Telecom Sense

A Good Question, A Direct Answer, and . . . Mayhem Ensues

Confusing, huh?  Sounds like a movie idea . . . for a really bad movie; but that's what happened recently with an AT&T filing in response to the 25th Public Notice in the National Broadband Plan proceeding.  The Commission asked for public comments on a very important, and very forward-thinking topic: how should the Commission plan for the inexorable obsolescence of the Public Switched Telephone Network ("PSTN").  

The simple fact of the matter is that, due to broadband availability and adoption patterns, increasing availability of mobile VoIP apps, and (morbidly) the dying off of PSTN customers--and the fact that younger customers, with broadband access, are opting for VoIP solutions.  Fortunately, the Commission acted on its own data, and recognized that the costs of the PSTN are being born by a smaller, and smaller group of consumers all the time, and the consumers that lack VoIP as an alternative (because they have not adopted broadband) are those least able to afford these increasing costs--the less-educated, the poor, the elderly, and minorities.  (See, p. 82). The Commission is to be applauded for recognizing a trend, and trying to plan in advance in order to avoid a potentially disastrous crisis in advance.

Among those filing comments in this proceeding, AT&T recognized the problem was as grave as the Commission suspected, and they responded to the Commission's request for comments with all the gravity with which the Commission solicited the comments.  Critics may call AT&T's comments melodramatic, but, judging from the attention they received (even if it was misplaced), I'd say AT&T did a good job of calling public attention to the Commission's very timely concern.  AT&T's policy blog explains their position a lot more succinctly than I could, and the posts contain good links to AT&T's actual comments.  If readers are interested, I would strongly encourage them to read these two posts--the first, and the second.

Bottom line: AT&T isn't seeking to turn off the PSTN, so there's no need for panic.  Hysteria isn't good, but (this time) it can have a good outcome if it brings more awareness to an urgent problem--the need for the Commission to reform USF contributions and distributions, and Intercarrier Compensation Reform, before the network becomes a network for broadband "haves, and have-nots."

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?

VoIP and POTS: Regulatory Classifications or Magical Incantations?

It's that time of the year again--when nothing is as it appears.  I know this because my kids started to nag me about Halloween costumes.  You know, what they should be (and what I have to buy).  The first catalogues started coming in the mail last week, and the Internet has been humming with on-line searches since then.  But, witches, goblins, and haunted houses aren't the only artificial distortions decorating the autumn landscape this year.

Last Friday, the 25th, AT&T sent a letter to the FCC complaining that Google asserts the right to offer a service that closely resembles regular phone service, but without terminating calls to high-cost providers, like "traffic pumpers."  To be able to selectively avoid completing calls to carriers that charge excessively high termination rates confers a big cost advantage over ones competitors.  Therefore, AT&T argues, on the one hand, that Google should be treated like every other provider of "phone" service and be required to terminate calls to all parties.  Google, for its part, claims that Google Voice is an application and not subject to "common carrier" obligations.  According to Google's service description, the "common carrier" transport portion of its service (if there is one) is provided by a competitive carrier called Bandwidth.Com.

Alternatively, AT&T explains that even if the "Google Voice" service is an "application" or an "information service" it violates the "fourth principle" of the FCC's existing Broadband Policy Statement principles, which apply to all providers of "telecommunications." para. 4. [Note: the existing Broadband Policy Statement principles apply not just to "telecommunications services" which would only cover "telecommunications" offered for a fee to the public, thus Google's point that its service is "free" does not mean it cannot violate a Broadband Freedom principle.]  The fourth Broadband Policy Principle provides that, "consumers are entitled to competition among network providers, application and service providers, and content providers."  AT&T also argues that, if Google Voice is an application, Google's service would violate the Commission's proposed "fifth" principle of "non-discrimination" which would ensure consumers that a provider could not block access to another provider.

So, what's the big deal?  Where is the magic?  Where are the "illusions"?  Isn't this just a business-as-usual, Hatfield-McCoy, AT&T-sniping-at-Google letter?  Well, I'm not sure.  As I've disclosed before, I do some consulting for AT&T, but I wasn't involved in this letter, and  I'm not privy to AT&T's reasons for sending it, but I would caution against taking  the letter too literally--in the AT&T v. Google sense.  I'm just an educated observer, but I actually think another blog, Telecom Ramblings, got the right answer first in this post from September 27th. 

