December 2009 Archives

December 31, 2009 7:26 PM

Happy New Year

At this point in the year, ideally I would have some cool thoughts about the past year or predictions about the new one.  Dave Russin (Telecom Straight Shooter) did a nice job for his readers--here is his post.  Harold Feld did the same--here.  I wish I could say the same.  Unfortunately, I just didn't have the time this month--no excuses, just the way it was.  I'm even struggling to get this post done before I take my family out tonight (like in 20 minutes)!  But, I felt compelled to get something in for New Year's Eve. 

I'm not one for resolutions.  I don't think I've ever made one.  Nonetheless, this year is where I start.  My resolution this year is to be a better blogger.  This means not just talking about what I want to talk about, but linking to timely information, good posts by other bloggers, and focusing on shorter blogs; starting now.

I want to thank all my clients for a great year--I love working with all of you!  Just as importantly, I want to thank everyone in the government, and any other company that took a meeting or phone call from me.  Nobody owes you anything; so I appreciate your time, and I hope to provide as much information and help as I ask for.  Finally, I want to wish everyone a happy, healthy, and prosperous 2010 for you and your families!  

December 29, 2009 11:57 PM

First Round of BTOP Grant Awards Show Some Solid "WINS"

Earlier this month, on December 17th, the White House announced the distribution of the first round of Recovery Act broadband grant awards. Notably, of the $183 million in broadband grant awards to be awarded by the Department of Commerce (through the NTIA) and the Department of Agriculture (through the RUS), the NTIA awarded over $120 million toward wholesale, "middle mile" infrastructure.  A short summary of the NTIA awards, including the "middle mile" projects is available here.

The reason that I highlight the NTIA's decision to devote the bulk of its funds to wholesale infrastructure supply projects is that--as I explained back in April--I truly believe that this approach is the best way to do a job that is extremely difficult to do well.  The Recovery Act requires both the NTIA and the RUS to distribute a very large amount of money in a very short period of time.  While the Recovery Act does contain policy guidance to the awarding agencies, and some built-in safeguards, such as limiting the federal government to funding, at most, 80 percent of a project's cost (unless the grantee obtains a waiver from the awarding agency), the responsibilities charged to the NTIA and the RUS are still formidable.

The combination of: 1) direct aid (grants, not loans), 2) the sheer amount of that direct aid (a little less than $6.5 billion in "unrestricted" grant funds, and a total of $7.2 billion in total funds), 3) being distributed by government bureaucracies, 4) in a very short time period (by September 30, 2010) makes the job of efficiently distributing the grant money extremely difficult.  Adding to the difficulty of efficiently distributing the broadband grants is the fact that the agencies have little objective tools--such as the "broadband map" (my thoughts here)   authorized by the Recovery Act, but not required to be completed until after the grant funds are required to be awarded (the map must be completed 2 years after adoption of the Recovery Act--February 17, 2011--though, as noted, the awards must be completed by the end of fiscal year 2010).

In my April post, I argued that Wholesale INfrastructure Supply projects ("WINS") were the best way for the agencies to allocate discretional grants in the allotted time, because allocating grants to wholesale infrastructure providers allows the agencies to transfer the even-more-difficult job of identifying unserved, existing demand to the most efficient prospective suppliers.  The attempt at creating my own acronym was, admittedly, weak (like, "wow-that's-weak" weak), and maybe the idea itself was obvious--but even "obvious" good ideas are not always embraced by the government.  

This is why I really think the NTIA got it right by allowing itself a lot of discretion to fund "broadband infrastructure projects" (without any more specificity), and then by pushing more funds into wholesale-oriented projects.  Multi-party, combination wholesale/retail ("middle mile"/"last mile") projects benefit from the ongoing incentives of the wholesale provider to: 1) stimulate output by seeking out new wholesale customers, as well as 2) monitor its retail partners success in increasing and promoting retail penetration.  These projects offer the promise of being easier to "generically" identify and to police on a forward-looking basis than more "unique" projects.  

Continue reading First Round of BTOP Grant Awards Show Some Solid "WINS"
December 2, 2009 8:28 PM

Net Neutrality Enforcement: If You Love Something . . .

If you love something, set it free; if it comes back it's yours, if it doesn't, it never was.  -Richard Bach

If the quote hasn't tipped you off yet, this is where I stop "hating on" the FCC's NPRM and proposed rules, for all their silliness, and start getting constructive.  This is why I wanted to "change gears" with a quote that has been repeated enough to become a full-fledged, diabetes-cavity-inducing cliché of sweetness.  Yet if the expression wasn't eloquent, or relevant, it would have never gained the popularity it has; which is why it made its way into the Net Neutrality NPRM (well sort of).  So kick back a little, click on to this saccherine-sweet little ditty, and open up your NPRM.  In Paragraph 81, the Commission asks one of the most--perhaps THE MOST--prescient questions in the entire NPRM.

