Award Winning Blog

Sunday, March 1, 2020

The New York Times Errs in Coverage of Satellite Life Extension


Every once in a while, I spot an error in The New York Times and dutifully report it.  I have never received confirmation, much less a correction, even when I detected woefully wrong foreign currency conversions in the Travel section.  I did get a snarky email suggesting that I could not possibly have grounds to dispute the Times’ use of the inter-bank rate plus 2%.  Call me crazy, but travelers typically receive conversion well below the inter-bank rate.  The 2% figure should have been a reduction.

Recently, the Times reporters have not done an adequate job learning and explaining how the Intelsat 901 satellite will achieve a usable life extension from the Northrop Grumman MEV-1.  While future repair satellites will replenish so-called station keeping fuel inside the tanks of the satellite targeted for repair, the current MEV-1 latches onto the satellite and stays there for five years.

As explained by the manufacturer of MEV-1 (Northrop Grumman):

"MEV is designed to dock to geostationary satellites whose fuel is nearly depleted. Once connected to its client satellite, MEV uses its own thrusters and fuel supply to extend the satellite’s lifetime. When the customer no longer desires MEV’s service, the spacecraft will undock and move on to the next client satellite." See https://www.northropgrumman.com/space/space-logistics-services/mission-extension-vehicle/

The Sketchbook on page 3 of the Sunday March 1, 2020 edition incorrectly reported that the satellites will "part" in a month.  

If the Times reporters had done their homework more thoroughly, they might have come across accounts in Space News: "MEV-1 will remain attached to Intelsat-901 and use its own thrusters to keep the satellite properly oriented in orbit." See: https://spacenews.com/northrop-grummans-mev-1-servicer-docks-with-intelsat-satellite/


The MEV-1 takes over the functions of pointing the Intelsat satellite correctly down to earth and also that the MEV-1 will use its thrusters to keep the Intelsat satellite in the proper orbital parking place:

"The next day Northrop Grumman moved MEV-1 next to Intelsat-901 and docked with the satellite using a capture mechanism that went “through the throat” of Intelsat-901’s apogee engine, Anderson said." (also from Space News: https://spacenews.com/northrop-grummans-mev-1-servicer-docks-with-intelsat-satellite/.

I am pretty sure I will not hear from a real person acknowledging and correcting mistakes in this newspaper of record.   What could I possibly know better than the Times reporters?

Friday, February 21, 2020

The Odds for New TMobile to Morph into TMobile on Steroids?



            Reading the District Court decision approving the merger of TMobile and Sprint (see https://cdn.vox-cdn.com/uploads/chorus_asset/file/19712093/show_temp__6_.pdf), I am reminded of how much antitrust law relies on informed predictions of future market performance.  Judge Victor Marrero concluded that the plaintiff state Attorneys General failed to meet their burden of proving that the merger would materially harm consumers and competition.  In effect, the Judge bought the assertion that New TMobile will more aggressively compete and innovate than what the two stand-alone companies could muster, i.e., that the whole would be greater than the sum of the parts.

            This comes across as a leap of faith, substantially challenged by a hindsight review of market consolidation in other markets.  Let’s look at commercial aviation in the United States, with attention to how Southwest refined its business plan and strategy after several mergers involving both the company and other airlines.  Put more simply, is Southwest still the maverick in the same vein as TMobile?

            The answer to this question addresses how bulked-up companies, like Southwest and New TMobile, respond to a concentrated market.   Will they continue seeking to chisel additional market share from legacy carriers, possibly at the expense of profit margin, share price, average revenue per user and year-end bonuses, or will they “take the foot off the peddle”?

            In Southwest’s case, tweaks to their business plan show a reduced value proposition for consumers--what economists call consumer welfare.  Part of the reduction, results from a maturing company, but arguably a larger part results from adjustments that enhance the company’s bottom line with “nickle and dime fees.”  While Southwest has opted to continue offering checked baggage at no additional cost, the company has joined with other airlines in charging new fees that can significantly increase consumer’s total out of pocket costs. Southwest did not initiate these “enhancements,” but a concentrated market, where all other carriers charge these fees, makes it easy for the former maverick to join the group. See, e.g., https://www.forbes.com/sites/danielreed/2019/02/21/all-grown-up-as-it-approaches-50-southwest-is-dealing-with-mature-airlines-kinds-of-problems/#7031f97f7a7e; https://www.mcall.com/news/nation-world/mc-southwest-airlines-no-longer-cheapest-0505-20150505-story.html; https://www.fool.com/investing/2018/12/01/cost-creep-at-southwest-airlines-will-help-its-riv.aspx.

