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Try the markets, Public Knowledge. Not a failed 1990s policy

Posted September 29th, 2015 in Broadband and tagged , , , , by Alton Drew

Public Knowledge’s Gene Kimmelman and COMPTEL’s Chip Pickering recently wrote an opinion piece for The Hill arguing for the Federal Communications Commission should build on data they have gathered and push an initiative to make the marketplace for broadband more competitive.  Messrs Kimmelman and Pickering would like incumbent broadband providers to unbundle their access networks and allow alternative broadband providers “open access” to these networks.  The U.S. has been down the resale path before with phone services in the 1990s and it didn’t work then.  The companies that were able to mount a real challenge to incumbent telephone companies were cable companies. They were able to do this because they had their own facilities.

If Public Knowledge and COMPTEL really want network competition, they should enter the capital markets and raise funds for alternative providers to deploy physical networks.  They should also be willing to meet the financial, technical, and regulatory barriers put in place buy local franchising authorities.  If capital markets aren’t working, they should open up their own private equity shops and raise the funds to build an additional, nationwide provider to compete against incumbent broadband companies and newcomers like Google.

Merely asking the Federal Communications Commission to bring competition is not enough.

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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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Public Knowledge Calls Verizon Sale of Spectrum to T-Mobile a “Buyoff”

Posted June 25th, 2012 in spectrum, SpectrumCo, T-Mobile USA, Verizon and tagged , , , , by Alton Drew

The reporting that Verizon and T-Mobile have entered into a deal that would see Verizon selling T-Mobile some spectrum in return for T-Mobile discontinuing efforts to stop Verizon’s purchase of AWS spectrum from SpectrumCo.

Our old friends Public Knowledge claim that the sale is Verizon’s way of buying off T-Mobile.

Sounds like Verizon and T-Mobile are using the tried and true method of autonomous contracting to resolve an issue. It looks like a plain and simple voluntary divestiture, versus the buy off the far left opponents of anything free market i.e. Public Knowledge claim. Hopefully the swap agreement will move the spectrum transfer from SpectrumCo to Verizon a lot faster.

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Public Knowledge Believes Verizon and SpectrumCo part of a Cartel. Really?

Public Knowledge has been on a little rampage, referring to Verizon’s petition to obtain AWS licenses from SpectrumCo, LLC as synonymous to a cartel. Specifically, Public Knowledge is saying that the aggregation of spectrum on the part of Verizon, combined with joint marketing, reseller, and joint operating entity agreements entered into between Verizon and SpectrumCo would effectively result in a cartel.

Should the transfer go through, Verizon and SpectrumCo, a joint venture between Comcast, Time Warner, and Bright House, will cross-sell each others’ services.

In its ex-parte letter posted on the Federal Communications Commission’s website on 18 June 2012, Public Knowledge made its cartel claim, but doesn’t seem to provide evidence of current or projected cartel behavior. For example, a cartel is defined as a group of firms with an explicit, formal agreement to fix prices and output shares in a particular market. Public Knowledge offers no evidence supporting the particular market Verizon and Spectrum intend to carve up, the level at which prices are to eb fixed, or how shares of that undefined market are to be divided up.

Without a showing that Verizon and SpectrumCo have entered a contract, combination, or conspiracy to restrain trade, a cartel argument is a non-starter.

Besides, why even bring this allegation to the FCC? This claim should be in front of the U.S. Department of Justice.