Award Winning Blog

Tuesday, September 3, 2019

A False All Clear Conclusion from the Chicago Tribune



            Like their south side University of Chicago economists, the Editorial Board of the Tribune waxes poetic and snarky about the virtues of the marketplace and how it can solve any and all network neutrality ills.  See https://www.chicagotribune.com/opinion/editorials/ct-editorial-net-neutrality-internet-obama-competition-20190902-vf3jeqzmcngwblzky77a7ktzly-story.html?utm_source=sendgrid&utm_medium=email&utm_campaign=Newsletters.

            While I am not a neutrality absolutist, I cannot share the newspaper’s “all clear” conclusion that the marketplace will solve all bandwidth ills.  The Editorial Board dismisses a particularly egregious throttling episode as “humiliating customer service failure” for Verizon when the company’s software automatically slowed transmission speeds of California first responder handsets as they tackled life and property threatening fires.  Does deliberate slowing down of transmission speed and commensurate service degradation warrant an all clear, A-OK seal of approval, because the tactic gets obliquely identified as a possible consequence of bandwidth hogging? 

            How many service providers can get away with offering poor service as leverage for upselling?  Perhaps no one on the Editorial Board remembers the woes besetting Intel when a minor, undetectable degradation in a microprocessor triggered a massive recall and mea culpa.

            The editorial writers do not seem to appreciate that service degradation happens all the time and a forensic analysis of the cause during and after the fact has proven quite difficult at identifying the cause and culprit. Whenever content on the web stops streaming seamlessly, three possibilities exist:

1)         the last mile Internet Service Provider has deliberately slowed transmission speeds, because it needed to conserve bandwidth, by throttling all video traffic to standard definition DVD quality, and by punishing high volume users who may cause congestion;

2)         the ISP has targeted specific sources of content or types of content for throttling; or

3)         network congestion somewhere, somehow affects quality of service without intentional degradation.

            The Editorial Board is woefully naive to think that a rising tide of innovation and market driven pricing can solve any of these 3 quality of service problems.  Upselling to faster transmission speeds for so-called last mile delivery will not remedy problems elsewhere in the Internet cloud.  Insatiable demand for video has prompted ISPs to throttle complete categories of content, even after frequent network upgrades.

            Lastly, without disparaging ISPs, one should acknowledge that they have both the ability and incentive to throttle competitors’ content.  Simply put, throttling is easy and effective, without being readily detected. A last mile ISP can always blame someone else, e.g., content providers like Netflix, for any quality of service problem. 

            I agree the Internet and neutrality enforcement does not require heavy handed regulation.  Still, a cop on the beat can resolve the likely instances of carrier misbehavior. Just ask any California fire fighter.

Wednesday, July 31, 2019

Shoot First with Snark and Maybe Check the Facts Later: Mistruths and Market Misperception by WSJ Columnist Holman W. Jenkins



            I was doing well on my self-imposed moratorium from correcting the frequent intentional and unintended mistakes in Wall Street Journal articles on telecommunications and the Internet.
Then along came Holman Jenkins’ whoppers in the Wed. July 31, 2019 edition: Faster Wireless vs. the Swamp; https://www.wsj.com/articles/faster-wireless-vs-the-swamp-11564527042

            Mr. Jenkins recently lambasted the government’s antitrust challenge to AT&T’s acquisition of Time Warner and today he mocks any benefit derived from having 4 instead of 3 facilities-based, wireless broadband carriers.  Anyone who thinks consumers and wireless competition benefit from 4 carriers has a number “fetish.” He seems pleased by a Sprint exit, particularly given the low odds he calculates for a Charlie Ergen-managed venture to provide facilities-based competition.

            Mr. Jenkins certainly offered a correct characterization of Mr. Ergen’s slipperiness and inclination to elevate negotiating/complaining/delaying strategies over building networks.  Mr.  Ergen likely will try finding ways to collect a hefty markup on spectrum he hoarded and was soon to lose, having never migrated to actually installing facilities to provide service.  The Justice Department just gave him a 4-year extension and ample time to remain a wireless reseller, beholden to the remaining 3 carriers who actually operate physical (not virtual) networks.

            Mr. Jenkins enters the land of half-truths (or less) by implying that fixed and mobile wireless are just about to the point of interchangeability. He bolsters his argument with the false implication that Comcast and Charter are facilities-based carriers in their own right.  Not exactly.  Both carriers offer Wi-Fi hotspots which only offer islands of broadband access with no hand off capabilities.  Comcast and Charter mobile service relies on resold capacity from the 4—make that 3—national carriers. 

Comcast and Charter both operate as “Mobile Virtual Network Operators.” MVNOs “are essentially wholesalers of wireless spectrum — they buy bandwidth from carriers and then resell it to customers under new branding.” https://www.businessinsider.com/charter-spectrum-mobile-mvno-service-2018-7  As resellers, MVNOs survive in the marketplace if and only if a facilities-based carrier agrees to sell them bulk transmission capacity at a low enough price to squeeze out a profit margin.

We may reach a point where fixed and mobile network become interchangeable, but we are not there now even as consumers do abandon wireline phone service.  One should not conflate abandoning the wireline phone networks for abandoning any and all fixed wireline services.  Consumers switch from metered, throttled and not unlimited wireless service to Wi-Fi, because the latter is unmetered, unthrottled and far less likely to have a data cap at all, or one that affects incentives to use the service.  Bear in mind that most Wi-Fi networks use wired broadband for access to the Internet cloud.  The last 50 feet is wireless.

Mr. Jenkins has a penchant for righteous indignation generated by an alternative reality about current marketplace conditions.  I still cannot wrap my head around his view that 3 carriers are better than 4.  I don’t have a predisposition for any minimum or maximum number of facilities-based competitors in the wireless marketplace.  I can state with almost the same certainty as Mr. Jenkins that allowing further concentration of the wireless marketplace with 3 carriers holding a 95% national market share guarantees less competition, innovation and employment with higher subscriber prices, carrier revenues and deteriorating global leadership in next generation networks and services.

