Results tagged “Public Knowledge”

September 28, 2016 5:26 PM

Public Bully

Last week, the word going around town--and in the "Twittersphere"--was that Gene Kimmelman, the president of advocacy group Public Knowledge, was threatening that if FCC Commissioner Rosenworcel didn't "get in line" behind Chairman Wheeler's set-top box proposal that he would oppose her re-nomination for another term as an FCC Commissioner.  This article in Fortune supports the rumor with a quote from Kimmelman that "[w]e'll hold everyone accountable . . .  [for not supporting the Chairman's set-top box plan]."  If you're anything like me, you're probably asking, "who does this?"

Who Does This?

In communications circles, perhaps no group has been as successful at converting political capital into the old-fashioned kind as Public Knowledge.  After the group's previous president, Gigi Sohn, became a senior adviser to FCC Chairman Tom Wheeler, Public Knowledge has carved out a lucrative niche for itself as a critical ally for commercial interests with regulatory goals, i.e., either seeking to escape scrutiny (e.g., Google), or to saddle their rivals with more regulation (e.g., Netflix and the CLECs).

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The group's current president, Gene Kimmelman, before taking over at Public Knowledge, was himself a political appointee for the first half of the Obama administration--as a Deputy Assistant Attorney General in the Antitrust Division of the Department of Justice.  Kimmelman, as his Wikipedia page will tell you, "is a consumer protection advocate who specializes in competition law and United States antitrust law."

What Kimmelman's Wikipedia page won't tell you, though, is that he wields a lot more power than the average consumer protection lawyer, because he has been playing the "consumer friendly" face of one corporate interest, or another, for pretty much his whole career.  In fact, almost 25 years ago, the New York Times wrote about Kimmelman's talent for winning political battles by playing one set of corporate interests against the other.

The NY Times article notes that Kimmelman's first big political victory was against the cable companies--his current set-top box issue enemies--on behalf of the broadcast networks.  In fact, if you're a cable consumer, you're still paying for Kimmelman's first big victory--in the form of the retransmission fees that subscription TV providers (cable, phone, and satellite companies) pay local broadcasters to carry their stations.  These rates--and not the set-top box rates Kimmelman is attacking on behalf of current corporate client Google--have been primarily responsible for raising your cable bill over the last 2 ½ decades, and they're projected to continue to rise faster than other programming costs for the near future. 

Thus, given Public Knowledge's affiliations with powerful corporate interests--including Google (set-top boxes), Netflix (Internet peering), and CLECs/Sprint (special access/business data services--it isn't that surprising that PK's president would feel like he's got the power to bully an FCC Commissioner.  After all, it's probably a safe bet that Google has enough powerful friends in the White House, and in the Senate, to make Commissioner Rosenworcel's life a little difficult, to say the least.  But why do it so . . . publicly?

Why Be a Public Bully?

If you've got the political power, I can kind of see--in a TV bad guy sort of way--why you might try to deliver a political threat to an FCC Commissioner; assuming you thought your victim believed you had the power to deliver on the threat, and the issue was so important to you that you didn't mind looking like a cliché and a jerk at the same time.  But still, why tell the world?

It seems to me that, if you go public with your threat, you make it harder for your threat to work.  After all, the smaller the group of people that knows about your threat, the easier it is to give your target a "face-saving" way out.  

On the other hand, once you tell everyone--including those that have expressed concerns about your plan--that you'll "hold them accountable" if they  don't support you, then you not only make it harder for them to support you, but also anyone new to support you.  Who wants to be known as someone that got pushed around?

Likewise, it also makes it difficult for those that you want to carry out your threats if you put them in the public spotlight, because--they too--now end up looking like they were just "in your pocket."  A public threat makes everything "all about you" and not the issue that you wanted everyone to think was so important to you, Google/the White House, etc.  
Finally, when you go public, it's important that the politicians/public servants that you're threatening--up and down the line--know that you can deliver on your threat.  In other words, if you are the NAACP, AARP, or even a commercial group like a labor union or the NRA, politicians know that you control/influence voters and that's what makes them accountable.  Seems that Public Knowledge, despite having money and connections, might not really be representing millions of voting consumers--and that's a bluff that any inside-the-beltway interest group has to worry about being called.

Congratulations!  You Played Yourself

The expression, "you played yourself," coined by Ice-T in 1990 refers to a situation--frequently brought on by hubris--in which someone ends up frustrating their own ends.  Earlier this year, on the internets, it became a wildly popular meme, featuring DJ Khaled.  



It's always possible that Gene Kimmelman's public political threat really will make him more powerful than the public servants he threatens, or the politicians he is relying on to carry out these threats.  Then again, it's also possible that in delivering a cliché of a threat, he made a cliché of an error.

