Will the FCC be naughty or nice when it comes to sponsored data

The Federal Communications Commission wants to determine if broadband access providers such as T-Mobile, AT&T, and Comcast, are complying with the Commission’s net neutrality rules. A report in Reuters stated the following:

“As you may be aware, concerns have been expressed about these programs, for example, some have argued that sponsored data unfairly advantages incumbent content providers,” the letter to AT&T said. “We want to ensure that we have all the facts to understand how these services relate to the commission’s goal of maintaining a free and open Internet while incentivizing innovation and investment from all sources.”

FCC Chairman Tom Wheeler hasn’t posted any official statements on the Commission’s request for a January 15, 2016 meeting with AT&T, Comcast, or T-Mobile. Nor are there any docketed items addressing the matter of sponsored programs or other initiatives that allow consumers to use streaming or other data services while avoiding the application of this usage toward their data plans.

The Commission’s net neutrality rules do not speak specifically to a “1-800-number” approach to providing broadband access. The section of the rule that comes closest to addressing the concerns that sponsored data unfairly advantages incumbent broadband access providers is section 47 CFR 8.11.  This section reads:

“Any person engaged in the provision of broadband Internet access service, insofar as such person is so engaged, shall not unreasonably interfere with or unreasonably disadvantage end users’ ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of their choice, or edge providers’ ability to make lawful content, applications, services, or devices available to end users. Reasonable network management shall not be considered a violation of this rule.”

A broadband access provider interfering with an end-user’s ability to select or access a competitor’s broadband access service or lawful content is not at issue here. Edge providers are arguing that they won’t be able to get their content in front of consumer eyeballs if larger content providers can leverage their content by offering it at a discount when they decide not to apply the data used against a data plan cap.

We can’t say whether there is a definitive political risk to the telecommunications sector since the Commission has yet to take any formal action. The “sit down” with broadband access providers is not for another three weeks and speculation at this point would be built on shaky ground.

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The New York Times needs to stop using the silo view to assess Comcast, Time Warner

The New York Times’ editorial board today opined on the proposed merger between Comcast and Time Warner.  In the piece, the editorial board argued that the combination could mean that in the future Comcast could keep competitors from accessing its NBC content and that there would be an inordinate amount of control over the consumer’s broadband access to content.  Here was my response:

“The Editorial Board is focusing on a lot of “what ifs” that if the feared scenarios were carried out by Comcast, the result would be a devaluing of their network and the content that they own. Comcast wants its NBC content shown on as many platforms as possible. The more eyeballs for its content means certainty in advertising and license fees generated by viewers.

Also, the Board is still stuck in the 1990s view of regulation. You can’t use the silo view of how to view Comcast or Time Warner. Google and Apple are developing a business model that connects consumers end-to-end to content. Google is also exploring providing broadband in a number of cities. A Comcast-Time Warner combination is merely good planning as the companies try to prepare themselves for a future where companies that have been erroneously described as tech companies are showing their through colors as media companies.

The notion of information portal is being taken to another level by all of these companies and it’s time for the FCC and the U.S. Department of Justice to recognize this.”

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Comcast and Time Warner would like regulators to joint the 21st century

I just finished listening to a hearing in front of the U.S. House Sub-committee on Regulatory Reform, Commercial and Anti-Trust Law.  Eight panelists tried to persuade the committee that the proposed merger between  Comcast Corporation and Time Warner Cable was either great for the delivery of innovative products and services to consumers or would harm consumers with higher prices and restriction on the availability of content.  What I barely heard was any analysis regarding what type of companies Comcast and Time Warner actually are today.

Based on most of the questions posed by the sub-committee members, their constituents look at Comcast and Time Warner as either 20th century cable companies, sitting somewhere with a huge dish catching satellite signals from HBO, Cinemax, or Disney and sending their programming down some cable wire into a consumer’s home or the company’s that connect us to the Internet.  And the discussion regarding whether the merger will be harmful to competition seemed to center on competition in broadband access or the last mile.

Comcast and Time Warner don’t appear to look at their relevant market as just last mile or broadband services.  From the near beginning of their joint testimony Comcast and Time Warner describe their proposed combination as creating a “world-class communications, media, and technology company.”  Not only are Comcast and Time Warner responding to and servicing the commercial activity generated by online companies such as Amazon, Apple, Google, Facebook, and Netflix, but they are now competing against these companies as these edge providers enter the world of digital voice and broadband access.

The question the U.S. Department of Justice will have to answer is why should we treat the services of each company as a silo such that we carve out one relevant market by which to analyze two companies that operate in multiple markets based on the multiple services they provide.  If the Justice Department identifies a relevant market, then can they say that there is a monopoly in the relevant market and was that monopoly power abused?

Yes, Comcast is already a monster of a company.  It has two main businesses; Comcast Cable and NBC/Universal. Assuming that the Justice Department finds that the relevant market is a national one, can the DOJ conclude that Comcast would have a monopoly in cable services?  How about in content production?  In theme park ownership?  In broadcast television station ownership?  In broadband?

Speaking of broadband, will the merger mean no more deployment of broadband facilities?  Probably not.  It would be highly irrational for a going concern that invests in a DOCSIS 3.0 digitized platform to not squeeze the last ounce of value out of it by not selling broadband services to more consumers.  For this reason alone I don’t see broadband adoption being harmed by the merger.

Cries of the big bad broadband wolf by the opponents of the merger tells me that they are still living in the late 1980s.  Comcast and Time Warner aren’t cable companies anymore.  Ironically it is because they have grown beyond their original core cable service and gotten larger in the process that they are able to escape antitrust concerns, assuming regulators admit they are in the 21st century.