Muddy facts, reporting and analysis.

Saturday, July 27, 2019

5 Guaranteed Future Outcomes from the Sprint-TMobile Lovefest—Part Two


            John Legere will serve as the new TMobile CEO, so the possibility exists that he’ll maintain the love of pink—make that magenta.   Of course, it will be harder for the new TMobile to frame itself as iconoclastic outlier.  Not much innovation in this tag line: “we’ve held the line on prices for THREE years.” Mr. Legere may continue to ride his TMobile motorcycle around town, but he’ll have lots of deposits to make at his bank.

            Over at Dish, the deal gives Charlie Ergen a 4-year extension to “fish or cut bait” with even more spectrum.  I’ll add to my prediction that he’ll devote an inordinate amount of that time raising a ruckus on the proper interpretation of his commitments as the fourth carrier replacement for Sprint.  Why spend time competing in the marketplace when you can complain about the plain meaning of the sweetheart deal he negotiated?  He’ll never be satisfied, particularly when he can blame everyone—including the other carriers—for any failure to meet the terms of the deal. 

Bear in mind that Dish’s quick entry into the marketplace will be through resale of the other carriers’ capacity. Mr. Ergen has a ready- made complaint that his competitors did not offer him generous enough terms for Dish to offer what Sprint previously did.

Bottom line: it’s money that matters, and the investment of millions by Sprint and TMobile will pay off handsomely at the expense of anyone who uses a cellphone.

Friday, July 26, 2019

5 Guaranteed Future Outcomes from the Sprint-TMobile Lovefest

Now that the U.S. Justice Department has planted a big kiss of approval on the combination of Sprint and TMobile, I predict 5 near term outcomes:

1) Charlie Ergen, CEO of Dish, gets yet another opportunity to find ways to evade regulator- imposed deadlines.  Facing a use or lose deadline for 5G spectrum, his company has received a lifeline from the Justice Department for further delay.  It does not take much to play the government and consumers for fools.

2)  John Legere, CEO of TMobile develops an aversion to pink and gets a haircut. You will never see him on a motorcycle again.

3)   The combined Sprint-TMobile finds ways to raise subscriber out of pocket rates, with new billing line items.

4) Somehow, some way, the robust 4th wireless carrier lacks most of the innovation, ambition and aggressive price cutting of Sprint or TMobile.  So much for re-creating a 4th carrier maverick.

5) Learning nothing about the consequences of airline, hospital, pharma and other industry consolidations, we are shocked at how U.S. wireless service rates exceed every country but Canada and Greece.

Monday, June 17, 2019

Empirical Tests for Assessing the Consumer and Marketplace Consequences of the Sprint-TMobile Merger



            You probably have seen one or more versions of the advertisements touting the consumer benefits in the Sprint-TMobile merger.  While never explaining why they could not achieve pro-social goals individually, the companies claim that collectively they can bridge the digital divide, generate more competition and make us all proud of our 5G supremacy.  The companies offer not one speck of empirical proof that anything good actually will occur other than make it easier for them to satisfy Wall Street and Main Street investor expectations.

            I can accept that Sprint and TMobile want to make lemonade out of their sorry performance in the marketplace.  On the other hand, I cannot accept the unquestioning boosterism of FCC Chairman Ajit Pai and others who ought to know better.  These government officials also offer not one piece of empirical evidence of the “win-win” value proposition where the companies and consumers benefit without any harm to the marketplace.  I will question their motivations, because I know these people are smart and fully able to pose uncomfortable questions if their had incentives to do so.  Sadly, the public interest falls far down the list when there are doctrinal, political and personal stakes involved.

            Yet again “tilting at windmills,” I offer some forward looking, but evidenced based tests for assessing the marketplace and consumer impact of the Sprint-TMobile merger.

Status Quo Extrapolation of Tower Sites, Available Bandwidth and Capex Versus Merged Company Performance.

            Chairman Pai has emphasized the need to inject ostensibly non-partisan economics and empirical data in the FCC’s ongoing oversight.  Great idea, but somehow, I do not see the swamp drained with clear-headed analysis.  On the other hand, we can do a back of the envelop analysis that shows how empiricism works if you care to use it. All one has to do is compile a list of current performance factors for the two companies.  How many tower sites do the companies have individually?  How much bandwidth do they use now and how much do they have in reserve? How much did the companies individually invest in previous years?

            Surely Chairman Pai understands the veracity and importance of these variables, even though they too can be politicized and misrepresented.  The Chairman has touted a party line that network neutrality regulation, or at least the prospect of it in the future after completion of judicial review, creates all sorts of investment disincentives for incumbents and market entrants alike. 

So, what exactly would industry consolidation do? It does not take any leap of faith to conclude that measurable statistics will show a reduction relative to what two standalone, competitors would generate.  For example, when Sirius and XM merged, over time they could reduce the total number of satellites needed to provide service, i.e., less total bandwidth.  Their operational efficiency gains generally accrued by reducing the number of employees.  The merged company did not need two groups of lawyers, accountants, network engineers, salespeople, etc.

Average Revenue Per User

            Even as senior management at Sprint and TMobile would never admit it, the merger will make it easier for the combined company to generate greater returns for shareholders and the stock options and profit sharing for employees.  The merged company will have less need to devote sleepless afternoons innovating, solving digital divides and enhancing the value proposition of their service.  Can anyone show me how the combined Sirius-XM offers so much more than what either of the two prior companies was able to offer?  Bear in mind that while one could make the argument that one or both of the digital satellite operators might face bankruptcy, neither wireless carrier lacks sufficient access to debt and equity financing.

            Wireless carriers in the U.S. generate some of the highest ARPUs in the world.  They have declined of late, but one should expect this outcome in a maturing industry nearing saturation and commodification.  The carriers have responded by upselling with bundles of video, audio and other content as well as zero rating.

