The 5G Wireless Utopia Just 6 Months After the Obama Investment Downer

            Today’s Wall Street Journal continues the commitment to framing a fake, alternative reality in the telecom/Internet ecosystem.  See Holman W. Jenkins, Jr. Comcast vs. the 5G Frenzy; available at: https://www.wsj.com/articles/comcast-vs-the-5g-frenzy-1499188939.

            Just months after President Obama allegedly engineered an unprecedented decline in broadband infrastructure investment, Mr. Jenkins sees a “frenzy” in superfast fifth generation wireless network rollouts and a “dramatic restructuring of the cable and mobile broadband industries.”

            Wow!  Just a few months ago, the Journal and various sponsored researchers bemoaned the decline in broadband capital expenditures, solely generated by the FCC’s insistence on Mr. Jenkin’s characterized “1934-style utility regulation.” Now, wireless carriers like AT&T and Verizon have opened their pocketbooks to invest in new plant, at the same time as they spend billions to acquire content providers like AOL, DirecTV, Time-Warner and Yahoo.

            Here are some inconvenient and ignored truths: Congress mandated common carrier regulation of wireless carriers and that designation has NOT created any investment disincentive.  Broadband carriers have spent billions on content providers surely based on the assumption that ample capacity and transmission speed can accommodate ever growing video demand.  These very same carriers have spent additional billions on radio spectrum.

            So much for the FCC’s frenzy killing network neutrality regulation on investment, innovation and employment.

            Mr. Jenkins implies that the telecom/Internet marketplace will grow even more competitive, apparently not likely to suffer when additional acquisitions reduce the number of national wireless carriers to three and other mergers further concentrate other markets.  If not now in the new 4G environment, the future 5G environment will make wired and wireless networks interchangeable.

            Maybe, but Mr. Jenkins seems to ignore additional inconvenient truths.  Unlimited wireless—now and in the future—does not truly fit the term.  Unlimited plans have limits which if exceeded result in a major degradation of service to second or third generation network speeds that cannot provide video carriage. This occurs when a subscriber exceeds a cap of 20-30 Gigabytes and when the top few percentage power users take service from a congested tower. Wireless carriers also down-convert high definition video streams from 1080 lines of resolution to 480 lines.

            Currently, wireless carriers do impose hard and soft data caps while wireline carriers do not, or have a soft cap at more than 500 Gigabytes. Now, wireless carriers charge substantially more than wireline carriers on a per Gigabyte rate. We will see true intermodal competition when wireless broadband subscribers do not bother to program their smartphones to shift from their wireless carriers to available Wi-Fi options.

            So for the time being, Mr. Jenkins has lobbed yet another canard to discredit skeptics of an unregulated marketplace and to vilify network neutrality advocates.

FCC Chairman Tom Wheeler, the Wall Street Journal and the Secondary Meaning of Incontinent

          Today the Wall Street Journal reached a new nadir of snark and journalist irresponsibility.  In one op ed, Holman W. Jenkins, Jr. misrepresented the nature of FCC broadband oversight as “monopoly regulation,” and implied that Chairman Wheeler is a liar and Obama pawn. See http://www.wsj.com/articles/washington-makes-a-broadband-hash-1432682871.

            Additionally, Mr. Jenkins accused Chairman Wheeler of incontinence, which I now know has a secondary meaning of lacking in moderation or self-control; unceasing or unrestrained.  So Mr. Jenkins wasn’t making a medical diagnosis. Okay, but I know an (begin encryption) ick pray when I see one.

 

            This kind of op-editorial is shameful. 

 

            If the FCC is engaging in monopoly broadband regulation, how can there be multiple broadband operators who want to merge?  Bear in mind that these merging ventures will take pains to explain the robust competitiveness and non-monopolistic nature of the broadband market.  Mr. Jenkins must be referring to price, or rate of return regulation, but guess what Mr. (begin encryption) Ace in the Hole?  The FCC expressly doesn’t reserve the option of doing either.

 

            So Mr. Jenkins doesn’t believe the FCC or Mr. Wheeler.  Perhaps you should have similar skepticism about Mr. Jenkins’s verisimilitude.

Mistakes, Mistruths and Outright Lies in the Assessment of Broadband Competition

           Readers of the May 13, 2015 edition of the Wall Street Journal got a triple dose of snark and questionable journalism.  On back to back pages, this major publication informed us that U.S. “broadband is a competitive market and becoming more so as fixed and wireless converge.”  Holman W. Jenkins, Jr. suggests that we ignore any rebuttal or contarary reports from the “know-nothings in Washington.”  See http://www.wsj.com/articles/why-aol-matters-again-1431471920.

