Telecom Sense

Comcast Stands for . . . Status Quo?

You must be thinking, "[w]hat's this guy thinking (smoking?)?"  I mean, a lot has happened in the last month or so--mainly the FCC's release of its long-awaited National Broadband Plan (on  March 16th) and the D.C. Circuit's "Comcast" decision, released on April 5th--and I've had exactly nothing to say . . . at least not on this blog.  But while I was busy not blogging, the domestication of the dog continued, unabated, and other people had lots of smart things to say--which takes the pressure off me.

Before I can defend the title of this post, I have to lay out "the status quo."  For this, I am going to borrow from, and corrupt, a perfectly appropriate analogy used by Tom Tauke of Verizon in a March 24th speech.  In this speech, Tauke ("Mr. Tauke", as I like to call him) opens with the wonderfully evocative image of the Winchester Mystery House in San Jose, CA--a house that started as a small farmhouse, but underwent 24/7 construction over 38 years to become a Victorian mansion that appears to have been built upon pure caprice.

To the outside observer, the construction served no practical purpose, with a hallway ending in a second story door that opened to a dead drop down, steps that lead nowhere, and other architectural anomalies. Mr. Tauke uses the Winchester House as an analogy to the evolution of regulatory statutes that are stuck in a technology-specific past, and thus appear to have no practical purpose in a world where multiple technologies, devices, and applications are all used in a similar manner--to provide consumers with access to a primarily (and trending exclusively) Internet-based, communications network.

As I said, I LOVE the Winchester House as a starting point, but, not being nearly as diplomatic and classy as Mr. Tauke, I'll take a little artistic license, add a little context, hurt a few feelings, and generally "keep it real."  First, if you didn't click the Winchester House link above, you wouldn't get the full context from the Tauke speech, because, though the Winchester House is exactly as described in the speech, it only appears to have no practical purpose--but it's purpose was never to produce an object of pragmatism, or even of art or architecture.  Resale value was the last thing the owner was looking to produce.

You see, the owner was the heiress of the Winchester rifle fortune.  After her husband and daughter died young, and in relatively quick succession, Mrs. Winchester was told by a medium that her husband and daughter had their lives claimed by the vengeful souls of those whose lives were cut short by the invention which had made her rich.  The medium advised Mrs. Winchester that if she never completed her house, she would somehow appease the spirits, and would not suffer the same premature death as her husband and daughter.  Said differently, the construction of the Winchester House, while motivated by fear and superstition, was the purpose of the construction of the Winchester House.  The owner wasn't moving, wasn't looking for resale value, and "completion" in any pragmatic sense of the word was, in the mind of the owner, a little scary--in that it would cause her sudden death at the hands of angry supernatural beings.

With this context in mind, it isn't too hard (even if it is a little mean) to say that the FCC and its many Notices of Proposed Rulemakings ("NPRMs")--through which it attempts to implement the directives of Congress, including some of the central recommendations in the National Broadband Plan are not a dissimilar comparison to Mrs. Winchester and the Winchester Mystery House, and are a very apt analogy to the status quo.  The Commission, motivated by political fears and superstition--fears inspired by the political power of Congress, made superstitious by the contradictory, twin fears of not appearing responsive--on the one hand--and of looking foolish, or alienating the politically powerful by being responsive, but getting the "wrong" answer.

This is the status quo.  It has always been the status quo.  For example, Congress could not have been more clear in the Telecommunications Act of 1996 that it wanted the Commission to eliminate all implicit subsidies to high cost carriers, and to have all contributions to the Universal Service Fund made explicit.  Fourteen years later, the Commission has yet to complete this relatively simple directive, despite releasing numerous unfinished NPRMs during that time.  But guess what?  Docket No. 96-45, the original USF Reform NPRM, is still going strong . . . despite the continuous construction of numerous issue-specific orders/remands/FNPRMs and "area code splits" (new dockets created to account for specific issues).

At last week's Senate hearing on the National Broadband Plan, Chairman Genachowski seemed to be quite proud of the fact that, as part of implementing the National Broadband Plan, his Commission had scheduled releasing NPRM's on Universal Service Reform (contribution and distribution) and Intercarrier Compensation Reform for sometime during the 4th quarter of this year.  Chairman Rockefeller seemed less happy--in his opening remarks (about 22 mins into the hearing)--he berates the Commission for its "recommendations" to numerous other agencies, and the fact that the Broadband Report says "Congress should" 139 times.  Chairman Rockefeller also said that simply asking for comments is not enough.  But, hey, dispensing the fear is part of his job, right?

So, how does the April 5th Comcast decision preserve the status quo?  I mean, at first glance, and second glance, the Comcast decision was all about "Net Neutrality" policies.  All the smart guys say so.  Don't believe me?  Read Hank Hultquist's posts 1 , 2, and Harold Feld's post on the decision--and be sure to click on all the links (read them all over 5 or 6 hours and then you'll know everything there is to know about Comcast, Net Neutrality, and the history of broadband Internet access service classifications).