            What is the likely impact on industry ARPU from the merger?  One can generate a quite likely scenario by examining revenue and profit statistics in the broad information, communications and entertainment marketplace as well as other industries, such as commercial aviation.  Generally, industry consolidation enhances the prospect for both revenue and profit growth.  Surely the current performance of airlines, pharmaceuticals and hospital groups offer empirical evidence of growth, arguably at the expense of consumer welfare.

Health of MVNOs

            Mobile Virtual Network Operators provide consumers with a pre-paid, often cheaper competitive alternative to post-paid service.  As noted in the prior blog entry, the Justice Department considers the MVNO option as important, so much so that merger approval may be contingent on the ongoing viability of Boost Mobile.

            When markets concentrate, facilities-based incumbents may have less incentives to “off load” product to resellers.  In the wireless marketplace, AT&T and Verizon are less than aggressive resellers, because they do not want to cannibalize their service.  What percentage of wireless consumers even know that AT&T owns Cricket?

            Will 3 national wireless competitors have any interest in offloading bulk minutes of use and bandwidth to unaffiliated vendors?  Why should they support lower priced competitors?

Out of Pocket Consumer Costs

            Anyone blessed with the opportunity to travel abroad quickly notices 2 major differences in the wireless experience. Consumers outside the U.S. typically pay far less for more data and voice minutes, plus they have far more opportunities to use multiple SIM cards options.

            U.S. carriers still manage to play cute with questions about unlocking phone even for ones that the consumer owns and has fully paid all installments.  While the number porting process has become routine, you might find it quite difficult to simply pull out your existing SIM card and replace it with one you purchased from a reseller.  The U.S. carriers want to make switching carriers as difficult as possible and I do not see the FCC doing anything to sanction such behavior.

            If competition on price is rather meek in the U.S. right now, exactly what good will result when two separate companies join forces?  It does not augur well when the best that the merged company will offer is not to raise prices for three years.  Curiously, that is exactly what Sirius and XM offered followed by sizeable rate increases and proliferating fees.

            This deal does not pass empirical tests, or one’s common sense of smell.

Sunday, June 16, 2019

Did the Justice Department Embrace Competition-Lite as a Merger Lifeline?



            Many press accounts report that the U.S. Justice Department will support the spin-off of Sprint’s wireless reseller, Boost Mobile, as a concession that will resolve staff concerns about the loss of a 4th national competitor.  See, e.g., https://www.nytimes.com/2019/06/14/technology/t-mobile-sprint-merger.html; https://www.bloomberg.com/news/articles/2019-06-09/boost-mobile-founder-met-doj-friday-on-t-mobile-sprint-review.  Notice I did not say, 4th national carrier, because Boost Mobile resells Sprint wireless network capacity and owns no towers and transmission facilities.

            Resellers of telecommunications network capacity survive if and only if they can exploit a margin between what they have to pay a facilities-based carrier and what they can charge consumers.  This arbitrage opportunity exists, only if 2 conditions are satisfied: 1) a facilities-based carrier will sell bulk minutes or Gigabytes of network capacity and 2) the rate offered by the facilities-based carrier is low enough to enable the reseller to earn a profit, i.e., the buy low, sell higher business model remains enact.

            Let us consider this Justice Department “solution.”  Merger advocates have emphasized how the deal would not raise prices, because it would generate “more competition” among three equally muscular, but hungry competitors.  Assuming this will take place, would the lower margins available to facilities-based carriers narrow the margin they will make available to resellers?  Might the 3 remaining facilities-based carriers abandon resellers based on the view that this sales option is no longer necessary and not worth the bother?

            The key flaw in the Justice Department’s rationale lies in the assumption that spinning-off Boost Mobile will retain a robust and viable 4th competitor.  Is this a certainty when the resurrected 4th venture does not control the key element and cost-center for service?  Bear in mind that while some resellers, like MCI, evolved into facilities-based carriers, as occurred in the long-distance voice telephone market in the 1970s, the prospects for Boost Mobile are questionable.  Can anyone identify a Virtual Mobile Network Operator (“VMNO”) who got rid of its virtual status?  See https://en.wikipedia.org/wiki/Mobile_virtual_network_operator.  Comcast sold it wireless spectrum, Dish has yet to activate any of its terrestrial spectrum assets even with a “use or lose” deadline and one can only speculate whether a deep pocketed newbie, like Amazon, will want to play white knight.

Wireless resellers are called VMNOs for good reasons. They offer the prospect of competition if and only if their virtual network can meet the 2 conditions identified above.  The possibility exists that the Justice Department might try to mandate compliance with these 2 conditions by the merged Sprint-TMobile company.  However, does anyone think Congress and or the courts would tolerate ongoing rate setting involvement by a government agency?  Ample case law shows appellate courts, including the Supreme Court, as at best skeptical and typically intolerant of such oversight, even by the FCC.

Assistant Attorney General Makan Delrahim has embraced structural, rather than behavior safeguards for mergers that have the potential to harm consumers and competition. See
https://www.kirkland.com/publications/kirkland-alert/2018/10/doj-antitrust-division-announces.  He is sadly mistaken if he thinks spinning off a VMNO offers anything more than window-dressing to salvage a raw deal.

Tuesday, May 21, 2019

What’s Good for TMobile, Sprint and an FCC Chairman is Good for America?



