Telecom Sense

The FCC's "Mulletary" Enforcement of Video Competition

When I say "mulletary", I mean like "military", but in the way of the "mullet", as in the haircut, as in "BIFPIB":  business in front, party in back.  That's right, the mullet.  Like Billy Ray Cyrus, "Joe Dirt", and every '80's metal band.  But, why in the world would I compare video competition policy enforcement to the mullet?  I'll say it again. Two words: "BIF" "PIB"--business in front, party in back.  Why?  Because when confronted with the stubborn lack of video competition, to the detriment of consumers, the Commission has steadfastly talked tough in public (on the front end), but refused to break up the party out back with the owners and distributors of cable programming.  The result?  

Just look at the chart in the last FCC Video Competition Report to Congress, where the Commission reported that subscription video, and programming are the only major services for which prices have steadily increased since the Telecom Act was adopted in 1996.  What's more, the last Video Competition Report was produced in the last administration.  So, is there a "party in back"?  When prices are climbing in a down economy, both in nominal terms, and relative to the CPI, you bet there's a "party in back"! 

Nonetheless, the tough-talking, "business in front" continues unabated.  Like the mullet militia, the Commission will almost certainly not want to be reminded of their "style" when this administration goes out of style . . . as they all must . . . whether in four, or eight, years.  Let's look at some examples of the "mulletary" enforcement of "video competition policies."

"Business in Front"

Exclusionary Programming Practices.  On January 20, 2010, the Commission adopted rules to prevent incumbent cable operators, and owners of "must have" programming (like real time sports programming), from using the so-called "terrestrial loophole" to exclude certain competitors from access to this essential programming.  This programming is considered essential because customers will not buy subscription television that does not give them access to local sports programming.  The "terrestrial loophole" was originally designed to prevent owners of closed circuit TV systems (like the live feed you might see on the "Jumbotron" at FedEx, or the Verizon Center) from being required to broadcast the entire feed (including proprietary "programming", like birthday announcements, marriage proposals, product promotion contests, etc.) to all providers of subscription television service.  The FCC has found that just because the sports program (i.e., the game) is transmitted for distribution over a wire, it does not give the owner/licensee of the sports programming the right to exclude rivals from access to this essential content.

In fact, despite the "loophole", which (according to interpretations rejected by the Commission) would allow the owner of the sports event to foreclose access to anyone that didn't own access, cable distributors that owned programming did choose to make transmission of these sports events (both conventional and high-definition feeds) available to non-competing, adjacent incumbent cable operators, but not to competitive video providers, either "in-region" or in adjacent regions.  The rules became substantially effective at the beginning of April and fully, technically effective, on June 21, 2010.

The FCC laid down the law . . . it could be said.  Yet Verizon, and AT&T, have had formal complaints pending with the Commission for over a year (since July and August of 2009) regarding their inability to get access to the high-definition feeds of local New York sports programming owned by Cablevision--even in areas where neither company competed against Cablevision.  See, Order, ¶17.

Programming/Distribution Concentration.  Let's move on to the still-pending Comcast/NBC/GE merger, where the largest owner and distributor of subscription TV programming filed a request with the FCC on January 28, 2010 for approval to acquire one of the largest network programmers.  Interesting stuff, really, because Business Week already declared the death of "free TV", even before the FCC got into the "business in front" part of the "mullet-ary" style review.   Others also expressed concern that the proposed merger would threaten "free TV." 

As a public statement, but not a binding rule, the FCC tries to hold itself to a 180 day "time clock" for reviewing mergers.  Technically, this would require the Commission to approve or reject the Comcast/NBC/GE merger in a couple of weeks.  Accordingly, the FCC hired an attorney to lead the investigation in late May.  Final comments on the merger are due in early August.

Moreover, on July 13, 2010, the FCC held a public hearing at Northwestern University regarding the consequences of the merger, chaired by Commissioner Copps.  Commissioner Copps released a public statement, concurrent with the public hearing, discussing the potentially dire consequences of the proposed merger--not only for traditional subscription television consumers, but also for the "new media" markets.   In Commissioner Copps' public statement on the hearings, he concludes, "[a]s for me, I have said before that approval of this proposed transaction would be a very steep climb."  [emphasis added]  Now that's some serious business. . . which brings us to . . . .

