Award Winning Blog

Tuesday, October 23, 2018

Neutrality Regulatory Uncertainty and Wireless Carrier Capital Expenditures


            FCC Chairman Ajit Pai, a host of “coin operated” researchers and their sponsors relentlessly claim network neutrality rule created substantial and measurable disincentives for wireless carriers to invest in infrastructure.  According to these stakeholders, regulatory uncertainty caused by the rules and judicial appeals to reverse them trump even the technology investment cycle.

            I never could understand how regulatory uncertainty occasioned by the appeal of the Restoring Internet Freedom has not had the same effect. Chairman Pai claims that investment has returned to pre-network neutrality levels thanks solely to his deregulatory efforts.  Never mind that these efforts have triggered the same kind of appellate litigation as when a prior Chairman sought to regulate broadband access.

            Wouldn’t it stand to reason that judicial appeals of deregulatory or regulatory initiatives would have the same disincentives?  Of course, it would, if one could creditably determine that network neutrality rules and litigation over them have a significant—or worst yet—a single and direct effect on network plant investment. 

            In several blog posts, I have stated the view that the cycle of next generation network investment matters regardless whether litigation exists.  Lo and behold here’s an article that confirms the obvious: carriers make substantial investments in next generation plant, such as 4G, then there is a lower investment burden as the new technology gets deployed and turned on. 

            Right now, after making a sizeable investment in 5G, Verizon can throttle down as it turns on its new network.  See Fierce Wireless, Amid 5G rollout, Verizon reduces spending on network (Oct. 23, 2018), available at: https://goo.gl/tgDreK.

            Someday, I hope stakeholders will realize that blatantly wrong assertions do not support their cause, nor does it convert skeptics.

Tuesday, October 16, 2018

The Wisdom of the Marketplace Challenged



            Consider the word unlimited.  What comes to mind?  OK. Hold that thought.

            Now, let’s precede unlimited with the following word options: Go; Beyond; Above.

            I think one would “get” the concept of go in terms of wireless cellphone service.  Go means qualify for unlimited, unmetered, unthrottled service.

            But in the wireless world, unlimited does not mean un-anything. If it did, we would not have more expensive rate plans that offer: Beyond Unlimited, or better yet, Above the threshold of unlimited.  See this web site for an explanation of Verizon wireless plans and prices: https://www.digitaltrends.com/mobile/verizon-plans-explained/?utm_source=twitter&utm_medium=social&utm_campaign=dlvr.it.

            So how will the marketplace and the related court of public opinion respond to this pricing and service provision strategy?

            For my part, I find it insulting and an over-estimate of consumers’ chump factor.  On the other hand, P.T. Barnum had a different opinion about suckers.
           

Thursday, October 4, 2018

Regulatory Uncertainty and Investment Incentives

            According to sponsored researchers, FCC Chairman Ajit Pai and some incumbent telecommunications carriers, uncertainty about the future nature and scope of government regulation has a BIG TIME toxic affect.  Recently, the list has grown to include threats to national security and global leadership in wireless technology and ecommerce.  Earlier, we heard the relentless, but empirically unproveable claim that the regulatory uncertainty has a direct and negative affect on incentives to make new capital expenditures.

            Let’s consider the regulatory uncertainty created by the FCC’s on-again, off again embrace of network neutrality as well as the constant stream of court appeals and different holdings.  When the Democrats had an FCC majority, the minority railed against the network neutrality as triggering a certain, severe and immediate disincentive for carriers to invest in plant subject to open access requirements.  With a Republican majority, regulatory uncertainty apparent has become a non-issue as capex allegedly has increased thanks to a restoration of Internet freedom.

            Here’s my bottom line: stakeholders accept regulatory uncertainty as relatively minor, ongoing factor in doing business.  Regulatory theories, economic philosophies and political party majorities come and go.  What drives capital expenditure is business necessity and the real, or perceived opportunity to acquire greater market share and profits. 

            Just now, Verizon and other wireless carriers are accelerating their fifth-generation wireless network investments.  See, e.g., https://www.theverge.com/2018/9/11/17847640/verizon-5g-first-home-broadband-internet-service-installations-october-1.  We might even reach a point where wireless subscribers do not bother switching from their data plan to “free” Wi-Fi because the cost and technical performance have reached parity.  If that occurs true inter-modal competition between wired and wireless broadband will have occurred.

            Expediting the rollout of next generation networks has little—if anything—to do with the state of network neutrality regulation.  Carriers made 4G investments in the thick of more certain open Internet regulation.  If a downturn in capex actually occurred, we can largely attribute it to the fact that there are peaks and valleys in investment based on the life cycle of the technology.  After installation of 4G facilities, carriers can pull back on the investment throttle until the competitive need and business plans support ramping up and installing the next generation.  Whether network neutrality regulation exists has little impact, particularly in light of the fact that court appeals were filed after the onset of regulation and later the onset of deregulation.

            Uncertainty whether the regulatory status quo will persist is a recurring challenge to telecommunications ventures.  Lucky for us, they know how to deal with it, despite the breathless angst of certain government officials and sponsored researchers.

