Hopefully Verizon’s wireless video service won’t raise a net neutrality stink

The Wall Street Journal yesterday reported that Verizon could create and deploy a digital video service that could rival Netflix or Hulu. Quoting Verizon chief executive officer Lowell McAdam, the Journal reported “the carrier has much of the technology ready to launch the service and is nearing agreements with major content companies, which until recently were more skeptical of licensing content for delivery over the Internet.  The need to connect with millennials who want to view TV shows and movies over the Internet is changing the tone of the discussions.”

The Journal also reported that Verizon has been receiving an increasingly warm attitude from content providers to the idea of supplying content for over the Internet consumption.

Content would be delivered from major broadcasters and live sporting events to smartphones via a technology called “multicasting.”  Muticasting avoids congesting the network because it allows the carrier to broadcast content over a single stream of airwaves that consumers can tune into.

In addition, the Journal reports that Verizon is open to expanding FiOS into more markets.

Net neutrality advocates may decide to raise red flags and voice concerns about Verizon potentially throttling the speed of a Netflix or Hulu in order to better promote the mobile broadband provider’s own video service.

The view may be buttressed by allegations made earlier this summer that Verizon was throttling Netflix’s speed and that this throttling forced Netflix to enter an agreement with Verizon that ironically provide Netflix’s video service.

Even without rules in place, the Commission may attempt to use the authority it has under section 706 of the Telecommunications Act of 1996 to investigate claims that net neutrality principles were violated.

In the end investors should view this potential regulatory overhang as a speed bump down the road toward competition in the video-over-the-internet market.

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No response to Wheeler’s response on wireless

There was no appreciable response to Federal Communications Commission chairman Tom Wheeler’s comments at the CTIA show in Las Vegas mentioning that the FCC may reconsider the distinction between fixed broadband and wireless broadband as it draws closer to issuing new rules on net neutrality or the Open Internet.

The goal of the Open Internet proceedings “is to establish rules of the road for Internet openness that will provide certainty in the market place and facilitate the continuation of the virtuous cycle of investment and innovation”, Mr. Wheeler said.

Consumers are increasingly relying on mobile broadband, noted the chairman, and acknowledged the wireless industry’s position that mobile broadband carriers face constraints that their fixed broadband cousins do not.

AT&T(T:NYSE); Sprint (S: NYSE); and Verizon (VZ: NYSE) saw their share values fall today but it wasn’t clear from media headlines whether the fall was in response to the possibility that fixed and mobile may be treated the same under net neutrality rules or his policy of challenging wireless broadband company mergers such as the attempted AT&T-T-Mobile combination or the more recent attempt by Sprint to acquire T-Mobile.

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Fred Campbell points out flaw in FCC “pick winners” strategy

If the Federal Communications Commission is really interested in ensuring the deployment of broadband, its broadcast spectrum policy of allowing Sprint and T-Mobile to get more low band spectrum in hopes of getting broadband rolled out to rural customers may be dead on arrival.  That’s my takeaway from a blog post by Fred Campbell of the Center for Boundless Innovation in Technology.

Mr. Campbell highlights Sprint and T-Mobile’s earlier conclusions that deploying mobile rural broadband is an expensive proposition.  having spectrum is one thing.  Building the actual infrastructure is another.  Deployment is still about the bottom line and building towers and laying cabling over less densely populated areas relative to urban areas is still not cost effective.  Quoting Mr. Campbell:

“As a result, Sprint and T-Mobile have chosen to rely primarily on roaming agreements to provide service in rural areas, because it is cheaper than building their own networks. The most notorious example is Sprint, who actually reduced its rural coverage to cut costs after the FCC eliminated the spectrum exemption to the automatic roaming right. This decision was not driven by Sprint’s lack of access to low frequency spectrum — Sprint has held low frequency spectrum on a nationwide basis for years.”

I would go one step further.  By taking away from AT&T and Verizon the opportunity to get more lower frequency spectrum and shifting it to Sprint and T-Mobile, broadband deployment suffers a double whammy.  Not only will rural customers not see additional mobile broadband deployment from Sprint and T-Mobile, rural and urban consumers won’t see additional broadband deployment by AT&T and Verizon either.  All this picking and choosing does is erode AT&T and Verizon’s ability to grab a little more market share while serving their current customers and adding new urban and rural consumers.

