TeleComSense

What's the [Low] Frequency, Kenneth? The Government's Uniquely "Consumerless" Concept of Competition

Wed, 01 May 2013 11:12:46 -0500

Has anyone else noticed how nutty the news stories have become about the FCC and DoJ fight to promote wireless competition? Here are some examples: this and this, but I'll summarize for you. First we have the DoJ "letter" to the FCC; a letter which I think the FCC probably sent the DoJ along with a self-addressed, stamped envelope a few months ago.

I mean, seriously, how could two separate agencies--both independently, and within six months of each other--come up with the same notion that the next available spectrum to be auctioned would be put to its best use by Sprint and T-Mobile (who had not even bid on spectrum the last time it was available) because of its radio frequency characteristics? That last part was highlighted because it's like the peanuts on top of the walnuts on top of the almonds in this all-nut sundae of a theory.

Like most tin foil hat theories, this one has a small kernel of logic. For a smaller carrier, especially a new entrant, low-frequency spectrum provides a lot more value per cell site--and requires a lot less cell sites--for a carrier to achieve adequate coverage. But do the FCC and DoJ want to promote smaller carriers or new entrants? Of course not; that might provide consumers with some value. And since the FCC/DOJ believe that only national firms count toward improving competition in the marketplace - new entrants as envisioned by these agencies would fail to meet that goal.

The DoJ and the FCC didn't have this theory of theirs until they also seemed to arrive at the conclusion--as near as I can tell, sometime during their analysis of the proposed AT&T/T-Mobile merger--that mobile wireless competition is best measured by market share on a national level. And, with a market artificially defined as "national", despite the fact that consumers make choices locally, a "market" could only be truly competitive if each firm's share (of customers, of spectrum, of cool new handsets, and crunchy nut confections) is roughly equal.

Does anybody recognize the problem with this raison d'etre? Does the conclusion at the end of the last paragraph sound a little like the description of a commodity market? Yeah, it kind've does, doesn't it? Are wireless services a commodity market? Well, the AT&T iPhone crowd from 2007 didn't seem to think so; nor did the Verizon Droid evangelizers from 2009. So, let's just say no; wireless is not a commodity market. Like with cars, people seem to take a certain personal pride in their selected combination of network and handset.

Why would anyone expect that differentiated product markets would result in competitors having a roughly equal share of sales? After all, some people like (and can afford) fancy overpriced compact cars, while others need pimped-out, baller SUVs because . . . that's just how they roll. So isn't it nice that we have BMWs and Escalades? Do they have the same market share? Yeah, probably, but that's beside the point.

The problem with the government's idea of what competition should look like is that it starts from a lot of flawed premises--all of which come from the same flawed premise: consumer preferences don't count. The relevant geographic market is national, not because this is the way consumers actually purchase wireless service, but because this is the way the government likes to look at it.

To the government, market shares are only unequal because firms have unequal amounts of low frequency spectrum, and not the other way around. They don't seem to understand that AT&T and Verizon have customers that, for the most part, have chosen not to buy service from at least 3 other firms. Now that's competition.

Why doesn't the government just reconcile itself to the reality of consumer driven competition and "wreckanize" that the consequences of choice can produce distinct winners and losers? Yogi Berra told us a long time ago: "If the people don't want to come out to the ballpark, nobody's going to stop them." Why do the DoJ and the FCC keep trying?

Captive Audience: Any Freedom In Sight?

Fri, 19 Apr 2013 09:54:11 -0500

In my earlier post on Susan Crawford's Captive Audience, I concluded by noting that some of the most interesting questions raised by the book are not actually discussed, or even articulated. The questions raised all relate to how Professor Crawford explains that Comcast, as the dominant incumbent provider of subscription television service, has used (and, she predicts, will continue to use) sports programming to maintain its current market dominance in subscription TV, and possibly transfer some of this market power into Internet content.

The Comcast/NBCU Merger

Crawford weaves together a compelling story about Comcast's past anticompetitive behavior toward competitive subscription video providers, like RCN and Verizon. Comcast's pre-NBCU exclusionary behavior was also predicated on vertical integration with regional sports networks (RSNs). The acquisition of the NBC broadcast network, she adds, will enable Comcast to purchase even more sports content in the future and extend its pattern of anticompetitive behavior. Therefore, she speculates that, with the addition of the NBCU cable channels Comcast will have other, non-sports tools with which to weaken, or exclude, video competitors.

This is where Professor Crawford leaves us, but is this it? Crawford expresses regret at the failures of the FCC and the Antitrust Division to protect consumers in the context of this merger. Her disappointment is understandable, but it is also crying over spilt milk.

For Professor Crawford, the only hope would be a regulatory re-write in order to separate content ownership from cable/broadband distribution. But, if RSNs are the source of Comcast's power over competition, then Comcast obtains this power as a result of an agreement with the sports team or a league. Agreements that "unreasonably" restrain trade are always a violation of Section 1 of the Sherman Act.

Antitrust, Sports and Broadcast Television

All professional sports leagues get some limited antitrust exemptions to allow their teams to cooperate for reasons that are integral to producing their product. For example, Congress passed the Sports Broadcasting Act of 1961 to allow professional sports leagues to have antitrust immunity in negotiating television contracts with broadcast networks (not cable, satellite, or RS networks).

The motivation for this exemption was to allow the leagues to set what were considered commercially reasonable blackout policies in order to protect the live gate revenues of home teams. In order to protect the home teams' ability to continue to maximize ticket sales, the league believed that it had to prevent other individual teams from striking their own bargains with broadcasters that would allow other games to be broadcast in competition with the home teams' game.

What is interesting about the Sports Broadcasting Act is that, with respect to broadcasters, negotiating a "television contract" was not fraught with much competitive peril. No matter who won the broadcast rights, every television owner could still watch every broadcaster's channel. Would Congress have still passed this law if the exemption gave the league and the network owner the power to harm consumers or other networks?

This is the situation Crawford describes with Comcast and the RSNs. They make deals with teams or leagues for the "exclusive" rights to games--but not just the exclusive right to televise games to their customers on their systems. No, the RSN is buying an "exclusive" for an entire market area, and can therefore decide on what, if any, terms competitors and other incumbent cable operators will be able to distribute these games to their customers. Are the leagues using contracts with RSNs to restrain trade?

A Second Chance for the Government?