But, who cares about Net Neutrality, right?  The FCC will figure it out (Genachowski at 48, 69, and 108 mins into hearing) and preserve the "status quo" of the "open" Internet.  But wait, there's more.  Despite the FCC's confidence in its ability to ensure the safety of the open Internet, regretably, the Comcast decision has caused the FCC to rethink critical parts of their Broadband Plan.  Even Chairman Rockefeller relents, and recognizes this tragedy (at just the 27 minute mark).  The FCC's General Counsel agrees, and, by the 113 minute mark of the Senate hearing, so did Chairman Genachowski.

The thing I just can't reconcile, though, is that--even though the FCC has NEVER classified VoIP as a Title I or Title II service--the Commission has had no problems imposing public safety, and Universal Service contribution obligations on VoIP service providers.  A more cynical person might say Comcast has become just another excuse to continue construction . . . because getting it right is more important than getting it done.

Fear, superstition, and action for the sake of preserving existence . . . so what did Comcast change?  It doesn't look like much, except maybe making the Winchester Mystery House a little less mysterious . . .

[End Note:  I watched last Wednesday's Senate Oversight Hearing at least 3 times (my penance for not blogging in six weeks).  At times, it seemed the Senators were a little harsh on the FCC (albeit, in a theatrical, "Kobuki", "bad cop" kind of way).  The House Hearing on the National Broadband Plan on March 25th was, in contrast, a virtual love-fest.  On the issue of the National Broadband Plan, I think Congress gave the FCC too broad a mandate to criticize a good faith effort.  If they wanted a "real" work plan (See Senator Begich's very good questions around the 88 minute mark), they should have specifically asked for what they wanted. Finally, I really hope the FCC doesn't let Comcast become an excuse, or some other sort of bugaboo, that hinders the expeditious resolution of some badly needed repairs that will set the foundation for further broadband deployment.]

Google's "Think Big Gig": What Is And What Should [Will] Never Be

And if you say to me tomorrow
Oh, what fun it all would be
then what's to stop us, pretty baby
but what is and what should never be -Led Zeppelin, "What Is And What Should Never Be"

With profuse apologies to Led Zeppelin for blaspheming their iconic song title to do a telecom policy blog, this is essentially what Google announced to DC policy makers, via its corporate/policy blog, on Wednesday--except that the policymakers and the press didn't hear the last line.  But, boy, did they eat up the first few . . . you can tell that Valentine's is in the air.

I say the "announcement" was targeted toward policy makers, because absolutely no relevant business information was provided in the announcement--you know . . .  costs, prices, projected revenues, technology to be used, etc.  No vendors, competitors, or even Google's Clearwire partners (a venture from which--according to news reports--Google has been backing away) were interviewed or consulted.  No, but that's OK, because this wasn't a business "announcement."

What the "announcement" really says is how much political clout Google carries in Washington.  On a day when the Gub'ment is closed for a fourth consecutive day, some of the most important Government officials involved in technology policy were intrigued enough to very quickly issue "statements" in reaction to Google's blog post.

For example, the New York Times story actually contains a "statement" from Chairman Genachowski reacting to the Google blog post, and the statement reacts to Google's announcement like it were an "official" announcement--like a firm commitment to enter a market in a specific way, explaining product terms and prices, entry timing, costs, and projected revenues.  The Hill even contains a statement from Senator John Kerry, Chairman of the Senate Commerce Committee's Subcommittee on Communications, Technology, and the Internet.  Moreover, just about every story you'll read really "drank the Kool-Aid."  From the articles I saw on line, only Computerworld got it right.   

But what gives me the right to question Google's ambitiously-admirable, but vaguely-defined, "experiment", the belief of the bulk of the press, and some of the most important officials in Washington?  Well . . . there's this small problem of the facts and the logic.  First, Google's blog never says exactly how they plan to offer this 1 gigabit/sec (1,000 megabit/sec) broadband service at a "competitive price."  Second, the whole theory seems to contain a pretty glaring logical flaw: wouldn't Google deciding to become a broadband ISP allow other Broadand ISPs into Google's monopoly business?


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The Tao of Consumer Welfare and Handset Exclusivity

Why the "Tao" of consumer welfare and handset exclusivity?  Why not the "Zen" of consumer welfare and the art of handset exclusivity?  Well, here's why:  Bruce Lee (no relation) entitled his book "The Tao of Jeet Kune Do" ("Jeet Kune Do was the name Bruce Lee gave to his sui generis martial art), and Bruce Lee was voted by Time Magazine as one of the most influential people of the 20th century. Plus, I also saw a show a few months back on the History Channel called "How Bruce Lee Changed the World."  Enough said. So, who am I to pick a different term to describe seeking to distill the essence of a subject to its fundamental, essential, definitive principles? 

Said differently, in this particular post we want to focus on the under-appreciated, misunderstood, is of how "exclusive" agreements between wireless handset manufacturers and wireless service providers affect consumer welfare. But, to do so, we must properly consider the question, and what is not the question. The chief complaint of the chief complainers is that not every consumer has access to the "exclusive" of their choice.  This is just another way of saying that not every consumer has access to the service provider of their choice. This is not a trivial concern, or a concern to be brushed off and ignored by policymakers; however, contrary to how this issue has been characterized, this is a spectrum scarcity issue, and NOT a competition issue.