Continue reading VoIP and POTS: Regulatory Classifications or Magical Incantations?

When Irresistible Force Meets Immovable Object . . . In the Land of the Free

While the deep thinkers in government and in the general "world of the deep thinker" are thinking about lofty issues affecting broadband (remember, I said "lofty" issues), commerce proceeds apace, the domestication of the dog continues unabated, and . . . the "little", pragmatic issues surrounding broadband get bigger . . . but not "lofty."  In a time where lofty gets most of the focus from the broadband plan, "free" is not as insignificant as it sounds. 
"Free" is an afterthought, a cheesy giveaway, or, even worse, a gimmick.  Yet, it is "free" that will force the Commission's head out of the clouds, and force the FCC to deal with the little, pragmatic issues that drive the little, pragmatic services that cause the little, pragmatic people . . . to buy broadband.  Some would say it already is.

Everywhere you look, "free" is "in."  Recently, Wired! Magazine published an article by Chris Anderson, called "Free! Why $0.00 Is the Future of Business."  The article, which is essentially the thesis of a book by Mr. Anderson (available for free), notes that frequently what looks like "free" might just be a different cost-recovery system.  For example, the "buy one, get on free" is a staple of sales promotions, similarly, Gillette makes profits off of repeated blade sales and not from selling razors, and Google makes money from advertisers, and obtaining "free" information about the value that consumers' place on certain search terms helps Google sell a better product to its advertisers.  Most kinds of "free" aren't "free" at all (to consumers)--though they still may be good deals.  Other kinds of "free" services are, in fact, "free" to consumers, because they involve transferring costs to another company in the supply chain, i.e., Mr. Traffic Pumper Guy. 

Dow Jones today pointed out--in a very observant article--that at least part of the FCC cares a lot about the public's perception that it is standing up for consumers to have access to "free" applications. This, Dow Jones explains, may be one reason why the Commission cared enough to initiate an inquiry into why Apple didn't give "free" placement to Google Voice, a "free" call management/VoIP application, in its iPhone Apps Store.  In other words, preserving "free" might be a good way to ingratiate yourself to certain "public interest" advocates.  Dow Jones quoted a Senior Counselor to the FCC as saying, "We're moving to a broadband world and we want to maximize innovation and investment in the space."

Continue reading When Irresistible Force Meets Immovable Object . . . In the Land of the Free

TeleComSense Congratulates Mignon Clyburn On Her FCC Nomination!

Now there are two . . . FCC nominees by President Obama. Earlier this week, President Obama announced the most recent Democratic FCC Commissioner, South Carolina Public Service Commission veteran Mignon Clyburn.  Commissioner Clyburn seems like another candidate with excellent experience--more than 10 years on the South Carolina PSC--and the practical knowledge of regulation [and its limits] to profoundly advance the public interest [if she's smart enough to help Chairman-to-be Genachowski stick with the "simple, but tough" regulatory priorities outlined by TeleComSense].  I wish her well, and I know she'll make the President look good, if she sticks to the hard work--the work that hasn't been done, but that needs to be done.  I'm talking about the work that the FCC has been tasked with by the law for the last 13 years--because of a reluctance to take on politically-contentious issues by the Commission. 

While I can't really vouch for Commissioner Clyburn, because I have mostly worked on federal (vs. state) issues, I am a little annoyed at the many stories that suggest she is just another beneficiary of nepotism.  You can't read a story about Commissioner Clyburn that doesn't note that her father is the House Majority Whip, Congressman James Clyburn.  [I don't recall as many critical stories about Michael Powell being appointed to FCC Chairman in 2001, with not nearly as much experience as a regulator, right after President Bush appointed his father to be Secretary of State.]  I do have to ask, though, why do we know (as many critics seem to) that President Obama's choice of Ms. Clyburn is dangerous to the American public?

 

Continue reading TeleComSense Congratulates Mignon Clyburn On Her FCC Nomination!