Sunday, October 23, 2016

AOL-Time Warner ($160 Billion in 2000) vs. AT&T-Time Warner ($85 Billion in 2017): Is It Different This Time?

            A little over 16 years ago, the merger of Time Warner and America Online resulted in an unprecedented loss in market capitalization.  Visions of synergy, efficiency and enhanced share valuation evaporated as reality kicked in quickly.  By 2002, the merged company already had to write off $99 billion in goodwill, an implicit recognition that a lucrative transformation did not occur.  See

            A significantly changed Time Warner, in a substantially changed marketplace, welcomes another mega-merger.  Proponents invoke the common refrain: This Time It’s Different.

So is it?  The answer lies in the changes in the company, AT&T and the information, communications and entertainment (“ICE”) marketplace.

            Time Warner has largely spun off non-core ventures, ironically an elimination of the vertical integration AT&T now seeks to achieve.  Time Warner now concentrates on content creation and distribution.  AT&T has invested heavily in migrating from wired and wireless telephony into a fully integrated and ubiquitous ICE venture.  Like Time Warner, AT&T recognizes the absolute need to change its market targets, or risk loss market share and declining prospects.  AT&T sees content ownership as key to its survival as the content carriage business declines.

            So far so good: AT&T vertically integrates and move up the ICE food chain into content creation.  It can better manage its transformation (there’s that word again) into a one stop shop for content access via any medium, including satellite, fiber, copper and terrestrial radio spectrum.

            AOL and a more diversified Time Warner had similar goals and expectations.  To put it mildly, it did not work out as planned. AOL’s stock capitalization dropped from about $226 billion to $20 billion.  The merged company could not come up with a successful strategy for managing the transition from a narrowband, dial up Internet access environment to one with easy and low cost market access by content and app makers using the broadband networks of unaffiliated carriers.

            Even if “necessity is the mother of invention” and adaptation, AOL-Time Warner could not make it work.  Maybe AT&T-Time Warner can with new synergies and enhanced consumer value propositions.  For example, AT&T offers its wireless subscribers a nearly unlimited data plan if they add DirecTV.  Such upselling and bundling positively exploits synergies and the merits in one stop shopping.

            We shall see in 2017 onward, because I expect the deal to achieve grudging, conditional, but not harmful regulatory approval.

Saturday, October 22, 2016

AT&T—Time Warner and the Mixed Results in Vertical Integration by Bellheads

              Another day, another multi-billion dollar merger in the telecommunications marketplace.  See  Despite the disinformation about how incumbents have closed their pocketbooks to investment because of network neutrality and assorted regulation, AT&T appears ready to push the antitrust envelop with yet another massive $80 billion acquisition.  Not content to acquire more than 50% of the satellite television market, with its $49 billion acquisition of DirecTV, AT&T has its sights on the content Time Warner creates.

            AT&T has a business plan to integrate vertically throughout the information, communications and entertainment (“ICE”) ecosystem.  Acquisitions provide the fastest way for the company to move up and down the ICE “food chain” of content creation, syndication, distribution and delivery to consumers.

            Vertical integration can achieve operational efficiencies as a single company can achieve savings through scale and a wide footprint of related business ventures.  On the other hand, it takes remarkably talented and nimble management to handle different components in the food chain.  Companies like General Electric have succeeded, but ironically this company has launched a campaign to divest itself of non-core business lines.  Other companies have failed even when they thought consumers would welcome having a “one stop shopping” opportunity, e.g., one call to book air travel, rental car and hotel.

            Depending on how your rate AT&T senior management, the company has wisely invested in the convergence of content and conduit, or it has unwisely deviated from its true competency.  Bear in mind that at divestiture from AT&T, companies like Verizon (then Bell Atlantic) invested heavily in content creation.  Verizon failed, because it did not ascend the content creation learning curve quickly enough.

            Simply put, the ICE marketplace has Bellhead, Nethead and Contenthead players with core competencies in legacy network conduits, next generation, Internet carriage and content, and core expertise in entertainment content.  The Bellheads historically have concentrated on installing and managing the networks needed to deliver content.  Incumbent Bellheads see the conduit business as having declining profit margins coupled with substantial capital expenditure requirements in new distribution technologies.  Bellheads have a twin mission to eliminate the need to maintain the fast becoming obsolete copper wire telephone networks, but also to invest in 4th and 5th generation wireless infrastructure.  Additionally, they hedge the network bet by moving up the food chain into content.

            Bellheads envy the profit margins Contentheads sometimes achieve and the business plans of some Netheads who use software to achieve unicorn status (multibillion dollar valuation with miniscule staff and investment) by using Bellhead networks for value added content delivery.

            Can you teach old dogs new tricks?  Bellhead telephone company senior management have to acquire the skills and understand the culture of Netheads and Contentheads.  Companies like Verizon and AT&T have made the transition into the Nethead world through acquisitions of companies such as MCI and UUNet.  Now comes an even harder challenge to embrace the Contenthead culture of Hollywood.   Good luck with that!

Thursday, October 20, 2016

Regulation by Contractual Fine Print

            Advocates for telecommunications deregulation work themselves into a lather when thinking about how government regulation kills jobs and robs stakeholders of the incentive to invest and innovate.  Sponsored researchers provide cover with selective analysis of data and its quite bogus extrapolation.  For example, even as incumbent carriers like Verizon and AT&T spend billions on content and future technologies, like 5G, to deliver it, the carriers and their consulting advocates attribute regulation as severely dampening any reason to invest in new plant.