"Party in Back"  

Exclusionary Programming Practices.  Well . . . there is that matter of the FCC never enforcing an act of exclusion by a vertically integrated owner of cable programming and distribution--despite rules and practices to the contrary.  As I said a year ago, practices such as these--refusals to deal with some firms on terms that have been voluntarily offered to other, similarly-situated, firms--have been condemned as anticompetitive by the Supreme Court.   

They're Competing Like Heck Out There!  As part of its "business in front" approach to video competition policy, the Commission announced the previously-mentioned "public forum" to review the merger. Coincidently, though, on the same date (June 3, 2010), Communications Daily reported, "[t]he FCC is partway through trimming a backlog of requests from cable operators to be freed of local rate and equipment regulation, said commission and industry officials. The Media Bureau in recent months has stepped up approvals of petitions seeking findings of effective video competition . . . ." [emphasis added].  The story went on to note that the FCC is making "effective competition" determinations for video markets at a rate greater than once a day--as many as 30 times in May alone?!  Wow!  Is the subscription TV market "effectively competitive?"   

I don't know, but maybe the answer depends on the circumstances.  Do over 90% of cable consumers have a choice of at least one "same media" subscription video provider (as is the case in the wireless industry)?  Doubtful--but such a finding should be vital to the approval of a certain pending merger.  Why?  Because the Commission previously found that only wireline-delivered multichannel video had a price-constraining effect on the behavior of the incumbent cable provider. Video Competition Order, ¶3.  

Does the FCC have to exclude wireless-to-wireline competition?  It would seem so, because the Commission made a similar finding only a few weeks ago.  In the recent Qwest Phoenix Forbearance Order, the FCC reached the same conclusions about wireless voice as they did about wireless video when they declined to include wireless voice--even for customers that only used wireless voice--as a competitive market participant.  Qwest Phoenix Order, ¶55, n.164.

Even if not everyone agreed with the Commission on the ineffectiveness of cross-media wireless competition, the outcome would be unlikely to change in the video market.  In an article entitled "Wall Street Loves Cable. . . Still", Multichannel News recently reported one analyst's observation:

'The operating environment in cable is better,' [UBS cable analyst] [John] Hodulik said, adding that the competitive threat may have reached a crest with Verizon Communications announcing last month that it would no longer build out new FiOS markets and DirecTV being less aggressive in new subscriber additions.

Programming/Distribution Concentration.  So, how will the FCC tackle a big media merger, unpopular with consumers?  Will the "business in front" be followed by a "party in back"?  Some would say the party never ended for this industry.  Regardless, this year's Video Competition Report should be as interesting an exercise in intellectual contortions as its conclusions are predictable . . . and, no doubt, the same team will write the order approving the Comcast/NBCU/GE merger.

Still, in a transparent and data-driven world, the FCC--should they decide to approve this merger--should adopt a riff on the old English Solicitor custom . . . and wear formal wigs at the Open Meeting . . . like these.  Plus, if I had my druthers, every separate statement endorsing any conclusion of vigorous competition in the subscription TV market would have to conclude with this graphic prominently displayed.  

Regulate. Rinse. Repeat. Three Steps to the Third Way

"I can't believe that!" said Alice.
"Can't you?" the Queen said in a pitying tone. "Try again: draw a long breath, and shut your eyes."
Alice laughed. "There's no use trying," she said: "one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."   --Lewis Carroll, Through the Looking Glass, Chapter 5  

The quote is apropos of almost nothing.  I just saw it recently, and I liked it.  I suppose if you substituted "contradictory" for "impossible" you might get some meaning out of it by the end of this post.

The title should probably say: regulate, forbear, repeat.  But, here's what's got me thinking in circles.  Less than two weeks ago, under the color of protecting consumers and broadband deployment in an Internet age, the FCC released an NOI (Notice of Inquiry) proposing to classify some part of broadband Internet service as a "telecommunications service."  OK, so far, so good . . . I mean, I understand.  If you're the FCC, and you classify some type of broadband Internet service as a Title II service, then you have broad powers to regulate the service (however it is defined) and ensure that consumers are protected through wholesale and retail rate regulation, regulation of terms of sale, etc.  

