February 2011 Archives

February 24, 2011 1:27 PM

Network Transparency: Disclose No Evil?

Who's to say, what's not to say, and what's fair to say
Let's ask Dr. Dre
Dr. Dre? . . .

"Rain Man", Eminem (with Dr. Dre), 2004

The truth is that, when it comes to the "transparency" disclosure rules in the FCC's Open Internet Order (see Section 8.3, App. A, p. 88), the good Doctor could probably provide as much useful information to consumers as any network provider will be able to offer--especially with respect to mobile wireless broadband performance.  Hard to believe . . . but true.

At first glance, the "transparency" disclosure requirement seems like the most reasonable "net neutrality" rule . . . and the one most likely to actually help consumers.  In fact, the rule seemed so rational that it was the only net neutrality rule that the FCC deemed reasonable to apply to both mobile wireless and wireline broadband ISPs in equal measure.  And, who could blame the Commission?  After all, they were only following the requests of the largest manufacturers of smartphones, smartphone operating systems, and infrastructure equipment.

The Information Technology Industry Council ("ITIC"), which represents (among others) Apple, Nokia Siemens, Google, Microsoft, and RIM, even told the FCC that,

mobile wireless BBIA [broadband Internet access] service providers should be required to  comply with robust disclosure requirements similar to those that should apply to wireline BBIA service providers.  These rules should require the disclosure of sufficient information to enable consumers . . . to make informed choices regarding use of the BBIA service offered by the mobile wireless provider.

ITIC PN Comments at 8 (emphasis added).  The FCC listened, and required all broadband Internet access service providers to "disclose accurate information [regarding service performance, terms, and characteristics] sufficient for consumers to make informed choices regarding the use of such services . . . ."  Open Internet Order, App. A, p.88 (new Section 8.3 of FCC rules).

But, who's to say, what's fair to say, and what not to say?  Personally, I would've thought that information was self-evident . . . until I read a very interesting article at Ars Technica ("Ars"), comparing iPhone service performance in Chicago on the AT&T and Verizon wireless networks.

Before, I explain the significance of this article, let me explain that I am NOT taking sides for either carrier.  I know that there are tech reviews that argue for the merits of Verizon in some places, and AT&T in others--even nationwide.

The Ars test, though, got "behind the bars" and was able to discern that certain "bellweather" indicators--like number of bars, and speed tests were not always indicative of actual performance.  The results of the Ars test were that, on average--for the criteria tested (speed, large file app download, and Youtube video download)--AT&T's network out-performed Verizon's for the iPhone device.  However, if you look at the individual data sets, there is a lot of variability even on the same network within the city of Chicago.  So, depending on which areas you spend most of your time, your experience might be different than the results of the article suggest.  

Interestingly, the article observes that,

the Speedtest results may say one thing, but they don't always translate to real-world network performance. Even in the cases where the Verizon iPhone got a faster download speed than the AT&T iPhone, the AT&T app download took noticeably less time than the same app download on Verizon--in one case, where AT&T was measured via Speedtest as slower (UIC test), the download time on AT&T was almost half that of Verizon.
What can wireless consumers learn from this "real world" performance test regarding information sufficient to allow them to make informed choices about their mobile wireless broadband service?  Most importantly, that wireless networks will never have uniform performance, so--as Ars also notes, "when it comes to cell signal and quality . . . where you live and work and how the network is in your area trumps anything you'll read in any review."

This is why it's probably unreasonable for the FCC to require carriers to provide consumers with information that is likely to be misleading.  Even if the carrier believes its performance information to be generally correct, it will never be accurate for any given customer, because accurate performance information is outside of the network provider's control.

But, does this fact render the "transparency" rule completely worthless?  Well . . . maybe  . . . at least for wireless carriers.  Although it's certainly in consumers' interest to have accurate information about every aspect of their service within the network provider's control, most wireless carriers already disclose this information as part of their voluntary compliance with the CTIA Consumer Code

So, for the most valuable "disclosure" information--accurate network performance--who's to say what's fair to say, and what not to say?  For now, you might as well ask Dr. Dre . . .

February 23, 2011 12:16 PM

The Broadband Map . . . What an App!

When Congress allocated $350 million for a National Broadband Map ("the Map"),  as part of the Recovery Act (at p.14) I was skeptical, but optimistic.  After seeing the Map, when it was unveiled last Thursday (well, I really couldn't get in until Friday--there were that many hits), I think it actually exceeded my expectations. 