            Let me get this straight.  Incumbents have no reason to keep their business alive and fresh with cutting edge technologies, because regulators will prevent them from reaping the fruits of their labor by forcing network sharing and imposing network neutrality requirements? 

            Does this pass smell test?  Why would Verizon spend over $4 billion to buy Yahoo and its considerable inventory of content and customer base if the carrier business was being starved of funds to increase transmission speed and capacity? 

            Let’s consider the dead weight social loss in regulation.  I’ll readily admit that uncalibrated and unwarranted government oversight can harm consumers and competition.  Incumbents do not want you to know this, but they welcome regulation that imposes a disproportionate burden on competitors and creates barriers to market entry by prospective competitors.

            Incumbents also do not want you to know that their service contracts—and the regulated tariffs that preceded them—impose far worse costs on consumers than anything the FCC could impose.  Regulation by contractual fine print refers to the anticompetitive and consumer harming language carriers sneak into their terms of service.

            Here are some examples:

            Unlimited data does not mean unmetered and boundless downloading opportunities. Fine print in service terms, like that offered on a “take it or leave basis” by TMobile, offer metered service and severe penalties for exceeding a cap on so-called unlimited data service.  Should a subscriber exceed a data threshold, then the carrier downgrades network performance to a rate incapable of transmitting most data applications.

            How many commercial ventures can deliberately ruin their service with an eye toward forcing customers to upgrade to a more expensive tier?  Pretty risky proposition, but wireless carriers can get away with this strategy.

            Here’s another example: AT&T and other carriers, as well as content providers, like Yahoo, reserve the option of scanning anything you do and say online, mining it, collating it and marketing it. For ventures like Yahoo and social network like Facebook, subscribers accrue value in exchange for abandoning most privacy protection.  But in the case of carriers like AT&T, the scanning and marketing of subscriber usage data does not result in the offer of discounted service.  Just the opposite.  AT&T and other carriers floated a trial balloon of offering to eschew some customer snooping in exchange for additional monthly compensation.  Such a deal!  Customer can pay for somewhat better privacy, but the default is abdication of virtually all privacy.

            Another example is compulsory arbitration on terms set by the carrier using a venture hard wired to favor the carrier in light of the business it generates for the arbitrator.

            Consumers face a non-negotiable service terms severely tilted in favor of the carrier that writes the contract.  Even a brief scan of these agreements would show terms that reduce, regulate, limit, minimize and dilute consumer bargaining power.  Subscribers cannot simple churn out from one carrier to another one offering better terms, because these so-called robust competitors have nearly identical terms and conditions.

            So who’s the regulatory beast these days?

Tuesday, October 4, 2016

Take-Aways From the Yahoo Network-wide Scan

            Yahoo appears to have provided the U.S government with key word scanning of each and every email message traversing the Yahoo network for a limited time period.  See  There are significant legal and technological issues triggered by this news. 

            On the legal side, it appears that the national intelligence community can and will make a case for email carrier scans of an entire user population when a narrower set of suspects and email accounts cannot be identified.  The Foreign Intelligence Surveillance Act imposes no cap on the number of scanned email accounts, nor does it impose a requirement that government agencies first exhaust all internal options before seeking industry cooperation, or compliance with a court order.

            On the technological side, it appears that only Yahoo could have executed the scans on short notice, because Yahoo email subscribers can opt to encrypt their messages.  Having written or at least installed the encryption technology, Yahoo may be the only one able to deencrypt and conduct deep packet inspection of massive traffic volume on a real time basis.

            As to the impact on Verizon’s acquisition of the company, I suspect this news will not have any effect.  It seems like Yahoo had no basis to contest the order (if there was one) in light of the short notice, limited duration and likely assertion by government officials that the company alone could achieve the desired outcome.

            On matters of national security, even at the risk of abuse and overuse, government assertions about the potential for imminent harm trumps individual privacy concerns.

Friday, September 16, 2016

The Strategy in Smartphone Battery Location

            Once upon a time, most cellphone users could easily replace their batteries should they want to extend the life of their handset. Absent operator error, the decline in the performance of rechargeable batteries constitutes one of the major motivators for handset owners to replace and upgrade.  When wireless carriers subsidized handsets, consumers readily handed over their phones for something better, thereby reducing churn as they extended their subscription for another two years.  They could have replaced the battery, but why bother?

            With the passage of time, cellphone manufacturers and carriers saw the strategic benefit in making devices less modular, with battery replacement costly and difficult.  Most currently used smartphones don’t offer a quick and easy replacement opportunity.  One must use a device to pry open the handset possibly voiding the warranty and damaging the phone. 

             Operators and device manufacturers appear to have elevated the battery hassle factor even as handset subsidies started to evaporate.  Wireless consumers may want to extend the usable life of their handsets, but replacing the first to degrade or fail component has become a major effort.

            On balance, making handset batteries hard to reach has worked out well for both carriers and handset manufacturers.  Until now.  Users of the Samsung 7 would easily have received by mail a replacement battery for their fire prone handsets without any inconvenient and device downtime.  Instead, they must part with their lifeline to the cloud for some indeterminate period of time until a replacement handset arrives.

            Maybe this unfortunate episode will prompt a return to easy battery access.  I wouldn’t bank on it now that wireless users need external nudges not to squeeze additional months of use.

Friday, September 9, 2016

So This is How the Internet of Things Works

            This week my digital printer notified the office systems administrator by email that it needed a replacement ink cartridge.  How very helpful and timely you might think, but there’s more to the story.