But, here's the hitch: the FCC is talking about applying only a fraction of Title II regulations to broadband Internet related service . . . and then applying a type of "blanket" forbearance under Section 10 of the Act.  Forbearance means that enforcement of a particular rule or regulation is not necessary to protect consumers, because the market is competitive enough to protect consumers without regulation with respect to that particular rule or regulation.  This is where it starts to get a little weird.

You see, this whole "telecommunications service" classification idea is a response to the Comcast decision, in which the D.C. Circuit said that the FCC lacked authority under Title I to impose "net neutrality" principles/rules on providers of broadband Internet access service.  So, a classification of some part of broadband Internet service as a "telecommunications service" would allow the FCC to impose its own consumer protection rules--in the form of "net neutrality" rules--on providers of broadband Internet access service.  

To make things more clear, here's what's going on:  the FCC thinks consumers and competition for broadband Internet connectivity services need protection.  Only, the thing is that the FCC doesn't think the regulations that Congress established for the protection of consumers of "telecommunications services" are quite right--maybe a little too much consumer protection, or not quite the right mix of "heavy-handed" and "light touch" regulation?  Or maybe the FCC just likes their proposed regulations for "telecommunications services" better than the regulations written by Congress.  Weirder, still.

Only, here's where we go from weird to weirder to weirdest.  Last week--only four days after the Commission came out with the NOI on Title II, replete with suggestions for blanket forbearance, the FCC comes out with its Order on Qwest's Petition for Forbearance from certain wholesale requirements imposed under Title II for the Phoenix MSA.  The Qwest Phoenix Order was released four days after the NOI was released, but it was adopted two days before the NOI was adopted and released.  So why is this so weird?

Well, the Qwest Phoenix Order adopts a very thorough analytical framework that must be satisfied before the Commission grants forbearance from certain requirements imposed on providers of telecommunications services.  The Commission's analysis is "market power" based--meaning the FCC must assure itself that the market for the service for which forbearance is being considered must be a competitive market.  A significant factor in the Commission's market power analysis is the concentration level of the market being analyzed.  Said differently, the Commission will take a careful look at product and geographic markets, how many firms are in the market, and the relative market share, of the firms in the market for which forbearance is sought.  

Stay with me now . . . we're almost there.  So, in the Qwest Phoenix Order, even though cable providers are large and growing providers of mass market telephone service, even though many customers use over-the-top VoIP service, and even though as many as 25% of all households use only wireless service (Qwest Phoenix Order, ¶ 55, n.164), Qwest was unable to demonstrate the requisite level of competition and lack of concentration to justify forbearance from certain requirements of Title II for the mass market for retail telecommunications services.  Given the fact that broadband Internet access services are almost always (approximately 91% of the time, according to the Qwest Phoenix Order, ¶53, n.159) bundled with, at a minimum, telephone service, it seems hard to reconcile the "blanket forbearance" suggested in the NOI with the analytically rigorous "market power based" analytical framework introduced in the Qwest Phoenix Order.  

I'm not being critical of the Commission's methodology in Qwest Phoenix, but it does sort of strain credibility to pretend that the FCC can turn its new framework on and off--classifying broadband Internet connectivity as a type of telecommunications service, but then "looking the other way" on every exercise of forbearance from most of the requirements of Title II . . . especially not for incumbent LECs . . . and certainly not for Qwest . . . in Phoenix.  Will a court buy the Jekyll/Hyde forbearance analysis necessary to implement the Third Way?  Does the Third Way really bring regulatory certainty?

In a way, the reasoning is so circular that it reminds me of that old anti-drug PSA where a guy is trapped in a small stark room, which he paces around, faster and faster.  He says that using cocaine helps him work hard . . . to make more money . . . to buy more cocaine, and he keeps pacing around the room, and repeating that phrase faster and faster, and, well . . . you get the point.  In this case, it seems like the Commission is justifying classifying more services as being subject to more extensive regulatory classifications in order to protect consumers, so they can apply "lighter touch" regulations in order to protect more consumers, but, not to worry the Commission will subject more regulations to forbearance so they can promote more investment for the benefit of consumers, but, not to worry, the Commission will adopt more thorough forbearance standards so more regulations will remain available to protect more consumers. . . .