            I do not share Judge Marrero’s breathless optimism that the TMobile-Sprint merger benefits competition and consumers.  Can anyone come up with examples where industry consolidation has enhanced the value proposition for consumers?  Channeling Sarah Palin, how’s that concentrated airline industry working out for you?

Tuesday, February 11, 2020

TMobile-Sprint Merger Approved and 144 Million U.S. Subscribers Will Pay Dearly


            News of a reviewing District Court’s approval of the TMobile-Sprint merger has arrived today.  See. e.g., https://www.wsj.com/articles/u-s-district-judge-expected-to-rule-in-favor-of-sprint-t-mobile-merger-11581376688.  I’m sure the decision will conclude how much the combination will enhance competition, apparently more so than what the two companies individually could offer.

            This conclusion does not pass the smell test.  The court will note what a great competitor TMobile has been and how unviable Sprint will be in the middle to longer term.  OK, that observation makes sense and I’ll go one step further to note that Sprint recently has offered some of the best deals for consumers that the company probably could not continue to offer over time.

            I part company with the likely conclusion made by Judge Victor Marrero that the combined company will have every incentive to become even more competitive and innovative than what the two unaffiliated firms have generated and even what TMobile would generate even if Sprint were to falter and eventually exit the market.

            Let us step back and answer a fundamental question no one seems willing to pose and answer: why do companies seek to merge?  Answer: to make more money, enhance value for shareholders, possibly compete and innovate less because a more concentrated marketplace does not necessitate “sleepless afternoons.”

            The merged TMobile-Sprint has far greater incentives to accept its third among equals status than to work hard to chisel at the market dominance of AT&T and Verizon.  Why bother shaving margins when AT&T and Verizon offer rates generating some of the highest Average Revenue Per User (“ARPU”) and margins in the world.  None of the U.S. carriers want us to know this, but if you travel abroad, you can easily find month-to-month service for half the U.S. average rate.

            Why would TMobile want to upset the apple cart when, post-merger, it can generate higher revenues and profits using AT&T and Verizon’s margins as an umbrella under which it can offer slightly lower rates and call it a day?  In other words, TMobile has little incentives to start a price war.

            Lastly, I am quite leery of the logic in replacing Sprint with Dish entering a mature market solely as a reseller of Sprint and TMobile pre-paid, no-contract brands, coupled with a now extended deadline to have real skin (money) in the game.  Dish has an uncanny ability to acquire spectrum, do nothing with it, secure an extended deadline to buildout a network and then seek to sell it to another company more willing to invest in plant. 

            Will Dish provide salvation for consumers in the long run?  I doubt it.  In the short run, the 144 million plus subscribers in the U.S. can expect to pay more for less “unlimited” service.

Tuesday, November 19, 2019

The $60 Billion C-Band Sweepstakes: Who Gets the Windfall for Accommodating 5G?