March 26, 2014 12:11 PM

Net Neutrality Rules: Do They Really Limit "Cattywampus" ISPs?

On Sunday, the Wall Street Journal reported that Apple was in talks with Comcast to provide a new type of streaming TV service.  The report was vague on the specific service except to note that: 1) the parties were "talking," 2) an Apple device-to-be-named-later was going to be used, 3) the service would involve a "managed" (or guaranteed bit-rate) transmission path over Comcast's ISP, and 4) would require a significant investment by Comcast.  

Predictably, the Twittosphere erupted with the swift condemnations due any speculative service that whiffs of net neutrality blasphemy.  If the speculation involves Comcast, then it wreaks of blasphemy.

The Meandering Meaning of Net Neutrality

But, what is the "dogma" of net neutrality?  Is it the FCC's 2005 Internet "Freedoms?"  Is it the Open Internet Rules that were vacated--no blocking and no unreasonable discrimination?  Public Knowledge just told the FCC that the two biggest "threats" to the Open Internet are ISP data caps and "peering"/interconnection disputes.  PK at pp. 6-10.   

If net neutrality can be said to have any consistent premise, it is best depicted metaphorically in this 14 second, Geico commercial.
 

The ISPs are like "Mr. Tickles."  The whole rest of the Internet stakeholders are represented as the man in the portrait holding Mr. Tickles.

Yet, firms like Cisco, who on Monday announced a 2 year and $1 billion commitment to cloud services, as well as competitive over the top companies like Amazon, Hulu, and yes, Apple TV, continue to want to invest in cloud services.  In other words the leading Internet infrastructure equipment maker fully expects that--even without rules--the ISP (Mr. Tickles) will continue to "hold still" and not "git all cattywampus" on them.

The Flimsy Factual Bases for "Concerns" About the Open Internet

First, let's acknowledge one point on which everyone should be able to agree.  The "open Internet" is valuable to every consumer, and every seller, that touches the Internet economy.  In fact, the rise of the Internet economy seems to be proof that the "open Internet" is so important that virtually every aspect of that "openness" is already guaranteed by existing contracts between the thousands and thousands of Internet stakeholders.  

But, those that think rules must be necessary to ensure the continued openness of the Internet must have some reasons, right?  Well, if we look closely, the concerns that have been advanced in past FCC proceedings have been largely based on theoretical predictions that haven't really materialized.

Peering Concerns

The first FCC concerns about "peering" (i.e., settlement-free Internet interconnection) vs. "transit" (i.e., "paid" interconnection) were expressed by Internet backbone competitor GTE in the MCI/WorldCom merger. See paras. 147-150.  The FCC adopted GTE's concern, which was that the combination of WorldCom's UUNet and MCI's backbone would have had no "peers."  Thus, because a combined WorldCom/MCI would have been able to require "paid peering" by any other ISP or backbone seeking to use its network, the post-merger firm could raise the costs of any new entrant.  

This disaster was averted when MCI agreed to divest its Internet backbone to Cable and Wireless.  In fact, the divestiture to C&W was considered a huge failure, and MCI's alleged bad faith failure to satisfy the concerns of the Department of Justice was a primary concern behind the DoJ's challenge to WorldCom's proposed acquisition of Sprint 2 years later.   In short, the remedy didn't work, but was apparently unwarranted, anyway. 

"Net Neutrality, Broadband Discrimination"

In 2003, Professor Tim Wu argued, in the above-titled paper, that "[c]ommunications regulators over the next decade will spend increasing time on conflicts between the private interests of broadband providers and the public's interest in a competitive innovation environment centered on the Internet."  With the exception of Comcast's protocol-specific BitTorrent throttling in 2007, these concerns have largely failed to materialize.  Notably, Prof. Wu never mentions the FCC's previous (and PK's current) concerns about peering as a cause for concern.

Broadband ISP "Incentives" to Discriminate, Circa 2010

In the Open Internet Order, the FCC largely parrots Prof. Wu's concerns that broadband ISPs have the incentive and the ability to discriminate against "over the top" providers offering services that compete with the voice and/or subscription video services sold by the ISPs.  The FCC first establishes, using the ISPs' own statements, that consumers view certain online applications as substitutes for voice and subscription TV service. Order, para 22.

Then, the FCC simply assumes from comments of groups advocating rules (and not ISPs or voice/video competitors) that, of course the ISP has incentives to discriminate against online alternatives.  Yet, the record contained no data supporting the FCC's conclusion (showing, e.g., higher profits in TV/voice than broadband Internet).  Order, paras 23-24.

Public Knowledge expressed no concerns about data caps and peering in the 2010 docket.

The Problem with Apple TV . . .