            Some of you might remember the adage that “what’s good for IBM, is good for America.”  In a kinder, gentle and more na├»ve world, we might buy the notion that big corporations don’t fixate on maximizing profits, share prices¸ regulator capture and free reign. Benign corporations like AT&T managed to reframe their monopoly into a noble pursuit of the greater good for everyone with slogans like “the [Bell] system is the solution.”
            Out of the kindness of their hearts, TMobile and Sprint promise that they collectively will achieve what neither of them individually can deliver: retained, or reacquired global supremacy over all things fifth generation wireless and nearly ubiquitous, rural 5G service.  Today FCC Chairman Ajit Pai has bought this false promise hook, line and sinker.  See https://www.nytimes.com/2019/05/20/business/dealbook/sprint-tmobile-merger.html.
            The ever present concept of plausible deniability refutes any sense that the Chairman has considered post-government employment in his public interest assessment.  He buys the TMobile-Sprint merger approval campaign platform, without regard to the fact that countless former FCC Commissioners have found their way into lucrative employment arrangements like the TMobile “advisory position” secured by former FCC Commissioner Robert McDonald, the author of a heartfelt Forbes op-ed endorsement of the merger.  See http://fortune.com/2018/05/07/t-mobile-sprint-merger-5g-network-fcc/ and https://arstechnica.com/tech-policy/2018/05/t-mobile-pays-ex-fcc-commissioner-to-lobby-for-sprint-merger/.
            This entire 5G global leadership party line and 5G for the rural people gambit does not pass the smell test.  Wireless carriers do little research and development.  They buy equipment manufactured by unaffiliated companies and they sell handsets also manufactured by other companies.  The four—count them—existing national wireless carriers in the U.S. have accelerated their rollout of 5G, regardless of whether domestic companies have designed the chip sets, modems, handsets, etc. placed in service. Can someone explain to me how a merged TMobile-Sprint will do anything to improve the odds that U.S. companies will maintain or acquire greater market share of the global demand for 5G infrastructure? 
            Bear in mind that the merged company likely will have fewer transmission towers, employees and total capital expenditures than what two, robustly competitive ventures would have to invest to stay viable in the marketplace.  These two companies have majority owners (Japan’s Softbank and Germany’s Deutsche Telekom) with ample resources to finance 5G investment which already has begun.
            The merged companies also cannot changes the laws of radio spectrum and signal propagation.  Here’s an inconvenient truth that even TMobile and Sprint executives have acknowledged into others forums: rural population density prevents the rollout of millimeter wave technology and most of the enhancements accruing from the migration to 5G technology. 5G service will expand, rather than reduce the technological performance divide between urban and rural wireless locales.
            For the sake of argument, let’s assume both Soft Bank and Deutsche Telekom want to cash out, or irrationally allow their investments to sink into bankruptcy liquidation.  In the economic world of “creative destruction,” which Republicans used to embrace, surely someone with better management skills would improve on the sorry performance of current management.  Should we support that scenario, rather than buy the voodoo economics and fuzzy math that proclaims an oligopoly of 3 firms is better than a market with 4, one or two of whom might act like mavericks and not follow the lead of AT&T and Verizon?
            Some years down the line, we will see how a remarkably permissible antitrust policy affected the wireless marketplace. Apparently past performance has no relevancy, because this time, it’s different.  Forget about the higher costs and undelivered alternative channels of the merged Sirius-XM.  Ignore the reduced value proposition of merged airlines.  Marvel at how consumer welfare have risen with the massive vertical and horizontal mergers in the information, communications and entertainment marketplace.  
            How did the Republican Party repudiate President Teddy Roosevelt’s view that arguments favoring economies of scale turn out to an excuse to pursue anticompetitive practices and seek the comfortable world of monopoly, or oligopoly?

Monday, April 29, 2019

What the Mergers by and of U.S. Airways Tell Us About the TMobile Sprint Merger

            You might join me in the contempt for the various sponsored (“coin-operated”) scholars who sing the praises of the TMobile and Sprint merger. These sponsored researcher/advocates never get around to explaining just what the separate companies cannot do now that they will be able to do as a combined company. There is ample empirical evidence that merged companies do not accrue the much-touted consumer and shareholder benefits.

            Let’s consider this issue in the context of commercial aviation and the airline I loved to hate for decades: The one in the same Allegheny Airlines, USAir and U.S. Airways.   Several decades ago, this airline acquired three, regional carriers: Piedmont; Pacific Southwest Airlines and America West. At least 2 of the 3 carriers had a better than average consumer ratings before their merger.  Of course, the rest is history: the merged company managed to leach out everything good coming from the acquired companies.

            Piedmont served mostly southern U.S. destinations with the same kind of pleasantness Southwest provides most of the time now. In addition, Piedmont innovated and offered price discounts.  They had a “Hopscotch Fare” that provided savings for passengers willing to take multiple flight segments instead of a non-stop flight.  I understand that passengers loved PSA and air traffic controllers used the name Cactus for America West, perhaps to commemorate the airline’s folksiness, but maybe to avoid confusion with American Airlines, the company that ended up acquiring U.S. Airways.

            In any event, American Airlines does not seem to offer much of anything cheaper or different than the other two major carriers United and Delta.  Consumers choose their poison and lock in for the occasional perk loyalty and frequently flier programs offer.

            Just now I wonder whether TMobile, Sprint and the vast array of funded merger advocates will convince the court of public opinion how much improved, cheaper, innovative and great the U.S. wireless marketplace will become.  The next time you board a domestic flight, think about how greater the user experience has become thanks to elimination of Continental, Northwest, and dozens of other competitors.

Thursday, April 25, 2019

Adventures in Algorithms: My Word Against the ATM



            Once upon a time, when we regularly used CD and DVD disc drives, most of us occasionally experienced the frustration of not getting a drive to open, or close.  These devices use springs and other moving parts that sometimes do not work seamlessly.  Typically, drive failure does not result in a calamity and with some luck we can get the device to work.

            It may surprise you that the Automated Teller Machines have similar moving parts and springs, particularly where they dispense cash, accept checks and issue receipts.  I still use ATMs frequently as I like cash transactions, even though my research of credit card platforms informs me that I am subsidizing card users.  ATMs rarely fail and the most likely culprit is insufficient cash to dispense.

            Imagine my surprise when an ATM cash dispenser did not open to disperse the cash I requested: lots of beeps, followed by confiscation of my ATM card.  Lucky for me, the ATM machine failed during banker’s hours.  I made my way to a live teller, but she had little good news for me.
            In a nutshell, the ATM machine documented my transaction as completed with no problem. 

Accordingly, I have to “dispute” the debit of funds from my bank account, because the burden of proof lies with me. It’s my word versus the machine’s documentation. I will recover my $300 if and only if a manual, human accounting of transactions shows a $300 surplus.  Then and only then, will a bank manager accept my work and credit my account.  Any anomaly, like the absence of a correct surplus amount, and I am out the money.

