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FreedomPop applies to FCC to resell services at all international points

On 29 July 2016, STS Media doing business as FreedomPop applied to the Federal Communications Commission to provide resold services from all international points. FreedomPop provides free mobile broadband plans, devices, digital services, and social sharing that allows its subscribers to share data across accounts.

The company was formed in 2011 and counts among its investors Mangrove Capital, DCM, and Atomico. According to its website, the company provides services in the United States and the United Kingdom and plans to roll out services to a dozen more countries this year.

FreedomPop uses Clearwire’s 4G WiMax data network and Sprint’s 4G LTE network.

The California-based start-up has avoided being acquired so far opting instead for raising private capital in a number of rounds. In June of 2015 it was reported that FreedomPop would invest $50 million in raised funds to invest in European and Latin American markets while expanding here in the United States.

STS Media’s application is filed under ITC-214-INTR2016-01757.

 

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The FCC is still opaque on commercially unreasonable standards

Recently Federal Communications Commission general counsel Jon Sallet introduced the concept of “jurisprudence of innovation” at a Federal Communications Bar Association function.  Jurisprudence and innovation doesn’t come off at first glance as two concepts that should mix.  Jurisprudence is defined as the philosophy or science of law while innovation is defined as the process of introducing new devices or methods.

I hear jurisprudence and I think of intellectual meandering locked within a mental ward.  When I hear innovation, I think of entrepreneurial freedom meeting the needs of an expansion of consumer welfare.  Bottom line, Mr. Sallet’s remarks were an attempt to put fresh paint on a regulatory prison cell the FCC seems so desperately eager to keep building with entrepreneurs as unwilling guests.

Here is the framework laid out by Mr. Sallet for jurisprudence of innovation.  The mandate for a jurisprudence of innovation framework is that entrepreneurship, competition, innovation, and consumer benefits are to be maximized with the goal of permitting the creation of new markets while subjecting old markets to the challenge of creative destruction.  Public policy tools for achieving this social policy include the certainty emanating from balancing potential public interest benefits against potential public interest harms; development of flexible standards for assessing the public interest; and access to resources.

The problem with Mr. Sallet’s model is that it still assumes that the FCC has a crystal ball that it can use to determine what innovation will look like in the future and whether this future will be disturbed by an acquisition applicant’s actions today.

Yes, the markets thrive on certainty, flexibility, and access to resources because these are the ingredients that entrepreneurs need to succeed.  The consensus held by entrepreneurs and producers is that they need clear rules of the regulatory road so that they can do business and best gauge the flexibility they have in developing and deploying new products and services.  The model Mr. Sallet presents adds no clarity as to how far the FCC would intervene on the front end of the innovative process.

Either the FCC will wait for a substantiated complaint to be filed (versus one based on a consumer’s feelings) so that it can weigh actual facts before crafting a resolution or it will step in along certain points or milestones during the innovation, marketing, and deployment process and hinder the very innovation it professes to want.

If the latter course is the one the FCC plans to take, I have a hard time seeing why an investor would be confident in leveraging capital in the broadband or Internet space.

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Investors should support the current section 706 framework for spurring broadband investment

Investors, private equity firms, and venture capital firms concerned about the impact of public policy on broadband investment should support advocacy for the Telecommunications Act of 1996′s current Section 706 regime versus the imposition of additional net neutrality rules that run the risk of needlessly expanding the Federal Communications Commission’s jurisdiction and its penchant for ex-ante regulation into the edge provider space.

John Mayo raises a couple good arguments for why I believe that investors should stay off of the net neutrality bad wagon.  Regulation should be output centric.  According to Professor Mayo, Section 706 places policy emphasis on output and policies that emphasize output ensures competitive behavior.

How so?  look at the opposite of competitive behavior; monopolistic or collusive behavior.  Increased pricing on the part of monopolies and oligopolies are the result of reduction in output.  This is counter to our social policy of increased deployment of broadband access to all American households.  According to Professor Mayo, Section 706 aligns an economic policy rationale for Internet governance with traditional, policy proven anti-trust tools that focus on the output altering effects of firm behavior.

On the other hand, argues, Professor Mayo, Title II public utility style regulation takes an ex-ante approach that risks squelching novel, output enhancing innovation.  And where would this innovation and increased output occur?  On the edge.

I recently argued that the FCC should take into consideration the impact regulation has on an edge provider’s ability to enter markets.  Professor Mayo argues that an example of increasing output is the ability of edge provider’s to expand investment.  If an ISP’s behavior discourages edge provider investment, then yes, the FCC could make a call that Section 706 was violated because output has been restricted resulting in less content distribution choice and probably higher prices for subscribers to such services.

Investors should not let what appears as equivocation on the part of edge providers like Netflix confuse them.  A net neutrality regime further enhanced by additional rules does nothing for increase in output or entry by more viable edge providers.  Further regulations amount to additional barriers to entry manifested in greater costs of compliance, costs that impact that bottom line.