Supposedly, Apple wants Comcast to help it deliver some kind of super-cool IPTV that will actually make you want to buy video service from Comcast (vs. get it on the Internet).  As part of this service, Apple wants Comcast to offer Apple TV a guaranteed quality of Internet access, so that its video content would not be affected by general congestion issues that can otherwise cause videos to buffer.  And that higher quality access, even if not exclusive to Apple, is a problem . . .

Is The Problem With "Net Neutrality"

My fear is that "net neutrality" is no longer about just a reasonable set of minimal consumer expectations designed to keep the Internet creepy enough to hold the Interest of consumers and the NSA, while at the same time keeping it wholesome enough to prevent SkyNet from becoming self-aware by 1997 (or whatever similarly-fevered nightmares the rules protect us from). 

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Without a presumptive tolerance for commercially-reasonable service deviations, net neutrality becomes a fetish devoid of any utility.  If we can't limit proscribed conduct to only practices or agreements that unreasonably restrict Internet "output," then how do we know whether rules are serving consumers or requiring everyone to serve a concept that may have limited benefits?





October 3, 2013 4:32 PM

Public Knowledge's Analytical Leap

On Monday, Public Knowledge, Consumer Action, and Writer's Guild of America, West filed a Petition to Deny AT&T's requested license transfers to facilitate their proposed acquisition of Leap Wireless.  The Petition claimed that the proposed acquisition of Leap Wireless will reduce competition in the market for "prepaid wireless" services; a market which Public Knowledge contends is characterized by lower income consumers, who are more price-sensitive than "postpaid" customers.

The Public Knowledge, et al., Petition is interesting, not for the purpose for which it is offered (a last minute excuse to extract "concessions" from a merger whose review should have been long concluded), but for the flaws in the Commission's wireless competition framework that it exposes.  First, let's dismiss the Petition on its own attenuated logic, because this will lead us to the more interesting problem highlighted by the Petition.

The "Need" for Conditions?

Let's go ahead and assume the Petition's premise--that the relevant product market is prepaid wireless services.  Petitioners also allege some amount of increased concentration in this market, post-merger.  But, what are the consumer harms?

 The alleged harms from the merger's concentration, for which the FCC is urged to adopt conditions, kind of make you wonder how much of "prepaid" do the Petitioners really understand.  For instance, the Petitioners take a bunch of AT&T statements out of context in order to come up with this crazy inference, "[i]n other words, far from allowing customers to retain their current wireless offering from Leap, AT&T has announced its intention to migrate Leap customers from their current low-cost, low-fee plans to AT&T's more costly pre-paid offerings as quickly as possible." (Petition p. 21/25)

Think about it.  One of the distinguishing features of prepaid service is that it doesn't require a contract.  So, if AT&T doesn't offer these customers terms that are attractive to the customer, the customer is free to move to one of the other service providers who serve over 80% of the prepaid market!  In other words, if AT&T doesn't do right by the Leap customers, AT&T loses a whole lot of acquisition value, as customers migrate to more attractive offers of competitors.

Defining the Prepaid Market

The definition of the market is, in any case, the most interesting problem underscored by this Petition.  The Petition starts with the overall size of the prepaid wireless market in terms of number of subscribers, as identified by the FCC in its most recent Wireless Competition Report (accurate as of the end of 2011), as being about 71 million.  The Petitioners then count up the number of prepaid subscribers reported by the 4 national facilities-based carriers and Leap in their most recent financial reports (results in a slight overstatement vs. 2011) as the revised "market."

The Petitioners arrive at the "really relevant" relevant market of 48 million subscribers by using the FCC's convention of not assigning market shares to MVNO competitors when analyzing competition in the wireless market.  However, while that approach may not result in a tremendous difference when looking at national figures for all wireless consumers, using this approach for the smaller, and more dynamic, prepaid wireless submarket simply does not work.

First, it should be obvious that failing to include firms which meet a third of the entire market's demand (71 million minus 48 million) cannot result in a sound analysis.  Further compounding this problem is the fact that the single largest firm in that market--Tracfone, with over 21 million customers--escapes the analysis.  If the single most successful firm in this market does not need network facilities, what can be the justification for excluding them?

This question, though, raises another question.  How do you count the wholesale sales of the facilities-based carriers?  Because, while the Petitioners infer that prepaid is a neglected market, what with its smaller EBITDA margins than postpaid retail sales, the only thing more attractive than low prepaid margins for some carriers is the prospect of even lower EBITDA margins moved in volume--a/k/a wholesale.

How else do you explain that, while AT&T has a little over 7 million prepaid customers, they supply more than twice as many customers through their wholesale channel?  See here at 15/16. Of course, this has always been the problem with a myopic focus on margins--because margins are only half of the profitability equation, which is profit margin (such as EBITDA) multiplied by sales volume.  Nonetheless, these heavily-discounted sales units are ending up somewhere, and--as a percentage of total market--wholesale sales disproportionately end up in the prepaid market.