Larry Strickling, the head of NTIA, and Anne Neville, who headed the NTIA mapping team, (along with many others at NTIA and the states) are to be warmly congratulated for their efforts.  Is the Map perfect now?  Of course not; but the Map is a work in progress, and it's only going to get better and more useful.  

If you need some facts, here they are.  The actual cost of the Map turns out to be $200 million over 5 years.  The Map will be updated every 6 months, based on information from awardees of the NTIA's Broadband Technology Opportunity Program ("BTOP") grants, state information (the NTIA website also lists state broadband maps), and based on crowd-sourced information obtained from the public to update the Map (and correct inaccuracies). 

I'm confident that the Map will pay for itself in multiples, and--in any event--will come nowhere near being the second most expensive visual effect in history. (The first, of course, being the special effects needed to make it look like Chuck Norris lost a fight with Bruce Lee in "Way of the Dragon.")

So how is the Map going to pay for itself?  Well, aside from the obvious--which is in providing consumers information that allows them to learn about broadband availability/alternatives in their area--I see at least two big ways that the Map can increase consumer welfare: 1) by increasing broadband penetration, and 2) saving Americans money by imposing efficiency on the Universal Service Fund ("USF").

Increasing Broadband Penetration

The Map--because it is designed to be dynamic--serves as an excellent "ice breaker" between sources of supply and demand, and state mapping agencies/business development authorities.  Even now, middle mile and long-haul carriers can superimpose their own network maps on the Map and see areas that may be demand-starved.  Customers, and potential customers, can then approach state development agencies to inform them of latent demand--or even "invisible" demand.  

An example of invisible demand might be an area that is rich in cheap power, but broadband-poor.  Prior to the information-sharing that the Map will stimulate, it is possible that no one would have ever located data centers in that area.  But, with the potential for broadband, and high capacity backhaul, data centers, remote healthcare, and wireless broadband providers might become more interested.  One heretofore "invisible" anchor-tenant could be the catalyst to bring broadband to currently unserved areas. Similarly, state development agencies--with their own versions of the Map--are well situated to be a natural conduit for information between communities with latent/invisible demand and proximate middle mile/last mile carriers. Thus, the Map--for some areas--will become a catalyst in creating new broadband facilities/markets.

USF Reform

This is a really big "if", but if the FCC really wanted to get serious about bringing broadband to unserved areas in the cheapest way possible, the Map provides an excellent vehicle for reducing payments to areas where at least 2 providers already provide broadband.  You see, the Map has a feature that allows viewers to track broadband availability by USF study area.  Using this information, the FCC could better target funds to truly unserved areas.  

The FCC could also eliminate existing inefficiencies by using the Map to either eliminating funding in multiple-provider areas, or by combining multiple-provider study areas with adjacent study areas that are unserved, or served by only 1 provider, to maximize the value of "reverse auctions."  In this manner, "reverse auctions" would have meaning, because multiple bidders would be assured and consumers would get new infrastructure at the most efficient cost.  

Bottom Line: Consumers should ultimately reap plenty of rewards from the Map.  As an information-sharing device, the Map will stimulate markets in ways that cannot be predicted or quantified right now. Moreover, the Map could be used to promote efficient USF reform, but, unfortunately, the Map cannot overcome political cowardice--so maybe we shouldn't hold our breath on this one.   

February 18, 2011 4:12 PM

USF/ICC Reform: The Customer Can't Carry the Carrier

Maybe our relationship isn't as crazy as it seems
Maybe that's what happens when a tornado meets a volcano
All i know is i love you too much to walk away though

"Love the Way You Lie" Eminem (ft. Rihanna), 2010

Last week, the FCC released a Notice of Proposed Rulemaking ("NPRM") in yet another attempt to address its crazy relationship with the tremendously (perhaps, needlessly?) complex, and intertwined, issues of Universal Service Fund ("USF") and intercarrier compensation ("ICC") reform.  The NPRM is long, but well-written.  It does a good job of explaining why these two subsidy systems are in need of drastic reform, and it proposes some thoughtful ideas for reform in both the near term and longer term. 