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Dear Al Franken. You’re missing the globe for the bushes

The U.S. Senate Judiciary Committee met today to give their thoughts about the proposed merger between media companies Comcast and Time Warner Cable.

Wait a minute.  Did I say media companies?  Yes I did.  Comcast and Time Warner Cable provide end-users with access to content, whether they purchase that content from programmers such as ESPN or produce that content themselves, such as through their regional sports networks or other entertainment networks.  The questions posed by most of the senators displayed either their ignorance or fear of Comcast and Time Warner’s new roles as content providers.  Their unique position as owners of video distribution pipes that go into the homes of consumers shouldn’t lessen their primary roles as content providers nor should ownership of transmission mediums be the primary determinant of the legal and regulatory framework for their oversight.

Senators like Al Franken, Democrat of Minnesota, have the tendency to focus on small issues that generate the most political excitement and this tendency results in myopic analysis of the issue in front of them.  The senators rather focus on consumer issues of increased prices for ESPN and sports blackouts.  They would rather cater to testimony from content providers complaining about their inability to get their products displayed the digital version of a grocery store shelf, complaining that the store brand is getting the prime spot in the middle of the eye level shelf.

Take for example the testimony of James Bosworth, chief executive officer of Back9Network Inc.  Back9Network provides video programming that promotes the golf-lifestyle.  Mr. Bosworth argues that for independent programmers like his company, it will be near impossible to compete against similar programming provided by Comcast.  Mr. Bosworth would like the merger halted because he believes his firm will not be able to compete with Comcast’s other golf and/or lifestyle programming.

Could the real issue be that programmers such as Back9Network don’t bring much value to the end-user much less the “digital grocery store” that is Comcast to put it in a deserving position for more eyeballs?  In an industry allegedly valued at $177 billion with approximately 26 million golfers, maybe Back9Network, still an infant having been in business only since 2010, hasn’t come up with that compelling business model that Comcast’s David Cohen admits is necessary for the company to place a network in its network line up.  Maybe programmers need to focus on creating something that people want to see in the first place.

But there is something more fundamentally telling in this debate over the merger of Comcast and Time Warner.  If there are so many independent programmers out there jostling for room on a media company’s platform, maybe it’s time for programmers to explore technological alternatives for getting their products into market.  For example, why couldn’t independent programmers combine their content, establish a network, and distribute their programming to end-user laptops, tablets, and smartphones via Roku devices similar to the services provided by Aereo.

Mr. Franken and other senators would rather see the media bottleneck forcibly widened by denying mergers like the proposed Comcast-Time Warner combination.  Instead, politicians and policymakers should promote alternative methods of distribution, especially for content providers who are still trying to make a compelling case that their content provides consumer markets sufficient value.

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Netflix, Comcast agreement exposes a house of cards flaw in net neutrality

Posted February 24th, 2014 in Comcast, FCC, Government, Government Regulation, net neutrality and tagged , , by Alton Drew

On 23 February 2014, Netflix (Nasdaq: NFLX) announced that the over-the-top video distributor has entered an interconnection agreement with Comcast (Nasdaq: CMCSA).  According to Netflix:

“Working collaboratively over many months, the companies have established a more direct connection between Netflix and Comcast, similar to other networks, that’s already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic. Netflix receives no preferential network treatment under the multi-year agreement, terms of which are not being disclosed.”

The Federal Communications Commission has not, at the time of this writing, issued a statement yet on the interconnection agreement.  Interconnection agreements between backbone providers and internet access providers are unregulated, although the FCC has authority to regulate the internet eco-system as affirmed by a recent appellate court ruling last month.

How does this agreement impact net neutrality in general?  First, it exposes a flaw in the approach that net neutrality advocates pursued on the issue of non-discrimination among various providers of traffic.  As The Washington Post‘s Timothy Lee pointed out in an article this morning, advocates have looked at traffic flow from websites, big and small, as coming through one pipe with the fear that an internet access provider could determine which content provider’s packetized data could flow through at one level of speed versus other providers.

Yesterday’s announcement presents what could be a trend where larger providers of content, such as Netflix, a company that accounts for 30% of video traffic over the internet, could go the backbone provider arbitrage route, choosing to go directly deliver traffic to residential ISPs versus going through a backbone provider.

Mr. Lee raises concern that there may be some negative impact on competition in the backbone provider sector especially where content providers can connect directly to ISPs and ISPs themselves are backbone providers.  The way I see it, backbone providers would have to reduce their interconnection rates to stay competitive with ISPs like Verizon or Comcast who have the resources to provide their own backbone services.  As content providers pay lower charges to interconnect and as more over-the-top providers enter the market, consumer welfare may increase because the rates they pay for over-the-top services may remain flat or even decrease.

Going back to the appellate court’s ruling in January, the agreement forces the FCC to apply extra caution in interpreting and using section 706 of the Communications Act to reboot net neutrality rules.  Here it is that a content provider has entered into an agreement to increase the quality of services to its clients without any prodding from regulators.  Should regulators now subject content providers and ISPs to case-by-case reviews of interconnection agreements?  That policy approach would run counter to enhancing consumer welfare in that subscribers to video services such as Netflix would have to see delays in the implementation of increased quality of customer service.

If the FCC wants to promote the deployment of a high-speed universal broadband network, allowing content providers and ISPs the autonomy to enter and enforce their interconnection agreements is the best approach.