Still, you can't necessarily fault the Petitioners for not addressing this issue in their market definition, because not all carriers even include wholesale sales--either as a revenue number or a number of customers number--as a separate item in their public financial disclosures.  This is an issue that I have written about before here, but, if the Commission is really going to try to engage in meaningful submarket analyses, they will have to get a handle on these numbers.  

The only subset of wireless revenue that is growing as fast as prepaid is wholesale--which is growing at a faster rate.  Moreover, due to the fact that the Lifeline fund is expanding at something like twice the rate of the galaxy--and this growth is being driven by MVNOs providing prepaid service--the overall size of the prepaid market is, no doubt, substantially larger today than at the end of 2011.  While this fact should substantially lessen concerns about the present merger, the larger problem is that unless or until the FCC wants to figure out wholesale, or count MVNO competition, the Commission will remain unable to say anything meaningful about competitive conditions in the important, and growing, prepaid wireless market.

May 17, 2012 3:23 PM

U.S. Mobile Data: More Bricks, Less Straw

As punishment for requesting their freedom, the Egyptian Pharaoh told the Israelite slaves that they had to maintain their quota of bricks, but with less of an essential input: straw.  The burden of meeting demand with less resources applies as well in today's mobile services marketplace.  Wireless carriers face demands for greater bandwidth to support growing mobile data services but, for the intermediate term, cannot expect additional spectrum capacity--it's essential input--on either a firm-specific or industry-wide basis.  

It's unanimous: no matter who you talk to about wireless data, everyone agrees that "more bricks, less straw" is the unavoidable policy.  Thus, as wireless data demand continues to show no sign of abating, wireless service providers will simply have to make do with less than optimal spectrum capacity. So if we're stuck in a "more bandwidth demand, less capacity supply" world, how do we solve the problem of how to ration capacity?  

Who Needs Spectrum When You Can Upgrade Your Capacity?

So what's a wireless operator to do?  Well, for starters, you upgrade existing capacity like crazy by constantly deploying the most efficient technology.  But this isn't cheap.  Since wireless data exploded in 2007 with the iPhone, AT&T alone has gone through a 3G upgrade, an HSPA upgrade, an HSPA+ upgrade, and, more recently, is in the midst of an upgrade to LTE.  

Other companies have accelerated their own pace of upgrades as well.  From December '06 (right before the iPhone launch) through December '11 (when most firms still have a long way to go to realize full LTE deployment) industry capex has increased by almost 50%, according to CTIA (the actual numbers are in a report that I can't afford, so take my word for it).  But, even these improvements won't keep up with surging demand.

With No Spectrum Relief In Sight, Do You Play The Price Card?

Given the limited options for rationing capacity another, though unpopular, move is to raise prices.  Over the last several months we've seen AT&T raise data prices, after realizing that the government was not--anytime soon--going to allow AT&T to efficiently augment its own capacity.  Verizon quickly followed suit.  For now, Sprint appears to be content to let its shareholders shoulder the costs of increased wireless data demand.  But to be sure, increased demand without increased supply does create network strain--regardless of who pays.

Last week, at the CTIA Conference, Chairman Genachowski maintained/reasoned/disputed that the failure of the AT&T and T-Mobile merger last year had anything to do with AT&T's decision to raise prices.  Yet, the Chairman knows better, as he has been a leading prophet of the spectrum shortage.    

How to Recover Costs of Spectrum-less Capacity Expansion?

Given the costs of constantly upgrading capacity, how does a carrier manage excess data demand?  As I indicated above, raising prices sounds like a simple solution, but must account for the fact that big data users are contract customers.  That's how smartphones, and data plans become affordable, and predictable.  

You see, the problem with raising prices for wireless data is that you can really only raise prices to the marginal customer (i.e., the person who's not your customer yet).  Crazy, right?  "Raising prices" is a statement of frustration and designed to curb consumption.  Carriers are telling prospective customers that the network is nearing capacity and use of the remaining capacity will cost you. This is a horrible situation--who wants to be the (unpopular Redskins owner) Dan Snyder of wireless data?

If Sophisticated Buyers Want to Subsidize Consumers, Let Them!

Carriers know that raising prices for mobile data, or throttling data speeds to the largest users of mobile data, is no way to treat your biggest fans.  But with the popularity of mobile device applications, which constantly stream information to and from the customer's phone, customers can unintentionally (and unnecessarily) stress capacity.  Applications can distort data consumption in a way that even the most conscientious web surfers cannot offset.