Sadly, though, that's the "tell"--the "near term"/"longer term" goals, with no immediate action--even on the so-called "immediate reforms."  Yep. I hate to say it, but within a few paragraphs--you know the Commission loves these old relics (both the regimes and the many small, inefficient carriers they make everyone else subsidize) way too much to walk away.  Before you even get to the Executive Summary--though the words are lovely--you can't help but think, "Love the Way You Lie."

Don't get me wrong, it's not just this Commission. These regulatory structures have been crumbling--quite publicly--for some time now, and no FCC has done anything about it (including this FCC--for its first year and a half and counting).  But, because of this tendency towards delay, there is no longer a "longer term", and the FCC cannot save, or reform, the USF without "sudden changes" or "flash cuts" that the FCC "intends to avoid." NPRM, ¶12.  Sudden changes are inevitable, and rate of return carriers can either act quickly to participate in a version of reform that guarantees them a chance, but no guarantee, of surviving, or the rate of return carriers can resist reality and the time it takes for the FCC to adopt reforms will be there only transition period.

Why do I say this?  Because "near" term was 4-5 years ago, and "long" term is just as fast as the Commission can act--probably 1 ½ -2 years at the soonest.  Let's consider the notions of "near term" and "long term" in the historical contexts of the need for USF/ICC reform.

The NPRM cites a few factors that make the reform of the USF/ICC regulations so urgent.  Prominent among these factors are observations about the market, and observations by politicians about the state of the USF.  First, the FCC points to the trend of the acceleration of the deterioration of the PSTN, once supported by its now-antiquated, and always-artificial, LEC (intrastate) and IXC (interstate) distinctions. NPRM ¶8.  The PSTN, so rapidly in decline, contains both the purpose of, and presumption for, the USF/ICC models we have today.  The NPRM also notes the observations of Congressman Lee Terry and former Congressman Rick Boucher that "the Universal Service Fund is broken." NPRM, ¶9.  But, here's the thing: neither of these precipitating factors is new. 

A Long Time Coming

As early as 2002, barely upon completion of the USF reforms of the 1996 Act, the FCC's Common Carrier Bureau ("CCB") Chief testified before the Senate that the USF structures just put in place a few years earlier would need to be evaluated and changed frequently.  Then CCB Chief Dorothy Attwood, explained that,

price competition, technological substitution, and development of new service bundles and new services--are precisely the kind of developments Congress sought to stimulate when it passed the 1996 Act. . . . Nonetheless, they strain traditional regulatory distinctions. They present challenges to our universal service framework.  They require us to consider difficult questions. Testimony at p. 4.
What about Representatives Terry and Boucher?  Well, Congressman Terry introduced his first USF reform bill, H.R. 1582 almost 8 years ago, in 2003.  Reps. Terry and Boucher were working together on universal service reform at least as early as 2005.  So the observation by Reps. Terry and Boucher that the USF is broken is hardly new information. 

The NPRM also notes the importance of clarifying the regulatory treatment of VoIP for intercarrier compensation purposes.  Is this a new problem?  Nope, been there, done that (as far as asking the questions go). The FCC just celebrated its 7th anniversary of adopting its first VoIP classification NPRM.

Transition? Maybe When We Had Time

Finally, let's go back to the fundamentals.  Paragraph 8 of the NPRM says it all with just a few statistics,

traditional wireline telephone (switched access) minutes plummeted from 567 billion in 2000 to 316 billion in 2008.  From 2008 to 2009, interconnected Voice over Internet Protocol (VoIP) subscriptions increased by 22 percent, while switched access lines decreased by 10 percent.
  
By 2008, the number of switched access minutes were almost half of what they were in 2000.  By 2010, the number is almost certainly half (or less) of the number of switched minutes in 2000.  The Commission's recent Local Competition Report ("LCR") provides additional evidence of the trend away from the PSTN.  Between 1999 and 2009, ILEC switched access lines (including CLECs using ILEC lines) had declined from around 189 million in 1999 (LCR, Table 1) to about 116 million in 2009 (LCR, Fig. 4 + Fig. 8).  Interestingly, the total Universal Service Fund size in 2000 ($4.4 billion) was about the same as the size of the high cost fund alone today ($4.3 billion).

Add to this the information in the figure 6, ¶165 of the NPRM, which notes that at the end of 2010, rate of return carriers collected $2.0 billion to serve 5.8 million access lines.   If current trends hold (10% line loss/year), these same carriers will be serving 2 million less lines by the end of 2014.  If the President's $5 billion plan to bring wireless broadband to unserved areas  is successful, then line losses will be much more drastic around the time the FCC adopts comprehensive reform.