Tuesday, October 2, 2018

Results-Driven Federalism Part 2


            Consider the following assertion:

            “Our Constitution establishes a system of dual sovereignty between the States and the federal government, such that sovereignty rests concurrently with both the federal government and the States. Specifically, the Tenth Amendment reserves all powers not specifically delegated to the federal government by the Constitution to the States or to the people.  Thus, States are not creations of the central government. They are separate sovereigns. This distribution of sovereignty, otherwise known as federalism, is the defining feature of the relationship between the federal and state governments.

            In taking this step [preempting states from limiting the geographical reach of municipal broadband networks] the FCC usurps fundamental aspects of state sovereignty. And it disrupts the balance of power between the federal government and state governments that lies at the core of our constitutional system of government.”

            Now, compare it with the following:

“The broader problem is that California’s micromanagement poses a risk to the rest of the country.  After all, broadband is an interstate service; Internet traffic doesn’t recognize state lines.  It follows that only the federal government can set regulatory policy in this area.  For if individual states like California regulate the Internet, this will directly impact citizens in other states.
            Among other reasons, this is why efforts like California’s are illegal.” 

            Would you be surprised if I reported that the same person wrote both declarations?  Any dismay at the apparent inconsistency if I reported that the author is FCC Chairman Ajit Pai?  Compare file:///C:/Users/rmf5/Downloads/FCC-15-25A5.pdf with https://www.fcc.gov/document/chairman-pai-remarks-maine-policy-heritage-center.

            Chairman Pai is a quite knowledgeable and talented guy.  However, I believe his partisanship creates inconsistency on a fundamental principal—what he terms  “Constitutional Law 101.”

            Chairman Pai railed against the Democratic majority at the FCC which sought to preempt state governments from imposing geographical restrictions on municipal government broadband networks.  For this matter, the Chairman invoked federalism as sacrosanct: states are sovereign entities free to determine whether and how subordinate governmental units can pursue broadband service initiatives. 

            Chairman Pai had supporting case precedent including a Supreme Court case validating the right of states to prohibit any municipal telecommunications service.  See Nixon v. Missouri Mun. League, 541 U.S. 125 (2004).  The Sixth Circuit Court of Appeals validated his legal interpretation ruling that the Telecommunications Act of 1996 did not explicitly authorize the FCC to elevate the goal of ubiquitous and affordable broadband over state sovereignty, even the sovereign election to foreclose municipal efforts to rollout broadband where commercial ventures had refused to serve. See Tennessee v. FCC, 832 F.3d 597 (6th Cir. 2016)available at: http://www.opn.ca6.uscourts.gov/opinions.pdf/16a0189p-06.pdf.
            With all this support for state’s rights, how does Chairman Pai reverse course and invoke much maligned federal preemption to thwart states like California from enacting network neutrality laws? 

            Results-driven rationales now support the view that anything and everything about broadband is interstate in nature, and fair game for FCC preemption, except of course legislated service limitations.  I cannot square this view with what Chairman Pai has previously stated. 

            California enacts a law, which I consider quite flawed, but clearly representative of a sovereign state keen on imposing consumer safeguards for the origination and termination of Internet traffic within the state.  Internet Service Providers may import content from other states, but the delivery medium surely lies within a single state.

            Note that in the case of California network neutrality legislation, a sovereign state has opted to impose safeguards that the FCC considers unnecessary and potentially harmful.  Can the FCC preempt states on grounds that they cannot lawfully act when the Commission determines that regulatory oversight is not needed?

            How did humility and respect for states’ rights evaporate?

Wednesday, September 26, 2018

Result-Driven Federalism: How the FCC Rationalizes the Lawfulness of Preemption

          
            The current FCC pushes the federal preemption envelope, currently with an initiative to further constrain states and municipalities from regulating and requiring payment for wireless antenna installations on public property.  See https://docs.fcc.gov/public/attachments/DOC-353962A1.pdf.  Once upon a time, Republicans deeply respected the concept of federalism: deference to state rights and reticence to extend the wingspan of federal oversight and interference.  Such regulatory humility evaporates when preemption achieves countervailing goals.  

            For wireless antenna site policy, the FCC majority sees the need to preempt greedy non-federal governments who want to extort money from wireless carriers.  Apparently, the goal of preventing outrageous rent extraction and delays in authorizing national security enhancing 5th Generation wireless justifies aggressive preemption, despite clear language in the Communications Act mandating shared jurisdiction.

            I can appreciate that some city councils, in particular, might look at wireless tower site authorization as a cash cow.  I can anticipate that some municipalities might try to extort outrageous payments and use the prospect of delay as negotiating leverage.  But I also can see wireless carriers using the FCC as lead blockers to beat municipalities and their citizens into submission.  What’s good for a wireless carrier must be good for society, right?  Tower siting decision making has nothing to do about aesthetics and respecting history and everything to do about ripping off big, bad corporations.

            Antenna siting has become a contentious issue, because of an ever increasing number of needed locations.  The migration to 5th Generation wireless service will trigger a massive increase in antenna sites, because new technologies have smaller “footprints” requiring more antenna installations.  This matter is all about money, but conflicting interpretations of federalism partially obscure this reality.