This is not how you enhance a competitive environment in wireless.

 

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I expect an unrestricted auction to help promote broadband deployment

Posted April 24th, 2014 in AT&T, Broadband, spectrum, T-Mobile USA, Verizon, wireless communications and tagged , , , , by Alton Drew

The Federal Communications Commission places a lot of emphasis on competition in the broadband access provider space; too much I think.  Regarding the reverse incentive auction for broadcast television spectrum, the competition narrative highlights the number of wireless broadband providers being able to bid for spectrum.  I’ve opined before on the FCC’s bottleneck status as gatekeeper to the airwaves.  As the monopoly supplier of licenses it won’t and should not be expected to parcel out spectrum to the lowest bidder.  On the contrary, economic logic says that the FCC should create an environment where it gets and takes the highest bid.

Getting the highest bid, optimizing its market power over licenses, won’t happen if the FCC forces AT&T and Verizon to sit on the sidelines.  A recent finding by The Phoenix Center states that including AT&T and Verizon in the reverse incentive auction won’t have the effect of driving out smaller wireless carriers as bidders.  Inclusion of AT&T and Verizon in the auction is expected to increase overall revenues and facilitate the revelation of auction values held by other bidders.  Using the 2006 AWS-1 auction as a basis for determining performance and outcomes in the upcoming reverse auction, the Phoenix Center determined that AT&T’s participation added a 21% premium to auction prices ” above and beyond the revenue effect of the typical bidder.”

There were 168 bidders in the AWS-1 spectrum auction and 104 bidders won spectrum.  Combined, AT&T and Verizon walked away with 61 licenses, but T-Mobile ( you know, one of the little guys) walked away with 120 licenses.

While the report did not speak specifically about broadband, it seems like an unrestricted spectrum auction, like the 2006 AWS-1 auction, would give large and small carriers access to the airwaves necessary for building out more facilities.

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The Internet’s growth is reason for regulatory humility

Seeing Mark Zuckerberg in a suit and tie is still something I have to get used to, but it’s a small price a billionaire has to pay in order to bend the President’s ear on issues of privacy and surveillance by the National Security Agency.  Mr. Zuckerberg’s recent visit, along with other Internet company heads, with Mr. Obama is an example of the impact this still growing industry has on the structure of the nation’s economy and its public policy toward the information superhighway.

And the Internet is definitely growing, contributing to the nation’s economy at a greater rate than other traditional industries.  According to the U.S. Bureau of Economic Analysis, information-communications-technology producing industries saw an increase of 7.2% in their contribution to gross national product in 2012.  This rate of change reflected a significant increase from the 2011 increase of 4.7% in 2011.  Approximately 5.9% of GDP in 2012 is credited to the ICT industry.  Of the 2.8% increase in GDP in 2012, .41 percentage points was attributed to ICT.

Between 2006 and 2011, the broadband industry has invested $73 billion in broadband infrastructure deployment and AT&T in 2012 committed to $14 billion a year in broadband investment for three years, while Verizon has reported an average of $16 billion over the last three years.

According to a 2011 study by McKinsey & Company, the U.S. is the largest player in the Internet space accounting for 30% of global Internet revenues and 40% of net income.  Citing a study conducted by comScore, The Huffington Post reported that in 2011, Americans spent $256 billion on retail and travel related online purchases.

Last week, Federal Trade Commission chairman Maureen Ohlhausen made the argument for abandoning the silo approach to regulation, an approach that calls for regulators to guess how the future of technology will play out.  The Internet has been dodging the regulatory bullet but network neutrality advocates seem to have the entire Internet eco-system in their cross hairs for additional regulation.  Given the amount of investment that has been made in the Internet eco-system by broadband providers, can a case for more regulation using a regulatory scheme that may slow down innovation be made by the FCC?

Even pursuant to section 706 of the Telecommunications Act, where the Congress has called on the FCC to promote the deployment of advanced services an argument should not be made for heavy handed regulation.  If anything, where section 706 is concerned, deployment without codification of net neutrality principles has been delivering those advanced services because industry has been listening to the consumer.