Unless reforms are equally drastic, the "have nots"--and thanks to the National Broadband Map, you now know who you are--will (one hopes) grow weary of paying a higher and higher USF "tax" on their phone bill (currently 15.5%) to subsidize the increasingly irrelevant "haves."  Contribution reform (another long-ignored concern) is not yet in discussion.  So, by the time comprehensive USF reforms are adopted, it's a safe bet that unless something changes the inefficient rate of return LECs won't have enough customers/lines to make a transition plan even worth the candle.  If these carriers choose to cling to antiquated entitlements, they will be choosing to accept the fate of the entitlements they love.

However, there is a message of hope for rate of return LECs.  They have a (very) little time left which they can use to work with the Commission to modernize USF in a way that allows them an opportunity (but no guarantee) of remaining relevant.  They also have the outside chance of getting efficient on their own.  Either way, a transition will be unnecessary. 

February 17, 2011 5:55 PM

The Nattering Nabobs of Net Neutrality

I'm gonna have a f***ing panic attack. I need four xanax and two Miller Lites.

    --an angry Kenny Powers from HBO's "Eastbound and Down"

I believe that Net Neutrality was both the wrong policy and the wrong priority.

    --a somewhat less angry Commissioner Meredith Attwell Baker in prepared testimony before the House Committee on Energy and Commerce, Subcommittee on Communications and Technology, Feb. 16, 2011

Both quotes, mixed together, kind of summarize how I feel about the ad nauseum run-on of the Net Neutrality debate two months after the FCC adopted its Open Internet Order and accompanying net neutrality rules.  In fact, just yesterday I was watching the House hearing on Net Neutrality, wearing my oh-so-Republican matching Talbots pumps and dress, and I couldn't help but reach for my xanax and Miller Lites.  My personal angst aside, law makers that don't support Net Neutrality should recognize that this post-Net Neutrality parade only plays into the hands of the pro-net neutrality advocates, who otherwise would have nothing else to do.  

More hearings equal more press equal more attention--all devoted to rules that were, and continue to be, the wrong priority.  I sympathize with the Republicans' frustration, and I fully support Chairman Walden's efforts to take whatever action he deems appropriate to eliminate rules that he believes are unnecessary and unfair, but let's just drop the hearings.  Is that so wrong?

Were the rules unnecessary?  Of course!  They made about as much sense as a law prohibiting one-armed men from stealing dental floss.  In other words, I don't quite know if ISPs would have an incentive to engage in discriminatory activities absent a legitimate business justification, but--even if they did--I'm not sure they would really get much benefit out of the conduct in question.  

So, yes, I agree with the FCC Republicans and House opponents of Net Neutrality.  It was certainly a big waste of everyone's time and resources, and it took the Commission's attention away from its largest priorities: USF Reform, intercarrier compensation reform, and increasing wireless spectrum available for commercial use.  

Is the issue of Net Neutrality frustrating?  Sure!  And, like the New York Giants, it is made even more annoying by its fans.  These people are all the more nettlesome for arguing that Net Neutrality rules were needed because there was not enough Internet access competition--and then, when rules are adopted, who do they file their first complaint against?  You guessed it . . . a new entrant into mobile broadband Internet service.  Yep, Mr. I'm-Just-Giving-Consumers-a-Choice gets told to provide competition "our way", or don't do it at all.

So, now that we can all agree that this issue is annoying, can we also agree to not let it take up any more government resources?  As noted, I fully support Chairman Walden's efforts to eliminate these rules, but can we (and by "we" I mean Republican House Members) just stop giving these interest groups and their broken record another speaker to play on?  Please, no more hearings . . . .

February 3, 2011 2:56 PM

Shakedowns, Capture, and the Unbearable Weight of Transparency

[At first glance, this post may seem untimely, but because the post is all about how decisions appear, it really is more relevant than it may seem. Kind of zen, I know, but bear with me.]

I tried an interesting exercise recently.  Rather than reacting to the FCC's order approving the Comcast-NBC Universal Joint Venture, I decided to watch how others reacted, and to consider the agency's perceived role as a regulator in the license transfer (merger) review process.  With respect to this merger, many observers used the word "shakedown" to describe the FCC's "merger conditions" that were, ostensibly, designed to turn what the Commission itself found to be an anticompetitive merger into one that serves the "public interest."  