            Money and serving different constituencies force FCC regulators to abandon any semblance of jurisprudential consistency.  In this strange time, a political party predisposed to support federalism and reliant on the Federalist Society to vet judicial candidates, has to turn its back on a baseline and fundamental philosophical construct.  Republican FCC Commissioners want largely to preempt states and municipalities from economic regulation of wireless tower sites, but they rallied around the state’s right flag when their Democratic counterparts wanted to preempt state laws prohibiting the installation or expansion of Wi-Fi and other broadband networks.  The Sixth Circuit Court of Appeals accepted the argument that Congress did not sufficiently articulate a federal mandate of supporting broadband technology deployment and preventing laws, regulations and policies that thwart this goal.  See http://www.opn.ca6.uscourts.gov/opinions.pdf/16a0189p-06.pdf.

            Reasonable people can disagree agreeably about the breadth, reach and scope of the FCC’s jurisdiction.  What I can’t tolerate is the sanctimony and righteous indignation of federalist advocates who readily ignore the principle when favored stakeholders knock on their door.
             

Tuesday, September 11, 2018

8th Circuit Rules VoIP an Information Service


            By a 2-1 vote, the 8th Circuit Court of Appeals upheld a lower court’s determination that Voice over the Internet Protocol (“VoIP”) telephone service constitutes an information service subject to FCC preemption of state regulation. [1] The court decided to make an explicit determination considering the FCC’s decades long disinclination to do, because an explicit information service classification would jeopardize the Commission’s ability to regulate VoIP service and perhaps also the lawfulness of requiring subscribers to contribute to universal service funding.  On the other hand, the decision bolsters the FCC’s selective assertion of federal preemption to prevent inconsistent and “balkanized” policies when state establish their own regulations.
            The court determined that VoIP falls within the information service classification, because a protocol conversion occurs when calls originate, or terminate on the conventional public switched telephone network, but are transmitted via broadband networks:
            We conclude that the VoIP technology used by Charter Spectrum is an “information service” under the Act. As the district court put it, “the touchstone of the information services inquiry is whether Spectrum Voice acts on the consumer’s information—here a phone call—in such a way as to ‘transform’ that information.” 259 F.Supp.3d at 987; see 47 U.S.C. § 153(24). IP-TDM calls involve just such a transformation. For those calls, because information enters Charter’s network “in one format (either IP or TDM, depending on who originated the call) and leaves in another, its system offers ‘net’ protocol conversion, which the FCC has defined as occurring when ‘an end-user [can] send information into a network in one protocol and have it exit the network in a different protocol.’” [2]

            The court majority opted to consider the explicit language in the definitions of telecommunications service and information service rather than consider the functional equivalency of VoIP with earlier vintage circuit-switched telephony, even though they use different technical protocols.  The court considered the information service category as applicable because VoIP service providers must use software to convert the format of calls from and to legacy wired and wireless telephone networks even though both telecommunications services and information services use telecommunications networks to transmit and deliver traffic:
            Spectrum Voice’s service is an information service because it “mak[es] available information via telecommunications” by providing the capability to transform that information through net protocol conversion. Cf. Nat’l Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967, 988 (2005) (explaining that “all information-service providers . . . use ‘telecommunications’ to provide consumers with [their] service”). [3]

            The court did not consider VoIP protocol conversion as fitting within three categories where some processing takes place, but not in a significant way that fundamentally changes the nature and composition of the composite service. [4] This view parallels the analysis contained in the FCC’s Restoring Internet Freedom order which reclassified broadband access as an information service thereby removing common carrier regulatory oversight.
            The court quickly rejected as inapplicable each of the three carve-outs that the FCC uses to allow some degree of information processing without converting a basic telecommunications service into information service. The court rejected the first exception, because VoIP connects users of a service and not users with a network.  The second exception was considered inapplicable, because the court emphasized that protocol conversions are necessary for new equipment that VoIP subscribers must use even though more broadly the conversions also promote compatibility and interconnection between users of legacy voice telephone services and newer VoIP options.
            The third exception also was considered inapplicable, but some stakeholder may dispute the court’s rationale that emphasizes the need for protocol conversions to make the required new equipment function on customers’ premises.  The court briefly stated that the required customer premises equipment is not physically a part of the VoIP provider’s network, nor does its protocol conversion occur within a network. By emphasizing the location of the device performing the protocol conversion, the court could ignore that the device provides internetworking between two types of networks that consumers consider functionally equivalent.
            Judge Grasz, in dissent, rejected the majority’s rationale noting that the court overemphasized the location where protocol conversions take place and in so doing possibly provided a way for telecommunications service providers to evade most of the FCC’s regulatory oversight for any service where a device can be installed on consumer premises:
            If performing the conversion from TDM to IP inside a customer’s home is sufficient to convert a telecommunications service into an information service, then AT&T, or any similarly situated provider, could greatly reduce its regulatory burden simply by moving converter boxes inside customers’ homes. A simple change of physical location would transform what used to be telecommunications services to information services. This may explain why the FCC has yet to make categorical pronouncements on protocol conversions. An overarching category for all net protocol conversions would create a potential pathway for every company to escape the heavier telecommunications service regulations. [5]

            Judge Grasz also noted language in the definition of telecommunication service that deemphasizes the type and location of facilities used to provide a telecommunications service. [6] He even rejects the possibility that VoIP protocol conversions can trigger the information service classification, because the broadband service venture provides a telecommunication transmission link and the protocol conversion does not change the nature of voice communications between the caller and call recipient:

If we assume that interconnected VoIP services “provide” “telecommunications” as defined in statute, then we must presume that no “change” occurs between the two phone sets on either end of the interconnected VoIP line. . . . As a result, when addressing the question of whether Charter’s media gateway transforms information, in order to rule in favor of Charter, we would have to conclude that a device that does not change the form or content of information (because it is part of telecommunications) is also a device that transforms information (because it is an information service). See id. § 153(24), (50). The first conclusion forecloses the second one. In short, if Charter’s service provides telecommunications (as defined in statute), then its net protocol conversion cannot be part of an information service, but instead must be part of a telecommunications service. [7]



[1]           Charter Advanced Services(MN), LLC v. Lang, No. 17-2290, slip op. (8th Cir. Sep. 7, 2018); available at: http://media.ca8.uscourts.gov/opndir/18/09/172290P.pdf.

[2]              Id. at 6.

[3]              Id. at 7.

[4]              The definition of ‘information service’ excludes services that comprise a ‘capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.’ 47 U.S.C. § 153(24). The FCC has further defined this exception to include ‘(1) services ‘involving communications between an end user and the network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users;’ (2) protocol processing ‘in connection with the introduction of a new basic network technology (which requires protocol conversion to maintain compatibility with existing [CPE])’ and (3) services ‘involving internetworking (conversions taking place solely within the carrier’s network to facilitate provision of a basic network service, that result in no net conversion to the end user).’” Id. at 7-8.

[5]              Judge Grasz dissent at 11.

[6]           “The statute contemplates such transitions because it defines a telecommunications service as ‘offering [] telecommunications for a fee directly to the public . . . regardless of the facilities used.” Id. at 10 citing 47 U.S.C. § 153(53).

[7]              Id. at 12.

Monday, September 10, 2018

Network Neutrality and the Court of Public Opinion



            Ask most people a basic question about Internet neutrality and the clear majority support it.  Who likes biased networks, particularly if the bias appears to subordinate the views and interests of you and like-minded people?

            On the other hand, ask people about what they think Netflix and their broadband carriers ought to do should network congestion bogging down bandwidth intensive video streams.  The likely answer: fix it!  Okay, but what kind of fix constitutes “reasonable network management” vs. something akin to prioritization of traffic?  The former universally qualifies for exemption from mandatory neutrality, but the latter triggers disputes.  ISPs can tier service by bit rate delivery speeds and monthly allotment of data.  Should they also have additional market segmentation opportunities to exempt certain traffic from debiting a data plan, so-called zero rating, or to slow down (throttle) entire categories of content, e.g., video streaming?

            The Court of Public Opinion seems clearly in favor of service arrangements described by words like free and unlimited. Of course, in the wireless world, nothing is free and unlimited does not have the common meaning.  Free comes with upselling to a more expensive service tier, e.g., “free” and “unlimited” streaming of a Direct Broadcast Satellite operator’s content. 

            “Unlimited data” has several fine print exceptions.  Throttling typically reduces bit transmission rate to 2G speed incapable of delivering video streams when a subscriber exceeds a ceiling of 20 or more Gigabytes of data delivery.  Also, wireless subscribers have to make do with video streaming that reduces the video line resolution of all streaming content, presumably a trade-off for a much higher monthly data allowance.

            Does the Court of Public Opinion favor zero rating and even tolerance for less video line resolution?  We may soon find out how California broadband consumers react if such options become illegal.  The legislature there enacted legislation that restores the consumer safeguards created in the FCC’s 2015 Open Internet Order and in several instances reaches further into the Internet marketplace.

            SB-822 current rests on the desk of California Governor Jerry Brown.  Does the Governor sign the legislation that deems illegal zero rating, most types of throttling and possibly even the paid peering arrangement that Netflix and Comcast negotiated to resolve a traffic delivery dispute? If he does we will see just how ticked off California broadband consumers get when state law mandates strict neutrality that forecloses “better than best efforts routing” and other market enhancements available at a premium price.

            For my part, I part company with my network neutrality friends, because I believe elected officials should rarely stand in the way of allowing a maturing Internet ecosystem to delivery different tiers of service at varying price points.
           

Sunday, September 2, 2018

Lessons in Incivility: Two Frequent and Frustrating Strategies



            My academic post makes it possible for countless hours of reading across the entire political, economic, philosophical and social spectrum.  I recommend you avoid the common practice of seeking only content that confirms preconceptions.  My eclectic pursuit of all sides to the story requires patience and tolerance for hyperbole and deliberate mistruths.

            Two frequently used strategies drive me crazy.  A pox on all houses—left, right and central--where authors personalize a dispute and perpetuate a mischaracterization of truth when they surely know better.

            I recently read an extensive analysis about the refusal of Verizon Wireless in California to waive its contractual right to throttle broadband bit transmission speeds of first responders, including fire fighters.  The author and I share many conclusions, including the confirmation that Verizon reserved the legal right to throttle subscribers who exceed a threshold of data usage, despite having purchased an “unlimited” data plan.  Additionally, the author and I agree that Verizon did not violate any specific prohibition in the now reversed FCC 2015 Open Internet Order.

            Not content to make a convincing and thorough case, the author (I will not identify, or vilify him) relied on two strategies I will not use.  He singled out and maligned an individual who had a major role in shaping the FCC’s 2015 document.  Rather than agree to disagree, the author deviated from substantive discourse and took several opportunities to criticize the person and not her work product.  How does vilifying a person enhance and bolster the critic’s case?