So, earlier this year, at a conference in Barcelona, an AT&T executive suggested that maybe some applications providers would want to buy capacity in bulk in order to assure their customers that using the desired app wouldn't cause the customer to exceed their usage cap, or become subject to throttling.  Not a bad idea, right?  I mean the applications developer knows how much bandwidth their customers use, and they have a lot more buying power than the consumer.  

Given the public's embrace of mobile data, and the cost of continually augmenting capacity, especially for firms with sub-optimal spectrum allocations, one would think the "public interest" would support options that allow customers to still enjoy wireless data, but at a lower cost/consumption threshold.  One would think . . . .

But Don't Tell Public Knowledge!

The AT&T suggestion seemed harmless enough, but the reaction from the self-proclaimed public interest group Public Knowledge was alarmingly critical.  Then again, this is the same group that published a paper arguing that all wireless carriers should provide flat-rated mobile data service.  The irony, of course, is that flat-rated price structures cannot be profitable unless the majority of users pay for more data than they consume.

The notion of "more bricks, less straw" is, for regulators and service providers, an unfortunate and dystopic reality.  Uniquely, Public Knowledge seems to relish the "more megabytes, less capacity" future with a fondness that can't help but be compared with how the ancient Egyptian brick consumers' lobby must have felt . . . right before the brick supply crashed.

December 9, 2011 2:20 PM

Merger Efficiencies and the Tech-Nobility

"Public Interest" merger "efficiencies" are in the eye of the beholder.  The term "efficiency" is hardly a precisely-defined, universally-understood concept.  For many, if a merger created more capacity to better serve the basic mobility communications (voice, text, and limited data) needs of those that would otherwise go without these benefits, the merger could be said to be "socially efficient."  

On the other hand, "efficiency" could be considered from an engineering perspective to use the latest technology to squeeze every last drop of bandwidth out of a given amount of spectrum in order to better satisfy the data demands of the most technologically advanced consumers.  The consumers that use these devices most intensively have a powerful voice in Washington, and might be called the "tech-nobility."

Throughout the analysis of the proposed AT&T/T-Mobile merger, the only "efficiency" benefits that have mattered are those that are important to the "tech-nobility."  And who represents the "tech-nobility"?  

Well, it's clear from last week's "Staff Report and Analysis" ("Staff Report"), by who it chose prominently to cite, that the FCC sides with the "tech-nobility"--a group whose views are most stridently expressed by the self-appointed "defenders" of advanced telecommunications consumers--Public Knowledge  and Free PressSee paras 165-245 of the Staff Report. The only potential efficiencies of concern to the Commission are those that can be demonstrated to further wireless broadband deployment.

The Parties' Argument and the Commission's Reaction

Unfortunately for the parties, a lot of their efficiency claims seem to depend on combining their 2G and 3G networks.  The Commission, while recognizing this possibility, seems openly contemptuous that AT&T and T-Mobile would be even operating these networks.  See, e.g., ("While it may be true that the spectrum gained from  control channel elimination could result in increased deployment of advanced technologies it could also prolong AT&T's reliance on outdated and inefficient GSM technology.) Report, para 203. (emphasis added)

Similarly, in paras 216-225, the Commission criticizes AT&T's claims of merger-specific efficiencies, because it believes that AT&T could and should be more aggressively moving GSM devices off its network--though the Commission acknowledges that AT&T has virtually eliminated the retail sale of 2G GSM devices.  For example, while the FCC doesn't dispute that the transaction could provide the parties more "head room" in gradually phasing out their GSM networks, while moving spectrum to "higher" uses, the Commission concludes, "prolonging the use of less efficient technology should not be deemed a benefit for purposes of assessing this transaction." Report, para 221.

Does Anyone Benefit from "Less Efficient" Technology?

Well, the answer is "yes", but the population benefited is only the poor and elderly, and they hardly count as constituents of Public Knowledge, Free Press, and the Commission's "Broadband Nation."  Who says the underserved, including the poor and elderly, benefit from lower priced, simpler offerings?  

The FCC, for one, took this point of view only six months ago in its Wireless Competition Report noting that, "MVNOs [Mobile Virtual Network Operators--companies which buy capacity from facilities-based carriers to create their own product/service offerings] often increase the range of services offered by the host facilities-based provider by targeting certain market segments, including segments not previously served by the hosting facilities-based providers." Wireless Report at para 33.

Unfortunately, in conducting its "efficiency" analysis in the Staff Report, the FCC seemed to neglect the increasingly important role of MVNOs, by ignoring the parties' claimed engineering benefits--which flowed from the bottom up.  The problem is one of bias--toward the "tech-nobility" as represented by Public Knowledge and Free Press.  

