August 2009 Archives

August 28, 2009 11:45 AM

A Funny Thing Happened . . . Part 2

Meanwhile, . . . back at the ranch . . . given the potential for inter-governmental "enforcement competition", it is helpful to look at what the FCC's existing longitudinal data sets are showing regarding the performance of markets that, unlike the wireless applications market, are firmly under the jurisdiction of the Commission.  Does the FCC have information that could lead a "fact-driven" agency competitor (like the Antitrust Division or the FTC) to believe that the Commission has any "infra-marginal" markets that might look like good "acquisition targets?"

The following slide was presented by the Media Bureau to the FCC at the Commission's first open meeting at the beginning of this year.  This slide graphically illustrates the price performance of several different communications services from 1995 through 2008 vs. the Consumer Price Index ("CPI").  In the relevant time period, the CPI for all products and services (including food and energy) increased by about 38%.  During this period, the price of most major communications services--including mobile wireless service--declined in absolute terms, not just relative to the CPI.  Every service, that is, except cable television service--which increased by about three times the rate of inflation (122% vs. 38% for the CPI).   The Commission attributed this poor performance to a lack of competition in the market for subscription TV services.  Below is "Slide 5" of the Media Bureau's presentation on January 15th, and was based on data presented in the Commission's Report on Cable Industry Prices ("Cable Price Report"), which was released on the following day.
 So, could the FTC and/or the Antitrust Division sense an opportunity to expand their own jurisdiction?  Well, since the FCC's wireless focus seems to be on vertical integration between handset providers, wireless data applications providers (or at least one provider), and wireless service providers, does the Commission's cable data tell us anything about the effect that vertical integration (with set-top box providers and programmers) has had on the relative poor performance of cable prices?  As a matter of fact, the Commission's data does shed some light on the degree to which vertical integration is responsible for the poor performance of the cable market.
Continue reading A Funny Thing Happened . . . Part 2
August 27, 2009 6:16 PM

A Funny Thing Happened On the Way to the Wireless Forum . . .

Apropos of almost nothing, I always liked that old joke that "I was on my way to a fight and a hockey game broke out."  After watching the FCC open meeting this morning, it struck me that as the FCC launches three Notices of Inquiry ("NOIs") into the "wireless [smart phone] universe"--investment and innovation [mainly spectrum management, availability, and interference issues], the Commission's annual wireless competition report to Congress, and consumer benefits [information available to consumers in choosing services]--competition might just break out between government agencies with overlapping jurisdiction.  It is worth noting that at today's Commission meeting, with respect to the Innovation and Investment NOI, and the Competition Report NOI, both Commissioners McDowell and Baker--while supporting the effort to obtain more knowledge about the broader wireless market--were skeptical of the Commission's jurisdiction in some areas of the NOIs.  They might be onto something; especially when looking at an expansive view of the entire industry that is responsible for bringing a smart phone, and its functionalities, to market.

A cynic (but not me), might even say that the Commission appears to be engaging in a little "competition" vis--vis other government competition enforcement agencies (like the Federal Trade Commission or the Antitrust Division of the Department of Justice), and attempting to expand its jurisdiction into the wireless applications market.  Some might say this "focus" is significantly, but not entirely, rooted in on one recent episode involving some of the country's largest companies in their respective markets, whatever those markets are and however they are defined.  But, as noted, the FCC is not the only agency--or even the traditionally primary agency--likely to take action against anticompetitive practices in the communications industries; the DoJ and the FTC can also take action, and have done so in the past. 

Here's something else: in Chairman Genachowski's statement on the NOI regarding an expanded Wireless Competition Report, he says "[the] transition [from mobile voice to mobile Internet] promises to increase the pace of innovation and investment, but only if we have an open and competitive marketplace that gives every great idea a chance to make its way to consumers so that the best products or services win."  This statement itself contains nothing to quarrel with, as this is the way competitive markets do work . . . eventually, anyway.  Indeed, most companies get product/service ideas, inputs, and other components from a variety of wholesale sources and independent inventors/industrial designers.  Whether the best ideas even get to market, much less win, is a riskier proposition because we can only really know in hindsight what those ideas are.

It might be persnickety, but the slight concern with this statement, is that in a competitive market, the competitors get to decide which ideas are "great", even if they are dead wrong on ones they back and the ones they fail to support.  These great blunders by the "best and brightest" have become proverbs in the corporate world. 

Xerox's Palo Alto Research Center ("PARC") is perhaps most known for letting great ideas walk out the door.  These ideas, and the employees that left to pursue them, produced many successful companies, including 3Com, Adobe, and Apple.  Hopefully, the Commission is not considering substituting its bad judgment for the bad judgment of the market participants.  Bad judgments by companies breed opportunity for rivals and third parties, and punish bad managers, and the shareholders that employ them.  This is good, and it is hard to see how inserting the regulator's bad judgment for that of a market participant--in a market that all agree is competitive--will lead to any consumer benefits.

Moreover, given the Commission's limited discretionary resources right now (the National Broadband Plan is due to Congress in six months), does it make sense to focus on a market that is, by all-Commissioner's account and the Commission's own data, a success story?  Or are there areas within the Commission's jurisdiction that might offer a little more bang for the buck?

August 26, 2009 11:49 AM

Here's To You, Mr. Traffic-Pumper, Access-Stimulator Telecom Guy!