            My printer did not really need ink.  It simply reached a specified number of page prints, after which it stopped working!  Full stop.  Not coaxing it to handle a few more pages after a couple of cartridge shakes.

            The printer manufacturer has a software, middleware, or firmware default for stopping printing after reaching a page threshold. There is a way to override the default, but one needs to issue that instruction at the printer’s specific Internet Protocol address which may not be common knowledge.

            How clever of the printer company to exploit the Internet of Things to expedite the replacement of ink cartridge that might have hundreds of pages left.  Clever and greedy I’d say.

Monday, August 22, 2016

Paying Mooching Carriers—Wi-Fi Spectrum Use by Licensed Operators

            Some stakeholders support a growing strategy by incumbent carriers to offload ever increasing bandwidth demand onto other networks including unlicensed Wi-Fi.  See

           Others consider this a clever tactic to reduce spectrum auction payments while contributing to congestion in frequency band designed to provide consumers with an unlicensed, unmetered and cheaper alternative to licensed carrier service.

             Not so long ago, carriers prematurely handing off traffic to another carrier risked being branded as a “hot potato” router.  See a 2013 blog entry on the subject:
The consolidated Bell System took pride in offering “one system with end to end responsibility.” Now it does not seem to matter if another carrier handles traffic if the strategies accrue cost savings.

             It should come as no surprise that incumbent licensed carriers would prefer consumers not have an unlicensed alternative, particularly in light of the billions paid for spectrum. Whether provided free, below cost, or on profit generating terms, municipal Wi-Fi is reviled as socialism.  Many legislators have bought this logic, even though they don’t seem to fret over taxpayer subsidized stadiums, golf courses, cemeteries, libraries, sewers and water authorities.  With righteous indignation, opponents of municipal Wi-Fi networks claim the socialists ignore the rule of law.  Never mind the law was championed, (make that written) by stakeholders keen on removing, or reducing any unmetered option.  They would love a prohibition on home Wi-Fi routers, but somewhere a line can be drawn where federal authority preempts “states’ rights” and offers consumers a much welcomed option to increase the value of a broadband subscription. 

            Incumbent carriers must maneuver a difficult course where they tolerate (if not welcome) some free spectrum, if they can use it for commercial purposes, coupled with a global bar on the socialistic version called municipal Wi-Fi.

Saturday, August 13, 2016

Another Study in Inconsistency: North Carolina Politics

            North Carolina has a lot to offer including world class beaches, technology parks and barbeque.  Sadly it also leads the nation in partisan and checkbook politics.  This state’s majority party appears obsessed with remedying non-existent election fraud, bathroom gender ambiguity and the scourge of municipal broadband service.  Let’s consider the latter topic.

            From my perspective, municipal Wi-Fi and wired broadband offer a community service in the same vein as libraries, parking decks, parks, zoos, water authorities, etc.  For many types of services, it makes no sense to wait for, and rely on, the marketplace to recognize and serve consumers’ wants, needs, or desires.  The concept of market failure also applies when private industry refrains from providing a service based on forecasts showing insufficient returns on investment.

            Municipalities provide Wi-Fi and fiber optic broadband largely based on the view that the service enhances the welfare of residents while also accruing intangible, or at least hard to quantify benefits.  The Wilson, N.C. local government invested in broadband early, opting not to wait for the possible market expansion by incumbents, or newcomers.  The city mothers and fathers properly concluded that no venture would consider it worthwhile to invest in infrastructure for such a small and relatively isolated place.  Bear in mind that fiber optic ventures, such as Verizon’s FiOS, simply do not extend far from the most densely populated portions of the United States.

            Even though incumbent carriers have little likelihood of actually providing Wi-Fi or any alternative to metered service, they want the “right” to foreclose even cities from resorting to self-help.  In Pennsylvania, Bell of Pennsylvania secured a legislatively conferred right of first refusal for the entire state, except for Philadelphia.  Predictably, the company never acted on this option, but simply having it has achieved the goal of blocking home grown initiatives.

            In North Carolina, incumbent carriers simply convinced legislators that municipal broadband networks would unfairly compete with private ventures who have to enter the private debt and equity market instead of having captive taxpayers bear the financial burden.  In reality, incumbents simply bought a way to preempt town wide, unmetered Wi-Fi, or wired broadband.  Residents, not within the original  broadband service footprint, and in countless other localities have to pay on a metered basis for wireless broadband, or be grateful that they live in a location where cable modem or DSL service is available.

            Elsewhere in North Carolina, Google has installed a major server farm in Lenoir and recently announced that it will include Raleigh in future extremely high speed wireless projects.  In one state, we can see how cutting edge technologies contribute to the tax base, employ people and enhance community welfare.  Elsewhere, checkbook politics blocks community initiatives that would enhance the livability and commercial appeal of a rural locale.  

Friday, August 12, 2016

Consistently Inconsistent: How Very Large ICT Ventures Cannot Maintain a Consistent Legal/Regulatory Posture

            Technological and marketplace convergence makes it increasingly difficult for large, integrated firms, like AT&T, to maintain a single, consistent position on legal and regulatory issues.  This results in rich, irony. 
            Consider AT&T’s recent Kentucky law suit to prevent Google Fiber from using federal pole attachment law to secure access to AT&T-owned telephone poles, at relatively attractive rates, using a congressionally created formula.  See, e.g., 

            This litigation reeks of irony, because AT&T, in its capacity as an Internet Service Provider, would qualify under federal law to attach lines to poles owned by electric, telephone and cable television companies.  Federal pole attachment law prevents companies from refusing to provide pole access, or to allow access, but only at extortionate rates.  AT&T surely would benefit in cities where it does not own telephone poles and needs to install lines using the poles of another, potentially competing company.  But of course AT&T does not make it a practice of trying to compete in localities where it does not also happen to owe telephone poles.
            Adding to the irony—make that disingenuousness and other D words—is AT&T’s consistent legal and regulatory position on state and municipal laws and ordinances affecting access to cellphone towers.  When it comes to that technology, which AT&T considers a functional equivalent and competing option, the company vigorously asserts that federal law preempts state and municipal laws.

