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Haven’t seen an argument for Title II regulation increasing the output of information services

According to the United States Bureau of Economic Analysis, information services, which includes telecommunications and broadcast services, saw its contribution to gross domestic product increase 10.6% in the fourth quarter of 2015. That was a big jump from the .4% increase in contribution to GDP in the third quarter of 2015. According to the BEA, fourth quarter growth primarily reflected increases in telecommunications and broadcast.

While real gross output increased just 1.4% for the United States in fourth quarter 2015, the information services sector saw its real gross output increase by 10.8% in the fourth quarter of 2015.  For all of 2015, real gross domestic product for the United States increased by 2.4%, but for the information services sector alone, gross domestic product increased 6.3% for 2015.

Proponents of Title II common carrier regulation and open internet rules have not given their preferred regulatory framework any credit for the performance of the information services sector. For example, a review of Federal Communications Commission chairman Tom Wheeler’s blog posts and statements at the time BEA released its report in April 2016 reveals no reference to the information services sector’s contribution to GDP. In a March 2016 blog post. Mr. Wheeler acknowledged the negative impact rate regulation could have on innovation and investment:

“But the 1996 Act did not change the basic economics of building and running large communications networks.   Whether they are wireless or fixed, operating these networks is a capital-intensive undertaking.   It requires the purchase of expensive inputs like spectrum, optical fiber, and radio antennae, plus the additional administrative and legal expenses of deploying these resources in the cities, towns and rural communities where network users live and work.  While the FCC has taken many steps over the years and is still working to promote competition among network service providers, the fact remains that the financial barriers to building these networks are formidable, and most American consumers have few or no choices when it comes to this service.   Our most recent Broadband Progress Report, for example, found that only 38 percent of Americans have more than one option for fixed advanced telecommunications technology.

One of the biggest challenges I have confronted in my time at the Commission is facing down the false choice between investment and openness.  I believe our Open Internet Order took the right approach, by protecting entrepreneurs and small businesses’ free and open access to the Internet, while also forbearing from sections of Title II like rate regulation and unbundling that might reduce network owners’ incentives to continue building out their networks and investing in new technologies like 5G.”

If Mr. Wheeler believes that forbearance from rate regulation will provide incentives for continued investment in broadband networks, then investors should expect continued positive growth in the integrated telecommunications services industry which has seen market value increase 2.69% over the past year, just as long as Mr. Wheeler keeps his word. I don’t believe Mr. Wheeler has any incentive to go back on his word to forbear. To do so would put the final dagger in the heart of the initiative to apply Title II to broadband providers and prove the anti-Title II constituency’s argument that Title II is bad for growth and investment.

So while we haven’t seen an argument that Title II regulation is responsible for information services positive contribution to growth, I wouldn’t expect to see one any time in the near future.

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The pursuit of greater returns on capital resulted in the blurring of telecom, media, and entertainment

Part of the naivete of the net neutrality argument was how it ignored the realities of the broadband industry and the role of capital.  Broadband access to the internet has never been about the democratization of self-expression but about the commercialization of the exchange of information.  Information comes in various forms whether it is scholarly work, news, or entertainment.  As Ivan Seidenberg notes in this piece, the lines between media, telecommunications, and entertainment have been blurring for decades where the silos that once represented media, telecom, and entertainment have finally been broken down.

If investors who put their capital into these industries want to see higher returns, then acknowledging that these walls have broken down is the first step they should take.  Pushing back against government actions that fail to recognize that breaking down these walls is necessary for capital to continue flowing to and growing in these industries should be the second thing to acknowledge.

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No we are not yet Borg

I admit that while not being a die-hard science fiction fan, I am a fan of Battlestar Gallactica and Star Trek. Last spring I binged on BSG sometimes watching three or four episodes a day. The series is great. While I’m more a fan of a Star Trek: The Original Series, I always found the Borg the more interesting of antagonists on Star Trek: The Next Generation. Their single-minded focus on assimilating all species of the known universe into one collective was intriguing and downright scary.

BSG also dealt with the collected in a way. The series depicted survivors of the Twelve Colonies (twelve planets) wiped out by machines they had created. These machines, the Cylons, were also part of a collective although they were not out to assimilate any humans. They managed to defeat the Twelve Colonies by hacking their interconnected computers. The commander of one of the Colonies’ battlestars, Bill Adama, had a rule on his ship that may have been responsible for them staying alive: no interconnected computers on his ship. Interconnection has its downside.