            The other uncivil strategy involves the misrepresentation of a regulatory policy as more intrusive, unnecessary, harmful and atavistic than what is true.  In this case, the author misrepresented the FCC’s common carrier, telecommunications service regulation applied to Internet Service Providers as something appropriate only for “public utilities.”  Surely this author knows wireless carriers, including Verizon Wireless, trigger Title II, common carrier regulatory oversight.  This regulatory status does not convert wireless carriers into public utilities, nor does it impose burdensome regulatory duties. 

            The Telecommunications Act of 1996 authorizes the FCC to streamline and forbear from imposing most common carrier regulatory burdens when a market becomes competitive.  The FCC has largely deregulated the wireless marketplace even as it continues to classify service providers as common carriers.  No one can credibly assert that U.S. wireless carriers bear a costly regulatory burden that has created major disincentives for these carriers to participate in billion dollar spectrum auctions, or to invest billions more in infrastructure.
           
            Characterizing Title II regulation as unnecessary and so “old school” misrepresents the nature, scope and burden of the flexibility the FCC has in applying this legislatively mandated classification.  The author appears to have used this frequent mischaracterization to bolster his argument that network neutrality regulation is unnecessary.  We could have civil and substantive discussion about whether and how the FCC should regulate ISPs, including whether such oversight has any impact on public safety and the broadband speed of first responders’ smartphones.  As well, we could speculate whether the FCC would have backed away from its initial streamlining of ISP regulatory oversight.  Instead, the author uses an inappropriate public utility frame for the nature of the FCC’s previous regulatory regime.  He appears to imply that any sort of common carrier regulation constitutes overreach, even as wireless carriers have thrived under such status, without operating as public utilities, or trying to characterize their regulatory burden as equal to that borne by true public utilities, like electric companies.

            The author distracts his largely on point analysis with two uncivil tactics that have become both common and inappropriate.

Thursday, August 23, 2018

Missing the Burning Forest for the Trees-Verizon Throttles California Fire Fighters at the Worst Possible Time, But Few Get the Lesson



            Verizon’s so-called customer care staff made a grievous mistake when they ignored pleas to override automated software that throttled California fire fighters’ broadband connections.  See https://www.sccgov.org/sites/opa/newsroom/Pages/netneutralitylitigation.aspx?utm_campaign=Newsletters&utm_source=sendgrid&utm_medium=email.  Understandably, network neutrality advocates jumped at the opportunity to provide another example of unintended bad consequences from the abandonment of open Internet regulatory safeguards.  Similarly, network neutrality opponents properly chided the company, but again championed a mostly unregulated Internet subject to the consumer protections available from the Federal Trade Commission.

            Both sides miss the main lesson from this unfortunate situation: broadband networks have become such important infrastructure that it makes absolutely no sense now to suggest that industry self-regulation will remedy anything and everything, except for the occasional privacy and data security issues which the FTC can handle.

            Broadband networks, particularly first and last mile access, are essential to effective firefighting as it is for so many other areas of commerce, self-fulfillment, democracy, governance, etc.  Common carriage status would recognize this importance.  Bear in mind that such a legal status does not require ventures to operate as monopolies, to have market power, or to operate essential facilities.  Landlords, hotel owners, competitive airlines and even wireless carriers, currently operate as common carriers.  Do not for a second buy the bogus assertion that such status disincentivizes investment and blunts profitability.  Also, no one can credibly claim that common carrier oversight is “legacy” “utility” regulation, unjustified in this currently competitive environment. Landlords, hotel owners, bus lines, car rental companies, airlines, cable television systems, wireless carriers and a host of other ventures currently comply with nondiscrimination and other common carrier requirements.

            On the other hand, even common carriers can engage in price discrimination.  Verizon most certainly did not violate common carriage law and policy, or the FCC’s 2015 network neutrality rules, by offering different tiers of service (bit rate, allowable monthly data consumption) at different price points.

            That Verizon could have dithered for even one hour on the matter of waiving data rates for fight fighters provides a clear example that too much is at stake to rely solely on the level of common sense and good business judgment of first responding customer service representatives.  The FCC and the California Public Service Commission should have had jurisdiction and the will to act immediately. 

            Who can dispute this outcome?

Monday, August 20, 2018

Publications Announcement

You might have an interest in the following new publications of mine:

Freedom to Discriminate: Assessing the Lawfulness and Utility of Biased Broadband Networks in the Vanderbilt Journal of Entertainment & Technology Law and

The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers in the Villanova Law Review.

I try to simplify complex topics and you can ignore the footnotes!

Wednesday, August 15, 2018


Greed by Algorithm

            The adage about the stock market applies to both human and machine greediness: Bulls make money and bears make money, but pigs get slaughtered.  I am not suggesting that corporations—or academic entrepreneurs—forego profit maximization, or charging what the market will bear.  But consider the following instances where algorithms overreach and in the process tick people off big time.

            In researching hotel accommodation for my daughter’s “White Coat” ceremony marking the start of her 4 year vet school adventure at Virginia Tech, I quickly identified peak demand conditions for Blacksburg and a 50 mile radius. OK I get this: high, inelastic demand equals high prices even for 2 star motels that usually fetch $50 off peak.  But does Marriott do anything but generate ill will with an algorithm triggering a $968-1069 nightly rate for a Residence Inn?