You see, neither the Commission nor the interest groups could put themselves in the place of a large carrier with a responsibility to serve all segments of the market--including those segments served indirectly through MVNOs.  AT&T has contractual responsibilities to its wholesale MVNO customers.  Let's consider their "social efficiencies" for a moment, since the Commission ignored this productive use of technologically-inferior networks.

The Poor

Tracfone is the country's fifth largest mobile wireless provider with approximately 20 million subscribers.  TracFone serves the value-oriented portion of the market, including customers poor enough to qualify for Lifeline subsidies.  TracFone offers a variety of affordable plans and phones from readily accessible general merchandisers and convenience stores.  

AT&T and T-Mobile are two of TracFone's largest underlying carriers.  Dislocating TracFone's GSM customers would impose costs on those least able to afford these costs and maintain cellular service.  Is it the best policy for the Commission to choose technological efficiency over social efficiency in order for the merger to be in the public interest?

The Elderly

America's seniors gain two major benefits from mobility--health and safety, and mitigation of loneliness, which often accompanies old age.  These consumers do not, for the most part, use advanced mobile broadband services.  One of my clients, Consumer Cellular, Inc. is the exclusive affinity provider of AARP and focuses on serving America's seniors.    

Recently, Consumer Reports announced that Consumer Cellular was rated highest in customer satisfaction among all mobile wireless service providers.  While Consumer Cellular was ranked highest in customer satisfaction, it should be noted that Consumer Cellular is an AT&T MVNO.  Paradoxically, Consumer Reports also ranked AT&T the lowest of the major carriers in terms of customer satisfaction.  Why?

The simple answer is that Consumer Cellular's customers use phones supported by the 2G and 3G networks for which the merging parties claim the greatest efficiency benefits from being able to combine.  It is also notable, in all the rhetoric surrounding adjacent markets in this merger, that Consumer Cellular offers its customers phones for which it has exclusive distribution arrangements.  These phones are made by Doro and have earned high reviews from consumers and tech experts alike for their performance tailored to the elderly and hard-of-hearing customer segments.

It goes without saying that, if AT&T were to quickly abandon its more "inefficient" networks as the FCC "tech-nobility" would demand, it would be punished for its own innovation targeted at an underserved market.  Thus, it's no surprise why Consumer Cellular CEO, John Marick, sees the efficiencies from the merger that the Commission chooses to ignore.

Who would you trust, an engineering model modified to generate the Commission's pre-determined views on "efficiency" or a wholesale customer, providing what a majority of its consumers believe to be the best mobile service in the country . . . using a network that it believes will become more efficient as the result of the merger?

August 2, 2011 11:38 AM

Bored with Stale Rhetoric? Take the AT&T/T-Mobile Cynicism Quiz

I haven't posted anything in a while, and that's because the only thing anyone seems to be focusing on is the AT&T/T-Mobile Merger.  In fact, at this point--during the dog days of Summer--I am genuinely bored to death with the banality of the banter between merger opponents.  If it seems like the same arguments are being made, it's because they are.  
 
Don't believe me?  Then see if you can correctly guess who said what, and when, starting with the proposed 2004 acquisition of AT&T Wireless by Cingular Wireless for $41 billion, which would have made Cingular the largest wireless carrier with a market share of over 40%.  Sounds familiar, no?  So, we'll start there.

Every assertion listed below is (substantively) part of an argument being made by the merging parties or their opponents at the FCC.  All you have to do is guess whether the statement was made previously or now, and whether it was made by a merger opponent or proponent.  We'll score you up at the end to rate your DC telecom cynicism.  

1)  "T-Mobile does not provide a meaningful competitive alternative [to AT&T] as a roaming partner to many cellular carriers and subscribers."

2)  "[T-Mobile] is not a significant competitive constraint on AT&T."

3)  "In many cases, T-Mobile has been unwilling to even enter into roaming agreements with rural wireless carriers."

4)  "At a minimum, the elimination of T-Mobile as a 'benchmark' firm for these purposes [offering roaming agreements to smaller carriers] frustrates the FCC's ability to monitor the emerging marketplace and ensure compliance with the pro-competitive rules adopted by the Commission."

5)  "In fact, the statements made by wireless incumbents [including T-Mobile] . . . make clear they have no intention of offering broadband with the freedom to attach any device and run any application."  [in other words, "maverick" behavior]

6)  "T-Mobile is not merely a direct competitor, but a 'maverick' whose behavior forces pro-consumer responses from larger firms despite T-Mobiles [sic] relatively modest market share."
 
7)  "Consumers make their wireless purchasing decisions at the local level--where they can see the devices, speak with sales representatives about the products and services, and comparison shop among competitors."

8) "The FCC should reject a national market definition.  Wireless is sold as a local product. National coverage and calling plans are one characteristic of the service, but it is bought and sold at the local level."

