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The FCC needs to change its mindset about capital and Title II

The politics of Washington is not commensurate with capital flow when it concerns broadband investment.  The Federal Communications Commission’s decision to apply Title II common carrier rules has resulted in a decrease in capital expenditures.

It has been reported that during the first half of 2015, AT&T saw a decrease in capital expenditures of 29% relative to 2014.  Charter Communications also saw a decline of 29% relative to 2014 while Cablevision saw capital expenditures fall off by 10% versus last year. CenturyLink was down nine percent while Verizon saw a fall in capex of four percent.

The politics pushing the FCC toward their anti-capital decision was driven by a grass roots group argument that freedom of expression was being challenged by the potential bottlenecks that broadband providers could create.  With narratives that included claims that consumers would not be able to create content on the internet or access the content of their choice, at least the three Democratic FCC members fell sway to it.

Edge providers, like Netflix, also played the “threat to democracy” card, arguing that broadband access providers , via paid prioritization, would discriminate among content providers and deny consumers access to their content.  Netflix, however, has been able to hedge its political bets by paying some of these broadband providers for fast lanes so that video traffic to its subscribers is not congested.

Now the political center of gravity lies in the Congress, at least this week, as the House committee on energy and commerce takes a look at how Title II common carrier treatment of broadband will impact investment.  Given Republican control of the committee, it’s no surprise that the committee’s leadership sees Title II as a burden on investment.  For example, the committee’s majority takes issue with the FCC’s finding that the total annual cost on all broadband providers for complying with the application of the FCC’s Title II rules would be approximately $700,000.  The majority believes the annual cost of compliance could be as much as $52 million.

Having supervised a tariff shop for a state regulator and drafting and filing tariffs as a staff attorney for a law firm, I can assure you that the cost of complying with Title II rules will well exceed the $6.95 per hour that the FCC estimates.  We are not talking flipping burgers here.

Politically, reversing the impact Title II regulation will have on broadband investment is out of the hands of Congress, at least in the short term.  Should a Republican win the White House in 2016 and the GOP maintain control of both chambers of Congress, then investors should expect a new FCC Republican majority to repeal the rules.

A repeal by the Republicans could be moot should the United States Court of Appeals-District of Columbia find that the rules have no statutory basis or that the FCC has not shown why its earlier treatment of broadband as an information service should be abandoned.

The probabilities of a court decision or an election outcome in favor of broadband providers is difficult to calculate but the likelihood of the FCC or the Obama administration changing its mindset about Title II’s impact on capital flows to broadband is definitely zero.  Both the President and the FCC’s three Democrats have invested too much political capital in steering the wrong course.

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Obama administration unveils initiative to encourage broadband deployment

Posted September 17th, 2013 in Broadband, capital, economy, Obama, wireless communications and tagged , , by Alton Drew

Yesterday the Obama administration announced the latest policy that it hopes encourages greater deployment of broadband facilities. The policy is centered on providing broadband carriers with data that shows which government properties are available for access in order to deploy an antenna or run cable.

Last year there was some chatter out of the administration about granting providers a right-of-way in easements held by the federal government along its highways and interstates. With a mapping feature, broadband providers can identify roof tops for placing antennas. For example:

“An interactive mapping tool that allows carriers and communities to view and identify opportunities to leverage Federal properties for the deployment of high-speed Internet networks. For example this map can help the wireless industry identify Federal rooftops where commercial antennas can be placed to support wireless networks. The national map includes data on broadband availability, environmental or historic information, property locations, and contact information so companies can easily obtain more information. The map was built with open government data, displayed in a new way to make it easier for carriers to take advantage of Federal assets in planning or expanding their networks.”

According to the executive order upon which the initiatives are based, the Administration believes the social goal of expanding broadband to all American households can be facilitated by providing the broadband sector with data on existing opportunities for placing facilities. With 10,000 buildings and 30% of all land under federal ownership, it appears that the Administration believes making the private sector aware of these spaces will lead to greater broadband availability for consumers.