With apologies to Bud Light, and their fabulous "Real Men of Genius" radio ads,  TeleComSense will, on occasion, try to honor those innovators in the communications industry, which devote so much ingenuity and effort to produce little-to-negative consumer welfare.  If you're not familiar with the Bud Light ads, they are, quite simply, the best radio ads, period--just click on the link above, and get ready for tons of simple-minded, yet clever (in a simple-minded kind of way) entertainment.  The format is always the same: a guy with a deep, booming voice offers a tongue-in-cheek "salute" to the frequently inexplicable, generally trivial, and always humorous, occupations, products, hobbies, or other segments of our "market-driven" society, while a cheesy '80s sound chorus will chime in with additional fanfare.  [Warning: if the "market" is your "religion", you might find these commercials quite blasphemous].

Unfortunately, the Bud Light crew beat me to one communications industry example--"Mr. Dishonest Cable TV Hooker Upper", but here are the "lyrics" to this tribute. The words in parentheses contain the singing parts.

Bud Light Presents Real Men of Genius
(Real Men of Genius)
Today, we salute you, Mr. Dishonest Cable TV Hooker Upper
(Mr. Dishonest Cable TV Hooker Upper)
On any given day, sometime between nine and four thirty,
you arrive ready to bring us the world and,.
for an extra twenty, you will bring us porn.
(naughty, naughty boy)
Hey, you've already got the van and the jumpsuit,
why not get into criminal activity?
(Just a naughty boy)
Afterall, what are they gonna do, throw you in cable jail?
( I don't think so)
So, crack open an ice cold budlight, Manhandler of the scrambler,
because isn't it about time someone hooked you up?
(Mr. Dishonest Cable TV Hooker Upper)


OK, here's a little background on our first TeleComSense "Real Industry Innovator"--the much-maligned "traffic pumper."  A "traffic pumper", or "access stimulator" is a LEC that finds a way to maximize the amount of traffic (minutes) that it can terminate at the highest switched access terminating rates (usually the rates allowed in the most rural areas).  But here's the trick, the "traffic pumper" does it without ever completing one additional call to a human in that service area.  While "access charges" existed, in one form or another, prior to the AT&T divestiture in 1984, it should be noted that access charges became much more visible  at the time of the AT&T divestiture, and were designed to enable long distance competition while continuing to compensate the newly-divested Bell Operating Companies and independent telephone companies for long distance calls made over their local networks.  In effect, access charges provided a way to maintain the longstanding cross-subsidization of "basic local exchange service," by "long distance service" in a market with multiple long distance providers. 

Continue reading Here's To You, Mr. Traffic-Pumper, Access-Stimulator Telecom Guy!
August 7, 2009 2:11 AM

Cablevision Spins Off MSG, But Has the Blizzard Started?

If you haven't noticed yet, you probably shouldn't rely on me for your telecom news--because I'm really not that timely.  Nonetheless, if you read at all, God bless you, brother (or sister); without you, I wouldn't even have a reader.  So, for all my whining about subscription TV prices and practices, I would be remiss in not reporting what's come out in the last week on our subscription TV vertical foreclosure issue. 

Cablevision has decided to spinoff its MSG programming unit to its shareholders as a separate property. Contrary to some speculation, though, the spinoff in itself does not solve the potential antitrust problem of vertical foreclosure faced by competitors that are unable to obtain all of MSG's programming because the management of MSG and Cablevision will be the same.  Still, though, by separating MSG as a standalone programmer, it will become more obvious over time how much this business is losing if it continues to refuse revenue from subscription television providers like AT&T, DirecTV, RCN, and Verizon in service territories where these companies do not even compete with Cablevision's subscription television service.

This will take a little time, though.  But, if the transaction requires any license transfers, it should be easier for all downstream competitors in the MSG programming area to get access to all of MSGs programming on reasonable terms.  If an FCC license transfer proceeding is necessary, one can expect competitors to demand, and likely be successful, at getting access to cable programming at the same terms available to other competitors, as a condition to merger approval.  My guess is that the Commission would be sympathetic to these requests. 

Alternatively, if the FCC's cable ownership caps are overturned by the Court of Appeals, Cablevision might fetch a higher price from an adjacent incumbent cable company (like Time Warner Cable, or Comcast), and its shareholders might benefit more by holding MSG and becoming "arms merchants"--capitalizing on a regulatory environment that seems likely to promote increased subscription TV competition. So, the Blizzard hasn't started yet, but the temperature and the barometer are both falling. . .

August 6, 2009 5:40 PM

The FCC's Inscrutable "Screwtape" Letters

Last Friday, it was reported that the FCC sent a series of letters to Apple, AT&T, and Google reacting to an item reported in the New York Times that Apple, through its iPhone Apps Store, had refused to carry "Google Voice" (a call management application).  "Google Voice" (GV) is still available to iPhone customers by using the Google search engine on their iPhones, so I'm not completely sure what the disadvantage is to Google by not being allowed to "retail/give away" this application in the Apple "Apps Store" (but we'll assume there is some disadvantage because Google asked for "retail" placement, and was denied).  Nonetheless, as TeleComSense noted only a few weeks ago, in the unregulated world, the Supreme Court has only reluctantly found a duty to deal, even by dominant firms

Each letter asked different questions, depending on the firm being asked, about the episode in question--Apple's refusal to carry the GV application, AT&T's relationship to Apple and the decision to not carry the application, and Google's efforts to get its GV application placed in the iPhone Apps Store.  Now for the context that makes me "complexed" (so completely perplexed that I have an inferiority complex) about the FCC's letters--the explanation of why they are so inscrutable (we'll get to the Screwtape reference later).

Continue reading The FCC's Inscrutable "Screwtape" Letters