            On the next page, the editorial writers of the Journal contradict Mr. Jenkins on Verizon’s motivation for wanting to acquire AOL.  Instead of pursuing new profit centers through vertical integration, such as advertising platforms, Verizon has to acquire AOL due to competitive necessity: “A company with a stranglehold on the connection to the customer wouldn’t need to buy AOL.”  See http://www.wsj.com/articles/the-aol-telltale-1431472741.  The editors see broadband competition and the Internet as “hypercompetitive.”

            The Wall Street Journal has led a campaign to convince legislators, judges, consumers and others that the broadband Internet access marketplace operates with such robust and  sustainable competition that any government oversight is inappropriate, if not illegal. 

            This conclusion is simply not true unless one intentionally ignores basic economics, antitrust law and common sense.  To conclude that the U.S. broadband marketplace is competitive one must include any source of access to the Internet, regardless of bandwidth, transmission speed (bitrate) and cost.  Instead of many instances where consumers, such as myself, count one and only one available broadband supplier, broadband competition true believers see seven or more suppliers.

            True believers see what economists term cross-elasticity where it surely does not exist.  They treat as “options” Internet access technologies that consumers do not consider equivalents. So for true believers, it is reasonable to include Digital Subscriber Line and perhaps even conventional dial up access, even though 1.5 Megabits per second service and surely 5.6 kilobit per second service does not cut it for the kinds of services broadband subscribers expect to access via their links.  DSL might barely provide a single, tolerable link to Netflix, but not if two members of a single household seek access at the same time.

            True believers in broadband competition readily add four or more terrestrial wireless carriers and at least one satellite option to the invemtory.  Yes 4G wireless can provide broadband access at sufficient high speeds, but a competitive analysis requires consideration of cost.  Many 4G subscribers gladly pay for wireless data plans, but the willingness to pay ends when a free or lower cost option is available. With data plans limiting subscribers to a miserly 1 or 2 Gigabytes per month, subscribers understandably migrate to their wired broadband service accessible with a wireless Wi-Fi router. Wireline broadband offers a monthly data allowance of 250 Gigabytes or more.  

            A back of the envelop calculation shows a wireless broadband rate of approximately $20 a Gigabyte and even more for a satellite option, factoring in equipment costs.  Wireline access costing as low as 12 cents a Gigabyte, based on monthly consumption of the full allotment.  The statistical compilation gets tricky here based on one’s agenda.  Sponsored researchers can show that Americans have the lowest cellphone rates in the world as least for voice and texting, by using 1000s of minutes and 1000s of texts per month.  So in fairness the 12 cent rate for wired broadband access could rise to about a $1 per Gigabyte if a broadband subscriber used far less than the total amount available.

            Wall Street Journal editorial writers and columnists ignore the reality of what consumers consider truly competitive broadband options.  Few consumers think “Two Buck Chuck” wine from Trader Joe’s competes with one hundred dollar Grand Cru even though both are wine products. Some might even consume both on different occasions, but doing so does not make the two product competitive alternatives.

            So at the end of reading the two pages, this loyal subscriber to the Journal wonders did they make a simple mistake or two or three, offer a little misinformation to make a bigger point, or lie through their teeth?

What Charlie Ergen’s Rational Exuberance Means for Consumers

            In the latest of an unbroken chain of disinformation from the Wall Street Journal, columnist Holman W. Jenkins, Jr. today implies that a Dish Network acquisition of Sprint offers more proof that there’s nothing but sunshine in the broadband and wireless marketplace.  According to Mr. Jenkins, anyone having a “woe is us refrain” ignores the robustness of facilities-based competition and how the network neutrality issue is a solution seeking a problem.

            Not so fast Mr. Jenkins.  There is another meme to yours that your publisher won’t allow and you cannot fathom: Dish Network, like AT&T, Comcast and all actual or prospective acquiring companies have commercial objectives that mostly involve enhancing shareholder value, goosing stock options, locking up spectrum and buying out competitors than promoting competition or ensuring fairness and transparency.  There is nothing wrong, noble or charitable about Mr. Ergen’s gambit: just like Comcast, he sees the need to find a hedge and alternative to his core satellite services.  Just in case consumers lose their appetite for a forced bundle of content tiers, delivered via Mr. Ergen’s satellites or Comcast’s cables, incumbents like Dish need to identify new profit centers.  For both Comcast it involved bolstering control over content, not just its distribution.  For Dish it requires a return to earth-based content distribution technologies in addition to—hopefully not in lieu of—the satellite option.

            Dish sees Sprint primarily as a source of terrestrial spectrum, perhaps for the same content it now distributes via satellite.  There is nothing in a Dish acquisition that bolsters the “reality” of broadband competition, or refutes concerns about the incentive and ability of network operators to favor affiliates.  Dish may revitalize Sprint, but the deal does not create new competitors, new competition, or more spectrum. 