            The esoteric world of spectrum management and valuation made an atypical public splash yesterday, highlighted by a 40% drop in the share price of a major international satellite carrier, Intelesat, on the New York Stock Exchange.  See https://www.cnbc.com/2019/11/18/intelsat-stock-drops-as-fcc-will-auction-satellite-spectrum-for-5g.html.  Buy-side Wall Street investors responded to an announcement from FCC Chairman Ajit Pai that the U.S. would auction off C-band satellite spectrum, used by both private and government satellite operators, to accommodate ever growing terrestrial wireless spectrum demand.  See https://docs.fcc.gov/public/attachments/DOC-360855A8.pdf This announcement cast grave doubt on prospects for a private auction conducted by the three major carriers, none of whom have U.S. corporate citizenship. See https://c-bandalliance.com/about/.
            How does the valuation of a major international satellite operator substantially evaporate in one day?  There’s a simple answer and a more complicated and nuanced one, both of which I’ll offer. 
            The simple answer: A substantial portion of the value attributable to Intelsat and other satellite carriers lies in their near property-like use of radio spectrum and orbital parking places.  Like broadcasters, satellite carriers, licensed by the FCC, only pay a nominal fee for licenses to operate their facilities.  They have a “renewal expectancy” for both the orbital slots where their satellites hover, 22,300 miles above the equator, and for the frequencies used to uplink and downlink content as well as to manage satellites.  The prospect of an FCC auction substantially reduces the payout Intelsat, SES, Telesat and other C-band satellite carriers can expect to receive when they volunteer to make do with less spectrum to accommodate the ever-growing demand for terrestrial wireless services.
            The complicated answer delves into matters of spectrum propagation and value, the payoff from lobbying U.S. congressional decisionmakers, FCC jurisdiction and the non-U.S. corporate citizenship of the major C-Band satellite carriers.  Radio spectrum can have virtually no value or lots, depending on the use that can be made of it.  C-band spectrum, around 3-6 GigaHertz, offers desirable, “beach-front” access for terrestrial fifth generation (“5G”) services.   Signals at these frequencies and transmit across longer distances than the millimeter wave spectrum operating in double-digit GigaHertz frequency bands.  While U.S. wireless carriers have great expectations for 5G spectrum above 10 GigaHertz, current trials evidence serious limitations including shortened battery life, overheating and far less geographic reach than anticipated.  For example, Verizon has made a public relations splash in offering 5G service to several football stadiums, but reliable service is not available throughout.  C-band spectrum offers far greater geographical covers using existing, low cost technology, readily adaptable for 5G services.
            If 200-500 MegaHertz of C-band spectrum could be reallocated to 5G services, auction proceeds could exceed $60 billion. See  https://spacenews.com/satellite-c-band-is-worth-billions-but-how-many/.  A significant portion of Intelsat’s capitalization, an in turn its share price, accrues from the rights to occupy satellite orbital slots and to use spectrum, on an exclusive basis with protection from interfering uses.
            The C-Band Alliance has spent over $500,000 in a short amount of time trying to convince congressional decision makers that a private auction would expedite the clearing of spectrum for speedy reallocation to 5G terrestrial services.  Additionally, the Alliance made the questionable assertion that the U.S. could reclaim or enhance global 5G supremacy by allowing it to jumpstart the “repacking” of C-band spectrum. 
            Perhaps implicit in this pitch was a faulty assumption that the U.S. could only achieve expedited C-band spectrum availability if the carriers themselves had “skin in the game” and big—make that VERY BIG—financial incentives to play along.  The C-Band Alliance stakeholder may have mistakenly assumed that without their voluntary participation, the U.S. government, including the FCC, would have a difficult time dislodging three foreign carriers from their lock on spectrum.
            I believe the Alliance has misperceived the speed with which the FCC can amend satellite landing rights and operating licenses issued to foreign carriers.  No one disputes the sovereign right of a nation to determine whether and how a foreign telecommunications carrier can land submarine cables on U.S. soil, or operate earth stations that transmit and receive signals from a geostationary satellite, licensed by the FCC.  The Alliance may have banked on the assumption that the FCC could act only at the conclusion of a lengthy, already issued license period.  With the incentive of a self-administered private auction, the Alliance carriers gladly would agree to expedited spectrum clearing and repacking.  Without such a financial windfall, these carriers would litigate their right to retain the status quo for the duration of their existing licenses.
            The Alliance underestimates the lawful flexibility of the FCC to amend its rules, regulations, spectrum allocations and issued licenses.  Of course, the FCC would have to comply with administrative rules providing due process rights, even for alien licensees with corporate homes in Bermuda, Canada and Luxembourg.  It’s quite possible that a private auction would proceed faster than the FCC’s methodical process.  But with $60 billion at stake, and only a maximum one-third cut for the U.S. offered by the Alliance (see https://spacenews.com/c-band-alliance-says-it-would-send-billions-to-u-s-treasury-under-private-spectrum-auction/, FCC Chairman Pai made a smart decision.
           