            Clearly both wireline and wireless access to the Internet qualifies as interstate telecommunications.  A long body of case precedent supports a “contamination” standard that favors federal preemption, and in turn FCC jurisdiction, whenever a line carriers both interstate and intrastate traffic that cannot be separated.  AT&T regularly seeks federal preemption of state and municipal laws that impose any sort of cost, delay, environmental impact assessment, etc. Federal preemption renders the state and municipal law invalid and inapplicable. 
             The FCC recently failed to convince an appellate federal court that the Commission should be able to preempt any and all state laws that limit or prohibit municipalities from offering Wi-Fi service. See

This means there are some instances where federalism prevails, i.e., the national legislature did not clearly and unconditionally prevent states from enacting laws and some argument can be made that the law does not affect interstate commerce.  But when it comes to still lawful state and municipal laws affecting tower locations, etc. AT&T speaks clearly and unconditionally: that federal law severely restricts what states and municipalities can do, despite the intense local nature of tower siting issues.

            Ironically, AT&T’s absolute certainty that federal law trumps states and cities in terms of wireless Internet access, does not extend to functionally equivalent wireline Internet access.  This has nothing to do with respecting the “Rule of Law” and everything to do with stifling Goggle and the innovation and price competition it would offer. 

             The same conclusion applies to those incumbent carriers opposing municipal Wi-Fi networks and coverage expansion.  These carriers invoke law to short-circuit competition, but in other forums invoke the same laws, policies and precedent to justify their lawful right to ignore state and municipal law.  Consider this strategy rent seeking and not some lofty respect for the Constitution.


Friday, August 5, 2016

Underappreciated Reasons Why Cable Operators Don’t Want Set Top Box Competition

            Behind all the bluster, misinformation and distortion in the spin campaign of cable operators lies three under-recognized motivations.  Cable operators want to control consumers’ access to content in three ways: 1) digital rights management (copyright); 2) navigation (downstream delivery of content); and 3) search for content.

            It recently dawned on me that cable and satellite television providers don’t want the best in class content search firm, Google, anywhere near video content search.  How best to block innovation, particularly the permission-less innovation, Google could provide? Vilify Google as hell-bent on stealing content, replacing advertisements and otherwise ruining the current model for content access negotiation and retransmission (delivery). 

            To be clear there are muscular, clear and unavoidable laws about what Google can and more importantly cannot do vis a vis copyrighted content.  Have we forgotten what happened to Aereo, the company that thought it had come up with a clever way to avoid copyright liability?  Because Google cannot masquerade as a cable television company, even if it wanted to, it cannot retransmit, repurpose and otherwise take control over copyrighted content for which it has no license to use.  Similarly whatever set top box Google might make, or provide content search software, the content flowing through it cannot be touched. 

            Incumbent operators know the severe limitations on set top box functions.  They helped write the Cable Act of 1992 and other laws that legitimize their carriage of content in exchange for a compulsory copyright license for broadcast content.  For access to non-broadcast content, cable and satellite operators accept limitations on what set top boxes can do.  For example, no set top box can completely eliminate exposure to advertising.  Retransmitters of content know they cannot encourage or induce copyright piracy.  Surely Google would have to comply with similar constraints on how well its set top boxes operate.

            What’s primarily at risk here is the potential for Google to run circles around the set top box functionality offered by cable and satellite operators, even the much touted Comcast X1, or the options Comcast now says it can offers without a set top box.  

            We live in a strange world where the potential for innovation is reframed as somehow harmful to consumers, competition and the quality of video search.

Saturday, July 23, 2016

Make Versus Buy in Telecommunications—Verizon/Yahoo

        In a matter of days, Verizon will likely add to its inventory of content by acquiring much of Yahoo.  This deal and the earlier acquisition of America Online confirms the trend that deep-pocketed incumbents see the benefit in acquiring content, rather than growing their own.

            Many years ago, soon after divestiture from the Bell System several Regional Bello Operating Companies threw millions of dollars at becoming content creators, with little to show for it (pun intended).  Now incumbent telephone and cable television companies see the benefit in overnight vertical integration.  You can call it defensive, in light of declining margins and revenues for core, “legacy” business lines.  Alternatively, you can call it prudent recognition that in-house talent might not have necessary mindset and creative skills to flourish in Hollywood.

            The billions of dollars recently invested by companies such as Comcast, Verizon and AT&T confirm that regulatory uncertainty and the “scourge” of network neutrality have not and will not stop investment and capital expenditures.  No company will invest in content if its managers conclude that they should not also make the necessary, concomitant investment in the physical plant needed to deliver content to consumers.  The new, or upgraded infrastructure will exploit technological innovations, such as the fifth generation cellular radio.  Some desirable technologies will not become ubiquitous simply because a profitable business case cannot be made for rural market penetration.

            Let us put to rest the red herring that today’s regulatory wingspan stymies investment in telecommunications.  Ask any senior executive—off the record—and she or he will acknowledge that the regulatory climate falls well below key financial and marketplace variables.  When regulation enters the calculus, too often incumbents use it as a vehicle to stymie innovation and competition. 