Yes, of course they are. This was the recent conclusion of a federal district court judge in Manhattan in ruling that allows class action plaintiffs to move forward to discovery on their antitrust complaints against the NHL, MLB, Comcast, DirecTV, and several RSNs. In a 53 page opinion the court explains that plaintiffs' complaints make a "plausible" showing that the defendants have violated the antitrust laws through distribution agreements that amount to territorial market allocations that unreasonably restrain competition.

Restrain trade? moi?

Note, however, that the counts in these complaints do not allege harm to competition and competitors, the harm on which Professor Crawford is focused. But this does not mean that these antitrust complaints cannot succeed, they just haven't been brought. In these two cases (joined as Laumann v. NHL, et al.) the class action plaintiffs are consumers (viewers) of the NHL, MLB, and of Comcast. See plaintiff's complaint against MLB here.

The plaintiffs contend that they have been harmed as the result of an elaborate territorial allocation scheme devised by MLB and the NHL, and enforced through agreements with the RSNs, who understand that none will attempt to compete outside of its specific service territory. These agreements prevent consumers from buying out-of-market games on anything less than an "all or nothing" basis, and the leagues have agreed to protect the RSNs from competition so that "in market" games are not available, either online or on any other cable/satellite channel, at any price.

Contrast these professional sports RSN agreements with the NCAA agreements, which--as a result of the NCAA's prior antitrust violations--do not mandate exclusivity. Thus, if a local channel (like UHF channel 20 here in the DC area) buys the rights to broadcast Maryland Terrapins basketball games, their broadcast will still air even though the same game might also be purchased by a national network like ESPN.

While the plaintiffs in the Laumann case have won the ability to move to discovery and a trial, they probably won't, because Comcast, the other RSNs, and the leagues have every incentive to write big checks to the plaintiffs in order to avoid the "NCAA" precedent. But, the success of these class action suits may well embolden other antitrust enforcers, like state attorneys general, or even the Department of Justice, to bring their own actions. So perhaps consumers can avoid much of the long-term "captivity" Professor Crawford predicts.

The DoJ's FCC Alley-Oop

Wed, 17 Apr 2013 17:13:55 -0500

At the end of last week and in advance of Assistant Attorney General for Antitrust William Baer's appearance before the Senate Judiciary Committee yesterday, the DoJ's Antitrust Division filed an ex parte submission with the FCC offering some serious advice on how to conduct (read: limit participation in) a spectrum auction--specifically, the next spectrum auction.

The Department's "advice" contained all the acuity, but none of the profanity (and occasional hilarity), of a drunken sports heckler (like Bud Light's Mr. Pro Sports Heckler Guy). Until I read the DoJ ex parte, I had no idea as to what might be the regulatory equivalent of "catch the ball", "make the basket", or "play defense, you idiots." Now I know.

The Department's "advice," while generally a meandering discussion of points not in contention, such as the DoJ's horizontal merger analysis and the many benefits of competition, also included such "game changing" spectrum auction tips as "protect competition", "don't award spectrum to buyers that won't use it efficiently", and "spectrum below 1 GHz is cheaper for smaller competitors to use."

If You're Not Low, You Must Be High

The one "point" the Department puts on its relatively general discourse is its belief that to be successful on a nationwide basis a carrier needs some low frequency spectrum in order to efficiently serve rural areas and to provide service that works inside of buildings. The DoJ notes that the two "leading" wireless carriers (AT&T and Verizon) have a large amount of low frequency spectrum, but Sprint and T-Mobile have little to none of this spectrum.

By making this assertion (I would guess?), the DoJ wants us to conclude that "low frequency spectrum" is the only thing distinguishing the leaders from the laggards in wireless market share. The only reason AT&T and Verizon have the most low frequency spectrum is because, the DoJ explains, they pay a lot more for low frequency spectrum in order to prevent Sprint and T-Mobile from using it.

The DoJ warns that this trend should be expected to continue into the next spectrum auction as well. Why the next auction? Because the next auction is for LOW frequency spectrum, and this is the kind that AT&T and Verizon only buy in order to keep away from Sprint and T-Mobile.

A Low-Down Dirty Shame

If Sprint and T-Mobile did have some low frequency spectrum, they would totally be able to build it out and offer better service to rural areas and inside of buildings, and thereby steal share from AT&T and Verizon. But, even if they didn't actually use the spectrum, Sprint and T-Mobile should still be able to gain share because AT&T and Verizon would provide worse service without this spectrum, right? Either way . . . it's cool, says DoJ.

You see what they're doing here? First, you establish that a firm's "success" in terms of market share, or whatever other benchmark you like, is critically dependent on one specific input. Next, you pick an industry characterized by a shortage of this key input that affects all firms--like wireless--and you're almost home.

Then, postulate that some companies have greater access to the scarce input than their rivals, and the conclusion falls into place. You see? The input-favored companies can benefit even if they don't use all of their superior access to inputs to increase output. This is because they know that their competitors cannot increase output to steal customers from the input-favored firms. Stick to the basic format, and this argument always works. Cool, huh?

If the FCC adopts rules that exclude AT&T and Verizon from the next auction, you can bet that they'll be using an iteration of this same argument on their appeal. But, if DoJ's argument is that transparent, and that malleable, why are they using it now?

The FCC Lobs . . . And DoJ Dunks!

First, let's dispel any lingering suspicion you may have that the DoJ is offering its theories based on any observable facts. If AT&T and Verizon were merely warehousing low frequency spectrum to keep their rivals down, the simple way to check would be to see if they're using it.

Let's just assume that both AT&T and Verizon have been using the 850-900 MHz spectrum since the FCC first handed it out to their predecessor companies in the 1980's. After all, they didn't get to be the two largest companies by not using their "first mover" spectrum. So, what about all the other low frequency spectrum?

"All the other" low frequency spectrum would be the 700 MHz spectrum that AT&T and Verizon purchased in 2008. The companies claim to have needed the spectrum to accommodate the very predictable surge in demand for wireless data services. And, according to no less venerable a source than Wikipedia, AT&T and Verizon are, in fact, using their 700 MHz spectrum to roll out their fancy LTE service, for their fancy data-loving, bandwidth-hogging LTE customers. So, why is the DoJ insinuating otherwise?

Well, as near as I can tell, low frequency spectrum just became a "thing" in the FCC's NPRM from 6 months ago, where they solicited comments on whether the Commission should change its spectrum screen to account for the perceived greater value of low frequency spectrum. So, if I had to guess, I would say that the FCC's been waiting for 6 months for some big player to take the low frequency "lob" they put up with the NPRM and slam-dunk it home--and the DoJ is that big playa'.