Sunday, November 17, 2019

More Overstatements About the Lovefest a Merged TMobile-Sprint will Deliver


            Having received FCC approval of its merger proposal, (see https://www.fcc.gov/transaction/t-mobile-sprint), TMobile and Sprint have turbocharged their array of less than meets the eye consumer welfare enhancing promises.  See https://www.finder.com/t-mobile-to-unveil-new-t-mobile-un-carrier-1-0
The companies have targeted states joining in an antitrust law suit to block the merger.  For example, the Attorney General of Colorado, a guy I used to admire, who should know better than to take the bait, agreed to withdraw from the law suit in exchange for significant Colorado-specific employment and facility commitments. See https://www.reuters.com/article/us-sprint-m-a-t-mobile/colorado-abandons-legal-effort-to-stop-sprint-t-mobile-merger-idUSKBN1X01QC
            Today’s New York Times contains the latest reiteration of why 3 national wireless competitors are better than four.  Before I “deconstruct” and refute the value of the Uncarrier’s commitments, I return to a basic question: If TMobile and Sprint can offer such a better value proposition than what AT&T and Verizon offer, would consumers fare even better if TMobile and Sprint also had to compete with each other?  In this age of historically low interest rates and the deep pockets of two foreign owners (Softbank and Deutsche Telekom), what prevents either company from offering what they now make contingent on their merger?
            In a nutshell, TMobile and Sprint treat the 5th generation of wireless innovation as salvation for consumers, if and only if the companies merge.  If they cannot, then apparently AT&T and Verizon will capture the benefits of faster, better and more efficient technology all for themselves.  Only if Sprint and TMobile merge will the much overcharged and cheated consumer finally get a fare deal.  Again, what prevented either company from offering everything they make contingent on their merger?  At the very least, in light of far more concentrated market shouldn’t the Uncarrier explain why it can only become more competitive and innovative through consolidation, rather than competitive necessity?
            Today’s advertisement characterizes AT&T and Verizon as greedy, slow to innovate and unlikely to change.  Agreed, but doesn’t that make these two incumbents easy targets for lean and hungry competitors?  TMobile has increased its market share by offering consumers a better value proposition.  This company already has a 5G buildout plan and already offers lower prices.
            The ad offers 5G service to 99% of the U.S. population, a 50% discount for its lowest service tier, better rural 5G penetration in rural locales, fixed wireless broadband service and 11,000 more jobs by 2024. 
            I’d be wowed by these promises if I didn’t know the host of caveats, non-disclosures, misrepresentations and inability or unwillingness of the FCC to track and enforce pre-merger commitments.  In a nutshell, the Uncarrier promises far less than it could possibly deliver.
            The major BIG DECEPTION lies in the assumption the Uncarrier expects consumers to make about the nature of delivered 5G technology.  Rural locales will not now, or in the foreseeable future, have the tiny millimeter wave cell contours that will offer the promised vast improvements in transmission speed, capacity and latency.  TMobile has announced plans to use 600 MHz spectrum for rural 5G, far lower than the GigaHertz bands expected to be used in cities.  Every carrier, regardless of competitive necessity and the number of competitors will engage in the same prudent spectrum management process.  No carrier can execute a profitable 5G business plan that offers rural residents truly equivalent geographical market penetration, transmission speed, available capacity, etc.
            TMobile and Sprint will offer 5G networks that are no more or less “transformational” than what other carriers will deploy at the same time.  The Uncarrier may throw a bone to rural residents by installing more 600 MHz towers, but there is nothing I’ve seen from AT&T and Verizon indicating that these carriers will underinvest in the migration from rural 4G to rural 5G. Bear in mind that 5G is a wireless transmission, switching and routing technology, not a service.       The small print in the Uncarrier ad today underscores that 5G will not change the nearly identical technological nature of what any and all U.S. carriers will offer.  The merged company STILL will throttle video to DVD, standard definition 480 lines of resolution, despite the much touted higher capacity.
            TMobile and Sprint have expanded their charm offensive with targeted inducements now including first responders.  The companies imply that the remaining state Attorneys General need to be “educated” about the lovefest the Uncarrier will deliver.  If not, it’s curtains for the free world, American consumers and the country in general.
            Don’t buy it.

Wednesday, October 30, 2019

Lessons From Milk Price Supports


            On a trip to see the In-Laws in Ohio, I noticed milk prices at half ($1.99 for a gallon) the rate available at home. Pennsylvania law establishes a price floor ostensibly to promote family farms and a “fair” price.  In application, so-called price supports prevent grocery stores from using milk prices as a lost leader.  Additionally, a $4 price point suppresses demand as the same time oversupply has pushed wholesale prices to record lows.  Meanwhile, intermediaries in Pa. make out like bandits exploiting the wide gap between the wholesale market price and the floor price paid by retail consumers.

            Price supports probably never made sense, but they hurt family farms now.  Of course, sponsored researchers and p.r. firms tout the non-existent benefits to the small farmer. What’s $2 a gallon if it helps sustain small farms?

            The better question: Why pay $2 more when not one dime flows downstream to the small farmer?

            The lesson here lies in the manipulation of emotions and good intentions, by stakeholders able to capture all the financial benefits.  This kind of “rent seeking” occurs all the time at the FCC.  Just now, the prospect of Huawei rigging its 5G wireless equipment for espionage warrants an absolute bar on the use of $8.5 billion in annual universal service funds available to subsidize rural access to wired and wireless telecommunication technology.  No one has offered clear evidence that Huawei equipment provides China a spying opportunity.

