. This is a capital intensive business and unless new players can muster up the cash, then you won’t see a third wireline carrier entering a market.

Finally, when will “competition proponents” come out and give a definitive number for the amount of carriers in a market necessary for a declaration of competition. Two, three, or four carriers still reflects an imperfect competitive market.”

Not only are Federal Communications Commission rules not promoting broadband deployment, but local government policies are adding to the hindrance.  No one complains about whether Interstate 4 connecting Tampa and Orlando should have a duplicate interstate running along it.  The concern is whether there is enough commerce running over the highway to spur economic growth and justify widening the existing lanes.

For example, according to’s report , 2015 U.S. Digital Future in Focus”, in 2014, mobile app usage made up the majority of digital media activity.  Traditional television ratings fell as more Americans obtained content from emerging online platforms.    Seventy-five percent of all digital consumers over the age of 18 use desktop and mobile platforms to access Internet content.

Another sign of mobile’s encroachment on the desktop is growth in smartphone use.  According to comScore, smartphone use increased 16% in 2014.

I just started watching “House of Cards” (Okay, I’m a late bloomer) so now I’m counted as one of 7 of 8 Americans watching video content online, with half of these consumers watching content online on a daily basis.

And about that commerce moving along the roadway?  E-commerce grew 14% in 2014 with businesses raking in $268.5 billion.

All this content and e-commerce activity happening while consumers allegedly are “abused” by a lack of broadband access platform competition.  Policy makers shouldn’t waste their time on making an oligopoly a larger oligopoly.  The focus should be on clearing spectrum for greater use of the internet and ensuring that the provision of data, whether in the form of video or text, is not interfered with.

Comments Off

Netflix, Tumblr wanted 1995 not 1934

Internet Innovation Alliance’s Bruce Mehlman wrote an insightful blog post last Friday about the second thoughts companies like Netflix are having about the Federal Communications Commission’s decision to reclassify broadband services as plain old telephone service.  Netflix’s befuddlement over the FCC’s decision to use Title II to drop the regulatory hammer on the internet ecosystem has me wondering how much on the same page were these net neutrality proponents?  The push for net neutrality may be an example of how dysfinctional the left can be when it sells a narrative to multiple classes within its big tent and has the manage the disappointment that ironically occurs when it gets what it wants.

Netflix’s insistence that heavy Ttle II regulation was not a part of its end game has me wondering if progressives had really settled down on a definition of a “fair and open” internet.  The left apparently has not.  To Netflix and other Silicon Valley giants, fair and open appears to mean an internet where they can interconnect in a pre-1996 manner; under some bill and keep methodology with any type of technology they deemed appropriate regardless of a broadband provider’s discomfort.

To the end-users, the four million confused members of the masses, “fair and open” was a rallying cry of the democratic wish; that a fair internet will respect their rights to communicate with whatever website of their choice and move data equally to the end-user no matter the source of the content.

Narrative managers like Public Knowledge and Free Press were successful in conflating the two narratives but were probably inept in educating their supporters, like Tumblr‘s David Karp, as to the downside of using Title II as a mechanism for reconciling the two narratives.  Title II, Mr. Karp and the rest of his Silicon Valley cohorts should have been told that their content operations, particularly the agreements that they enter into to connect to broadband networks, were not guaranteed to escape fees for the exchange of data nor was privacy from prying consumer or competitor eyes or noninterference from the government going to be avoidable.

The FCC may find itself a big loser resulting from its participation in a disingenuous conflation of varying narratives.  It must now deliver on a basket of promises to the consumer as it answers complaints from an an ill-informed electorate regarding every perceived slight in service practice and rate assessments.  It won’t be able to tell consumers or the markets that it never intended to regulate rates.  Consumers won’t stand for that because improving their consumer welfare calls for what they believe is a long awaited initiative to regulate rates.

You wanted 1995?  You may have to settle for 1934.