            A non-negotiable contract governs ATM users and the transactions they generate.  I am sure that somewhere in this unread document, I have agreed that the ATM documentation trumps my word, I have no redress in court and the bank—or more accurately-- the bank’s software will establish the definitive outcome.  Put another way, I am a liar until proven innocent.

            Wish me luck.

Tuesday, April 2, 2019

Adventures in Cord Shaving




            Tired of paying Comcast slightly over $30 a month for 5 broadcast networks and little else, I embraced OTAR: over the air reception of television.  I built an antenna, ascended a learning curve and 90% of the time the signals arrive “free to air.”

            I do not recommend such self-help for anyone living in an area considered fringe at best.  Penn State is centrally located “in the middle of nowhere” with only one local broadcast television signal translator.  The other stations lie from 20-75 miles away, typically separated by a line of mountains.  Digital signals appear crystal clear, but can evaporate for no apparent reason.  Actually, the reasons include a slight reduction in signal strength, weather conditions, or a change in antenna angle, a risk anytime a cold front comes barreling from the northwest.

            Prior antenna designs did not work for me, because they combined VHF and UHF reception, something I considered necessary because I need to receive channels 3, 6 and 10.  Wrong!  With repacking of television spectrum to accommodate more wireless broadband, broadcasters agreed to change frequencies for a significant cut in auction revenues paid by cellular radio carriers.  I did not know that VHF broadcasters get to keep their low channel designations even though television sets (and antennas) typically need to tune to much higher UHF channels.  Software using the Program and System Information Protocol instructs television sets on which frequency to receive a broadcast television signal and what possibly different channel to display.  Who knew?

            In any event, I needed to build a UHF only antenna optimized for tuning in the higher and more volatile frequencies.  I made the plunge without the anticipated “win back” attempts from Comcast.  I guess they gladly parted company with a low value customer knowing that I still need their 6-18 MHz of broadband access spectrum.

            If only Comcast priced its basic tier at a fair price, I would have stayed.  Instead, they regularly raised the base rate, then added a broadcast channel retransmission fee, then started to charge for the first set top box and also snuck in a few “shipping, handling, shop fee” type charges.  They could have offered a few more channels as well.  Is it profit maximizing for Comcast to include CSPAN-1 in the basic tier, but not CSPAN 2 and 3?  They could have reduced the per channel cost below $4 a month!


Sunday, March 10, 2019

Five Inconvenient Facts about the Migration to 5G Wireless

            An unprecedented disinformation campaign purposefully distorts what consumers and governments understand about the upcoming fifth generation of wireless broadband technology.  A variety of company executives and their sponsored advocates want us to believe that the United States already has lost the race to 5G global market supremacy and that it can regain it only with the assistance of a compliant government and a gullible public.  Stakeholders have identified many new calamities, such as greater vulnerability to foreign government sponsored espionage carried out by equipment manufacturers, as grounds for supporting the merger of two of only four national wireless carriers and preventing U.S. telecommunications companies from buying equipment manufactured by specific, blacklisted Chinese companies.
            How do these prescriptions promote competition and help consumers?  Plain and simple, they do not, but that does not stop well-funded campaigns from convincing us that less competition is better.  Set out below, I offer five obvious, but obscured truths.
1)         Further concentration of the wireless marketplace will do nothing to maintain, or reclaim global 5G supremacy.

            It requires a remarkable suspension of disbelief to think that allowing Sprint and TMobile to merge remedies a variety of ills, rather than further depletes conditions favoring competition in an already extremely concentrated marketplace.  Advocates for the merger want us to believe that it is our patriotic duty to support the combination, because it will enhance the collective fortunes of wireless carriers and customers, help the U.S. regain 5G market leadership from the Chinese and achieve greater competition, innovation and employment than what two separate companies could achieve.
            Nothing has prevented Sprint and TMobile from acquiring funds needed for 5G investments.  Ironically, considering the rampant fear of foreign ventures doing business in the U.S. telecommunications marketplace, both companies have primary ownership by powerful foreign ventures: Softbank (Sprint) and Deutsch Telekom (TMobile).  Interest rates have rarely reached such low levels and both companies have matched AT&T and Verizon in terms of preparing for the future migration from 4G to 5G infrastructure. 
            A merger would combine the two mavericks in the marketplace responsible for just about every consumer-friendly pricing and service innovation over the last decade from “anytime” minutes, to bring your own device, to attractive bundling of “free” and “unmetered” content.  A merged venture would reduce the number of wireless towers, total radio spectrum used to provide service and incentives for enhancing the value proposition of next generation wireless technology.
2)         Carriers Cannot Expedite 5G with Labels.
            Branding handsets and service as “5G evolving” contributes to the hype without expediting the ready for service date.  An emphasis on puffery and marketing distracts the carriers and their subscribers from an emphasis on the hard work needed to make 5G a reality.  There are no short cuts in spectrum planning, network design, equipment installation and coordination between carriers and local authorities.  Even before the rollout of definitive 5G standards and equipment, FCC Chairman Ajit Pai wants to limit local regulators by establishing a “shot clock” deadline on permitting and site authorizations no matter how complicated and locality specific
3)         Ignoring or Underemphasizing International Coordination will Backfire.
            Next generation network planning typically requires years of negotiation between and among national governments.  For wireless services, the nations of the world attempt to reach consensus on which frequencies to allocate and what operational procedures and standards to recommend.  This process requires patience, study, consensus building and compromise, characteristics sadly out of vogue in the current environment newly fixated with real or perceived threats to national security, fair trade and intellectual property rights.  These important matters increase the need to coordinate with nations, rather than offer enhanced, first to market opportunities for nations acting unilaterally and independent of traditional inter-governmental forums.
           
4)         Invoking Patriotism, Trade and National Security Concerns Will Harm U.S. Ventures.