            Forcing Huawei out of the marketplace will raise the cost of 5G and other telecommunications equipment, particularly for price sensitive rural carriers. U.S. telecommunications consumers end up subsidizing “national heroes” even if these manufacturers sell more expensive and inferior equipment.

            Clever.
           

Wednesday, October 2, 2019

What You Need to Know About the Restoring Internet Freedom Court Decision



            The D.C. Circuit Court of Appeals affirmed most of the FCC’s Restoring Internet Freedom Order [1] largely on Chevron Doctrine deference grounds.  This two-pronged judicial review model first considers whether applicable statutory language is ambiguous.  If applicable law is clear and unambiguous, the court must assess whether the FCC complied with the legislative mandate.  If the applicable law has ambiguities, the court must consider whether the FCC’s chosen course of action was reasonable under the circumstances.  Because judges lack expertise in statistics, economics, electronic engineering, accounting, corporate management, finance etc. they must rely on the expertise resident at the regulatory agency and which advocacy and sponsored research it embraces.  In this case, the court opted not to second guess the FCC’s legal and economic rational, despite the agency’s clear preference for the filings that support its deregulatory agenda. [2]
            Put another way, experts at the FCC and ones financed by stakeholders will have ulterior motives precluding an unbiased assessment, but appellate courts will not reject selective and even one-sided evaluation unless the process exceeds generous deference and a basic assessment of reasonableness.  In this case, the court opted not to question the FCC’s reclassification of broadband Internet access as an information service, wireless broadband access as a private, non-common carrier mobile service and the limited scope of new transparency requirements in lieu of prior open-ended general conduct standard and the specific rules prohibiting blocking, throttling, and paid prioritization of traffic.
            The court did reverse the FCC on four specific areas where the court determined that the agency failed to set out its legal authority or address the implications and impact of its deregulatory initiative.  The court vacated the FCC’s blanket preemption of state laws and that would impose regulatory requirements, despite the FCC’s near complete abdication of jurisdiction.  The court also remanded to the FCC the duty to address three discrete issues that the agency largely ignored:
(1) The Order failed to examine the implications of its decisions for public safety; (2) the Order does not sufficiently explain what reclassification will mean for regulation of pole attachments; and (3) the agency did not adequately address Petitioners’ concerns about the effects of broadband reclassification on the Lifeline Program. [3]