9)  "[T]here is clearly substantial competition among the national carriers in those portions of the country where most Americans reside, and in many cases additional competition in areas served by regional carriers . . . ."

 
Continue reading Bored with Stale Rhetoric? Take the AT&T/T-Mobile Cynicism Quiz
June 28, 2011 12:30 AM

Public Knowledge vs. the "Public Interest"?

The latest inside-the-beltway "tempest in a teapot" involves the opponents of the AT&T/T-Mobile merger impugning the motives of some of the merger's supporters.  Several articles have been written that attempt to make an issue of the fact that some (though not all) of AT&T's "public interest" supporters are also supported by AT&T.  

Why the big deal, one might ask?  After all, the FCC is required to consider the "public interest" in its consideration of the merger application--and the only obvious way to evaluate the "public interest" is to ask the public for comments (which the FCC has done).  But, with the "official" pleading cycle closed, my guess for the motivations behind the stories, are that--barring any new facts--what's a "gadfly" to do, but attack the sincerity of the other side's gadflies?

What is revealing, though, is that the groups urging the FCC to disregard the speech of other parties are doing so, based not on the content of the speech, but the identity of the speaker.  Even more interesting is that these interest groups go by nifty names like "Public Knowledge" and "Free Press."   

By attacking the identity of their opponents because they "have no background in telecommunications" (as stated by Public Knowledge's spokesman) or their "relationships" with AT&T, the interest groups seem to be conceding that the substance of the AT&T supporters' arguments are as persuasive (or vapid) as their own arguments opposing the merger.  Other supporters of AT&T, like the Sierra Club and various labor unions, are treated more kindly (I guess) and dismissed as simply too nave to have a truly informed opinion.

It insults the process that the essential message of the interest groups is that the FCC should limit its consideration of certain "public comments" based on the identity of the speaker, rather than the content of the speech.  At least as disturbing is that the press stories seem to credulously accept this implicit contention that the FCC is incapable of evaluating the merits of this merger based on the content of its record.  Equally distasteful is the cynical, and elitist, view that even Members of Congress expressing a contrary point of view are like sheep, incapable of independent thinking.

In the purely competition-focused world of the antitrust laws, the Supreme Court has addressed this question time and time again, and has always held that the motivation of the person lobbying the government is simply irrelevant should the government make a decision consistent with the interest of the lobbying party.  The First Amendment guarantees citizens freedom of speech, freedom of assembly, and the "right to petition the government for a redress of grievances."

The Supreme Court's decision to defend an important civil liberty over a law intended to regulate commerce first arose in 1961 in Eastern Railroads President's Conference v. Noerr Motor Freight, Inc. ("Noerr"), where the Court held that "lobbying" was protected speech, even if the result of the lobbying created laws that allegedly injured the business interests of trucking companies to the advantage of railroads.  

The Communications Act of 1934 requires the FCC to perform a "public interest" analysis prior to approving any license transfer, so the issue of a conflict between the right to petition and this provision of the Act would seem to be a legal impossibility.  Yet, there are still the few that know what's best for all.  These parties continue to insist, in the court of public opinion, that comments filed in support of AT&T by organizations with varying degrees of affiliation with AT&T should be disregarded by the Commission simply because they were consistent with the position of AT&T.  This criticism of certain merger supporters, especially of civil liberties groups like the NAACP, GLAAD, and the National Urban League, for exercising their First Amendment rights takes on an air of absurdity.  

Instead of focusing on the identity of the commenters, the public interest would be best served if the self-proclaimed guardians of the public interest would keep in mind the wisdom of the Noerr Court 50 years ago, and remember that, like the Sherman Act, the Communications Act was intended to regulate business activity, and not political activity.  If the government can take an action, then members of the public--regardless of identity or affiliation--must be allowed to lobby for that action.  

May 18, 2011 2:02 AM

Free Press's Antitrust Letter Makes Sense . . . If You Don't Think About It

Last week, opponents of the AT&T/T-Mobile Merger published a short-lived political advertisement (that unfortunately, and shamefully, caught the reader's eye at the expense of transgendered Americans), using the catchy T-Mobile slogan in their ads against AT&T.  Around the same time, one of their affiliated interest groups--"Free Press"--sent a letter to the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights, purporting to analyze the transaction from an antitrust perspective.   

The foundation of any relevant merger opposition rests on the correct definition of a relevant product and geographic market, and then attempting to rationally predict the expected consequences of any undue concentration in these markets.  To this end, Free Press's proposed definition of a "nationwide smartphone cellular service market" deserves some scrutiny.  