            Countless so-called behavioral economic experiments prove that we humans do not operate as utility maximizing, cost minimizing, rational actors.  We often forego gains so that cheaters do not share or exceed what rule compliant actors get.  I suspect that many people seeing this kind of price quote from Marriott think less of the company perhaps to the point of avoiding its offerings even when quoted rates are fair and competitive. 

            Way to go Marriott algorithm writers!

            Of course, Marriott does not have a monopoly on foolish algorithmic outcomes.  Amazon has an algorithm that occasionally prices an easily procured book at prices no one would pay.  See Amazon Algorithm Price War Leads to $23.6-Million-Dollar Book Listing, https://www.pcmag.com/article2/0,2817,2384102,00.asp.

            Most times, well-written algorithms manage to squeeze out every last dollar of consumer surplus in a transaction.  So-called surge pricing taught a student of mine how elasticity-based rates work far better than I ever could.  During Spring Break in Florida, an Uber ride to Miami Beach cost a quite reasonable $17.  At 2 a.m. the same ride was quoted in excess of $400       .  The student gutted it out until the rate dropped to $147.


Monday, July 16, 2018

Corporate Welfare, Cronyism and Excess: The AccuWeather Case Study



            Bloomsburg BusinessWeek provides a thorough and distressing account of unsavory business practices originating in my small town.  See https://www.bloomberg.com/news/features/2018-06-14/trump-s-pick-to-lead-weather-agency-spent-30-years-fighting-it.  The article reports how President Trump has nominated Barry Lee Myers, CEO of AccuWeather, to lead the National Oceanic and Atmospheric Administration, which has the National Weather Service (“NWS”) under its aegis.  Might this candidate constitute the proverbial fox guarding the chicken coop? 

            AccuWeather adds value to a taxpayer underwritten, government function.  The company enhances the data it freely acquires.  I have no problem with that.  The company does not participate in a public private partnership, by investing funds in a joint venture with the government.  Instead, it masterfully executes a business strategy of adding human presentation and interpretation of weather data in a graphics-intensive, user friendly format.  So far, the company offers a case study in brilliant execution of a business plan. Bravo.

            Sadly, the company overreaches and has done so for years.  Its lobbying activities and advocacy in Washington, D.C. evidence a campaign to stifle the NWS from doing anything that could reduce the “wingspan” and profitability of the company’s products.  Simply put, AccuWeather wants Congress to restrict public dissemination of NWS-acquired and taxpayer-financed data. 

            Accuweather wants to prevent the NWS from any “retail,” direct-to-public data dissemination and analysis, particularly via direct Internet outlets and indirectly via social networks such as Facebook.  Here the company attempts to bite the hand that feeds it.  The possibility of more scrutiny of its business practices may risk its ability to pay nothing for the data it needs to create profitable products.

            AccuWeather appears unsatisfied with its considerable organic growth over many years.  It perceives the NWS as a competitor who offer content at zero additional cost even as AccuWeather wants payment for somewhat similar products. Already, the public does not see NWS employees on television, or the Internet except for the occasional interview on the Weather Channel and broadcast networks.  Likewise, the NWS web presence lacks the userfriendliness available from AccuWeather. 

            Here’s an example of the rarified product the NWS offers in its Forecaster Discussion section for State College, PA on July 15, 2018:

             "Potent cold front will plow SE through the NW mtns Late Tuesday morning and clear our SE zones late in the day. High PWAT air, increasing deep layer shear and increasingly diffluent flow aloft will set the stage for some strong to potentially severe TSRA depending on the amt of sunshine, CAPE and the exact timing of the cfront."

             They do offer a glossary, but clearly the NWS is no competitor to AccuWeather’s general consumer products.

            The BusinessWeek article shows how Accuweather has undertaken a long term and relentless campaign to limit the scope and reach of NWS work product.  In effect, AccuWeather wants to rely on the NWS for rough data, as evidenced by the dozens of satellite earth stations installed at company headquarters.  AccuWeather receives the data and converts it into something user-friendly and profitable for the company.  In AccuWeathers self-serving mindset, it constitutes rampant socialism and “mission creep” for the NWS to serve the public directly, particularly via the Internet even if a timely Facebook post might save lives.  AccuWeather does not want the risk of liability in being the sole forecaster and outlet for severe weather, but it surely wants social networks and other Internet-based sites as green fields for growth completely free of any government-supplied content.

            AccuWeather’s strategy shows how something smart can become too clever over time as as a company becomes increasingly aggressive in tactics to secure captive markets and growth.  Not content to further mine and extend its well established market presence, the company wants to throttle NWS public outreach.  This does not serve the national interest, because not everyone—even with the widespread use of smartphones—receives forecasts and urgent weather information from value added services like AccuWeather and the Weather Channel. 

            I get my weather forecasts via radio, but not from the fast-paced local inserts originating at the AccuWeather mother ship.  In many locales, the NWS transmits continuously in the Very High Frequency band (around 162 MegaHertz).  I’m sure AccuWeather would like to confiscate my radio, or failing that, to lobby Congress for legislation terminating this option.