            The court fully embraced the FCC’s legal, technical and economic rationales for reclassifying broadband Internet access as a largely unregulated information service.  The decision validates the FCC’s emphasis that Internet Protocol domain name identity queries (“DNS”) and temporary storage of traffic—caching—justify an overall information service classification.  Because these two information service functions are inextricably linked with other functions, which do include a telecommunications transport function, the overall composite service cannot be functionally subdivided into separate information services and telecommunications service elements. [4]
            In making this finding, the court heavily relied on the Brand X case precedent [5] for guidance and validation.  In this prior case, the Supreme Court also relied heavily on the Chevron Doctrine to support a prior reclassification of broadband Internet access from telecommunications, common carriage to the largely unregulated information services designation.  Brand X also determined that DNS and caching were “inextricably intertwined” with high speed bit transmission that the FCC could reasonably conclude that Internet Service Providers did not offer a telecommunications service on a standalone basis, a conclusion reached by Justice Scalia in dissent. [6]
            The court also rejected the view that these two functions fit within an exception to the normal application of the information service classification for a subset of information processing functions that satisfy necessary telecommunication management requirements, rather than constitute part of an information service.  The court refers to its prior affirmance of the FCC’s common carrier reclassification decision, United States Telecommunications Ass’n. v. FCC, 825 F.3d 674 (D.C. Cir. 2016) to emphasize that the case only permitted Title II common carrier attribution to functions like domain name look ups and caching, but did not mandate it. [7]
            The court also validated the FCC’s reclassification of mobile broadband Internet access as a private, non-common carrier service, despite an amendment to the Communications Act creating a definition for Commercial Mobile Service provided by cellular companies in their provision of voice and text services accessible to and from the wireline public switched telephone network (“PSTN”). [8] The court was predisposed to side with the FCC so that the Commission would not have to confront a “statutory
contradiction” [9] of having reclassified wired broadband access an information service, but not its wireless counterpart that the FCC increasingly believes constitutes a functional and competitive alternative.  Such regulatory asymmetry could adversely impact the commercial attractiveness of wireless services, particularly if one believes any sort of government oversight imposes costs, such as reduced innovation, infrastructure investment and flexibility.
            The court addresses three areas that support the FCC’s information services reclassification.  First, the court notes that the applicable statutory language uses public switched network and not public switched telephone network.  The absence of telephone, in conjunction with the Chevron Doctrine and the Brand X case precedent, supports “leaving the door open to a different, adequately supported, reading, which the Commission has provided here.” [10] The FCC now considers the use of IP addresses, in conjunction with telephone numbers, as sufficiently uncoupling wireless broadband networks from the telecommunications service classification even though cellular telephone networks surely provide voice telephony, including access to the wired PSTN, in addition to broadband Internet access.  The court also accepts the FCC’s argument that even though Voice over the Internet Protocol services make it possible to originate and receive telephone calls, that functionality by itself does not make wireless networks fully interconnected with the PSTN, nor does it deemphasize the core, non-telecommunications nature of broadband Internet access.  In a nutshell, “blurring [of information and telecommunications services] is not erasing.” [11] Lastly, the court supports the FCC’s determination that mobile broadband does not qualify as a functional equivalent to mobile voice even though consumers use a single handset and wireless network to access both services.
            Arguably the most questionable aspect of the court’s decision lies in its endorsement of sponsored research claiming to show that network neutrality regulation had a direct and significant impact on infrastructure investment and innovation. As part of its analysis to determine whether the FCC acted reasonably and not in violation of the Administrative Procedure Act prohibition on arbitrary and capricious decision making, the court reviews the evidentiary record.  The court did not question the validity, significance, methodology, or rigor of research supporting the Commission’s view that network neutrality rules and regulations created significant disincentives for innovations and investment.  Instead it appears to downplay the scope, nature and reliance of the Commission’s reference to sponsored research supporting its views established well before the issuance of a decision.  While deeming the FCC’s references and reliance on these studies as reasonable, the court also appears to characterize the Commission’s use of the research as minor and fully apprised of the “modest probative value to studies attempting to draw links between the Title II Order and broadband investment . . ..”[12]  This characterization does not jibe with the many instances where FCC rulings [13] and statements by Chairman Pai [14] and others emphasized the disastrous impact on network neutrality regulation. The FCC and D.C. Circuit refer to Title II regulation as “utility-style regulation,” [15] even though the FCC had established rules that substantially exempted broadband Internet access providers from conventional oversight including the elimination of any regulation of rates for service, or profit margins. [16]
            The court did not entirely endorse the FCC’s world view and deregulatory agenda.
The court rejected as unlawful the FCC’s attempt to foreclose any state regulation inconsistent with the Commission’s policy including efforts to impose network neutrality regulations for over which he Commission now lacks jurisdiction. [17] In effect, the FCC cannot abandon jurisdiction over broadband Internet access and then foreclose states from asserting jurisdiction over intrastate service: “[I]n any area where the Commission
lacks the authority to regulate, it equally lacks the power to preempt state law.” [18]
We can expect some states, such as California, New York and Vermont to enact network neutrality regulations that the FCC probably will reject as unlawful despite the clear direction provided by the D.C. Circuit.
            Additionally, the court considered it arbitrary and capricious for the FCC not to have considered the implication for public safety in light of the Commission’s statutory duty to promote “safety of life and property through the use of wire and radio communications.” [19]  The court noted that Verizon had deliberately slowed the data speeded available to first responders in California as they tried to contain forest fires.  Such “throttling” is now permissible under the FCC rules, but the court required the Commission to address its impact on public safety.
            The court also recognized that the FCC left unresolved issues pertaining to pole attachments, because the FCC shares jurisdiction with states and municipalities on this matter and providers of cable, telecommunications and information services seek access to utility poles even though the directly applicable statutory mandate, 47. U.S.C. § 224(a)(4) refers only to Title II regulated telecommunications services. [20]
            The court also required the FCC to address the impact of the largely deregulated information services classification on the Lifeline Program that subsidizes low-income consumers’ access primarily to Title II regulated telephone service and handsets. [21]  The court determined that the FCC left unanswered important questions whether stand alone broadband service providers can qualify for universal service funding despite eligibility criteria limiting eligibility to Title II regulated common carriers. [22]

           



           


[1]           Mozilla Corp. v. FCC, No. 18-1051 (D.C. Cir. Oct. 1, 2019); Retrieved from: https://www.cadc.uscourts.gov/internet/opinions.nsf/FA43C305E2B9A35485258486004F6D0F/$file/18-1051-1808766.pdf [hereinafter cited as Mozilla Corp. v. FCC].