The Free Press Product Market Definition

In order to prove a merger violates the relevant antitrust laws, an opposing party must demonstrate that the effect of the merger would be "substantially" to lessen competition "in any line of commerce" (product market) in "any section of the country" (geographic market). Clayton Act, Section 7.  For a merger opponent to be successful, they must show that the merger will lessen competition in some discrete product and geographic market.

As an opposing party, Free Press begins its criticism of the merger in an analytically correct manner--by attempting to narrowly define a "market" in which it contends competition will be lessened.  Nonetheless, in defining a product or geographic market, an opponent must look at the consumer's options--not just what might work for their case.  

Frequently, antitrust plaintiffs make the mistake of defining product markets too narrowly (e.g., "stuff that only I like", or "Bob Marley Songs") in order to produce high concentration numbers.  Product markets are often defined too narrowly because plaintiffs mistake product differentiation within a market for different product markets.  

Free Press makes this same mistake, concluding that "nationwide", post-paid, smartphone cellular service constitutes a separate product simply because some carriers offering these services can command higher prices than functionally-equivalent service plans offered by smaller competitors.  Rather than proving a separate product market, Free Press has simply identified an example of differentiated competition within a product market (mobile wireless service).  Courts have consistently, and correctly, rejected product differentiation as a basis for defining a "product market"--from "premium" ice cream, to "premium" beer, to "expensive" suits. See The Significance of Variety in Antitrust Analysis, Section II. B., generally.  

Among its many other omissions, Free Press fails to define the unique characteristics of providing "nationwide" smartphone cellular service, as opposed to cellular service supporting all mobile devices, such as a "feature phone", a "tablet", or the dreaded "somewhat-smart-phone" that Free Press criticized Metro PCS for offering just 4 months ago. Given the unique diversity of products each carrier supports, it is difficult to imagine how a "hypothetical" smartphone cellular service monopolist would behave differently from a carrier supporting all mobile wireless services for purposes of satisfying the market definition tests under the DoJ's Merger Guidelines.

Even if the proposed product market could be defined with precision, it would still not necessarily indicate that consumer welfare would be harmed, due to the principle of "supply substitution."  You see, a "hypothetical monopolist" in the product/service market must be able to profitably be able to raise prices without attracting entry by other firms in the market.  See Guidelines, Section  9.0, et seq.  

This is why the FCC (from its earliest Wireless Competition Reports) wisely declined to analyze competition on a service-specific basis, finding instead, that the "evidence "support[ed] a product market that was much broader, including all CMRS services.  See 2nd Annual CMRS Report at 8. The Commission presciently made this finding when 36% of all CMRS customers were using paging, and that market was growing at 22% year over year. Id. at 5.

Geographic Market Definition

Free Press provides even less evidentiary support for why the relevant geographic market, from a consumer's perspective, is nationwide.  While all wireless consumers want to be able to contact anyone in the country, and they want to be able to use their phones anywhere in the country, this is an element of product market definition, and one that the FCC has recently addressed through its "Data Roaming Order." 

The geographic market for wireless services (including "smartphone cellular services") is the area in which a consumer could reasonably be expected to purchase such service--even if a "hypothetical monopolist" raised prices by a small but significant amount within that area.  In other words, for most people, this market is local (as the Commission has always concluded).  While it is natural for every economic agent to want to provide service to the largest possible market, the only reason Free Press argues for a "nationwide" market is to enhance concentration numbers in an "artificial" geographic market.  

For Free Press, this argument is understandable (to increase merger-related concentration), but it is also intellectually dishonest.  After all, how can Free Press scream up and down about a Metro PCS smartphone cellular service offering, and then argue that Metro PCS is not "in the market" for a significant number of customers?  Regional carriers, like Metro PCS, are either relevant or they're not.  Free Press can't get a free pass.

Just Don't Think About It . . .

Without its uniquely distorted market definition (and maybe even with it), Free Press cannot show any consumer harm from the merger.  Allegations of harm through "coordinated conduct" usually work best in homogeneous product markets that are geographically concentrated (think milk or cement).  If the only thing to compete on is price, then competition is best "managed" through coordination.  

On the other hand, a "unilateral effects" theory (also argued by Free Press) works better in highly concentrated markets, with differentiated products, and where each firm is each other's closest substitute.  The big question here is, does AT&T price its services differently in markets where T-Mobile is a competitor than in markets where T-Mobile is not present?  This seems highly unlikely--given Free Press's "nationwide" geographic market argument.

Successfully opposing a merger is no easy matter, but, at a minimum, the merger opponent has to arguably promote something more than social engineering.  In the present case--based on all known facts--consumer welfare (represented by output stimulation) has been most persuasively argued by the merging parties.  Fortunately for consumers, any localized competitive concerns can be easily cured by discrete divestitures, which will only strengthen "renegade", "irrelevant" carriers like Metro PCS.