Straight Outta Comstock

Last week, one of my former bosses from COMPTEL--Earl Comstock (on behalf of his client, Data Foundry) --had a discussion with the FCC, including FCC General Counsel Austin Schlick, regarding the FCC's proposed "Third Way" approach to reclassifying broadband Internet transmission service as a "telecommunications service" under Title II of the Communications Act.  Here is a link to the ex parte materials Data Foundry filed with the Commission.  So, aside from the irony associated with two of the major protagonists in the Brand X decision (Austin Schlick from the FCC, and Earl Comstock for Brand X and Earthlink), almost 5 years from the date of the decision (June 27, 2005), now taking somewhat different positions than they took at the time, what's so interesting?

Well, first, if you know Earl at all, then you know better than to get into a discussion with him about Internet access classification, and you know that he has historically been one of the biggest champions of (his version of) net neutrality in the industry.  Seriously, Earl is the "Count of Classification"--he owns that subject.  Whether you agree with his policy conclusions (I don't, but will explain in a later post), you have to respect Earl's encyclopedic knowledge of the history and meticulous explanations of the current state of broadband Internet classification.  This is no joke.  If FCC General Counsel Austin Schlick had been offered a free trip to Cabo, on the condition that he only had to sit through a "presentation" on broadband Internet classification with Earl, Computer II would be the "Only Way"!

But this interesting personality piece aside, the Comstock/Data Foundry ex parte is so relevant because it is analytically correct.  What does this mean?  Quite simply, it means that one of the leading advocates of net neutrality, and Title II classification for broadband Internet access transmission services, believes the "Third Way," as described by the Commission thus far, is no way at all.  Why?

While most ex parte meetings are deadly boring, I would love to have been a fly on the wall for this one. Reading between the lines of what was filed, I'm guessing that Earl made clear, in his inimitable way, exactly what he thinks about what the Commission seems to be up to. In a nutshell, Earl probably told them that they're screwing things up. In Earl's view, the Commission can put broadband under Title II in one of two ways - a "wholesale path," or an "end user path." And the end user path, that the Commission appears to have set its sights on based on Justice Scalia's dissent in Brand X, is the wrong way. Earl correctly identifies the fatal weaknesses in the end user path (whether his analysis of the virtues of the wholesale path is valid is another matter). Those weaknesses are: (1) the Commission would likely have to conclude that all the layers of the OSI stack constitute "telecommunications": (2) that absent such a conclusion ISPs would be able to escape the classification simply by acting at the higher layers of the stack; and (3) that the end user path risks the extension of common carrier regulation to all providers of information services.

This last point probably deserves a little more explication. For the last forty years, the Commission has classified services that combine transmission with information processing as "enhanced" or "information services" subject to Title I. Earl's point is that if the Commission were to find here that such services in fact may constitute the offering of two services - an information service and a telecommunications service, this approach would potentially implicate all information services, which by definition are offered via telecommunications. Indeed if the Commission were to break Internet access up in this way via the end user path, all content providers that purchase Internet access in order to distribute digital goods (eBooks, music, movies, etc.) could be treated as "resellers" of the common carrier service that they purchase.

To further elaborate, let's consider a hypothetical.  Assume there is some source of cheap or free video content (maybe those now-goofy public safety/hygiene films from the '40s, '50s, and '60s).  You acquire a non-exclusive license to use these films, and create your own cool, funny, retro website.  You get a lot of hits, and want to ensure a good quality experience to your customer, but you aren't quite ready or willing to build/buy your own content delivery network.  But, why worry?  Because, under the interpretation that every information service contains a separable telecommunications service, any member of the public will be free to use the content delivery network (nothing more than transmission by another name) of a Netflix, Google Voice, eBay, or any other provider of Internet content--on just and reasonable terms.

Thus, to summarize, given all the things the FCC says it won't do in its "Third Way" reclassification, the only "telecommunications services" that can be delivered with a "light touch" are those services--which can be combined with computer processing--that the broadband ISPs feel like offering to the public.  This seems like simply replacing the prior "Title I" services with a "Title II" label.  Will a court really buy this "no regulation, re-regulation?"