[2]           “Regulation of broadband Internet has been the subject of protracted litigation, with broadband providers subjected to and then released from common carrier regulation over the previous decade. We decline to yet again flick the on-off switch of common-carrier regulation under these circumstances.” Id. at 145-46.
[3]           Id. at 13.

[4]           “[J] just as the USTA petitioners ‘fail[ed] to provide an unambiguous answer to’ whether ‘broadband providers make a standalone offering of telecommunications,’ USTA, 825 F.3d at 702, Petitioners have not done so here. Nor have they shown the Commission’s stance to be unreasonable. We conclude, under the guidance of Brand X, that the Commission permissibly classified broadband Internet access as an ‘information service’ by virtue of the functionalities afforded by DNS and caching.” Id. at 45.

[5]              National Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005).

[6]              See Rob Frieden, What Do Pizza Delivery and Information Services Have in Common? Lessons from Recent Judicial and Regulatory Struggles with Convergence, 32 RUTGERS COMPUTER & TECH L.J., No. 2, 247-296 (2006).

[7]              “To begin with, Petitioners misconstrue USTA. As they do persistently, they gloss passages that find parts of the Title II Order to be permissible readings of the statute as mandating those readings—when the passages plainly do not do so. A case in point is the treatment of the TME. Petitioners say that ‘[t]his Court has already agreed that DNS and caching fall within the terms of the telecommunications management exception.’ Mozilla Br. 43 (emphasis added) (citing USTA, 825 F.3d at 705). Yet all we said in USTA was that we were ‘unpersuaded’ that the FCC’s ‘use of the telecommunications management exception was * * * unreasonable.’ USTA, 825 F.3d at 705. The Title II Order, in other words, adopted a permissible reading, though not a required one.”  Mozilla Corp. v. FCC at 23.

[8]           47 U.S.C. § 332, Mobile Services (2018).

[9]           See Mozilla v. FCC at 49.

[10]          Id. at 50. “Similarly in USTA we rejected a claim that 47 U.S.C. § 1422(b)(1)(ii)’s use of the term “public switched network”— in a context pretty clearly meaning only the telephone network—meant that the Commission was required to so limit its definition for purposes of Section 332.  Id. at 52.
[11]          Id. at 58.

[12]          Id. at 76.  Empirical studies are available that measure actual investment outcomes.  See, e.g., Christopher Alex Hooton, Testing the economics of the net neutrality debate, TELECOM POL’Y (Sep., 2019); retrieved from: https://doi.org/10.1016/j.telpol.2019.101869.

[13]          “[T]he record shows that the existing regulations constrain technological advances and deter broadband infrastructure investment by creating disincentives to the deployment of facilities capable of providing innovative broadband Internet access services.” Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities, Report and Order and Notice of Proposed Rulemaking, 20 F.C.C. Rcd. 14853, 14865 (2005).

[14]         “These Internet regulations will work another serious harm on consumers. Their broadband speeds will be slower than they would have been without these regulations.
The record is replete with evidence that Title II regulations will slow investment and innovation in broadband networks.” Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, Dissenting Statement of Commissioner Ajit Pai, 30 F.C..C Rcd. 5601, 5927  (2015).

[15]          See Mozilla v. FCC at 10.

[16]          The court did find troubling “the Commission’s failure to grapple with the fact that, for much of the past two decades, broadband providers were subject to some degree of open
Internet restrictions,” arguably ample time to adjust to any regulatory restrictions.  See, Id. at 86.

[17]          “The Commission ignored binding precedent by failing to ground its sweeping
Preemption Directive—which goes far beyond conflict preemption—in a lawful source of statutory authority. That failure is fatal.” Id. at 121.

[18]          Id. at 123.

[19]          Id. at 93 citing 47 U.S.C. §151.

[20]          Id. at 104. “The Commission offered, at best, scattered and unreasoned observations in response to comments on this issue. Because the Commission did not adequately address
how the reclassification of broadband would affect the regulation of pole attachments, we remand for the Commission to do so.” Id. at 104-05.