The Administration did mention some operational costs savings to a broadband provider. For example, the “Dig Once” initiative allows carriers to time their deployment activities to coincide with an ongoing road or highway construction. The Administration estimates cost savings on deployment at a rate of 90%.

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Broadband adoption for we oldsters

I came across the term “oldsters” in a tweet earlier this morning from a home girl of mine, Sian Morson., founder and chief executive officer of Kollective Mobile. In the tweet, Ms. Morson shared a link to an article describing how prevalent older consumers are becoming on social network platforms such as Pinterest and Instagram. Older users actually, according to the article, dominate these platforms.

I admit that I’m probably slower than the grown-ups featured in the article since I haven’t ventured past LinkedIn, Facebook, Twitter, or Google+, but for those advocating for increased broadband adoption especially for older consumers, the Venture Beat article addresses concerns raised in another article I read on The New York Times’ website.

In the Times’ article, there is a discussion on the mixed outcomes the Obama administration’s policy making may be having on increasing the level of broadband adoption. Twenty percent of Americans do not use the Internet at work or at home even after some of the $7 billion from the American Recovery and Reinvestment Act went to companies to help deploy broadband facilities or programs designed to increase Internet literacy.

Broadband literacy is one of the barriers holding back broadband adoption, right up their with cost, and the feeling that the Internet has little to offer in terms of practical use. As one 78-year old interviewee told the Times, “I use my telephone. I get news on the TV. I’m just not comfortable involving myself with that Internet.”

Policy makers shouldn’t be discouraged, however. A sluggishly growing economy may help more people adopt broadband as more consumers find work that would enable them to purchase access. As older Americans learn from their children how social network platforms help keep them connected with their families and actual community networks, adoption will increase. My 70-year old mother, for example, has become a Skype and YouTube guru, using Skype to communicate with me and my son while using YouTube to help her learn the music she and her choir perform in church.

As with most consumption, Americans have to be shown that the goods and services we are asked to purchase will provide us with a benefit. The aging market is a growing one and constant connectivity may be the lynch pin to hang adoption on.

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Spectrum’s dual mandate

The Federal Reserve isn’t the only agency that gets hamstrung by a dual mandate.

In its effort to provide wireless carriers with greater access to spectrum, the Obama Administration and the FCC fell prisoner to a “dual mandate.” First, there is the duty to get a national resource into the hands of those placing highest value on it. Second, there is the desire to fill federal coffers.

The second mandate has squelched the first. Signaling that there would be so many restrictions on carriers getting spectrum kept dampened efficient transfer of this resource to wireless carriers.

Allowing spectrum to go to the highest bidders while taking the handcuffs off of mergers is the Administration and FCC’s best bet.

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Had enough of the Obama Administration

Today AT&T withdrew it’s bid to purchase T-Mobile deciding instead to take a $4 billion charge off. I expect T-Mobile to
eventually fade away into the Bavarian sunset unless it finds a way to build out a true 4G network and remain competitive
with AT&T and Verizon. While opponents to the transaction begin their holiday season on a high note, next year may not be that grand for T-Mobile’s new subscribers.

I expect rates to go up as a result of the Obama Administration’s preference for populism as opposed to good old fashioned
economics. Obviously the Justice Department does not read the U.S. Department of Labor’s jobs report. Some 315,000 people left the labor force in November. Unemployment for Blacks and Hispanics exceed the national average. These are the same consumers that subscribe to T-Mobile’s services. As the economy continues to flat line, more consumers seeking to offset long term unemployment by reducing household bills will gravitate to T-Mobile’s offerings.

The problem is that given T-Mobile’s smaller network, it will have to increase prices or curtail its services in order to meet the increasing demand. Just as prices are going up and quality of services are falling, a credit constrained parent, Duetsche Telekom, may decide to pull out of the U.S. market. Don’t know if the Justice Department knows this, but things aren’t so hot in Europe right now.

Should the Europeans decide to shore up their central banks with more capital, we may see rates climbing in Europe which will make getting financing even tougher for Deutsche Telekom.

For all its talk about global competitiveness, the Obama Admonistration appears to have dropped the ball on understanding
the meaning and impact of a global economy.