DoJ . . . with no regard for human life!

So, do you think any Senators called out William Baer on this at the oversight hearing yesterday? According to the trade press, the ranking member of the Antitrust Subcommittee, Senator Mike Lee (R-UT), expressed concern that the Department was suggesting to the FCC that AT&T and Verizon were warehousing spectrum. You bet he did--because us Lees just happen to know a f@$k-ton of stuff about telecom and antitrust.

Captive Audience: A Fairer Review than Most You've Seen

Tue, 02 Apr 2013 11:54:10 -0500

A lot of people have written "reviews" of Susan Crawford's Captive Audience, or, at least, pretended to on Amazon. But did they really read the whole book? I kind of doubt it. Just check the Amazon reviews for this book--nothing but 4 and 5 stars and 1 and 2 stars (i.e., just "homers" and "haters").

If I had to offer an explanation for the polarity of reviews, I would say it's because this book is really two books. One, the first 232 pages, is a well-done history of competition law/regulatory policy and a generally well-done attempt to give this history a modern context, using the 2010 merger of Comcast and NBC Universal. You may not agree with Ms. Crawford, but she does offer plenty to think about.

The "other" Captive Audience, couldn't be more different, and shows especially poorly when contrasted with the scholarship that went into the bulk of the book. The last 2 chapters are only 37-38 pages total. Thirty pages were supposed to explain and analyze the wireless industry (technology, structure, and competition), the proposed AT&T/T-Mobile transaction, and municipal/government funded retail broadband, plus muni-funded "middle mile" wholesale transmission.

The remaining 7-8 pages are a spaghetti-style approach to a conclusion. The author offers up several unexplained policy prescriptions based on her casual observations about the "non-cable" parts of the Internet and hopes something will stick. In the interests of being a charitable critic, I'm going to ignore these last 2 chapters--if they weren't worth the author's time, they aren't worth ours.

Overall: 3 stars (out of 5)

This book, or at least the first 86% of it, does a very thorough--and, at times, entertaining--job of explaining potential causes for concern resulting from a dominant provider of broadband distribution also owning at least some "must have" content. The exercise is not merely theoretical, as Ms. Crawford contends that Comcast is the dominant provider of residential broadband service throughout its service territory. A position that, she argues, will only be exacerbated and extended as the likely consequence of the combination of Comcast and NBC Universal, which was approved by the FCC in 2010 with paper weight conditions.

The two major concerns for consumers--and for society--Ms. Crawford explains, are that 1) ownership of content may raise the already-formidable barriers to entry in the broadband Internet access market--further cementing the incumbent's market power over the broadband "pipe" to the Internet, and 2) content ownership--particularly of "must have" programming, such as live local and national sporting events--will allow the integrated firm to frustrate rival content owners (by withholding access to the broadband firm's content, and (at least constructively) raising the cost to consumers of subscribing to a rival content owner.

The easiest way to avoid these potential problems, Ms. Crawford argues, is to separate broadband distribution (provision of Internet access service) from content ownership. If Captive Audience has a consistent theme, this is it--structural separation of distribution and content. All in all, Ms. Crawford does a good job in providing the historical context of the antitrust laws, generally, as well as the regulatory history of this particular policy prescription as it would apply to the cable/broadband industry.

Conflicted About Regulation?

It is notable that, while Ms. Crawford is frequently portrayed as a champion of regulation, her narrative of government behavior virtually throughout the existence of the cable industry, reflects frequent--if not consistent--disappointment with every level of government oversight. Specialized regulatory agencies, like the ICC and the FCC, are subject to even greater criticism. At times, it seems like the author is frustrated to the point of questioning whether effective regulation is even possible; hence, her "structural separation" solution.

Other times, Ms. Crawford simply makes excuses for her disappointment with the actions of the government. For example, when discussing the Antitrust Division's decision not to challenge the Comcast/NBCU merger, Ms. Crawford blames the Division's reticence on "conservative federal judges" who are regarded as unsympathetic to vertical merger theories.

Is it really acceptable for the Department of Justice to surrender its role as the enforcer of the antitrust laws just because the judiciary is skeptical of vertical theories of harm? If someone in the Division made this excuse--for not challenging a merger the Division honestly thought would harm the public--that person does not deserve to hold the public trust. Why doesn't the author express anything other than resigned disappointment? If, the public needs protection from Comcast--which Ms. Crawford seems to believe--then doesn't the public need faithful, courageous law enforcement as well?

* * *

I don't agree 100% with Ms. Crawford's analysis and conclusions, but you don't need to in order to get something out of this book, because the careful, and thorough, "prosecution" of the "Comcast case" will give you plenty to think about. While Captive Audience generally succeeds in making the author's points, it also suffers from the fact that the reader knows--from the beginning--that the author is in pursuit of a specific conclusion. This awareness leaves the reader with the sense that a more complete discussion has been sacrificed for the sake of this conclusion. Thus, this reader was left with the feeling that the most interesting questions are those that go unasked. We'll look at some of these in an upcoming blog.

Wholesale Wireless Competition Is Important: The FCC Should Care More

Mon, 01 Apr 2013 12:04:35 -0500

About a week and a half ago, the FCC released its 16th Wireless Competition Report. Among the significant data collected and presented in this Report, there is one important, and growing, indicator of wireless competition that the FCC desperately needs to better understand: wholesale wireless competition.

Based on my experience at COMPTEL, I know that a healthy wholesale market is one big indicator of effective retail competition. Because, hey, anytime a retail competitor doesn't have to rely on regulatory compulsion to obtain wholesale access, that's a pretty good indicator that the facilities-based carrier doesn't think it has a whole lot of market power to protect.

The good news is in this Report is that the wholesale wireless segment is getting "healthier" at a faster rate than any market segment. While still a relatively small number of total wireless connections, wholesale connections grew at the fastest rate of any service type measured by the Commission--almost tripling in the 2 year period 4Q 2009-4 Q 2011. Rpt. para. 250.

The FCC's numbers are telling us that wholesale competition is on fire. But when you try to figure out what this really means, well . . . the Commission doesn't seem too sure.

Understanding Wholesale Wireless Competition

The FCC introduces us to the wholesale market in paras. 29-36, and it explains how it uses wholesale data for purposes of calculating market concentration in paras. 53, and 57. The largest use of wholesale wireless service is by mobile virtual network operators (MVNOs). These service providers rely on the facilities of other carriers for their mobile service, but handle every other aspect of the customer's account themselves.