            Advisors to Sprint and TMobile probably are congratulating themselves on having come up with a creative, national security rationale for unprecedented and ill-advised merger approval and outlawing market entry by foreign equipment manufacturers.  Their short term objectives ignore the great likelihood of long term harm to efficiency, innovation, employment, nimbleness and speed in market entry.  Concentrating a market reduces competitive incentives by making it easier for dominant ventures to establish an industry-wide consensus on service rates and terms. Antitrust experts use the term “conscious parallelism” to identify the all too frequent decision by competitors not to devote sleepless afternoons competing rather than implicitly accepting a high margin path of least resistance.
 5)         Politicizing Next Generation Wireless Harms Everyone.           
            Planning for a major new generation of wireless technology did not always have a political element, divided along party lines.  The process is tedious and incremental, perhaps not well too slow to accommodate the pace of changes in technologies and markets.  However, its primary goal seeks to optimize technology for the greatest good.  Historically, when nations favored domestic standards and companies, markets fragmented and profit margins declined.
Incompatible transmission standards, like that currently in use by wireless carriers, have increased consumer cost and frustration, because an AT&T handset will not work on the Verizon network.  Incompatible standards and spectrum assignments typically harm consumers and competition by increasing the likelihood incompatible equipment and networks.
            I cannot understand how two political parties can apply the same evaluative criterion and reach total opposite outcomes.  By law, the FCC and Justice Department must consider whether the TMobile-Sprint merger would “substantially lessen” competition.  Measuring markets and assessing market impacts should not cleave along a political fulcrum, yet it does with predictably adverse consequences.  One cannot see any harm in a business initiative that concentrates a market, while the other one cannot anticipate how a merger might enhance competition, or at least cause no harm.
If politics, national industrial policy and false patriotism become dominant factors in spectrum planning and next generation network, consumers will suffer as will ventures who have become distracted and unfocused on how to make 5G enhance the wireless value proposition. 

Tuesday, February 26, 2019

D.C. Circuit Court of Appeals Affirms Lower Court Approval of AT&T-Time Warner Merger



            The D.C. Circuit Court of Appeals affirmed the lower court’s unconditional approval of AT&T’s acquisition of Time Warner. [1]  The appellate court opted not to second-guess the lower court’s findings that dismissed, ignored or misinterpreted the government’s evidence and the findings of its expert witnesses.  The D.C. Circuit Court of Appeals accepted the lower court’s near complete embrace of the findings by AT&T’s expert witnesses who purported to show that the vertical combination of AT&T and Time Warner would have no impact on content prices and create no increased ability for key content outlets, such as CNN and HBO, to demand higher compensation and weather longer blackout period of no compensation to extract better terms. 
            The appellate court also emphasized the offer by Time Warner to accept a seven year period of binding arbitration and to maintain current compensation arrangements instead of withholding content.  Additionally, the court appeared to agree that having alternative sources of “must see” video content, such as DirecTV and Uverse, did not create significantly greater incentives for AT&T to drive a hard bargain with video programming distributors, such as cable operators, knowing that during an extended black out period, disgruntled subscribers could migrate to AT&T-owned options.
            The D.C. Circuit accepted the lower court’s emphasis on “real world” empirical analysis whether a vertically integrated firm would have greater incentives to raise the cost of content to competitors.  Even though AT&T itself had made this assertion in pleadings before the FCC, [2] its expert witness attempted to show that the merger of Comcast with NBC Universal did not trigger increased content costs.  In a battle between conflicting expert witness testimony, the lower court’s preference for AT&T’s expert was not challenged perhaps based on the sense that it was based on real world circumstances while the government’s expert used economic bargaining theory. [3] 
            The D.C. Circuit credits the lower court for accepting the premise that vertically integrated firms could change bargaining tactics, but in this particular situation changed incentives and perception of leveraging power would not end up altering the outcome of content price negotiations. [4]  The appellate court did not question the lower court’s conclusion that even if the merged corporation would have greater resources to survive the loss of revenues during a blackout and even though it could offset losses from subscriber migration to AT&T content options, AT&T would have little more incentive to risk longer and more frequent black outs:
The district court’s statements identified by the government, then, do not indicate that the district court misunderstood or misapplied the Nash bargaining theory but rather, upon considering whether in the context of a dynamic market where a similar merger had not resulted in a “statistically significant increase in content costs,” the district court concluded that the theory inaccurately predicted the postmerger increase in content costs during affiliate negotiations. [5]
             The D.C. Circuit Court of Appeals concluded that in:
finding the government failed to ‘prov[e] that Turner [Broadcasting]’s post-merger negotiating position would materially increase based on its ownership by AT&T,’ . . .  the district court reached a fact-specific conclusion based on real-world evidence that, contrary to the Nash bargaining theory and government expert opinion on increased content costs, the post-merger cost of a long-term blackout would not sufficiently change to enable Turner Broadcasting to secure higher affiliate fees. [6]

            The appellate court also gave short thrift to the lower court’s assumption that AT&T would pass through all of the $352 million in program cost saving to its customers.  While the D.C. Circuit acknowledged that not all savings would flow through to consumers, as the lower court mistakenly assumed, the court returned to its point of emphasis: that the merger would not trigger content cost increases borne by other video program distributors that they would have passed through to consumers:
The district court accepted Professor Shapiro’s testimony about the $352 million cost savings from the merger. . . . [T]he district court found that the quantitative model as presented through Professor Shapiro’s opinion testimony did not provide an adequate basis to conclude that the merger will lead to “any” raised costs for distributors or consumers, “much less consumer harms that outweigh the conceded $350 million in annual cost savings to AT&T’s customers.”

Whatever errors the district court may have made in evaluating the inputs for Professor Shapiro’s quantitative model, the model did not take into account long-term contracts, which would constrain Turner Broadcasting’s ability to raise content prices for distributors. . . .[7]

            The appellate court notes that the district court did not conduct a costs benefit analysis balancing “increased prices for consumers against cost savings for consumers” [8] and instead found that the government had not shown the merger was likely to lead to any price increases, because Time Warner content negotiators would not have, or use increased leverage in affiliate negotiations after the merger.