In essence, the Paragraph asks for comment on how the adoption of Net Neutrality rules (by the Commission) would be enforced by the Commission.  This is a good question, because the Commission is not really built to investigate and enforce complex fact patterns.  For example, the Paperwork Reduction Act requires the Commission to seek public comment (allowing at least 30 days for public comment and replies), and obtain Office of Management and Budget approval (allowing the OMB at least 60 days to make a decision on the agency's request) before seeking information from more than 10 parties. 

For a "data driven" Commission, this is more than just a hassle; it presents a real enforcement hurdle--especially for the most egregious and difficult cases.  Moreover, these investigatory handicaps are further limited by the fact that the Commission can only enforce violations of its rules occurring within the last year; that's right, a one year statute of limitations.  Add to that the fact that the Commission has further legal and personnel resource handicaps and it would seem to make the FCC an unlikely sole enforcer of the most anticompetitive, anti-consumer, concerns proscribed by the proposed rules.

So, this is a very real conundrum--and probably deserves a lot more explanation and consideration than given in the NPRM.  The question is this: what if the Commission passes rules and the FCC is the ONLY agency (aside from private parties) that can enforce the rules?   Furthermore, what if the only vehicle for private party redress were under the Communications Act?  This has distinct disadvantages to the public, in that the antitrust laws allow for enforcement by the Department of Justice, the Federal Trade Commission, the state attorneys general, and private parties.  Moreover, the antitrust laws allow prevailing plaintiffs--including states on behalf of their citizenry--to collect three times actual damages suffered, plus attorneys fees; additionally, the antitrust laws have a 4 year statute of limitations and broad discovery rights for plaintiffs.

Continue reading Net Neutrality Enforcement: If You Love Something . . .
December 1, 2009 1:14 PM

The Alchemy of Net Neutrality: Does Double Discrimination Create Value?

`When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `which is to be master -- that's all.'  Through the Looking Glass, Chapter 6.

`Can you do Addition?' the White Queen asked. `What's one and one and one and one and one and one and one and one and one and one?'

`I don't know,' said Alice. `I lost count.'  Through the Looking Glass, Chapter 9.

The question to be considered in the context of the Net Neutrality NPRM is not that the Commission is using a word--this time "neutrality"--to mean just what it chooses it to mean, but rather, how does it all add up, when layered on top of another equally "neutral" (but fundamentally discriminatory) regulatory regime such as intercarrier compensation where the same word "termination" has so many different meanings (prices)?  How do the sums add up?  Like Alice, I've lost count, but let me give you an example to see if you can keep better count. 

On November 19th, eBay closed on its sale of Skype, eBay's large, over-the-top, VoIP subsidiary, in a transaction that valued Skype at $2.75 billion (though eBay held on to 30% of the company).  This somewhat concludes eBay's rollercoaster ride into the world of telecommunications. Though the company itself valued Skype at $1.7 billion on its own books, eBay was unable to find anyone willing to pay even $1.4 billion--eBay's asking price--this spring, and even some Skype cheerleaders were speculating that, earlier this year when eBay made the decision to sell Skype, that eBay would likely get closer to $1 billion.  

In 2005, eBay bought Skype (or some part of it that, curiously, did not include the central intellectual property that made the service work) for a reported $2.6 billion, but the founders stayed on to manage the Skype subsidiary, and if all had worked out, could have earned an additional $1.5 billion over the next couple of years if certain targets were met.  Less than a year later, eBay ousted the founders and gave them an additional $500 million to leave early, for a real cost of acquisition of $3.1 billion.  At the time of the purchase, eBay was alternately lauded for its foresight, or criticized for paying way too much for a service that is largely "free." 

Subsequent to the original purchase date, most reports about the transaction were negative--suggesting that eBay's purchase was looking like a worse and worse decision with each passing year.  Business Week continued to follow the operation of Skype within eBay to see how the transaction would turn out.  The articles suggested the acquisition, in hindsight, was a bad idea--and getting worse all the time

But, what happened since April, when no buyers were willing to even purchase all of Skype for $1.4 billion?  Who knows?  But Skype is now valued at a higher revenue/EBITDA ratio than Google (15X vs. 11X).  And, if it's relevant, Skype's 15+ revenue/EBITDA was multiples higher than the 4.4 recorded by Apple over the fiscal year ending in September 2009.

Continue reading The Alchemy of Net Neutrality: Does Double Discrimination Create Value?