Because wholesale wireless relationships are voluntary, we have to presume that both the buyer and the seller expect the relationship to be beneficial. That presumption alone, though, does not tell us too much about how wholesale sales affect retail competition. According to carriers, such as Verizon, a carrier's relationship with its MVNOs is fundamentally "arm's length." Report n. 102. And, why wouldn't it be? Wholesaling at arm's length has long been a routine part of the wired telecommunications world.

Wholesale Confusion--Some Say . . .

Well, the FCC's not so sure. Take a good look at the FCC's explanation of the wholesale industry (paras. 29-36), read all the footnotes, and it becomes clear that no less than two academic articles (cited in n. 109), and one report by an "industry analyst" (providing his "predictions" for 2011) (n. 110) characterize MVNO "competition" as something less than the real thing. The only one of these sources freely available on the Internet is the report by the analyst for the Yankee Group, available here.

The Yankee Group report is a relatively short article with some of the analyst's "4G" predictions for 2011, and a brief summary of the analyst's thinking in making the prediction. Although, the "predictions" don't seem to be much more than the author's personal opinions, the FCC cites the explanation behind a single prediction in order to characterize the nature of MVNO/network operator competition.

For example, in n. 110, the FCC cites this document as the basis for this insightful gem, "Like a small bird on an elephant's back, if an MVNO can establish a symbiotic relationship with its host and provide some direct commercial benefits, it can flourish." Yankee Group at 7. See also, n.123 "[I]t's critical the MVNO does not compete to any meaningful degree with the host." Id. MVNOs are also cautioned to never look the host carrier directly in the eyes, as this is seen as a sign of aggression by network operators.

With insights like these, I'm sure readers would like to know how this analyst's "predictions" for 2011 worked out. Well, the prediction backed up by the insights quoted above was this: "MVNO Hype Will Build, But Most of It Will Lead to Nothing."

In reality? MVNOs were able to increase connections by 182% between Q 4, 2010 (when the Yankee Group predictions were released) and Q 4, 2011. FCC Rpt, Chart 13, p. 159. This was the fastest one year growth in wholesale connections to date. Suck it, Yankee Group.

But, Maybe Not?

The FCC seems to regard MVNO competition as somewhere between the "franchisee" characterization of the non-industry sources, and the "real thing" characterization of some carriers. See, e.g., n. 125 where AT&T's assertion that competition between carriers for a portion of TracFone's 19 million customers has led to lower wholesale and retail prices is balanced against this quote from a 3 year old academic paper:

It is found that MNOs host MVNOs if and only if the latter do not exert a competitive constraint on MNOs' retail businesses. Thus, absent access regulation, MVNO entry may happen but is unlikely to reduce consumer prices.

Report, para. 35, n. 125. The problem here is not that the carrier disagrees with the theoreticians, or even that the theoreticians' point doesn't make a whole lot of sense for any wholesaler with less than a 50% retail share. No, the problem is that the FCC does not seem to have an opinion as to which is more credible.

* * * * *

If you type the term "industry analyst reports" as a search term in the Report, it turns up four results. Each and every instance is the Commission relying on "industry analyst reports" as an excuse for why it is unable to account for MVNO competition. There is no excuse for the Commission not to try to understand and account for the competition provided by MVNOs in its next Wireless Competition Report. The public needs for the Commission to be the "expert agency" on all things wireless--but especially on the fastest growing customer segment in the wireless industry.

Don't Conflate the Mission of Free Press with Free Speech

Thu, 21 Feb 2013 13:51:29 -0500

One week ago, S. Derek Turner of Free Press was doing like he do--criticizing other parties for speech with which he disagrees, and presumably advocating the moral purity of single letters as first names--except that this time, he couldn't wait the 5 minutes or so that Free Press normally waits before doing something completely inconsistent. No, this time Free Press tied it up in one neat little package for us.

Not wanting to waste such extreme courtesy (or poetic irony), the task of reporting this feat has fallen to moi. Specifically, Mr. Turner released a statement calling AT&T out for a "missive" against the FCC that, Turner believes, was emblematic of AT&T's "penchant for bullying" which, he continues, is as "boundless as its hubris."

From what "bullying" by AT&T was Mr. Turner defending the FCC? It turns out to be this blog post by Bob Quinn, speculating that if the FCC has a difficult time saying goodbye to "old-timey" regulations designed to protect the then-nascent telephone market from the depredations of the telegraph industry, then hopes were dim for the FCC to progressively regulate the unique issues that will arise as part of the transition from TDM-based networks to IP networks.

I'm not surprised by AT&T's comment any more than I am by Free Press's disagreement with this comment. But "bullying?" Correct me if I'm getting the whole "bullying" thing backwards, but isn't the goal of bullying to intimidate someone to act differently than they would otherwise act? I'm pretty sure that AT&T's blog post more accurately qualifies as "criticism."

"ToMAYtoe"/"toMAHtoe", right? I mean how's a phone company to act if they don't like what the FCC is doing/failing to do you? Interestingly for AT&T, Free Press's guidance is linked at the bottom of the post.

In its comments opposing AT&T's Petition for the FCC to start a proceeding to deal with issues involving the IP transition, Free Press points to the "right way" for AT&T to pursue a deregulatory goal,

"it is perfectly appropriate for any incumbent carrier to assert its rights under Section 10 of the Act to seek forbearance from specific regulations, as has been done for the specific regulations AT&T names in its petition." At p.2.

See, if AT&T had just supported forbearance, that's the way Congress told them the FCC would deregulate, then it would be OK. Oh, wait, AT&T's blog post sounded like it was expressing support for the US Telecom Forbearance Petition that it believed the FCC could have granted in less than a year. Message to AT&T from Free Press: you suck! With a capital S.!

Is Improving the Resilience of Electric Distribution Networks Crucial to the IP Transition?

Wed, 20 Feb 2013 17:13:57 -0500

Last Thursday, I was an online participant in the US Telecom policy briefing entitled "[w]hat's the point of voice regulation?" The format was a panel discussion where the U.S. Telecom General Counsel, Jonathan Banks, provided topics for the panelists to discuss. The panelists were Jonathan Nuechterlein, Professor John Mayo from Georgetown, and Harold Feld from Public Knowledge. All of the panel participants did an excellent job of presenting the point of view from each of their areas of expertise.

One area on which the panelists had differing, but not mutually exclusive, views was regarding the reliability value of the TDM copper voice network. One the one hand, as Professor Mayo noted, the consumer "market" seems to have spoken with the result being that consumers are willing to trade the higher functionality of the IP/broadband network for the reliability of the TDM network. After all, everyone can name some of products that we would still like to purchase but that the "market" does not want to produce any more.