            I still do not understand how choice in set top box interfaces with broadband networks somehow hurts consumers and competition.  It does not, but incumbents can cast themselves as victims of bullies like Google and throw sand in the works.  Meanwhile managers at these very same companies proceed with multi-billion dollar acquisitions.  They seem quite optimistic about their staying power and ability to identify and capture new revenue streams.

Thursday, June 16, 2016

Preliminary Summary of the D.C. Circuit Court of Appeals Network Neutrality Decision

By a 2-1 vote, reflecting vastly different legal philosophies and regulator expectations, the D.C. Circuit Court of Appeals rejected all challenges to the FCC’s Open Internet Order. [1] The majority deemed limited its review function and opted to apply ample case precedent that defers to regulatory agencies on both procedural and substantive areas. [2] In a nutshell, the majority opted not to second guess the FCC and expressed support for the Commission’s interpretation of law and its assessment of how consumers access the Internet and what they expect from service providers. [3] This decision supports a rare instance where the FCC substantially expands its regulatory wingspan, despite the general trend toward less government oversight. [4]

The partial dissent chided the FCC for poor economic analysis and its failure to provide adequate notice to affected parties, citing F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).  Additionally, the partial dissent took an activist posture suggesting that the FCC wrongly applied common carriage obligations on a market that the FCC wrongly considered to evidence monopoly characteristics. [5]

 With unexpected uniformity, the court majority rejected claims that the FCC lacked legal authority to reclassify broadband internet access as a common carrier telecommunications service provided via either fixed or mobile carriers.  The court noted that, while the FCC previously had deemed broadband access an information service, it did reserve the option to revisit its classification [6] and had good reason to do so. [7]

 Additionally the court did not consider it a fatal flaw that the FCC extended its telecommunications service jurisdiction to include the upstream links from so-called last mile Internet Service Providers to content providers and distributors.  The court noted that in the Supreme Court’s Brand X review of the FCC’s determination that last mile access fit within the information service classification, the case applied the Chevron Doctrine analysis and determined that the definitions of telecommunications service and information service were ambiguous and the FCC’s interpretation and policy prescriptions were reasonable.[8]

 The court accepted the FCC’s rationale for reclassification, considering it reasonable [9] in light of how consumers rely on telecommunications links to access information services, largely offered by ventures other than the carrier providing access. Additionally, the majority decision considered and rejected many of the objections raised in the partial dissent.  In particular, the majority rejected the partial dissent’s reliance on assertions that reclassification would harm carriers’ incentives to invest in infrastructure.  The court held that “it was not unreasonable for the Commission to conclude that broadband’s particular classification was less important to investors than increased demand.” [10]  The partial dissent endorsed various filings that found flaws in the FCC’s economic and market analysis, but the majority refrained from rejecting the FCC’s overall assessments and replacing them with general criticisms on the appropriateness of the FCC’s analysis. [11]

The majority decision also found no defects in the FCC’s decision to apply its Open Internet access rules to mobile broadband access. The court rejected the rationale that the rules could only apply to fixed services, because the traditional understanding of common carrier delivered Public Switched Telephone Network services only applies to fixed service made available to the public.  The court considered mobile broadband as now generally available to the public as evidenced by the common use of smartphones that provide both voice and data services. [12]

The majority decision strongly rejected the argument that the FCC’s Open Internet rules   impermissibly constrain Internet Service Provider First Amendment freedom:
Common carriers have long been subject to nondiscrimination and equal access obligations akin to those imposed by the rules without raising any First Amendment question. Those obligations affect a common carrier’s neutral transmission of others’ speech, not a carrier’s communication of its own message. [13]


The court noted that telephone companies, railroads, and postal services have borne equal access obligations like that now applied to Internet Service providers “without raising any First Amendment issue.”  [14]

