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The FCC should pay attention to the overall economy

Posted January 21st, 2016 in AT&T, Broadband, capital, economy, Verizon, Wall Street and tagged , , , , by Alton Drew

Yesterday at the World Economic Forum in Davos, Switzerland, AT&T chief executive officer Randall Stephenson shared with The Wall Street Journal his opinion on economic growth. Mr. Stephenson shared that he is not optimistic about growth in the economy. Expected growth of two percent is unacceptable, according to Mr. Stephenson. Tax policy changes are needed but there is no expectation that there will be any fiscal action this year.  Without fiscal action there is the potential of more downside than upside.

Mr. Stephenson added that lower oil prices were expected to lead to increased consumer spending but that has not panned out because consumers have been price conscious about mobile services. Discounts as  little as ten dollars could prompt a consumer to change mobile carriers.

There has been little if any evidence that the Federal Communications Commission is taking into account the state of the economy and its impact on consumer demand for broadband services. In comments before the Brookings Institution, FCC chairman Tom Wheeler argued that the success of broadband services leads to increases in demand for broadband which increases the incentive for competitive broadband.

Mr. Wheeler might not buy AT&T’s argument that lack of national economic growth is constraining carriers like AT&T. Mr. Wheeler believes that 75% of AT&T’s network will be controlled software by 2020. The replacement of hard physical switching systems by software is expected to reduce Verizon’s real estate costs by 80%, according to Mr. Wheeler. Powering a few computers can save up to 60% of energy costs versus endless hard switches, according to Mr. Wheeler. As the cost of delivering broadband goes down, says Mr. Wheeler, the opportunities for innovation increase. “This means we’re not going to let imaginary concerns about investment incentives and utility regulation cause us to let up on policies to encourage fast, fair, and open broadband.”

If the concerns are imaginary then maybe equity analysts are sleep deprived. We shared in a 28 December 2015 post that analysts believed that the wireless industry participated in a competitive market. The large wireless service companies are subject to pricing squeezes brought on by smaller entrants, analysts found, and extremely high prices for spectrum were further compounding pricing squeezes.

The reality of market concerns are further highlighted when one considers how much the information sector impacts gross domestic product. According to the U.S. Bureau of Economic Analysis, the information services portion of the economy has been playing an increasing role over the last three years. Information represented 9.3% of gross domestic product in 2013. By 2014 this percentage increased to 9.5%. At the end of the third quarter in 2015 the percentage has climbed to 9.6%.

Given Wall Street’s assessment of wireless markets and the impact information services plays on the overall economy, the FCC should look beyond the switch to software-based communications infrastructure when ascertaining the competitiveness.

 

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No, Mr. Wheeler. Your net neutrality rules haven’t been kind to the communications sector

Posted March 18th, 2015 in Federal Communications Commission, net neutrality, Title II and tagged , , by Alton Drew

During testimony before the U.S. Senate Committee on Science, Commerce and Transportation, Federal Communications Commission chairman Tom Wheeler argued that the Commission’s net neutrality rules would have a positive impact on investment, citing an uptick in the market the day after the Commission issued its broadband reclassification order.  Mr. Wheeler is correct that the market enjoyed a sweet ride upwards on February 27.  CNN reported that the Nasdaq increased 7% while the Dow rose 5.6%.  The S&P 500 gained 5.5%.

But were these returns the result of the Commission’s decision to take us back to 1995?  No, they were not.  The jump in stock market values were likely due to signals from central bankers around the globe, including insights shared by Federal Reserve Board of Governors chairman Janet Yellen.  Dr. Yellen opined before Congress that the economic outlook for the United States in 2015 was good.  Also adding to the positive outlook on that day were actions taken on the part of a number of European central banks.  For example, the European Union approved another stimulus package for the Euro Zone with particular emphasis on Greece’s struggling economy.  That type of positive news out of Europe could only signal to investors that an important market for American business was thawing.

If we go back to the day of the Commission’s issue of its rules, February 26th, the news was gloomier for the markets overall.  According to Zacks.com the market took a downturn, with the Dow Jones Industrial Average falling .1% and the S&P 500 falling .2%.  The Nasdaq, which weighs heavily toward tech stocks, did see an increase of .4%.  This increase was led, however, by Google, Adobe Systems, and Facebook.  Ironically, Google and Facebook have been proponents to some degree of net neutrality so maybe Mr. Wheeler was doing the happy dance for these guys.

Overall the past four weeks have not been good for the media and telecommunications.  Over the last four weeks, the New York Times Technology Media and Telecommunications index has been down .62%.  For the past 52 weeks, a time period that for the very most part did not include any net neutrality rules, the New York Times TMT increased  9.37%.  With that type of growth the industry didn’t need any rules to spur innovation.

Bottomline, Mr. Wheeler hasn’t shown me any evidence that his latest version of net neutrality rules is having any positive impact on the markets.

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Today’s House Small Business Hearing on Broadband a Reminder of Congress’ Role in Commerce

Today the House Committee on Small Business heard from the heads of the Federal Communications Commission, the National Telecommunications and Information Administration, and the Rural Utility Service. Each agency described how it was contributing to the deployment of broadband, ensuring competition amongst broadband providers, and financing the construction of facilities.

The testimony of the agency heads did not provide any new information that would move markets, raise any additional concerns about regulatory uncertainty, or otherwise would cause investors any heart burn.

Notable mention should be given to FCC chairman Julius Genachowski for telling committee members that the FCC intended to continue a light touch approach to regulating the Internet and RUS head Jonathan Adelstein taking the position that industry consolidation was not necessarily good for broadband deployment in rural areas.

My take away from this afternoon’s hearing is the reminder that the Congress is responsible for regulating commerce. Commerce refers to trade on a large scale, usually across states or countries. Large scale trade needs the appropriate infrastructure to move large volumes of goods and services. E-commerce has the same needs from the infrastructure we call broadband.

What Congress needs to do is continue with its light touch approach to regulating commerce that goes across the broadband infrastructure. Speed limits and other network management requirements don’t need to be placed on it. Additional requirements will only dampen economic growth. The innovation and job creation each agency head mentioned today has been emerging from a light touch regulatory scheme. There is no need to change that.