Yet, Harold Feld also made a very good point--explaining that the "reliability vs. functionality" is a false dichotomy because consumers do not willingly make this trade. For example, since consumers lose electric power on relatively few days, the value of reliable connectivity in emergency situations is not accurately taken into account by "the market."

Without saying so, the panelists seemed to agree that regulation intended to achieve social goals--such as the public safety and security interest in more reliable, more resilient networks--is something that should be addressed separately from the issue of whether economic regulations should apply to some or all providers of voice service. This is an intriguing starting point for a discussion about next generation network reliability, and a starting point that has taken too long to arrive.

Two Sides of the False Dichotomy

As Harold noted, at Thursday's panel discussion, it is a "false dichotomy" to think that a useful regulatory goal (i.e., network resilience in times of extreme weather, or other natural disasters) must be abandoned simply because the first generation of IP network technology may not be able to support this goal. It is no less of a "false dichotomy", though, for some to use "public safety" as an excuse to keep some service providers from continuing to transition their networks for the uses demanded by the majority of consumers both today, and in the future.

So, if public safety and network reliability are the goals, then they must be discussed and considered not in the context of keeping an older, more limited technology, but rather in the context of how network reliability can evolve to support the communications networks of tomorrow. Given that no one is going to pay for a separate network to support a limited functionality (just voice) in times of emergency, how do we get public safety and security for the networks of tomorrow?

Look Outside the Regulatory Silos of Today

Perhaps, more than any other explanation, the major concern identified by those opposed to immediately undertaking an effort to begin to identify and work through the regulatory issues resulting from the IP transition is that of public safety during weather (and other natural disaster) emergencies. This is an incredibly important and valuable part of any transition to a broadband world. But, here's the problem: the FCC can't get there on its own, because the best solution might be a "meta" solution where we look at the reliability of communications networks in the context of other inter-dependent networks, such as electric power.

But, given that new platforms demand much more energy than could ever be provided by a central office battery back-up, we can't look back. Just because this effort would need to be championed across separate regulatory fiefdoms does not mean it can't happen, it just means that diverse regulators need to call on the Executive Branch to coordinate this planning.

In other words, if we (as a country) agree that the service rich broadband platform is the communications network that we want, then ensuring reliability of that network may only be possible if we look to ensure greater reliability in the increasingly inter-dependent electric and communications networks. Said differently, looking at a policy question in the context of an "outdated" regulatory/technological framework (i.e., with tools only available to the legacy communications regulator) will necessarily cheat the public out of the best answer.

Advantages of Cross-Network Optimization

If it turns out that investing in bolstering the reliability of our electric distribution plant will improve communications networks (which are also banking, health, and educational networks), one obvious advantage to such an approach is that electricity distribution is (for all but the heaviest users) still a monopoly. Perhaps the only significant advantage of a monopoly--for consumers and regulators--is that local energy companies still have rate-payers and a more or less captive rate base. Thus, the costs of increasing electric network reliability (by either burying power lines, or developing batteries that are small enough for homes yet can store a significant amount of back-up power) can be equitably spread over all customers--a solution that is no longer available to state or federal communications regulators.

The "all IP", "Internet of everything", future that promises so much benefit to our productivity and welfare as a society cannot deliver on this promise if delivery/reliability are subject to something as capricious as the weather. Shouldn't questions of public safety and security through increasing network reliability also begin to be asked by someone (perhaps chartered by the Administration) that is capable of addressing these problems on a national, inter-network basis?

The FCC's Numbers Racket: SNA*FU In Progress?

Thu, 06 Dec 2012 17:31:37 -0500

Most of us don't know it, but the phone numbers we get from our wireless, landline, or cable service provider are not actually owned by those companies. The numbers themselves are a public resource, owned by the member countries of the North American Numbering Plan ("NANP").

The process of actually distributing numbers to all countries participating in the NANP is handled by the Plan Administrator ("NANPA"). NANPA, however, does not make policy, which is left to each member country.

In 1996, Congress delegated to the FCC jurisdiction over all U.S. phone numbers. 47 U.S.C. 251(e)(1). In 1997, the FCC, in turn, adopted rules for the distribution of phone numbers. The FCC elected to make numbers available to all carriers using the PSTN (distinct from the Internet). At this time, there were no retail providers of voice service over the Internet.

On January 28, 2005, the FCC voted to grant a waiver of its numbering rules to SBC Information Services, Inc. ("SBCIS), (now part of AT&T) so that SBCIS--a VoIP provider interconnected with the PSTN--could directly access numbers from NANPA. The Commission explained "that good cause exists to grant SBCIS a waiver of [the FCC's rules] until the Commission adopts numbering rules regarding IP enabled services." (emphasis added) Remember this.

On March 4, 2005, Vonage, another interconnected VoIP service provider, filed a similar request for the same relief granted to SBCIS one month earlier--a waiver of the FCC's rules so that it could directly access telephone numbers from NANPA. After six years of inaction by the Commission, on March 8, 2011, Vonage renewed its request for the limited waiver that would allow it to obtain telephone numbers directly from NANPA.

Situation Normal

Predictably, Vonage's recent petition was opposed by Level 3 (the company that charges Vonage for phone numbers) and competitive carriers that charge other VoIP providers for phone numbers that they (the competitors) can already access directly by way of their pre-existing regulatory status as CLECs. The initial arguments against Vonage's request were also very typical iterations of such venerable public policy staples as "you'll blow up the network/upset Natural Law" and the "what if everyone did it" argument.

So far, so good--nothing to look at here, right? Situation normal, but here's where it gets . . .

A*F*U*

Around August, things take a turn for the "are you kidding me?!" and the "public interest" becomes just about Level 3's self-interest; which is cool, if you're Level 3. Level 3 files this ex parte, explaining the financial consequences it would face if the FCC granted Vonage's waiver request and eliminated what Level 3 seemingly-concedes is either a regulatory rent, or a means to other rents (intercarrier compensation from IXCs) through its symbiotic relationship with Vonage, whom Level 3 calls its "carrier partner" (instead of the more demeaning "customer" term).

On its face, the ex parte seems almost rudely self-interested--they don't even pretend to have any public interest arguments. But, far from being rude, Level 3 explains that it was invited to share its self-interested view at the request of the Wireline Competition Bureau. At this point, Level 3 is starting to believe its CEO's story that he stole the "number one dime" from Scrooge McDuck.