[1]           United States Telecom Association v. Federal Communications Commission, No. 15-1063, slip op., (D.C. Cir. June 14, 2016); available at:$file/15-1063-1619173.pdf.
[2]              “[W]e think it important to emphasize two fundamental principles governing our responsibility as a reviewing court. First, our “role in reviewing agency regulations . . . is a limited one.” Ass’n of American Railroads v. Interstate Commerce Commission, 978 F.2d 737, 740 (D.C. Cir. 1992). Our job is to ensure that an 23 agency has acted “within the limits of [Congress’s] delegation” of authority, Chevron, 467 U.S. at 865, and that its action is not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A). Critically, we do not “inquire as to whether the agency’s decision is wise as a policy matter; indeed, we are forbidden from substituting our judgment for that of the agency.” Ass’n of American Railroads, 978 F.2d at 740 (alteration and internal quotation marks omitted). Nor do we inquire whether “some or many economists would disapprove of the [agency’s] approach” because “we do not sit as a panel of referees on a professional economics journal, but as a panel of generalist judges obliged to defer to a reasonable judgment by an agency acting pursuant to congressionally delegated authority.” City of Los Angeles v. U.S. Department of Transportation, 165 F.3d 972, 978 (D.C. Cir. 1999).” Id. at 22-23.
[3]              The court supported the FCC’s determination that Broadband Internet Access constitutes a separate and standalone service vis a vis the information services consumers acquire via telecommunications service links.  “That consumers focus on transmission to the exclusion of add-on applications is hardly controversial. Even the most limited examination of contemporary broadband usage reveals that consumers rely on the service primarily to access third-party content.” Id. at 22.  The court also noted that Broadband Internet Access providers use information services to facilitate links to content, but agreed with the FCC that such reliance does not convert the telecommunications service into an information service.
[4]              That brings us to our colleague’s suggestion that the Order embodies a ‘central paradox[]’  in that the Commission relied on the Telecommunications Act to ‘increase regulation’ even though the Act was “intended to ‘reduce regulation.’” Concurring & Dissenting Op. at 53. We are unmoved. The Act, by its terms, aimed to ‘encourage the rapid deployment of new telecommunications technologies.’ Telecommunications Act of 1996, Pub. L. 104–104, 110 Stat 56. If, as we reiterate here (and as the partial dissent agrees), section 706 grants the Commission rulemaking authority, it is unsurprising that the grant of rulemaking authority might occasion the promulgation of additional regulation. And if, as is true here (and was true in Verizon), the new regulation is geared to promoting the effective deployment of new telecommunications technologies such as broadband, the regulation is entirely consistent with the Act’s objectives.” Id. at 97.
[5]              “Given the Commission’s assertions elsewhere that competition is limited, and its lack of economic analysis on either the forbearance issue or the Title II classification, the combined decisions to reclassify and forbear—and to assume sufficient competition as well as a lack of it—are arbitrary and capricious. The Commission acts like a bicyclist who rides now on the sidewalk, now the street, as personal convenience dictates.” Id. Sr. Judge Williams Partial Dissent at 66.
[6]           Id. at 15. “Although the Commission’s classification decisions spared broadband providers from Title II common carrier obligations, the Commission made clear that it would nonetheless seek to preserve principles of internet openness. In the 2005 Wireline Broadband Order, which classified DSL as an integrated information service, the Commission announced that should it ‘see evidence that providers of telecommunications for Internet access or IP-enabled services are violating these principles,’ it would “not hesitate to take action to address that conduct.” 2005 Wireline Broadband Order, 20 FCC Rcd. at 14,904 ¶ 96. Simultaneously, the Commission issued a policy statement signaling its intention to ‘preserve and promote the open and interconnected nature of the public Internet.” In re Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC Rcd. 14,986, 14,988 ¶ 4 (2005).
[7]              The FCC concluded that in light of the Verizon case, which reversed the Commission on grounds that it could not impose common carrier regulations on information services, the Commission had to reclassify broadband access explicitly and not rely on Section 706 of the Telecommunications Act of 1996 that provided general authority to take affirmative steps to promote access to advanced telecommunications services throughout the nation. “[I]n light of Verizon,’ the Commission explained, ‘absent a classification of broadband providers as providing a ‘telecommunications service,’ the Commission could only rely on section 706 to put in place open Internet protections that steered clear of regulating broadband providers as common carriers per se.’ [citing 2015 Open Internet Order, 30 FCC Rcd. at 5614 ¶ 42]. This, in our view, represents a perfectly “good reason” for the Commission’s change in position.” Majority Decision at 43. The partial dissent did not challenge the legal right of the FCC to interpret and apply the ambiguous definitions of telecommunications service and information service in the Telecommunications Act of 1996.  The majority considered the interpretation and reclassification as reasonable, but the partial dissent vigorously disagreed.
[8]              [E]ven if the Brand X decision was only about the last mile, the Court focused on the nature of the functions broadband providers offered to end users, not the length of the transmission pathway, in holding that the “offering” was ambiguous. As discussed earlier, the Commission adopted that approach in the Order in concluding that the term was ambiguous as to the classification question presented here: whether the “offering” of broadband internet access service can be considered a telecommunications service. In doing so, the Commission acted in accordance with the Court’s instruction in Brand X that the proper classification of broadband turns “on the factual particulars of how Internet technology works and how it is provided, questions Chevron leaves to the Commission to resolve in the first instance.” Id. at 33, citing
National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545
U.S. 991 (2005).
[9]              The problem in Verizon was not that the Commission had misclassified the service between carriers and edge providers but that the Commission had failed to classify broadband service as a Title II service at all. The Commission overcame this problem in the Order by reclassifying broadband service—and the interconnection arrangements necessary to provide it—as a telecommunications service.” Id. at 54-55.
[10]            Id. at 49.
[11]          Id. at 49, quoting Gas Transmission Northwest Corp. v. FERC, 504 F.3d 1318, 1322 (D.C. Cir. 2007): “We see no reason to second guess these factual determinations, since the court properly defers to policy determinations invoking the [agency’s] expertise in evaluating complex market conditions.” (internal quotation marks and alteration omitted).
[12]          “Aligning mobile broadband with mobile voice based on their affording similarly ubiquitous access, moreover, was in keeping with Congress’s objective in establishing a defined category of “commercial mobile services” subject to common carrier treatment: to ‘creat[e] regulatory symmetry among similar mobile services.’” Id. at 60 (citation omitted). “In mobile petitioners’ view, mobile broadband (or any non-telephone mobile service)—no matter how universal, widespread, and essential a medium of communication for the public it may become—must always be considered a ‘private mobile service’ and can never be considered a ‘commercial mobile service.’ Nothing in the statute compels attributing to Congress such a wooden, counterintuitive understanding of those categories.” Id. at 62.
[13]            Id. at 108-09.
[14]            Id. at 111.  The court did noted that in some instances, ISPs do create and distribute content, but in such instances common carriage requirements do not apply. “If a broadband provider nonetheless were to choose to exercise editorial discretion—for instance, by picking a limited set of websites to carry and offering that service as a curated internet experience—it might then qualify as a First Amendment speaker. But the Order itself excludes such providers from the rules.” Id. at 114.

