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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.

In the next net neutrality go-round, will the FCC promote municipal broadband

Federal Communication Commission chairman Tom Wheeler announced this morning that the agency will take a second crack at net neutrality rules. In his statement, Mr. Wheeler said that:

“In its Verizon v. FCC decision, the United States Court of Appeals for the District of Columbia Circuit
invited the Commission to act to preserve a free and open Internet. I intend to accept that invitation by
proposing rules that will meet the court’s test for preventing improper blocking of and discrimination
among Internet traffic, ensuring genuine transparency in how Internet Service Providers manage traffic,
and enhancing competition. Preserving the Internet as an open platform for innovation and expression
while providing certainty and predictability in the marketplace is an important responsibility of this

Mr. Wheeler went on further to clarify that the FCC will not appeal last month’s federal court of appeals order that vacated the anti-blocking and ant-discrimination portions of the FCC’s rules.  The rules left in place transparency rules and cemented the FCC’s authority to regulate the internet pursuant to section 706 of the Communications Act of 1934.  That section grants the FCC authority to pursue policy that promotes the deployment of advanced services including broadband and can be read broadly to include over-the-top or edge services such as those provide by Netflix or Hulu.

The FCC is also reserving its authority to reclassify broadband service as a telecommunications service under Title II of the Act, according to the article.

Also of interest was Mr. Wheeler’s statement on competition in the area of broadband access, seeming to indicate promoting municipal broadband as a policy to address internet service provider choice:

“The Commission will look for opportunities to enhance Internet access competition. One obvious candidate for close examination was raised in Judge Silberman’s separate opinion, namely legal restrictions on the ability of cities and towns to offer broadband services to consumers in their communities.”

Yesterday, President Obama reiterated his support for an “open internet” but reminded the public that he could not order the FCC to apply Title II treatment to the internet.

AT&T issued a statement on the FCC’s latest effort to codify open internet rules, indicating a willing to work with the FCC while reminding the agency that it has sufficient authority to maintain openness without firing another regulatory shot:

“AT&T has built its broadband business, both wired and wireless, on the principal of Internet openness.  That is what our customers rightly expect, and it is what our company will continue to deliver.  That is also why we endorsed the FCC’s original rule on net neutrality, and is why we pledged to adhere to openness principles even after the recent court decision.

“As the FCC embarks on a new proceeding to clarify its authority under section 706, we will, of course, participate constructively and in the same spirit with which we worked with the Commission on its original rule.  We believe the FCC possesses sufficient authority under section 706 to preserve Internet freedom and openness, and that it can do so without over-regulation.  Indeed, and as the court recognized, section 706 was clearly intended by Congress as a tool to enhance broadband investment and deployment.  Thus, it is vital that, as the FCC defines its authority, it do so in a way that does not inhibit the very investment section 706 was intended to assist.”–Jim Ciccone, AT&T Senior Executive Vice-President for Legislative and External Affairs

Verizon also issued a brief statement reminding the public and regulators of its commitment to an open internet:

“Verizon remains committed to an open Internet that provides consumers with competitive choices and unblocked access to lawful websites and content when, where, and how they want.  We have always focused on providing our customers with the services and experience they want, and this focus has not changed.”–Libby Jacobson, Verizon, Director of Digital Policy Communications



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The IP transition should have a positive impact on capital inflows

Capital flows to where it  can find the highest returns and in the broadband world, that area is internet protocol networks.  As Rick Boucher, honorary chairman of the Internet Innovation Alliance shared in a recent op-ed in The Hill:

“The dramatic shift toward broadband-based networks forecasts nothing less than the end of the aging telephone network first used in the era of Alexander Graham Bell. By the end of this decade, through a carefully planned process, all consumers will have transitioned to modern high-speed broadband networks.

Most consumers — essentially anyone who has a cellphone or who gets telephone service from a cable provider — have already made this switch without government action. Drawn in significant part by 4G wireless technology offering speeds comparable to the fastest wired broadband, consumers are fleeing the old network in droves. Today, less than one-third of the country uses it at all, and only 5 percent use it exclusively. It’s rapidly wearing out. Manufacturers don’t make new equipment for it, and the costs of maintaining it are skyrocketing. It’s a network with limited service functionality. As the transition to date underscores, consumers realize how broadband-based networks offer them far more. Driven by new technological opportunities, that’s the marketplace at work.”

Consumers here in the United States are ahead of the Federal Communications Commission when it comes to the realities of the broadband and information markets.  Consumers want data and content delivered quickly.  They are used to the simultaneous flow of text, voice, and data over their smartphones and tablets and are not about to go back to costlier old legacy alternatives that provide way less capacity needed to provide the benefits of convergence.

Remember the days of clicking back and forth on the telephone between two people in the same conversation?  Do you prefer that type of communication of yesteryear or do you like the capacity broadband enables for Google hangouts or talking to multiple people on Skype?

One example of capital seeking opportunity for high return I found way south of here in Jamaica.  Maybe it’s my homesickness combined with Atlanta’s recent two-inches of snow blizzard that guided me to this Capital Networks article.  The takeaway here though is that Jamaica’s information, communications, and technology infrastructure is an increasingly important asset and by description it is increasingly digital.  The strategic partnership between Capital Networks, a content provider, and broadband provider Flow Jamaica resulted in innovative services for the country’s tourist industry, and all on digital networks.

Here at home, Verizon provides an example of how broadband networks, particularly wireless networks, are being leveraged to attract financing from the capital markets.  In a recently issued prospectus for securities being issued to finance its buyout of Vodafone’s share of Verizon Wireless, Verizon wrote the following:

“Our strategy is to build upon the foundation and strength of our network assets as the platforms for future growth and innovation. We have a unique asset portfolio to drive continued growth and value over our networks and create an integrated experience for our customers. We are extremely well-positioned in the center of the trends that are driving growth in our industry – mobility, broadband, video, cloud services and security. Our portfolio of assets will enable us to better leverage our capabilities across the entire business.

In wireless, we completed our 4G LTE coverage build and continue to invest in our network to take advantage of the significant opportunities enabled by this technology, as we innovate around our customer solutions. We have further strengthened our portfolio of enterprise strategic services with the development of a new cloud services product suite, the launch of a mobile healthcare platform, and several targeted acquisitions which will enhance our capabilities in mobile video delivery.

We are confident in our ability to take advantage of the growth opportunities in our key strategic markets. We will continue to invest in our networks as the platforms for future growth and innovation.”

Investment is flowing to high-speed networks.  If the FCC is concerned about continued innovation in the broadband markets and wants to help facilitate flows of capital to broadband providers, a thoughtfully planned by expedited IP transition trial is imperative.