Level 3 has it now, big boy.

Seriously, this is the point in this Bermuda Triangle of a proceeding where the compass spins out of control and all communication is lost. As near as I can tell, this is the last rational communication that could be recovered from the record--a Vonage ex parte filed one week earlier.

From this point on, you're either on Level 3's side, or (pro-wrestler voice) you are wrong, brother! It seems like every subsequent ex parte from anyone, including--in fact, especially--Vonage discusses whether or not, or to what extent, an FCC grant of the Vonage waiver request would financially harm Level 3 and the other CLEC regulatory merchants to the VoIP providing industry.

In an ex parte that should make anyone squeamish, Vonage seems to be trying to assure the Commission that by granting its request, Vonage won't become that much more efficient. Vonage also says they'll still be Level 3's friend and will continue to buy from Level 3. Level 3 says, "nope, not enough."

Oh, and what does Level 3 want? They want the FCC to do a general rulemaking, rather than grant a Vonage-specific waiver. In other words, they want the exact thing that the FCC said--almost 8 years ago--would take too long, and that justified the SBCIS waiver!

Why It's Wrong

Isn't it obvious? Aside from the prospect that the FCC appears to be seriously re-considering relief that it previously rejected as antithetical to a broadband future, the Wireline Competition Bureau is deeply, and, dare I say it--uncomfortably--concerned about the revenue effects of the Commission's decision on some very specific wireline competitors. Every other ex parte since mid-August says the Bureau asked for the information. And, when parties' attorneys feel compelled to include that proviso in front of their naked groveling, then you know it's rough. These people are lawyers, and they're embarrassed. Enough said.

Regulation Can Promote Investment and Consumer Welfare (You Just Might Agree With Jim Cicconi)

Mon, 15 Oct 2012 09:25:11 -0500

Whatever you think might be the purpose for which the FCC was created, you're probably wrong. Congress explains the purpose of the Commission in one gigantic, and barely comprehensible, run-on sentence contained in Section 1 of the Communications Act of 1934. To make it easier, I'll break it into a couple sentences.

The goal of the Act was to ensure that citizens had nondiscriminatory access "to rapid, efficient, Nation-wide, and world-wide radio and wire communications services" with "adequate facilities at reasonable charges." Radio and wire communication services are to be made available at reasonable charges for the "purpose of national defense" and to "promot[e] the safety of life and property."

The first few times you read it, this provision sounds reasonable; if only because Congress uses the word "reasonable" twice in the same really long sentence.

Now that you know the purpose of the Act, what do you think this FCC thinks its purpose is? If you didn't have the context of the Act and you only looked at the Chairman's bio, you would be forgiven for thinking he was the Chairman of some kind of mini Federal Reserve Bank for the telecommunications industry. The notion of promoting investment is mentioned more than any other single concept, and "job creation" is also listed prominently in the first paragraph.

To be fair, there isn't anything flatly antithetical to the FCC's official purpose in any FCC Commissioner's literature, speeches, or statements. This is the problem. The breadth of the Act's purpose almost certainly ensures that no two FCCs will define their focus or their actions in any consistent way. The only person I've ever heard offer a solution is Jim Cicconi of AT&T.

His point is so non-controversial that it's easy to miss. All he says is that the FCC should be "re-chartered" by Congress to focus on consumer protection. The problem, he argues, is that the public--and many members of Congress--expect the FCC to act whenever a consumer issue arises.

But, he explains, because the legislatively-defined purpose is not well-suited for the public's expectations of the FCC, "it leads [the FCC] into some adventurism in interpreting their own statutes." Here is a report of his quote in 2008, again almost 4 years later at a Phoenix Center event, in his own words here, and again in May of this year here.

You know what's weird about this statement? I've only heard it from Cicconi. I must have spent more than 5 hours looking at Internet search results to try to get some other cite for this idea. But, I couldn't find anything by anyone saying anything similar. It's just him!

The better question is why no one else has raised this point? My guess is that most people think that the official "purpose" of the FCC is written so broadly that Congress wouldn't need to change a thing for the FCC to focus on consumer protection. Again, this is a problem.

Look back at what the Chairman says is his focus. Is it any wonder that it's become cliché-like for someone on every side of telecom policy debates to argue that the FCC should decide in their favor because it "promotes investment?" Likewise, the statement that a regulatory policy "promotes investment" has become almost boilerplate in every major FCC Order over the past few years.

But, "investment", or "promoting investment" can never be meaningful regulatory goals, because these terms offer the regulated firms no transparency of purpose or predictable consistency across political administrations. Regardless of whether the regulator sides with one industry group or another, in a carrier-centric scheme the regulator can always say it is "promoting investment" by the "winning" side. Changes in technology, as well as changes in political dominance, virtually guarantee an artificially-distorted regulatory environment.

The value of the last point cannot be understated. Because a carrier-centric regulator will necessarily create policies with disparate effects on competing companies, these disparities in regulation will always find a political voice.

The result is what we have now--unproductive partisan bickering over the economic interests of competing firms. The voice of the consumer gets lost in this cacophony, if it ever finds its way into these quarrels at all.

On the other hand, if the regulator is charged with the clearer obligation to focus on protecting the interests of communications consumers, regardless of the "regulatory classification" of the offending firm, then regulated firms can more easily discern the future expectations of the regulator.

The almost zen-like paradox of Cicconi's proposal is that the regulator cannot promote investment by focusing its decisions on the investment of the regulated firms. Rather, the regulator must have some transparent focus on something other than the business models of competing firms.

An explicitly consumer-focused regulator would have the ability to redress consumer harms perpetrated by any company that contributes to a communications service that consumers purchase. Not only will consumers enjoy greater protection, and less confusion as to which state or federal agency can resolve their concern, but communications firms will benefit from a certainty not possible today, and both the FCC and Congress will also enjoy the same clarity of focus.

The PSYchology of Abundance ("Gangnum Style")

Fri, 21 Sep 2012 11:30:49 -0500

    Since we are still in week 1 of a potential regulatory word contagion, I am going to try to contain this outbreak by mentioning it.   The potential risk of the word "abundance" and its meaningless companion phrase "psychology of abundance" cannot be overstated. Consider that--gone unchecked--"abundance" could potentially proliferate to the scale of the word "space" (which took the place of the traditional term "market" in the late '90's through mid-2000's), or the equally-pernicious "ecosystem" (which appears to have taken the place of the correct term "economy" as little as 3-4 years ago).

