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Public Knowledge and Free Press want the state to stifle business judgment

Free Press and Public Knowledge would like the Federal Communications Commission to prevent internet service providers such as AT&T and Verizon from providing an innovative method of giving consumers more access to online content without taking a hit to consumers’ data plans.  Ironically, the pricing method, sponsored data, has some precedence from back in the days when AT&T and other carriers offered 1-800 number services to small businesses.  Unfortunately for consumers, Free Press and Public Knowledge use of selective memory is resulting in consumers receiving misleading information about the impact sponsored data plans may have on their buying power and consumer welfare.

As Richard Bennett describes it in a piece posted today, sponsored data plans, where a content provider would pay an internet service provider to allow the ISP’s customers to view certain pieces of content, is a fee shifting mechanism.  Rather than consumers running the risk of running over their data caps when viewing, say a rebroadcast of my Florida State University Seminoles winning the national championship, the content provider, say ESPN, would pay Verizon to allow customer access.

How would a content provider benefit?  If it can get more eyes streaming an event at no extra charge in terms of data usage, consumers may find themselves wanting to view other paid content or purchase an advertisers goods and services from ESPN’s website.

The internet service provider could also benefit because it is one less piece of content that it would have to pay for in order to provide to its subscribers.

Is there some precedence for this?  For we old heads ( a group that the likes of Free Press and Public Knowledge don’t bother to hire it seems) we remember the 1-800 number days.  Large and small businesses and even residential consumers purchased 1-800 number services from long distance carriers in order to incentivize customers to make the long distance calls necessary to place orders for goods and services.  Heck, even I had one so that my fiance at the time and my mom could call me for free.  No one bitched and moaned at the time about businesses using these numbers.  It was good business judgment and smart competitors jumped on the band wagon and bought the services.

Fast forward over twenty years and all of sudden what is basically a 1-800 number service for content providers is a no-no in the net neutrality world.  All of a sudden the “open internet” is under assault because internet service providers and content providers wish to exercise autonomy in developing a strategic partnership that can increase traffic while earning profits for shareholders.

Let’s take a closer look (let me pause here as I hold my nose) at some of Free Press and Public Knowledge’s arguments.  I’ll start with Public Knowledge’s argument first because it is the most unconscionable.  It comes from Michael Weinberg, Public Knowledge’s acting co-President:

“The FCC needs to protect consumers and creators from internet service providers (ISPs) who want to pick winners and losers online. This is but the latest example of how data caps are increasingly becoming used to threaten the open internet.  As AT&T CEO Randall Stephenson announced in May, data caps are all about forcing content creators to pay and are no longer about any sort of network congestion. In December, Stephenson admitted to investors that they had addressed the network capacity issues that were used to justify data caps in the first place. It is time for the FCC to heed Public Knowledge’s over two year old call to investigate data caps and gather basic information about their use. It is impossible for the FCC to examine the impact of today’s announcement on net neutrality until it develops an understanding of data caps.    

“When it was reported in May that ESPN was in negotiations with a major carrier to pay to be exempt from data caps, Public Knowledge highlighted that this was an obvious violation of net neutrality. The company that connects you to the internet should not be in a position to control what you do on the internet. AT&T’s announcement positions itself to do just that.  

“In addition to being a ripoff for both consumers and content creators, AT&T’s plan erects a massive barrier in front of anyone hoping to be the next big thing online.”

The FCC needs to do what?  At the first sentence it should be game over.  Why would we want the government to step in and regulate a contractual arrangement?  Aren’t firms free to enter into a fee shifting agreement like this?  Is there a rule somewhere in the Communications Act that prohibits this?  How does allowing free access to content violate net neutrality rules?  Is there any mention of tier packaging or tolling of data speeds here?  Public Knowledge’s argument is way off.

Let’s look at Free Press’ argument.  This one comes from Free Press’ policy director Matt Wood (Take a deep breath. Now hold nose and dive in):

“While sponsored data will be pitched as a way to save customers money, it’s really just double charging.  The customer is still paying for the connection, and won’t get a refund just because Facebook or YouTube or ESPN are also paying for some data usage now. Both the customer and the content or app provider are paying for the same data. Only AT&T makes out better.”

Really?  Why wouldn’t the customer pay for their connection?  And why should the customer expect a refund?  If a cable subscriber got access to HBO free for six months as part of a promotion, would Free Press and Public Knowledge expect the customers access to the cable company’s network to be free also for that six months?  I hope not.  There are fixed and variable costs of the network that have to be recaptured regardless of the freebies a consumer may be receiving.  Also, in the days of 1-800 number services, did consumers see their access line and subscriber line charges go to zero when they used an 800 number service?  The answer is no.

Free Press and Public Knowledge are staffed by very bright and articulate people, but there comes a time when you have to allow reason to take over and take a break from singing at the windmills.  AT&T’s sponsored data service is a strategic partnership that the FCC should not intervene in.  Consumers won’t be harmed because it will be up to them to choose whether to access sponsored content.  Smaller content providers are free to find alternative methods of financing their own sponsored data arrangements should they find investors or underwriters who believe that type of business model would be feasible for the content provider.

 

Fee sh, select

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Genachowski’s painstaking approach

Posted December 1st, 2012 in FCC, Government Regulation and tagged , , , , by Alton Drew

The Washington Post published an article back on 28 November 2012 about Federal Communications Commission Chairman Julius Genachowski’s approach to regulation. The article, written by Cecilia Kang, describes Mr. Genachowski’s approach as “painstaking”. Question is, who received the most pain from Mr. Genachowski’s staking.