So, to clarify, this post is about the tao of the practice of wireless "exclusives" and how this practice relates to consumer welfare.  I explained it in a previous post, but, alas, the tao was buried in an ineffective attempt at a comedy monologue.

So, what is the answer?  What is the fundamental "is" of how "exclusives" affect consumer welfare?  Well, if you missed it, here it is: each party to the "exclusive" arrangement has an incentive to bargain hard to get the other firm to offer prices at lower than competitive prices, because each party is selling a complementary product (service or handset)--the profit on which is maximized by getting the other partner to offer its piece of the package at an inefficiently low price. 

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TeleComSense Salutes Rep. Anna Eshoo

It's the weekend of the Fourth of July, so it seems appropriate to take time out and put the spotlight on a Member of Congress that really seems like she's trying to do right by the public.  For this inaugural salutation, TeleComSense selects Representative Anna G. Eshoo (D-CA).  Is she the only public servant worthy of recognition?  Of course not, but a lot of more famous people get sucked-up-to all the time.  If you want to know why I'm spreading the love, I'll give you two reasons why Rep. Eshoo deserves a little recognition.  One can be appreciated by every American.  The other, should, be supported by every American, but can be best appreciated by the TV junkies--especially, those with more "low-brow" viewing tastes (i.e., men).

First, let me explain that I'm not a "BFF" of Rep. Eshoo (though I do sing a pretty righteous parody of Billy Paul's "Me and Mrs. Jones" with me substituting "Eshoo" for "Jones").  Anyway, though I'm not a "BFF", I have met Rep. Eshoo a few times. In a previous job, I was a registered lobbyist as part of my overall responsibilities (although we also had a "real" legislative guy as part of our team, who had worked for a Member of Congress on the House Energy and Commerce Committee). 

After the Dems took control of both houses of Congress in the '06 elections, the first day of Congress, in January of '07, was a nice day for that time of year, and the atmosphere on the Hill was really exciting.  An old friend of mine had just accepted a temporary engagement with the office of new House Majority Whip, Congressman James E. ("Jim") Clyburn, and invited me over for their open house, and I brought along Pete, our legislative lobbyist.

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Are You There Gov? It's Me, USF Contributor (a/k/a "Taxpayer")

[Disclosure Note:  As I've mentioned previously, AT&T is a client of mine, and they share my views (and those of every other rational observer) on the urgent need for universal service reform--both on the contribution and distribution sides.  Unfortunately, for you (the reader), Bob Quinn (of AT&T) already came out with a quick, clever, and succinct statement on the health of the USF earlier in the week when he pronounced that the Fund was in a "death spiral"--meaning that the Fund's precarious status of quickly losing contributors would exacerbate the "per customer" pain caused by the fact that the Fund continues to grow on the distribution side, and so on, and so on . . . .  Regretably, for the reader, I dithered with a contribution factor post, and then opted for the relatively repetitious "fact, fact, fact" format.  Hang in there, though, it's got a great ending;-)]
 
Fact: Earlier this week, the FCC announced that the "contribution factor" for the federal Universal Service Fund (a federally-created subsidy pool designed to support telecommunications services to high-cost areas, low-income consumers, schools and libraries, and rural health care facilities), will reach an all-time high of almost 13% for the third quarter.  This means that the FCC has authorized telecom providers to add a surcharge to the phone bills of most Americans amounting to about 13% of the interstate telecommunications portion of their wireless or wireline services bill.  The surcharge is up from about 10% in the first quarter of this year.

Fact: The Universal Service Fund, in the past year alone, disbursed as much money as the total dollar amount of funds appropriated under the "broadband stimulus" provisions of the American Recovery and Reinvestment Act--about $7.2 billion.

Fact:  In a report to Congress earlier this month, the FCC listed the top ten highest per-line USF beneficiaries.  It's an interesting read, notable for two facts that seem counterintuitive.  First, in all but two cases (where year over year data were available), the highest per line recipients either retained or increased the number of access lines served, while subsidies per line also increased.  In other words, the subsidy trends tend to buck commonly-accepted notions of telecommunications being a high fixed-cost, low variable cost industry.  Thus, as line counts increase, one would intuitively expect the necessary subsidies per line to decrease, not increase.

Second, the highest per line subsidy recipients were generally located in service territories surrounded by large LECs (maybe "high cost" but "non-rural") that managed to provide service to what would appear to be similarly-situated territories, but at drastically lower per line subsidy contributions.

The report noted that one rural carrier received almost $17,000 per access line in 2008. House Energy and Commerce Committee Ranking Member, Congressman Joe Barton (R-TX) reacted with this statement:  "It is unreasonable to expect subscribers to pay more than 11 percent of their long-distance phone bills to subsidize scores of telephone providers in each geographic market, especially when other providers are serving the same markets without a penny of support."  Congressman Barton said this before he knew the contribution factor would be well above 11%.

 

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