    Does "abundance" have the potential to "blow up" as quickly as Korean pop star, and Internet-enthusiast, PSY's "Gangnum Style"?   Of course not! But, it can still creep into our vernacular even at much lower rates of profusion. For those of you that have not been among the over 230 million viewers of this video on Youtube, here's your chance.

   Oh, and that cat in the yellow suit with the Beatles wig at around 1:40? People speculate that it could be a cameo from the world's "number 2" Internet enthusiast: Chairman Genacowski. Which brings us back around to the newest linguistic threat to rational regulation--the psychology of abundance.

The Chronology

   GigaOm reported on comments made by Chairman Genachowski last week at a Silicon Valley event, in which the Chairman made this statement in response to a question about how his thinking has changed regarding data caps:

"Anything that depresses broadband usage is something that we need to be really concerned about." And he further said, "We should all be concerned with anything that is incompatible with the psychology of abundance." (emphasis added)

Now putting aside my personal view--that the FCC is contributing to depressed broadband usage by continuing to allow Blackberry to advertise its products as "smartphones"--the last statement is "ground zero." The GigaOm article came out last Tuesday--9/11. The same quote was published in numerous media sources throughout last week.

Less than one week later, on Monday of this week, Scott Cleland wrote a blog mentioning the offending statement. Randy May blogged about it the same day. Again, on Monday, the third Republican rooster crowed, and Commissioner McDowell claimed his own gratuitous and unexplained use of the word "abundance" in his separate statement released with the cable-CLEC merger forbearance order. Specifically, Commissioner McDowell stated,

"this action is consistent with my continued call for FCC policies that promote consumer choice offered through competition and abundance rather than through regulation and its unintended consequences." (emphasis added)

Yes, insert your best Chris Berman "What!" Increased consumer choice through competition . . . sure, I understand . . . but "abundance?" Abundance [Chris Berman voice, again] . . . "What??" Abundant choice . . . sure, but that's redundant. No, this was "abundance" for its own sake.

What Is "The Psychology of Abundance?"

Well, here's where it gets really interesting. As I noted, three fairly well-esteemed sources repeated the "psychology of abundance" quote--GigaOm, Scott Cleland, and Randy May--but here's the thing: no one questioned what it meant. Not the GigaOm reporter who asked the question, and neither Randy nor Scott in their commentary.

So I see this phrase sprouting up everywhere this week, and I'm thinking the whole world is already familiar with a phrase I never saw until Tuesday! So, what do I do? I look it up on the Internet. And you know what? Aside from a few scattered references, which shed no light on the subject, the only "consensus" definition of "psychology of abundance" seems to be pretty much reflected in this explanation from Psychology Wiki.

In psychology, psychotherapy and management theory, abundance theory postulates a benign universe in which any individual with the correct attitude, training, or spiritual alignment can acquire personal abundance which should lead to material abundance: wealth regardless of economic or social circumstances (reality).

   Apparently, if you are open to the many opportunities of the universe (not just where you live, but the whole universe--this much is also agreed upon), you will attract "abundance" to yourself. Not just in spiritual benefits, but also material rewards, and--according to the Chairman--greater broadband consumption, too (if you're open to it).

Conclusion

    Unfortunately, now that we understand the "psychology of abundance", we are no closer to understanding the Chairman's response to the GigaOm reporter's question. It's hard to see how a devout practitioner of the psychology of abundance would find data caps to be any sort of impediment to "abundant" broadband usage. Any individual with the right training can easily attract abundant resources to pay for the occasional data overage.

    This leaves the rest of us to deal with another regulatory-induced linguistic rupture. Please do your part and stamp out this pernicious threat in its incipiency. By repeating this meaningless phrase, we all run the risk of legitimizing more flotsam in the already-bloated regulatory vocabulary. Muddled language cannot produce intelligent discourse. No matter your views on the threat posed by data caps, the misuse of the term "abundance" threatens all of our sanity.

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

Thu, 17 May 2012 15:23:40 -0500

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.

At CTIA: Dropped Opportunites Exceed Dropped Calls

Wed, 09 May 2012 18:42:14 -0500

[In case no one noticed, I've been on a "Vision Quest" for the last few months; but, in the words of the great John Riggins, "I'm bored, I'm broke, and I'm back."]

One thing I've noticed during my self-imposed absence is that there really isn't much of a dialogue in the public discourse on telecom policy these days. That's not a particularly astute observation for some areas of public discourse, like politics. After all, anyone can tell you that the big political parties mischaracterize each other and talk past one another all the time. But telecom issues aren't especially political, so what's the harm in listening to what someone is saying and--if you want to respond--providing a thoughtful response?

No where was the unfortunate temptation to characterize, rather than accept and address, an opponent's arguments more on display as it was in Chairman Genachowski's remarks at the CTIA show yesterday. Rather than respond to AT&T's CEO Randall Stephenson's contention that the Commission's decision to oppose AT&T's purchase of T-Mobile had caused AT&T to increase its retail prices for wireless data, the Chairman chose to mischaracterize and dismiss Stephenson's observation. This was unfortunate, and a missed opportunity by the Chairman to validate a different view of the same spectrum shortage the Chairman has sought to publicize.

While Stephenson's statement made headlines last week in advance of the CTIA show, AT&T's Stephenson has made this same observation consistently, in both December, and over 3 months ago in a conference call with shareholders and analysts.

Chairman Genachowski, to his credit, has been one of the most vocal advocates for the need for more spectrum for the wireless industry. The Chairman has, for most of his tenure as FCC Chairman, understood that demand for wireless data services is outstripping the supply of spectrum and the ability of wireless operators to use different techniques to most efficiently use the spectrum that they have. The Chairman made all of these points in his remarks yesterday at CTIA.

Randall Stephenson, AT&T's CEO, has said nothing inconsistent with the facts the Chairman has used to argue for the need for more wireless spectrum to be brought to market. It only stands to reason that if there is insufficient spectrum (on an industry-wide basis) to satisfy the growth in aggregate demand for wireless data, then spectrum shortages will affect some firms earlier than others. The first firms to feel the spectrum crunch will necessarily be the first firms to react by managing demand (because input supplies are static). And, the only way to manage demand is through price increases. Indeed, avoiding this inevitable result of spectrum scarcity was AT&T's justification for its proposed merger with T-Mobile.