So on the one hand, the label "telecommunications service" could be nothing more than just that--a different classification without a distinction from the previous classification.  On the other hand, if the Commission really wants to assert that each broadband Internet service has both an "information service" component, and a "telecommunications service" transmission component, then this classification will--if applied evenly--potentially be a Pandora's box, and every Internet service that relies on Internet access will, to some degree, be subject to common carrier regulation. 

In some respects, the Third Way might not be all bad.  Excessively regulatory?  To be sure.  Confiscatory?  Maybe . . . sometimes . . . but probably only for the politically weak or unpopular.  On the plus side, though, the USF contribution factor would drop to next to nothing.  Intercarrier termination rates would almost have to be set at zero across the board.  And, such an outcome might provide a little more certainty in the "real world" of telecommunications commerce. 

In the General Counsel's detailed justification of the "Third Way" as a necessary departure from the Commission's current Title I classification of broadband Internet access services, Mr. Schlick explains that, even if the FCC were successful at defending Title I ancillary jurisdiction, it would involve piecemeal regulation, protracted litigation, and "[t]he extended uncertainty would deprive investors, innovators, and consumers of needed clarity about the rules of the road." (p.3)  Huh?

Did the FCC find religion?  The logic of the "why" makes sense, but why should the FCC start now?  Given the Commission's persistent "non-classification" of VoIP, it's hard to get used to the idea that, all of a sudden, the Commission considers extended uncertainty over the regulatory treatment of an Internet service to be a bad thing.  I'm not criticizing the sentiment, or the effort, it's just that it might be a little misplaced. In fact, I'd be willing to bet that the Commission's unblemished, 14 year record of not even attempting to classify VoIP, while constantly saddling VoIP with new piecemeal regulations (E911, USF contribution obligations, CALEA, etc.), has given rise to countless more litigation and uncertainty than could be expected from any Title I classification scheme designed to support net neutrality rules that have ended up in court . . . uh . . . at least once in 5 years. 

Wireless Competition Report: The "Ugly"

Before I talk about some else's "ugly"--I'll 'fess up and say that last post was dry as dirt.  You know what's worse?  "The Ugly" isn't going to be any less ugly! 

So, let's just move through it.  The "ugly" part of the Wireless Competition Report is the adjacent market analyses--the "downstream" and "upstream" markets information.  While some of this data--meticulously compiled as it was--is . . . well . . . interesting, but its relevance to the state of competition in the mobile wireless services market is questionable.

Simply put, the adjacent market analyses were superfluous, almost by definition. Why?  Because, strictly speaking, the statutory language that mandates the preparation of the Report requires the FCC to report on the state of the mobile services market and the service providers that comprise that market--period.  This means that the market for which Congress seeks information on is the market to be isolated.  Congress did not require the Commission to Report on "downstream" markets, or any other ancillary markets.  

"Downstream" Markets

Strictly speaking, the "downstream" markets for devices, operating systems, and mobile applications seem almost too integrated with wireless service to be considered "downstream" in the production/distribution chain.  This is because it is not possible to receive any wireless mobile service without some sort of device.  Semantics aside, though, the Commission's data seems consistent with healthy competition in the wireless market--that is to say that output of handsets is increasing by number of manufacturers (which have doubled from 8 to 16 in the past 3 years), Report, ¶300, and the prices of handsets and smart phones have decreased dramatically in the past 3 years, Report ¶310.  

But, the chicken-egg problem still exists, with respect to being able to make any inferences regarding the state of mobile wireless service competition based on the "downstream" market data.  The largest carriers offer consumers the greatest choice of handset and smart phone models.  Report, ¶308, Chart 43.  However, one cannot say what this information means vis-à-vis the competition for mobile wireless services.  Do the largest carriers have the most customers because they offer the most handsets?  Or, can the carriers with the largest number of customers offer the greatest choice in handsets because they have diverse enough customer bases to support the most diverse number of handset models?  Is there another, more anticompetitive, theory to explain the relationship between "downstream" market devices and mobile wireless service competition?  We don't know.  No correlation between handsets and service competition is ever offered.  This is the "ugly."  Informative?  Sure.  Probative?  Of what?  Not clear.