Sunday, July 15, 2018

What the Justice Department Got Wrong in Opposing the AT&T –Time Warner Merger



            In a previous post, I offered insights on grievous flaws in the court decision rejecting the Department of Justice’s (“DOJ”) opposition to AT&T’s acquisition of Time Warner.  See http://telefrieden.blogspot.com/2018/06/grievous-defects-in-at-warner-court.html  This post will address problems with DOJ’s strategy.

            Both Judge Leon and DOJ largely ignored the impact of market and technological convergence that makes it all but impossible to frame a merger with a completely vertical or completely horizontal designation.  These two types of mergers trigger vastly different assumptions including the view that horizontal mergers require far greater scrutiny based on the comparatively greater potential for harm to competition than vertical transactions among assumed non-competitors.

            Convergence makes the vertical vs. horizontal dichotomy unsustainable.  Even before acquiring Time Warner, AT&T was in the content business in a BIG, BIG way as a content aggregator.  Content aggregators are to content creators as wireless resellers are to facilities-based wireless carriers.  Of course, AT&T was and remains a content purchaser, but it was and remains a content packager fully participating in and affecting the supply and cost of content to consumers.

            Courts have identified conditional First Amendment rights in content packaging and curation (Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 636 (1994) (“There can be no disagreement on an initial premise: Cable programmers and cable operators engage in and
transmit speech, and they are entitled to the protection of the speech and press provisions
of the First Amendment.”) (see also Rob Frieden, Invoking And Avoiding The First Amendment: How Internet Service Providers Leverage Their Status as Both Content Creators and Neutral Conduits, 12 U.PA. J. CONST. L. 1279 (2010); available at: https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1134&context=jcl.

            Even before its acquisition of Time Warner, AT&T operated as a content speaker, through its content aggregation, curation and tiering.  The company seamlessly integrated this content-based function with its content carriage function.  In this convergent time, it made no sense for DoJ to concentrate almost exclusively on AT&T’s upstream activities, as content seller.  By doing so, DoJ made it possible for Judge Leon to embrace the incorrect assumption that the merger would eliminate $352 million in content markup revenues that AT&T would not incur and which the Judge wrongly assumed would completely flow through to consumers.

            DoJ’s second major mistake was to emphasize what AT&T probably would do now that it became fully integrated, i.e., price discriminate by charging downstream competitors higher content prices.  AT&T is far too sophisticated and clever to use such a blunt and readily detected anticompetitive strategy.

            What AT&T can and already has begun to do is strategically exploiting its market dominance, particularly in downstream delivery of content to consumers.  It appears that DoJ did not emphasize that AT&T shares a near duopoly in the ever more important wireless marketplace along with a significant market share in wireline delivery of content. 

            The FCC’s decision to abandon all regulatory safeguards addressing the downstream delivery of content means that AT&T has free reign to use content tiering as a powerful weapon, potentially quite harmful to both consumers and competition.  It starts with seemingly benign, if not consumer friendly, zero rating of content and proliferating bundles of content.  Because consumers love the concept of “free,” even when it isn’t, AT&T can upsell consumers, or at least prevent them from cord shaving with strategic placement of most desired (what some would term “must see”) content.  That’s how DirecTV streams for free now, but only to AT&T subscribers of both wireless and DirecTV. 

            Some of the $352 million in reduced overhead payments will flow through to consumers, particularly those maintaining or increasing their monthly payments to AT&T.  The real harm from the merger with Time Warner lies in the extraction of more revenues by AT&T simply with strategies that reduce, or eliminate consumer surplus. 

            Even as it appears to offer skinny and low cost, small bundles of content, look for AT&T to migrate the “good stuff” to higher and more expensive programming tiers.  AT&T can justify the higher fees and higher tier placement by claiming that even it has to recoup the ever higher program creation costs of its stars, HBO and CNN.  What will be framed as consumer friendly bundling of content masks a strategy of increasing Average Revenue Per User and raising both content licensing fees and subscriber out of pocket costs.
           
            Depending on your political and economic philosophy, that’s smart business strategy, or anticompetitive behavior.  The former emphasizes the need for size and scale to offer one-stop shopping and a competitive response to Netflix, Hulu and Amazon Prime.  The latter emphasizes how much undetectable downstream content meddling AT&T can execute, particularly now that network neutrality safeguards have evaporated.  Bear in mind we still don’t know who or what caused Comcast’s network congestion that slowed and Netflix traffic in 2015.  We do know what the problem ended overnight when Netflix blinked first and agreed to a paid peering arrangement with Comcast.

            Lastly, not forget, long ago, Time Warner vertically integrated with AOL with disastrous consequences.  This time, it might be different, because the marketplace has become far more concentrated, particularly on the downstream side.


Tuesday, July 10, 2018

Radical, Judicial Activism in a Kavanaugh Dissent


            Starting today, Supreme Court Justice nominee Brett Kavanaugh will start a carefully orchestrated charm offensive highlighting his judicial temperament, respect for the rule of law and humility.  You won’t see that posture in at least one of his prior opinions.

            Take a look at Judge Kavanaugh’s dissent to the decision of the D.C. Circuit Court of Appeals not to hold an en banc re-hearing of the court’s affirmance of the FCC’s network neutrality rules:  https://www.cadc.uscourts.gov/internet/opinions.nsf/06F8BFD079A89E13852581130053C3F8/$file/15-1063-1673357.pdf.