I’ve touched on being interconnected before, addressing the downside of social media, but an article in The Wall Street Journal by Holman Jenkins provided some additional fodder for the notion of being socially connected via computer. Mr. Jenkins argues in the latter part of his piece that the current tit-for-ta that we are seeing between CBS and Time Warner Cable is a side show, a distraction from the real goal of telecommunications and cable companies: facilitating the meld of mind and machine.

It makes sense. From a consumer view, cell phone users may as well implant their devices as much as we are seen clutching them to our ears. I have to get used to people apparently mumbling to themselves when they are actually talking to someone else.

From a business view the fight for advertisement dollars comes from the traffic we can accumulate at some point. The cable and telecommunications companies, the broadband providers, want their sites to be the points of accumulation. They want the advertising traffic that Facebook and Google are combating for. Anticipating our consumer needs by tracking and documenting our thoughts, feelings, and buying habits would be aided by a technology that makes it easier to meld devices collecting this data with the behavior of the consumer.

My question is, will government promote this type of innovation? How regulated will this new frontier of technology and consumer thought be?

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FCC: The GOP platform gets it

The Republican Party included in its platform its vision for the relationship between the communications industry and government. It’s a good start. First, check out the platform:

“The most vibrant sector of the American economy, indeed, one-sixth of it, is regulated by the federal government on precedents from the nineteenth century. Today’s technology and telecommunications industries are overseen by the Federal Communications Commission, established in 1934 and given the jurisdiction over telecommunications formerly assigned to the Interstate Commerce Commission, which had been created in 1887 to regulate the railroads.

This is not a good fit. Indeed, the development of telecommunications advances so rapidly that even the Telecom Act of 1996 is woefully out of date. An industry that invested $66 billion in 2011 alone needs, and deserves, a more modern relationship with the federal government for the benefit of consumers here and worldwide.

The current Administration has been frozen in the past. It has conducted no auction of spectrum, has offered no incentives for investment, and, through the FCC’s net neutrality rule, is trying to micromanage telecom as if it were a railroad network. It inherited from the previous Republican Administration 95 percent coverage of the nation with broadband. It will leave office with no progress toward the goal of universal coverage – after spending $7.2 billion more.

That hurts rural America, where farmers, ranchers, and small business manufacturers need connectivity to expand their customer base and operate in real time with the world’s producers. We encourage public-private partnerships to provide predictable support for connecting rural areas so that every American can fully participate in the global economy.

We call for an inventory of federal agency spectrum to determine the surplus that could be auctioned for the taxpayers’ benefit. With special recognition of the role university technology centers are playing in attracting private investment to the field, we will replace the administration’s Luddite approach to technological progress with a regulatory partnership that will keep this country the world leader in technology and telecommunications.”

Should the GOP take the Congress, I would recommend legislating away the FCC’s net neutrality rules. Those rules strike at the very core of a carriers freedom to manage its networks in the most efficient manner, in the way that carrier sees fit according to its business judgment.

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Democrats Need to Focus on Commerce

Posted July 9th, 2012 in antitrust, AT&T, spectrum, SpectrumCo, Verizon and tagged , , by Alton Drew

So let me get this straight. The Democratic Party wants telecommunications companies to build out infrastructure where there is no business case to do so. This appears to be the position of a bunch of congressional Democrats as I read it in an article posted today in The Hillicon Valley. The Democrats are arguing that Verizon’s deal to buy spectrum from SpectrumCo and cross sell cable services provided by SpectrumCo’s partners (Comcast, Time Warner, & Bright House Networks) somehow constitutes anticompetitive behavior.

I’m all for broadband adoption, but it should be driven primarily by the market. Verizon’s deal is driven by its need to get spectrum quickly, both for short term and long term reasons. With left leaning advocacy groups trying to make a bogus antitrust case against Verizon, there may be no free market alternatives left for wireless carriers to acquire spectrum.

In addition, there has been no demonstration how this deal would curtail competition. Cross selling occurs in the communications and other industries. How does Verizon selling Comcast services stop AT&T from selling DirecTV or long distance telephone services? Is Verizon going to stop deploying facilities where consumers need them because they are selling The Vampire Diaries on Time Warner? Give us a break.

Before any congressman considers any action against any industry, they should first ask themselves, how does my reaction promote commerce? If it doesn’t, then they should back off.