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Any regulation of zero rating is unnecessary market interference

Members of the wireless industry got together yesterday in Washington, D.C. to debate what the Federal Communications Commission’s next move on zero rating ought not to be. Inside Sources reported that the wireless confab included T-Mobile, Verizon, Facebook, and other parties. Zero rating allows wireless services subscribers to access certain content providers without that access being charged against the consumer’s data plan. T-Mobile’s “Binge-On” service is a recently deployed example of this type of service.

Pro-net neutrality groups like Free Press, Public Knowledge, and the Electronic Frontier Foundation believe that zero rating violates the Commission’s open internet order by throttling data streams while favoring certain content providers over other providers.  For example, under 47 CFR 8.7, a person engaged in the provision of broadband internet access service shall not impair or degrade lawful internet traffic on the basis of internet content, application or service, or use of a non-harmful device, subject to reasonable network management.

One issue will be whether a service like “Binge-On” actually throttles traffic pursuant to this rule. The Commission so far has opted to a light touch approach to zero rating-type services, which wireless carriers have likened to 800-number services where the 800-number customer or its telephone service provider ate the cost of a long distance call from a customer. The Commission should find that there is no throttling because treatment of data traffic will be the same for all content providers, whether access to their content is done via “Binge-On” or not. The Commission’s political constraints go beyond the letter of their rules.

The Commission has been fervent about its clear and fair “rules of the road”; that all traffic be treated equally, that it may not want to rock the boat with the pro-net neutrality posse or their alleged four million post-card writing supporters. There is a chance that the Commission may opt for the safety of saying no to “Binge-On” with the claim that its best to err on the side of caution and avoid having its net neutrality rules go sliding down a slippery slope.

A call against “Binge-On” and other zero rating services is a strike against investor interests especially for investors in smaller carriers like T-Mobile. If T-Mobile is to acquire more market share it will do so with bolder offerings like “Binge-On.” The service appears to be an effective way for promoting the company’s other offerings, so much so that T-Mobile is finding that some customers, having had free access to participating websites are opting for additional and more expensive service. If there is an opportunity for government to show how anti-investor some policies can be, treating zero rating as anti-net neutrality would be one of them.

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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Why is FCC spectrum policy favoring weak business models?

Reading Jeff Mazella’s piece for the Center of Individual Freedom regarding T-Mobile’s two-sided arguments on spectrum has me wondering why the Federal Communications Commission even attempts to implement spectrum auction policies that favor carriers like T-Mobile and Sprint.  In my opinion, Sprint and T-Mobile’s business models are primitive and lack the vision of AT&T or Verizon’s business models, models that recognize the convergence of broadband platforms and media.

Mr. Mazella makes the argument that the FCC should not accept T-Mobile and Sprint’s request that portions of spectrum be set aside during the 2016 incentive auction.  T-Mobile and Sprint have portfolios filled with an ample amount of spectrum, are backed by large foreign corporations, and in the case of Sprint, have even exercised the option of sitting out a spectrum auction, in Sprint’s case an auction for advanced wireless services (AWS-3) spectrum.

I would add to Mr. Mazella’s argument that Sprint and T-Mobile simply haven’t shown that they are worthy of more favorable treatment simply because they are stuck in the early 2000s and have not shown me that they can or even want to take their business model to the next step.  As a platform, what are they prepared to do in a converging media and broadband environment?  Why should the FCC pick a loser if they are going to pick and choose which companies will succeed in the first place?

After reviewing company filings with the U.S. Securities and Exchange Commission as well as company press releases, I determined that neither Sprint or T-Mobile plan to innovate or make acquisitions in the media space.  In my opinion the next great moves that the duopoly has embarked on, namely acquiring content and the advertising space and technology they provide, is a business model that goes back to the future and works.  The content model puts a premium on the spectrum that wireless carriers compete for and should signal to regulators which carriers are willing to do more than just make rhetorical arguments about competition and innovation.

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No response to Wheeler’s response on wireless

There was no appreciable response to Federal Communications Commission chairman Tom Wheeler’s comments at the CTIA show in Las Vegas mentioning that the FCC may reconsider the distinction between fixed broadband and wireless broadband as it draws closer to issuing new rules on net neutrality or the Open Internet.

The goal of the Open Internet proceedings “is to establish rules of the road for Internet openness that will provide certainty in the market place and facilitate the continuation of the virtuous cycle of investment and innovation”, Mr. Wheeler said.

Consumers are increasingly relying on mobile broadband, noted the chairman, and acknowledged the wireless industry’s position that mobile broadband carriers face constraints that their fixed broadband cousins do not.

AT&T(T:NYSE); Sprint (S: NYSE); and Verizon (VZ: NYSE) saw their share values fall today but it wasn’t clear from media headlines whether the fall was in response to the possibility that fixed and mobile may be treated the same under net neutrality rules or his policy of challenging wireless broadband company mergers such as the attempted AT&T-T-Mobile combination or the more recent attempt by Sprint to acquire T-Mobile.

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I expect an unrestricted auction to help promote broadband deployment

Posted April 24th, 2014 in AT&T, Broadband, spectrum, T-Mobile USA, Verizon, wireless communications and tagged , , , , by Alton Drew

The Federal Communications Commission places a lot of emphasis on competition in the broadband access provider space; too much I think.  Regarding the reverse incentive auction for broadcast television spectrum, the competition narrative highlights the number of wireless broadband providers being able to bid for spectrum.  I’ve opined before on the FCC’s bottleneck status as gatekeeper to the airwaves.  As the monopoly supplier of licenses it won’t and should not be expected to parcel out spectrum to the lowest bidder.  On the contrary, economic logic says that the FCC should create an environment where it gets and takes the highest bid.

Getting the highest bid, optimizing its market power over licenses, won’t happen if the FCC forces AT&T and Verizon to sit on the sidelines.  A recent finding by The Phoenix Center states that including AT&T and Verizon in the reverse incentive auction won’t have the effect of driving out smaller wireless carriers as bidders.  Inclusion of AT&T and Verizon in the auction is expected to increase overall revenues and facilitate the revelation of auction values held by other bidders.  Using the 2006 AWS-1 auction as a basis for determining performance and outcomes in the upcoming reverse auction, the Phoenix Center determined that AT&T’s participation added a 21% premium to auction prices ” above and beyond the revenue effect of the typical bidder.”

There were 168 bidders in the AWS-1 spectrum auction and 104 bidders won spectrum.  Combined, AT&T and Verizon walked away with 61 licenses, but T-Mobile ( you know, one of the little guys) walked away with 120 licenses.

While the report did not speak specifically about broadband, it seems like an unrestricted spectrum auction, like the 2006 AWS-1 auction, would give large and small carriers access to the airwaves necessary for building out more facilities.