            In his dissent, Judge Kavanaugh elevates Internet Service Providers’(ISPs’) First Amendment rights to neutralize any attempt by the FCC to regulate their economic behavior.  His opinion weaponizes the First Amendment as an unimpeachable right to be free of any government law or regulation that even indirectly affects what they transmit.

            So much for respect for settled law.  Ample case precedent supports the longstanding view that the First Amendment does not insulate ventures, such as common carriers and even hotel operators, from laws and regulations that impose non-discrimination requirements.  Judge Kavanaugh conveniently ignores the fact that ISPs primarily switch, route and deliver content created by other ventures.  No First Amendment right attaches to this conduit function which closely parallels cable television companies’ compulsory carriage of broadcast television signals.

            Moreover, ventures do not even have to be classified and regulated as common carriers to trigger nondiscrimination requirements.  Judge Kavanaugh remarkably fails to see that the Supreme Court’s the cable television must carry cases (FCC v. Midwest Video Corp., 440 U.S. 689 (1979); Turner Broadcasting v. FCC, 512 U.S. 622 (1994) and 520 U.S. 180 (1997)) impose non-discrimination and compulsory carriage on companies that might elsewhere have some First Amendment rights, e.g., how to package and tier content.

            Judge Kavenaugh ignores the open access rights of television broadcasters to cable television subscribers to support his view that the FCC cannot impose any similar duty of access on ISPs.  That’s a radical notion the majority summarily dismissed in both the main opinion and the en banc hearing denial:

            Because “the accessed speech is not edited or controlled by the broadband provider but is directed by the end user . . . the Commission concluded that broadband providers act as “mere conduits for the messages of others, not as agents exercising editorial discretion subject to First Amendment protections. . . . Petitioners provide us with no reason to question those findings.
            Because the rules impose on broadband providers the kind of nondiscrimination and equal access obligations that courts have never considered to raise a First Amendment concern . . . they are permissible.


           

Friday, July 6, 2018

Wall Street Journal Fact Checking Quiz

Today's Wall Street Journal  (July 6, 2018) includes the following sentences in a editorial about the departure of EPA Administrator:

               
Press dispatches have suggested that he misused private air travel, sent staff on
personal errands and bought $1560 pens, among dozens of other allegations.  Mr.Pruitt says most of this was false or exaggerated, and no doubt much of it was. (my emphasis.

Pop Quiz

The Wall Street Journal's above statements are:

A)  The gospel truth notwithstanding its reporting to the contrary;             
B)  A rare case of fake news from a trusted source;
C)  A white lie to state a more important truth; or
D)  A "pants on fire" lie to reinvent the facts for doctrinal purposes.

You be the judge.

Sunday, July 1, 2018

Comcast Sneaks in Another Billing Line Item and “Earns” an Additional $1 Billion



            My Comcast bill arrived today with a sneaky new $2.68 charge, $2.50 for leasing one (and only one) set top box and $0.18 for the remote.  This new billing line item, like the many others Comcast has introduced, adds to its bottom line with no additional capital expenditure.  It shows how resisting the obligation to return to accepting set top box free, “cable ready” sets was a smart strategy. Now Comcast can charge for a device rental that it used to provide free of charge (for the first one), because consumers cannot access its service without one.

            Remarkably, the FCC never got around to replacing its CableCard “solution” with a viable, consumer-friendly update.  For their part, cable operators never followed through on a “commitment” to offering “true two-way” consumer access using increasingly versatile and intelligent television sets to handle rather simple upstream commands to the cable operators’ Headends.

            Of course, Comcast subscribers now can use their own set top boxes, such as a Roku, but the company has a perfect, profit maximizing strategy for that as well: charge $9.50 a month and rebate $2.50 for “subscriber supplied equipment.” Brilliant and incredibly greedy at the same time.

            I am well overdue for a return to Over the Air Reception (“OTAR”) of broadcast television even in my quite rural locale, centrally located in the middle of nowhere: State College, PA.  Comcast all but wants me to do this, so it can concentrate on its transition to being a vertically integrated broadband venture combining its owned content and conduit.  Besides, broadband has far greater profit margins, none of which have to be shared with content providers through retransmission consent.  Actually, revenues flow the other way as when Netflix agreed to compensate Comcast for content carriage.

            Subscribers of Comcast should revolt, but I suspect few will even notice the increase.  What’s a few dollars more, especially after Comcast’s now $8.00 “Broadcast TV Fee,” some of which flows to the company’s NBC stations?  Comcast also has a “technology fee” that most high definition television subscribers have to pay.  I guess the company can justify this recurring line item as helping it recoup the costs for upgrading networks to handle high definition signals. 

            You really should examine the line items in cable television bills.  Few companies can quantify and foist onto customers their estimate of having to comply with government regulations and pay local governments franchise fees.  But my bills has line items entitled Franchise Fee and FCC Regulatory Fee.  I call these costs overhead, but Comcast frames them as “fees” that they can pass through to customers.

            Finally, I have reached the tipping point where gouging nudges—makes that pushes—me to old school technology. I expect Neighborhood Homeowners Association opposition to my outdoor antenna. Maybe I can assert a First Amendment right.