Sunday, May 29, 2016

It's Still the Cable Company, Part 711

A video on demand service glitch provided me an opportunity to see whether my cable television provider Comcast has made any progress on its customer service.  The result: it's GOTTEN WORSE!

How can a company with $74 billion dollars in annual revenues not understand the need to invest in both plant and personnel? 

That's not a hard question.  Senior management realizes that it can squeeze out even more revenue by sponsoring researchers, hiring attorneys and employing lobbyists to reframe the issue of investment.  Rather than confront the matter of obsolete plant, postponed investment and plain awful customer service the company can claim that "regulatory uncertainty" and network neutrality, etc. has caused it to lower it capital and operating expenditures.

So when customers encounter outages and a 20 minute audition with a computer before reaching a live person, it's the company responding to regulatory blunders.

In reality--or at least the one I experience on a holiday weekend--I cannot access any of Comcast's much touted video on demand content.  The reason: Comcast does not invest in plant and personnel, because it perceives the opportunity to blame somebody else.  The reward: even higher margins.

Thursday, May 12, 2016

Conservatives Playing the Victim Card

            The last few weeks has had a remarkable glut of instances where conservatives bemoan their victimhood in the Internet ecosystem.  With much snark and righteous indignation, conservative Senators, FCC Commissioners and of course incumbent operators, rail against various instances where the deck is stacked against them.

            Senator Thune of South Dakota wants to investigate alleged bias in Facebook’s compilation of current trending news.  See; and  The Wall Street Journal suggests Facebook should explain how its algorithms work in the spirit of “transparency;” see  Of course, you don’t hear a similar expectation that Fox News explain how it lives up to its tag line: “Fair and Balanced.”

            Did Senator Thune call for a network neutrality mandate for Facebook, or worse yet, a government mandated “Fairness Doctrine”? 

            The two FCC Republican Commissioners go farther alone the victim trail.  They start with a knee jerk bias supporting incumbent stakeholders no matter how bad that favoritism hurts consumers.  Based on this logic, there is nothing the FCC could or should do to promote set top box competition.  Ask just about any cable television subscriber how they feel about compulsory set top box rentals and you will get an earful.  Commissioner Pai wants the elimination of a set top box requirement, yet he remains oblivious to decades of efforts by the cable industry to prevent a return to “cable ready” television sets.  How can Commissioner Pai not know that the cable industry has worked tirelessness to prevent the CableCard option from working and providing an alternative to monthly rentals of the cable television operator’s box?

            Both Commissioners seem adverse to the FCC releasing congressionally mandated reports, especially ones that reach negative conclusions about the state of actual competition, or release inconvenient statistics.  For example, the recently released 17th Report on Video Competition (see offers damning statistics about cable television market concentration and the remarkable lack of CableCard use in set top boxes and video recorders not supplied by cable operators. While 99% of the United States has access to 3 MVPDs (2 DBS and 1 cable television), 36% have access to a fourth option provided by a telephone company. Operator-supplied set-top boxes used 53 million CableCards versus 613,000 in retail devices not supplied by the service provider.

            Despite damning statistics, the Democrat majority joined with the Republican minority in approving mergers that further consolidate the industry.  Rather than applaud this, FCC Commissioner Pai rants about the “"ideologically inspired extortion[ate]” nature of conditions designed to prevent ever larger firms, which by the way control most of the broadband market, from unfairly exploiting they market power.

            News flash: the FCC approved the merger despite generating 100s pages of evidence why it’s a bad deal for consumers.  To quote Shakespeare Commissioner Pai “doth protest too much.”

            From my perspective conservatives protest too much.  Apparently few conservatives get collegiate teaching opportunities in the U.S. Yet I see a bias in their favor in terms of access to sponsored research dollars, conferences and publications.  There are far more conservative foundations out there ready to nurture and fund like-minded researchers.  There are times where my unsponsored, independent work gets crowded out, not by better work, but by work that more closely aligns with the conservative agenda.

            Bottom line: conservative ideology—particularly that with a market orientation—has become mainstream.  Fox News rules the airwaves.  Even as their first mover market advantage should wane, incumbents benefit from conservative FCC Commissioners who ignore rent seeking tactics and support them. 

            I thought conservatives abstained from selecting market winners and losers.

Tuesday, May 3, 2016

Broadband Carrier Quandary: Exploit Bandwidth Scarcity, or Reduce It?

            Comcast enhanced the value position of its broadband subscriptions by increasing the monthly data allowance to 1 Terrabyte (1000 Gigabytes). See  As an independent, unsponsored researcher, I can say “Thank You Comcast” without adverse consequences and only a bit of irony.  This company does much to displease, but ab expanded data allowance offers a winning proposition.

            Consumers win, because Comcast has opted not to create artificial scarcity with an eye toward running up subscribers bills. While one subscriber’s glut maybe another’s scarcity, 1000 Gigabytes offers a generous allowance.  Most subscribers will not have to ration their usage including actively cutting off advertisements that increasingly seem to launch despite attempts to prevent “auto play.”

            Comcast wins, because longer and stickier subscriber viewing typically generates more revenues for the company.  Comcast operates in what economists describe as a double sided market.  The company generates revenues from downstream, broadband subscribers and it also receives payments from upstream carriers, such as Content Distribution Networks, as well as content creators and distributors, such as Netflix.