One outraged blogger described the Commission's order approving the joint venture as "an unprecedented regulatory shakedown of a company that obviously would have done anything to gain [FCC] approval."  Another observer compared the FCC's recent "net neutrality" order and the Comcast-NBCU order to someone who was "breaking bad" (to use the title of an AMC series about a high school chemistry teacher cum meth wizard).  Even a few Members of Congress called the conditions attached to the FCC approval a "shakedown.

These reactions really made me think . . . about whether any of these people had any sense of perspective.  Is the Comcast-NBC Universal Order really an "unprecedented" example of a "regulatory shakedown?"  It didn't sound right, so I decided to do some Internet searches to see if there was any way to tell if the FCC's order conditionally approving the Comcast-NBC Universal merger was indeed "unprecedented" or just business-as-usual.  

So, I searched the words "FCC" and "shakedown" on both Bing and Google. (maybe I should have saved some time and just Binged those keywords, since, in the highest form of flattery, Bing apparently is pilfering Google search results.  The results?  Well, interestingly enough, the Comcast-NBC Universal merger order was only one of many topics that had been classified as "FCC shakedowns" over the years. In other words, the FCC has a long history of being accused of engaging in regulatory "shakedowns."  Here are a few examples, but the list could go on and on.

In 2006, Commissioner McDowell denounced the XM-Sirius merger conditions as a shakedown.  Over 10 years ago, then-House Telecommunications Subcommittee Chairman Billy Tauzin decried the FCC's "shakedown, blackmailing, and greenmailing" of companies it regulates.  Another commenter, also 10 years ago, posited that anytime Jesse Jackson is involved in an FCC merger proceeding, the parties shake themselves down--apparently, in anticipation of a Commission shakedown.  Over 15 years ago, Howard Stern decried that a settlement/"fine" paid by the owner of the radio stations that broadcast his show was "the biggest shakedown in history", because the broadcasting corporation could do no other business with the FCC without first paying the fine.

Interestingly, the same description--"shakedown"--had been used to describe the result of the FCC's cooperation when it approved Comcast's acquisition of the old "AT&T Broadband" (from when AT&T actually owned an incumbent cable company) in 2002.  However, on that occasion, Comcast was considered the one doing the shaking-down. Technically, the practice of regulated entities using the FCC to extract benefits from the public is referred to as "regulatory capture"--a practice of which the Commission also has a rich history.

So now that we know that allegations of FCC "shakedowns" are not "unprecedented", but rather "typical", what's the lesson?  Should we just dismiss these concerns with a quick glance in the rear-view mirror, and a snarky "gambling? at Rick's?" self-satisfied chuckle?  

No!  I mean ideally, no. In an ideal world, the agency is truly independent, and mergers are either "in the public interest"--as presented to the regulator--or not.  But, let's face it--we aren't in ideal world.  Therefore, we probably should be a lot more cynical and a lot less shocked to learn there is gambling at Rick's.  

Unfortunately, the fact is that the FCC asks for criticism when it resists a transparent process.  However, unless, or until, the Commission wants to exercise some independence, it will be a political people-pleasing agency, and the political process is never transparent.  

Agency independence is a prerequisite to transparent decision-making, which leads to confidence in the fairness of FCC decisions, which could lead to Congress feeling ignored, which leads Congress to seek out less independent Commissioners, which leads Commissioners to be more politically responsive, which puts a cover on transparency.  In other words, the much-coveted "transparency" is not the equilibrium state for the Commission.  Thus, the Commission cannot escape the accusations that its highest profile decisions are either the result of "shakedowns", "capture", or capture disguised as a shakedown.  For most decisions, who's really to know?

As a practical matter, the only thing we can know is that, even if "voluntary conditions" to merger approvals are a shakedown, you can't always assume you know who's doing the shaking and who's doing the taking.  "Shakedown Street" goes two ways.  One party's "shakedown" victory may just be the "cost of capture" for another.  Through all this, though, we have to remember that after all is said and done we shouldn't cry for the post-merger firm that agrees to the conditions.  If the shakedown has a cost, then the cost will ultimately be paid by the consumer . . . or the shareholders of the firm that agreed to the conditions . . . or the public trust.