[1]              U.S. v. AT&T Inc., No. 18-5214, slip op.  (D.C. Cir. Feb. 26, 2019); available at: https://www.cadc.uscourts.gov/internet/opinions.nsf/390E66D6D58F426B852583AD00546ED6/$file/18-5214.pdf.

[2]              The D.C. Circuit Court of Appeals accepted the lower court’s disinclination to consider such evidence as significant now: “Once the district court credited AT&T’s expert’s opinion based on an econometric analysis that the similar Comcast-NBCU merger had not had a ‘statistically significant effect on content costs,’ . . . the district court could understand that the defendants’ admissions at the time of the Comcast-NBCU merger offered little probative support for the government’s increased leverage theory.” Id. at 25.

[3]              “At this point, however, the issue is whether the district court clearly erred in
finding that the government failed to clear the first hurdle in meeting its burden of showing that the proposed merger is likely to increase Turner Broadcasting’s bargaining leverage.” Id. at 17-18.

[4]              “In other words, the record shows that the district court accepted the Nash bargaining theory as an economic principle generally but rejected its specific prediction in light of the
evidence that the district court credited.” Id. at 19.

[5]              Id. at 21.

[6]              Id. at 22.

[7]              Id. at 32.

[8]              Id. at 33.

Monday, January 14, 2019

The FCC Really, Really Does Care About Making Spoofing Illegal


            My prior blog entry noted that an unexpected consequence of classifying texting as an information service lies in having to treat texting labels and other enhancements as information services as well.  See https://telefrieden.blogspot.com/2019/01/omg-fcc-just-legalized-spoofing.html. In a nutshell, I reasoned that if texting constitutes an information service, then spoofing must as well, thereby disqualifying it from being regulatable as a special type of information service directly integrated with a telecommunications service, such as Caller ID.

            Spoofing of information service classified texting cannot qualify as an information service designed to "manage, control, or execute operation of a telecommunications system or the management of a telecommunications service.”  If spoofing constitutes an information service by itself, then it remains an information service when integrated with another information service, such as the newly clarified FCC determination that texting fits solely within the information service classification.

            Given the FCC’s dichotomous thinking, a service must fit entirely in the telecommunications service classification, or the information service category, with a hybrid combination occurring only when an information service supports—and is subordinate to—a clearly telecommunications service offering.  The FCC can regulate spoofing of telephone caller IDs, because the data processing, which manipulates and misrepresents the source of a call, clears acts on a telephone call that remains classified as a telecommunications service.

            Soon after releasing its “clarification” of the regulatory status of texting as an information service, the FCC has turned its attention to spoofing as mandated by a recent and rare amendment to the Communications Act of 1934.  See Implementing the Anti-Spoofing Provisions of the RAY BAUM’S Act, Notice of Proposed Rulemaking, WC Docket Nos. 18-335, 11-39,  FCC-CIRC1901-05 (draft publicly released Jan. 3, 2019); https://www.fcc.gov/document/implementing-anti-spoofing-provisions-ray-baums-act.

            The FCC really, really has to care about spoofing, because the general public has become so ticked off by the proliferation of robocalls and Caller-ID trickery. But how can the FCC satisfy its new congressional mandate while at the same time expanding its information service, deregulatory campaign?  Answer: Ignore what it just did and regulate spoofing regardless of what kind of service it misrepresents.

            The FCC has received a clear congressional mandate to expand globally its jurisdictional reach over faked Caller-ID letters and numbers, questionable in terms of geographical reach and effective implementation.  The Commission also assumes it has a legislative mandate to ignore its preexisting telecommunications service/information service regulatory dichotomy and bolster its enforcement of Truth in Caller ID rules for both telecommunications service telephone calls and now clearly classified information service texting. 

            How clever, particularly coming from a regime hellbent to reduce the reach of so-called Title I “ancillary jurisdiction” and the overall regulatory wingspan of the FCC. 

            To pull this dereg/re-reg gambit, the FCC has to pursue self-induced amnesia.  First the Commission has to ignore what it just did by way of reclassifying the overall regulatory treatment of texting.  Only under self-induced amnesia can interpret applicable legislation as re-establishing jurisdiction and enforcement authority over texting regardless of what the Commission did less than a month ago by way of insulating the service from government oversight.

            At best the FCC can pursue this, rather disingenuous spin:

            The Commission can state that it has received a clear and unambiguous statutory mandate to regulate texting as least insofar as spoofed numbers and letters are concerned.  With a specific congressional mandate, the FCC presumably can opt to ignore its grand deregulatory pronouncement for texting, by claiming that a specific provision in the Communications Act nullifies its otherwise applicable interpretation of other Communications Act provisions that would have led to a different, more deregulatory posture, i.e., the information service classification of texting.

            I am confused just what the FCC sought to accomplish in “clarifying” the regulatory status of texting, particularly when days after declaring text largely unregulatable, the FCC has to backtrack big time.  Conclusion: we have a doctrine, result-driven, deregulation obsessed FCC, trigger happy to brand anything wire- or radio-based an information service, no matter how unsustainable based on real world considerations such as the big money in criminally duping consumers to rely on falsified identification of call and text originators.

Friday, January 11, 2019

OMG! The FCC Just Legalized Spoofing!


            Most people loathe robocalls and spam: unsolicited commercial, extortionate and sometime criminal pitches by telephone, text and email.  This kind of traffic has become the leading consumer complaint at the FCC. [1]  Consumers especially revile a new sneaky software hack spammers use to insert fake names and numbers on the screens of handsets. It’s called spoofing and unbelievably the Federal Communications Commission just made this nasty, fraudulent intrusion much more likely, especially for text messages.

            In a recent Declaratory Ruling the FCC ostensibly eliminated “regulatory uncertainty” to specify that the information services classification applies to text messages and accompanying content, such as video and photos.  With sadly characteristic sanctimony, snark and self-congratulations, the FCC states unconditionally that this new deregulatory declaration will safeguard consumers. 