            Additionally, Comcast can accommodate ever increasing demand for bandwidth quickly, efficiently and inexpensively.  The company need only reallocate a 6 MegaHertz channel from video carriage to broadband carriage.  Aljazerra America’s sign off created a candidate channel for reassignment. See  Cable television networks typically now have ample bandwidth affording latitude in assigning capacity for video, data and other services.  A technology known as cable bonding makes it possible to add broadband capacity in 6 MHz increments.

            As cable companies expand broadband data rates, wireless carriers persist in rationing access with monthly allocations typically in 1-10 Gigabyte range. Wireless carriers currently do confront scarcity, particularly if many subscribers in the same vicinity try to stream video at the same time.  As well, wireless carriers do not have the same quick, easy and cheap opportunities to expand broadband bandwidth, although they can install more towers (“cell-splitting”), encourage subscribers to incorporate their wired broadband subscription with cellphone service and acquire more spectrum.

            Currently, wireless carriers appear quite adept at finding the sweet spot that balances scarcity abatement strategies with scarcity-based pricing.  These carriers have paid billions for auctioned off spectrum, but they also want to use unlicensed, free Wi-Fi spectrum to accommodate growing demand, most probably without a data rate increase.  Additionally, they can rely on the spectrum scarcity rationale to justify many tiers of service with pricing rising significantly as data rates increase.  Few current subscribers have truly unlimited data plans, because the service agreement authorizes the carriers to reduce (throttle) delivery speeds to rates that do not support video streaming.

            Wireless carriers can exploit spectrum scarcity to support a much higher per Gigabyte cost of service.  Comcast just widened this differential.

Friday, April 29, 2016

Anatomy of Defective Legislation: The No Rate Regulation of Broadband Internet Access Act, H.R. 2666

             The U.S. House of Representatives has passed a bill that would prohibit the FCC from regulating Internet Service Provider rates.  While one surely can appreciate the merits of such legislation, House Republicans have created a remarkably flawed document.

            The drafters do not seem to understand that the Communications Act, which the bill would amend, vests the FCC with jurisdiction in Section 208 to oversee “charges, classifications, regulations or practices.”  H.R. 2666 creates the kind of ambiguity that allows the FCC to remedy through its preferred statutory interpretation, because one person’s rate regulation is another’s lawful regulation of charges, classifications and practices.

            The Supreme Court has created something called the Chevron Doctrine that creates a model for assessing whether courts should defer to regulatory agency legislative interpretation.  While agencies like the FCC must apply the clear meaning of an unambiguous law, court must defer to reasonable agency interpretations when the applicable law is ambiguous.

            On its face, H.R. 2666 is ambiguous, because one could readily argue that this bill does not repeal Sections in the Communications Act that authorize the FCC to investigate complaints about carrier billing and treatment of information about customer network usage (Sec. 222) as well as issues that affect out of pocket cost, but can be deemed something other than a rate.

            In the Internet ecosystem, ISPs often negotiate agreements that do not involve rates and even the exchange of money.  Instead they use customer information as a marketable currency of great value to advertisers.  Data mining configures and analyses ISP subscriber behavior that can be monetized, but not converted into applicable rates and tariffs.

Monday, April 25, 2016

Set Top Box Death Watch—Are You Kidding?

            A new rationale has appeared on the media landscape explaining that the FCC needn’t bother trying to promote set top box competition, because these devices will soon disappear. Who knew?  Apparently not Comcast which has spent much time, money and effort promoting its new and costly X1 box, nor other incumbents who have attempted to explain how they need a perpetual monopoly. 

            So let me get this straight.  The cable industry has done nothing to promote set top box competition, yet even with outright opposition to an unfettered marketplace the requirement to install and use a cable-company supplied box will evaporate soon.

            This does not pass the smell test, particularly in light of the cable industry's concerted efforts to block competition, to thwart next generation “cable-ready” television sets and to tout as an adequate solution a sorry performing CableCard technology that prevents many value adding features from functioning, including electronic programming guide navigation.

            Around and around the spin goes, unwittingly promoted by newspapers who should know better than to publish undisclosed, sponsored research.  In my capacity as telecom and Internet researcher, I make a point to read anything and everything, including blatantly wrong and obviously sponsored advocacy masquerading as “research.”

            Let’s be clear: the cable industry wants to milk its set top box monopoly for as long as possible.  Had the FCC not acted—in the waning days of the Obama Administration—no one would have attempted to dislodge the status quo.  Comcast would not have embraced Roku and a nominal set top box alternative and you wouldn’t see bogus explanations why the set top box monopoly does not exist.

            Speaking of alternatives, incumbents point to Internet Protocol Television as proof positive that consumers have plenty of substitutes to mandatory set top box access to video content.  Ah yes, another half-truth: there are video access options, like Hulu, but there are no alternatives to set top box access to cable television supplied content.  It’s quite glib and wrong to equate Hulu’s relatively limited inventory as the functional equivalent to that available via cable television.  Certainly the cable industry makes that argument in justifying its substantially higher monthly rates, but of course you aren’t supposed to remember that bit of self-congratulations in the context of the set top box debate.

            Readers: follow your noses, trust your instincts and check your wallet.  The disinformation swirling around you on the matter of set top box competition is designed to confuse and obfuscate.  Can there be any basis for thinking a single rental option offers consumers a better value proposition than competitive access to multiple boxes, like that becoming available for IPTV?  Have you looked at your year-over-year set top box rental costs?

            By why believe me?  I have no advocates, agents and publicists touting my work and securing placement in major papers.  I simply follow my nose, common sense and the money trail without sponsorship of course.