Mr. Genachowski’s approach may have been “painstaking”, but his major accomplishments show a penchant for replacing market driven approaches with quasi government determination of market structure with a bias toward the opinions of advocacy groups like Free Press and Public Knowledge.

Let’s face it. Free Press and Public Knowledge, who both got a lot of play from Ms. Kang in this article, had a good time under the Genachowski regime. These grass roots advocates got their net neutrality rules codified much to the chagrin of lawmakers on Capitol Hill, and pushed the FCC to consider reclassifying broadband as telecommunications, a move that would have driven broadband regulation to the auspices of a 20th century regulatory regime that would have slowed down investment in broadband deployment, negatively impacting shareholders and consumers alike.

If the FCC wants to appear effective in the 21st century, the agency should focus on promoting commerce by opening up access to spectrum and making sure it gets to the carrier placing the highest value on it. Those carriers tend to be the larger carriers who have invested the most to reach the most customers.

Driving a stake in the broadband industry by inflicting the pain of overly intrusive regulations should not be the legacy Mr. Genachowski pursues. The FCC shouldn’t try to inorganically create a competitive market in its own image.

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Almost Violating Net Neutrality Rules is Not the Same as Violating Net Neutrality Rules

Yesterday Wired.com reported that Free Press and other advocacy groups have raised concerns that AT&T is charging consumers to access an application that allows video conversations between users of Apple devices. The application is called Face Time and was developed by Apple, Inc. The application currently works over WiFi networks. Free Press believes that the requirement that consumers pay AT&T a fee for accessing Face Time almost certainly violates the Federal Communications Commission’s net neutrality rules.

So does a pricing model requiring that consumers of AT&T wireless services pay a fee in order to access a communications application violate the net neutrality rules? I do not believe the pricing model creates a violation.

Under the FCC’s net neutrality rules, mobile broadband providers may not block lawful websites or block applications that compete with their voice or video telephony services. Network management practices are reasonable if they are appropriate and tailored to achieving a legitimate management purpose.

The order does not address any prohibitions on the type of pricing models a carrier may use for its wireless services, including access to mobile applications. While the order does discuss the impact of unreasonable charges assessed to edge providers, it makes no explicit or implicit prohibition on the pricing model being implemented by AT&T.

According to the Wired.com article, Verizon does not assess a fee for access to Face Time. The obvious free market solution for consumers who do not wish to pay to access Face Time would be to switch to another carrier should their decision model conclude that such a switch is worth the cost.

Should the assertions by Free Press escalate to a formal complaint, I believe that the FCC will find that differences in each company’s network will justify differences in pricing models. Also, the FCC may find that extending rules to cover prices charged to wireless customers in an industry that the FCC has not determined to be non-competitive will be an unreasonable reach.

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Is Free Press Implying a Tying Arrangement in the SpectrumCo/Verizon Deal?

Posted July 4th, 2012 in Comcast, FCC, Government Regulation, spectrum, SpectrumCo, Verizon and tagged , , , by Alton Drew

Free Press filed an ex-parte notice late last week documenting discussions it had with Federal Communications Commission staff regarding the spectrum license transfer proposal between Verizon, SpectrumCo, and Cox. Near the end of the letter, Free Press expressed concern about the joint agreement between the parties to cross-sell each others’ services. Specifically, this is what Free Press had to say:

“We also noted that the transaction between Verizon and T-Mobile does nothing to address our and other petitioners concerns about the harmful joint marketing and operating entity arrangements that are directly tied to the underlying spectrum transaction between Verizon and SpectrumCo/Cox. We noted that these joint arrangements would frustrate the Commission’s goals of fostering a more competitive broadband market, both in wireless and wireline, and urged the agency to focus on these aspects of the transaction as it brings its review to a close.”

Interesting. Is Free Press implying a tying arrangement between Verizon’s wireless services and its proposal to cross sell HBO?

A tying arrangement is a contractual arrangement which conditions the sale or lease of one product on the purchase or lease of another product from the same seller. Verizon hasn’t indicated that it would be branding video distribution services as Verizon cable. Comcast’s cable services are going to remain Comcast’s cable services.

Verizon has been doing fine selling its wireless services without the cross selling, so there would be no need to require Mr. Jones buy cable service in order for him to get wireless services. If Verizon can cross sell cable services, it would amount to a little extra gravy that Verizon’s investors should have no problem with.

Free Press, as usual, is barking up the wrong tree.

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Politics is not How Spectrum Should be Allocated

I’m digging Holman Jenkins’ column in The Wall Street Journal about the allocation of spectrum. Mr. Jenkins makes the argument that politics should not be used to allocate a valuable resource like spectrum. The economics says that the resource should go to the entity that wants to put it to best use and is willing to pay for it. Groups like Free Press and Public Knowledge are too busy with their quixotic quests to realize that society, particularly the underserved, benefit when firms with the scale and willingness to use spectrum receive it.

Not only do the Don Quixote groups not advocate for the underserved, they advocate for an allocation system based on inefficiency. The FCC is allowing itself to be persuaded by a decision matrix not based on hearings. I get tired of notices of rulemaking that come out of nowhere; with just one more step to go before showing up as a final rule. Sure the FCC allows the public to comment, but public comment does not bring the rigorous economic and policy analysis necessary for determining the efficacy and feasibility of proposed rules or other actions that impact how spectrum will be allocated.

Instead the FCC relies on a behind the door, ex-parte approach of arm twisting and brow beating to help guide its policy meetings. They may as well make their decisions at some alumni picnic. The FCC-Free Press-Public Knowledge Triumverate doesn’t seek optimality. It doesn’t care about getting the most out of the use of spectrum. It’s focused too much on keeping the reins on all participants in the wireless broadband sector.