"Upstream" Markets
 
The "upstream" market section of the Report suffers from the same problem--the difficulty of drawing a correlation between mobile wireless service competition and the "input" markets of spectrum, access to tower sites, network equipment costs, and backhaul costs.  As noted in one of the previous posts, I did "kind of" like the effort to look at inputs. . . at first . . . until I thought about it more.  On deeper consideration, it seems unlikely--given the economies of scale and scope that characterize wireless mobile networks--that this exercise is ever likely to produce any information that would not be potentially misleading.  Rather, it would seem that the large economies of scale and scope in the wireless network services market would simply indicate that (other things being equal) the carriers that serve the largest number of users (either directly, or through MVNOs) will have the lowest costs per user.

Also, the Report failed to describe to what degree, if any, these costs were competitively significant.  In other words, to some degree or another, all carriers must deal with the "role of spectrum", obtaining tower space, network equipment, and backhaul from their cell sites or other points of aggregation.  It was unclear from the Report whether any carriers face input costs that cannot be overcome by superior competitive performance.

Role of Spectrum.  Here the Commission posits that some firms (the first movers on cellular spectrum in the 1980's, and the winners of the 700 MHz auction) have better spectrum than others, in that it is cheaper to build out--due to its superior propagation properties.  However, the Commission also notes that this "lower build-out cost" spectrum costs more to buy than the more expensive to build-out, higher frequencies. Report, ¶271.  This seems like the classic "operating leverage" concern confronting all firms in all industries. 

A higher initial fixed cost, can frequently yield very high profits--past a given output level.  Conversely, a lower initial cost of entry is often associated with higher variable costs.  Neither is necessarily best.  For example, many MVNOs probably outperformed many facilities-based networks over the past few years.  Will MVNOs, with their low cost of entry and high variable costs, always outperform the same facilities-based carriers?  Who knows?

Other Infrastructure Costs.  Costs associated with tower site acquisition, and associated network equipment, seem to favor the firms with the largest established customer bases.  This is because it costs less to incrementally add sites than it is to build a network starting with a low customer base.  Again, while this suggests that the wireless mobile market is characterized by high fixed costs, it does not explain whether "newer" entrants--with less investment in legacy network design, equipment, and reliance on traditional forms of backhaul (copper DS1s and DS3s)--are able to compensate for these higher costs of initial entry with greater capacity, lower operating costs for a given number of subscribers, and greater revenue opportunities (for example, through offering higher-speed broadband services through newer network design). 

Backhaul.  It is, likewise, unclear to what degree backhaul costs effect competition in the mobile wireless industry, or the degree to which wireless demand affects competition in the backhaul market.  The Commission notes that "traditional" copper backhaul is quickly losing ground to fiber-based backhaul.  Report, ¶294.  However, the Commission also suggests that "unaffiliated" (with an incumbent LEC) wireless carriers may be at a disadvantage to "affiliated" wireless carriers, due to the costs of special access backhaul (traditionally provided by the incumbent LEC).  Report, ¶¶ 295-296.  On the other hand, given that the largest two wireless networks are also the largest purchasers of "other" incumbent LEC backhaul, it would be helpful to know whether these two carriers have a greater incentive/propensity to differentiate their costs by devoting more "spend" to out-of-region competitive fiber providers--thus promoting backhaul competition. 

Another problem with the "backhaul" section is that it never attempts to quantify backhaul costs in absolute terms, or as a percentage of annual costs or revenues.  The only reference it makes is to a study in Verizon Wireless' NOI Comments, stating that backhaul was expected to increase from a $3 billion market now (2008 total mobile wireless revenues-$150 billion (Report, ¶201)) to an $8-10 billion market in the next 5 years).  Report, ¶296, n.785.  Assuming an industry cost of backhaul at $3 billion, this would put backhaul costs at slightly less than advertising costs, at around $3.4 billion for the most recent year.  Report, ¶128. 

It might be the case that backhaul costs, and the other "upstream" input costs discussed in the Report, are a competitive concern, but the Commission didn't support this rhetoric with data.  Again, misleading, and, therefore a little "ugly" . . . . 
 