Comments Off

What regulators say about the internet of things

For the past two or three days the chairmen of the Federal Communications Commission and the Federal Trade Commission have been clarifying their regulatory agendas for and approaches to the Internet.  FCC chairman Tom Wheeler plans to issue net neutrality rules around 5 February with the full FCC voting on those rules on 26 February.  Media reports have Mr. Wheeler outlining what he believes the benefits consumers would enjoy from reclassifying broadband as an old school, run-of-the-mill telephone company.  For example at the Consumer Electronics Show in Las Vegas Mr. Wheeler reportedly said the following:

“So, there is a way to do Title II right, that says there are many parts of Title II that are inappropriate, and would thwart investment, but that a model has been set in the wireless business.”

CTIA-The Wireless Association has taken the position that given the level of competition for mobile broadband that net neutrality rules should be “mobile broadband specific” and that mobile broadband has never been regulated under Title II.

Mr. Wheeler, in an attempt to keep net neutrality advocates happy, appears to be willing to use Title II regulation to strike down deals between content providers and broadband operators where content providers pay to have their traffic given higher priority over other providers.  Mr. Wheeler wants the role of determining which transactions and agreements are commercially reasonable and how that traffic should be moved from content provider to broadband provider to ultimate end user.

FTC chairman Edith Ramirez’s approach appears to focus more on transparency of participants in information markets.  Her concern, as shared with CES participants, is about privacy and the Internet of Things. As more devices connect to each other via the internet, more devices become subject to hacking and a wealth of data, thought by consumers to be private, becomes subject to misuse, theft, or fraud.

Ms. Ramirez’s focus on the consumer is not surprising given the nature of her agency’s work, but it also seems the slightly, and I mean slightly, better approach to overseeing market behavior versus individual business behavior.  The internet is a platform for information exchange between information generators and information seekers.  The more information that a provider has on how her information is going to be used in the markets helps her make better decisions not only on whether she should make it available but also on its value and how best to monetize her data. Information gatherers will simply have to provide better incentives to information providers to get them to give up their data.

What kind of growth does the market see for the Internet of Things?  According to Cisco’s Internet Business Solutions Group, some 25 billion devices will be connected to the internet by the end of 2015.  That number will climb to 50 billion connected devices by the end of 2020.  That’s a lot of broadband infrastructure for the FCC to oversee and more hacking access points for the FTC to worry about in five short years.

Investors will see the biggest gains in the infrastructure space of the Internet of Things.  Leading growth in this space will be manufacturers of processor chips, wifi networks, sensors, and software.  Investors should also be concerned with factors that impact demand for devices that talk to each other and I believe the factor that has the heaviest weight is the consumer privacy factor.  Devices aren’t just talking to each other but are gathering information on consumer likes and habits and storing this data for the information gatherer’s future use.  Privacy is an immediate and long term issue because it concerns one half of the parties involved in the information market transaction: the consumer.

As for the FCC’s open access approach it is too short-sighted.  Mr. Wheeler’s focus on competition for broadband service and equal treatment of traffic may have a nice sounding populist ring, but in the internet eco-system what matters is the consumer’s choice of product obtained through broadband.  That product is content and the price the consumer pays in exchange for that content is, ironically, content in the form of personal data.  Consumers already have wireless and wireline choices for broadband access.  The value play for consumers lies in the quality of content available online and consumers are more than capable of deciding that for themselves.

What the government can do is what it does best (albeit it is not the best at it, but work with me); government should adjudicate privacy and other consumer disputes and make available to consumers information that they may not be able to gleen readily from the private sector.  The FTC’s focus on privacy and consumer protection does a better job at this than the FCC.

I’ll go out on a limb and say that the private sector is taking care of the FCC’s mandate of ensuring a nationwide communications network.  The FCC’s focus given the growth in the mobile market and the increasing need for devices to wirelessly connect should remain on allocating spectrum and assuring the reliability and safety of wired and wireless communications infrastructure.  Any other endeavor is waste.