[21]          In the Telecommunications Act of 1996, Congress codified and expanded the FCC’s universal service mission to cover “an evolving level of telecommunications services that the Commission shall establish periodically * * *, taking into account advances in telecommunications and information technologies and services.” 47 U.S.C. § 254(c)(1).

[22]          “[B]roadband’s eligibility for Lifeline subsidies turns on its common-carrier status. See In re FCC 11-161, 753 F.3d 1015, 1048–1049 (10th Cir. 2014) . . . As a matter of plain statutory text, the 2018 Order’s reclassification of broadband—the decision to strip it of Title II common-carrier status—facially disqualifies broadband from inclusion in the Lifeline Program.” Mozilla v. FCC at 111.

Tuesday, October 1, 2019

Results-driven Decisions that Do Not Pass the Smell Test: The D.C. Circuit Affirms Most of the FCC’s Restoring Internet Freedom Order



            Yet again, I will closely examine an appellate court review of FCC decision making with a variety of evaluative templates including the “smell test.”  Does the court buy into plausible rationales, because they comport with a deregulatory anti-government mind set, or does the court play it straight?  In Mozilla Corp. v. FCC, No. 18-1051 (D.C. Cir. Oct. 1, 2019), the court does a little bit of both.  See https://www.cadc.uscourts.gov/internet/opinions.nsf/FA43C305E2B9A35485258486004F6D0F/$file/18-1051-1808766.pdf.
            It will take me countless hours to parse through everything the court does and does not do.  In a nutshell, the court largely defers to FCC expertise and judgment using the so-called Chevron Doctrine.  This two-pronged judicial review model first considers whether applicable statutory language is ambiguous.  If no, the court must assess whether the FCC complied with clear enough statutory directions.  If yes, the court must consider whether the FCC’s chosen course of action was reasonable under the circumstances.  Because judges lack expertise in statistics, economics, electronic engineering, accounting, corporate management, finance etc. they must rely on the expertise others have, even though these experts may have ulterior motives and financial sponsors that precludes an unbiased assessment.
            The court offers a quite disappointing “punt” on the question whether the FCC lawfully relied on sponsored research and non-stop utterances by FCC Chairman Ajit Pai that network neutral regulation thwarts innovation and retards infrastructure investment.  The Chairman remarkably has isolated a single variable that he reports is the exclusive cause of declining innovation (however measured) and investment by telecommunications carriers.
The court all too willingly defers to the sponsored research that provided support for the Pai campaign.  The court dismisses countervailing research and in so doing it violated common sense.
            Consider this question: Would all the excitement and investment in fifth generation wireless upgrades decline measurably starting today had the court invalidated the Restoring Internet Freedom Order?  Of course not!  Corporations have to deal with perennial regulatory and legal uncertainty.  Additionally, there are far more impactful factors than a regulatory regime.  In the case of 5G wireless carriers HAVE to make substantial investments in both spectrum and plant, irrespective of the current political party majority at the FCC and where the arrow currently points on the continuum from regulation to unregulation.  Can you anticipate a major telecommunications carrier CEO state to Wall Street analysists and shareholders that the company will “sit on the sidelines on 5G” until the FCC gets a judicial “all clear” that “there won’t be any unconstitutional taking of property in the form of mandatory common carrier neutrality.”
            I know most of the economists mentioned by the FCC and the court who “proved” or endorsed the mantra that network neutrality singularly triggered adverse consequences for telecommunications innovation and investment.  They are smart, have a great sense of humor and make great dining and drinking partners.  Notwithstanding these fine characteristics, I see the merit in “agreeing to disagree” on matters where ideology, doctrine and financial sponsorship come into play.  Suddenly these fine friends become dogmatic and doctrinal. With straight faces, they insist that fewer competitors can generate “greater” competition.  They create and enforce economic rules as unimpeachable as laws.  They reject common sense smell tests as irrational, non-empirical and foolish.
            They have won again, because lots of jurists in this day want to see the virtue in unfettered markets and constrained government.
            There’s an irony and perhaps a silver lining in the today’s court decision. The majority decision refuses to uphold the FCC’s reclassification of broadband access as an information service AND the Commission’s attempt to preempt any degree of state regulation.  The FCC cannot have its cake and eat it too. If the FCC deems a service off limits and unregulatable, it cannot turn around and require states to comply with its statutory interpretation mandating non-regulation, particularly where Congress unambiguously retained states’ right of oversight.
            Of course, we are days away from someone coming up with a clever rationale for federal preemption, because interstate and intrastate information services are seamlessly integrated and what reasonable person does not hate California?