Wireless "Competition" Report, Part 1: "The Good"

Last Thursday, at its May Open Meeting, the FCC adopted its annual Wireless Competition Report.  The adoption of the Report caused something of a stir, because the Commission departed from the statutory directive requiring the Report to:

include an identification of the number of competitors in various commercial mobile services, an analysis of whether or not there is effective competition, an analysis of whether any of such competitors have a dominant share of the market for such services, and a statement of whether additional providers or classes of providers in those services would be likely to enhance competition.

47 U.S.C. § 332 (c)(1)(C) (emphasis added).  The report, notably, reached no conclusions about anything required by Congress, except identifying the number of competitors in various mobile services markets.

At the meeting, Wireless Telecommunications Bureau Chief, Ruth Milkman, by the account in Friday's Communications Daily, explained,

'What we set out to do when we started drafting this report was to collect the facts and to analyze them and to collect facts about a broader expanse of the mobile wireless ecosystem,' she said. 'We were focusing on the data and the analysis rather than conclusions. We thought we would just lay out for the commissioners all the data and the analysis and stop there and that's what we did.'

So far, so good (I guess)--except for the cringe-inducing "ecosystem" malapropism (which seems to be pervasive over at the Commission, when referring to service supply chains).  I mean, I guess what the Bureau did was OK--laying out facts for the Commission to draw the conclusions required by law.  But, no one on the 8th floor ever bothered to render these conclusions.  Nonetheless, sloppy language breeds sloppy analysis.  In this case, if there was a logical analytic framework for the Report, it wasn't stated explicitly, nor was it possible to discern intuitively. In the next few posts, I'll provide my take on the Report overall--the Good, the Bad, and the Ugly.  

The Good: lots of information . . . a whole lot--maybe even too much information on too many "markets", but not enough information on the relevant market--the market for mobile wireless services. For example, the Commission seems eager to divide the supply chain into multiple submarkets--either on the input side, or with respect to adjacent, or "complementary" markets (which, except possibly for mobile applications, the Commission conflates with the term "downstream" markets).  The report may have been more accurate if the Commission divided the "mobile services market" into "upstream" and "downstream" components (an exercise that would have enabled the Commission to accurately describe the vigorous wholesale market, through which unaffiliated "MVNOs", purchase service to be packaged with unique handsets and offered to the consumer at retail).

Nonetheless, one of the things I really kind of liked was the attempt to provide information on the input markets facing the mobile service providers.  Unfortunately, this effort was probably too ambitious and, on deeper thought, it would have been impossible to execute on a meaningful basis.  Also, with respect to this portion of the Report, the Commission may have been better off leaving the sections out.  It is better to exclude incomplete data, than to include partial data, and then create a misleading narrative based on that data.  

Another interesting, and novel, feature of the Report is the Commission's effort to disaggregate service revenue, consumption, and growth trends by the differentiated service--like voice, texting, and data--notwithstanding whether the services were sold in the same way (i.e., text only, etc.).  This information was interesting, but not presented in a competitively meaningful way.  While the Report helpfully explains changes in mobile wireless service consumption trends, it only suggests, but does not attempt to demonstrate or quantify, probable positive cross-elasticity of demand (substitutability) between voice and text messaging, and possibly data.  

The Report theorizes that average voice consumption per user may have declined in the past year as a result of "per text" prices precipitously declining from 2 ½ cents per text to around a penny per text over the same period.  If voice and texting are indeed "close substitutes", then the Commission may want to refine its analysis in the next Report to include voice/texting as a single product market category.  This would suggest a more competitive market, as voice plan prices and per text prices continue to fall, pari passu.

On the data side, the Report notes that data revenue--as a percent of total revenue per customer--is expanding at an accelerating rate.  It is difficult to draw inferences regarding the competitive nature of the wireless mobile data market, because it appears to still be in its incipiency.

Finally, on the "Good" side of the Report, one cannot deny the work that went into collecting the information.  The professional staff of the Commission is truly to be commended.  One might disagree with the information the Commission chose to present, how the information was presented, and the conclusions the Commission would have the reader infer based on the information--but this is a Commission policy concern, and does not diminish my respect for the work that went into this Report.