But, rather than accept the perspective of one of the industry's first firms to feel the spectrum crunch, the FCC Chairman chose to conflate the observations of AT&T's Stephenson into two arguments that Stephenson never makes. The first is that wireless competition is bad for consumers, and the second is that competition is bad for spectrum efficiency.

After reading Stephenson's observations, it makes more sense to interpret his statements as being that the "new" wireless industry is characterized by many firms lacking minimum efficient scale to meet the projected demand of their consumers. This is hardly a radical statement. Many industries demand significant scale in order to satisfy consumer demand--one reason we don't see "mom and pop" microchip manufacturers. A permanent increase in demand, which the Chairman perceives as a good thing, may well require a higher, firm-specific level of access to the vital input of spectrum.

The solution, which would best benefit consumers, would be for the Chairman to recognize that--if he is confident that more spectrum will come on the market soon--there cannot be any one static notion of how many firms should be in the market. In a world where spectrum can be expanded, so can the number of competitors. Any backward-looking concept of how competition should look reflects nothing more than an irrational time bias. In other words, if adequate spectrum (to support more firms in the market) is coming, then near term consolidation--if it maximizes industry output--will not lead to a less beneficial result for consumers in the long run.

Singapore is actively considering just such an approach, by reserving specific future spectrum for a new competitor. Such an approach introduces the concept of "contestability" in a very real and certain way. Firms in the market are allowed to maximize current efficiency by using optimal blocks of spectrum. Yet these same firms understand that they will be facing certain competition by a potentially lower cost competitor in the foreseeable future.

Wireless broadband consumers benefit from solutions, not rhetoric. The FCC should stop viewing market participants as obstacles to consumer satisfaction, but rather as indispensable vehicles to satisfying consumer demand. In a world where a vital input like spectrum can be expanded, albeit slowly, does it really make sense to freeze firms' spectrum reserves at a pre-wireless-broadband level?

The Year of "The Whale"

Sat, 31 Dec 2011 15:54:45 -0500

Well, here it is: New Year's Eve 2011, and--in case you haven't been reading along--over the past several months, I kind of took to calling Sprint "the Whale" in one of my blog posts based on their disproportionate (to their size in the market) influence in Washington (everything they do is "crazy big"). So when it came time to recognize a regulatory "player of the year", I have to give props where they're due, and congratulate the Whale.

Whether you like it or not, and whether by skill or luck, you have to give the Whale credit . . . of all the big telecom players/issues considered this year, the Whale pulled a clear-cut victory on their priority issue when AT&T and DT announced they were abandoning their deal to allow AT&T to acquire T-Mobile. This doesn't happen much, and you have to recognize that this is no easy feat. For this alone, 2011 was the year of the Whale, and 2012 will, by virtue of the Whale's win in 2011, by no means be the year of the consumer.

Not taking anything away from Sprint's achievement, the coordinated actions of the DoJ and the FCC, did ensure that AT&T was never going to get an opportunity to defend itself on the merits in front of an impartial arbiter. This is because, once it becomes clear that the regulator (which has much broader authority to deny the merger than that conferred on federal judges under Section 7 of the Clayton Act) has made up its mind to deny a merger, a court has a lot less incentive to even try an antitrust case.

Consider that a U.S. District Court--under its Section 7 analysis--can only prevent the merger if it finds that it will lessen competition. The FCC, on the other hand, seems free to ignore the analytical framework the court is bound by, and the FCC does not have to approve a merger unless the parties convincingly demonstrate that the merger "promotes" the public interest. Thus, the FCC always holds the final cards.

In cases like the DoJ/AT&T case--where DoJ seeks a permanent injunction (equitable relief that requires a longer trial/discovery period than traditional "extraordinary" merger relief, such as preliminary injunctions and temporary restraining orders, courts might well be much more likely to include the regulator in the process early, so as to avoid "wasting time." Unfortunately, administrative/judicial efficiency can come at the cost of the merging parties' due process rights.

So, Congratulations! are in order for Sprint this New Year's Eve, and, looking forward, I would say that the way the "2 layer" merger review process (Justice/FTC + Regulatory Agency review) was exploited this year by the Agency, will possibly tee up this issue for legislative elimination in 2012.

Happy New Years! to all my readers. Thanks for taking the time to read my blog--I'm grateful for every "unique" view that I get--so tell all your friends! Best wishes to all for a safe and successful 2012!

Merger Efficiencies and the Tech-Nobility

Fri, 09 Dec 2011 14:20:01 -0500

"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 Press. See 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?

Two Winners on Deck to Join FCC

Thu, 01 Dec 2011 23:53:03 -0500

Yesterday, the Senate held confirmation hearings on the nominations of Jessica Rosenworcel (testimony here), and Ajit Pai (testimony here) to fill two FCC seats--one of which is vacant, and another will become vacant upon the adjournment of the present Congress. I have had the privilege to work with both nominees, and this is probably the last time I can respectfully refer to either by their first names (instead of "Commissioner"). I can't think of two better candidates, or more deserving people to serve on the Commission. Sometimes even Congress gets it right.

I worked with Ajit as a colleague at the Antitrust Division. He's got a great sense of humor, and is a truly committed public servant. Plus, he's a super-smart lawyer. I like Ajit a lot, I've worked with him personally, and I'm very proud of him. He'll do a wonderful job for the public and I really look forward to seeing him make a positive difference at the Commission.

As far as Jessica goes, I've known her for more than 10 years--though I've never "worked with" her in the sense that we both got paid by the same employer--I have worked with her in my capacity as an attorney representing competitive carriers. Whether as a staff attorney, or a legal advisor to Commissioner Copps, Jessica was always fair, patient, and willing to hear you out.

She made sure she understood your arguments, even if she didn't agree, and was never dismissive no matter how small the party or their issue of concern. She is also a super-smart lawyer, and has exceptional political instincts, which will make her seem a lot more like a "veteran" commissioner than most people just stepping into the job.

Both candidates acquitted themselves well in the face of questioning by the Senate Commerce Committee. Don't believe me? Then watch it for yourself here.

Finally, Ajit--you did great, brother, and I mean that sincerely. But, on the "speaking truth to power", "keeping it real" front, there's no question that Jessica laid it down and picked it up.

Check out the hearing at about the 1:08 point where both are asked the same question by Sen. Blunt (R-MO)--about whether the FCC staff or the Chairman released the "staff report and analysis" as part of the Wireless Telecommunication's Bureau order granting AT&T and DT's joint request to withdraw their license transfer applications. See previous blog for background. Jessica could have hedged, but instead she laid down the stone cold truth. I love that!