            The Commission’s brilliant strategy: abandon regulatory oversight and the ability to impose sanctions on bad actors and rely solely on the carriers transporting text to use whatever safeguards they deem necessary.  This tactic comports with the FCC’s elimination of any network neutrality oversight based on the view that self-regulation will suffice, possibly augmented by ex post, complaint review by the Federal Trade Commission on matters involving privacy and unfair trade practices.

            I want to believe that well intentioned Internet Service Providers always will do the right thing by acting as fair minded and consumer-oriented carriers, even without the prospect of sanctions by a cop on the beat.  But time after time, empirical evidence shows the foolishness in such trust.  Just now, AT&T and other wireless carriers have had to acknowledge that they monetize the location information subscribers must allow the carriers to acquire for call processing.  AT&T apparently forgot the public commitment it made not to exploit this data as a new revenue source.  See AT&T to end all location-data sales to data brokers; https://www.washingtonpost.com/business/technology/atandt-to-end-all-location-data-sales-to-data-brokers/2019/01/10/fb00a364-1547-11e9-ab79-30cd4f7926f2_story.html?utm_term=.ec82608aadd8

            Simply put, carriers have ample self-interest in applying filtering and other anti-spam techniques in ways that generate more revenues, or tilt the competitive playing field in favor of a corporate affiliates and third parties willing to pay.  Nothing prevents carriers from offering spam filtering as an “optional” service for an additional fee.

            Let us put aside the matters of carriers serving as foxes guarding the chicken coop.  The FCC explicitly recognizes that the status quo of uncertain regulatory status has not prevented carriers from filtering and safeguarding text messaging from spam contamination:

In the [current] absence of a Commission assertion of Title II regulation, wireless providers have employed effective methods to protect consumers from unwanted messages and thereby make wireless messaging a trusted and reliable form of communications for millions of Americans. [2]

            The biggest mistake of the Declaratory Ruling lies in a variety of unanticipated negative consequences that collectively add, rather than reduce regulatory uncertainty and increase consumer harms. 

            Consider spoofing.  When the FCC allowed the question of regulatory classification to remain uncertain—like Voice over the Internet Protocol—spoofing could be recognized as something the Commission could deem harmful and subject to regulatory sanction.  Even though spoofing uses software to act on content and replace it with fraudulent data, e.g., Internal Revenue Service (202) 622-5000, the FCC could safeguard consumers based on the statutory definition of unregulated information service that carves out an exception retaining jurisdiction:

(20) INFORMATION SERVICE.--The term “'information service” means the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service. [3]

            If the FCC had left well enough alone, the highlighted language would have conferred jurisdiction for the FCC to regulate information service (spoofing) that, using the Commission’s language in the Declaratory Ruling, is part of an “integrated finished product” and “inextricably intertwined with information processing capabilities.” [4]

            Throughout its Declaratory Ruling, the FCC explains how texting of any sort constitutes an information service.  It follows that spoofing, occurring as part of the delivered text traffic, similarly constitutes an information service.  How could it be anything else? 

            With both texting and the ancillary spoofing of text messages both constituting information services, the carve out for management, control, or operation of a telecommunications system or the management of a telecommunications service cannot apply to the spoofing process.

            By insisting on an absolute dichotomy between information services and telecommunications ervices [5] each and every element in a composite of texting service has to fit within the newly announced information service classification.  If the FCC has decided that it lacks statutory oversight to regulate texting, then it follows that the Commission similarly has no jurisdiction over the software enabled reformulation of characters and numbers contained in the text message. Consumers may have redress at the FTC, but bear in mind that this agency reacts to complaints, lacks any telecommunications-specific expertise and relies heavily on consent decree promises that we see carriers conveniently forgetting. 

            At best, the FCC’s Declaratory Ruling shows how good intentions can result in unanticipated harms.  However, under current circumstances I cannot give Chairman Pai and his staff the benefit of the doubt.  This document follows a now well-worn path of deregulation for the sake of deregulation without full consideration of the consequences to consumers and competition.  Other matters, worthy of subsequent blogs, include:

1)         whether and how the FCC can enforce the safeguards contained in the Telephone Consumer Protection Act;

2)         how carriers providing common carrier Commercial Mobile Radio Service can enter the mutually exclusive realm of information service processing while   delivering of traffic that originates on handsets, traverses the Public Switched Telephone Network and appears on handset screens;

3)         whether texting, no longer classifiable as a telecommunications service, qualifies for an exemption from fitting within the interstate and international services subject to universal service funding payments by consumers; and

4)         what degree of storing and forwarding of traffic converts it to an information service from a package of telecommunications services (voice, text, caller ID) customarily offered by carriers.




[1]              “Last year, Americans received approximately 30 billion robocalls, and for the first five months of 2018,147 more than 16 billion robocalls have already been placed.148
 And the Commission receives over 200,000 complaints about unwanted calls each year—around 60% of all of the complaints that the Commission receives from consumers.”
Petitions for Declaratory Ruling on Regulatory Status of Wireless Messaging Service, Declaratory Ruling, FCC 18-178, ¶45, p. 23 (rel. Dec. 13, 2018); available at: https://docs.fcc.gov/public/attachments/FCC-18-178A1.pdf [hereinafter cited as Texting Information Service Declaratory Ruling].
[2]           Texting Information Service Declaratory Ruling at 43, p. 21. “[W]ireless providers [currently] prevent large volumes of unwanted or malicious text traffic from reaching consumers’ phones.  They do this by applying filters, blocking robotexts, and using anti-spoofing measures, among other things.” Id. Statement of Chairman Ajit Pai, p.30.
[3]              Communications Act of 1934, as amended, codified at 47 U.S.C. §153 (20)(2018)(emphasis added).

[4]              Texting Information Service Declaratory Ruling at 24, p. 11.
[5]           “The Communications Act, as amended, divides communications
services into two mutually exclusive types: highly regulated ‘telecommunications services’ and lightly regulated ‘information services.’ A ‘telecommunications service’ is a common carrier service that requires ‘the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available to the public, regardless of the facilities used.’” Texting Information Service Declaratory Ruling at ¶3, p. 2.