            Mr. Jenkins exuberantly sees a rosy future when competitors buy each other out and collaborate in ways that foreclose even the prospect for facilities-based competition.

WSJ Editorial on Wireless Handset Exclusivity

The Wall Street Journal has extended its record for knee jerk corporate boosterism and extreme snarkiness, this time rejecting any need to scrutinize the wireless industry. See
http://online.wsj.com/article/SB124692981354203419.html. The Journal waxes poetic about the competitiveness and innovativeness of the industry, but surprisingly reports in its editorial that the top four wireless carriers in the U.S. control 87.4% of the market.

Down here at the consumer level, we know that the Big Four mimic each other in prices, terms, conditions, and even in their advertisements. As the wireless market reaches maturity, the carriers still pitch how reliable their service has become and the niftiness of their exclusive handsets.

Innovative? The Big Four—and for that matter the entire industry, except for resellers-- apply a single business model that ties wireless service with subsidized wireless handset sales. Consumers may think they are getting a great deal, but in reality they pay more for the handset through higher monthly rates than if they simply had bought the handset without the subsidy. No carrier offers lower rates for new or existing subscribers who use unsubsidized handsets. The handset tie-in reduces churn and guarantees the subsidy pay back and more thanks to the two year service lock in.

What I do not understand is why consumers do not push back more strongly. On the front page of the Journal was an article about how a teenage has hacked the iPhone 3GS to accept unauthorized software. So some consumers can resort to self help. For everyone else, the allure of 30,000—count ‘em—software applications appears plenty. But if I asked most personal computer users if they would tolerate Dell or Comcast specifying the type and number of applications consumers could download, I think the response would be different. Smartphones have become handheld personal computers. Users of wireless handsets should have the same freedom to access software and services, limited only by a “harm to the network” and technical compatibility standard.

Currently, wireless manufacturers, such as Nokia, only have two major sales outlets: 1) the wireless carriers, which sell 60+% of all handsets; and 2) Big Box stores such as Best Buy and Walmart, which sell about 25% of all handsets. Think of the incentives to innovate and diversify if consumers could buy wireless devices through the many different channels available for wirebased devices. When the FCC forty years ago decoupled wireline services from handsets, a substantial boost in innovation and consumer choice arose.

Wall Street Journal 100% Record Sustained—Deliberately Getting it Wrong on Network Neutrality

Month after month the Wall Street Journal (“WSJ”) pursues what appears to be a deliberate strategy of misinformation on the issue of Network Neutrality. The latest installment appears in Dec. 23rd editorial written by Gordon Crovitz who attempts to equate Google’s enhanced use of edge caching as evidence that the entire matter of Network Neutrality has been much ado about nothing. See http://online.wsj.com/article/SB122990349014725127.html.

Mr. Crovitz starts by referring to a widely discredited WSJ article that reported on Google’s edge caching strategy and implied that such a strategy would violate Network Neutrality principles and evidences Google’s abandonment of advocacy for such principles. I would think the WSJ would applaud Google’s apparent change of heart from free rider of Internet resources to conscientious underwriter of the links that take content from the Googleplex to various servers closer to people making Internet searches. Instead Mr. Crovitz reiterates the red herring that companies like Goggle, Yahoo and Microsoft (key Network Neutrality advocates) “don’t want to have to pay tolls to the companies that provide the Web infrastructure.”

Does anyone see the irony in this statement? Goggle intends on paying more than it previously has paid for what I call “better than best efforts” routing of traffic. The existing traffic routing (“peering”) arrangements of the Internet Service Providers (“ISPs”) that carry Google’s traffic on a plain vanilla, “best efforts” basis do not include premium service. So Google will have to pay for superior distribution of the most commonly searched for results, just as CBS pays for ISPs to deliver “mission critical” bits corresponding to webcasts of March Madness college tournament basketball games.

Previously Google was pilloried for allegedly not paying for any access to consumers, a falsity that many believed despite the fact that Goggle does pay its ISPs and apparently has expressed a willingness to pay more. By the way, the downstream ISPs that also handle Google traffic also have received payment, directly from subscribers and also through barter agreements where ISPs offer access to their networks in lieu of direct payments.

As I have written in my blog, (see http://telefrieden.blogspot.com/2008/12/edge-caching-and-better-than-best.html) premium routing of content does not violate my sense of Network Neutrality, provided ISPs offer such service in a transparent and nondiscriminatory manner. My sense of Network Neutrality would only require ISPs not to drop packets deliberately as a ruse to force either end users or content providers to trade up in service, or to so partition their networks to all but guarantee that plain vanilla, regular service (best efforts routing ) becomes inadequate.

No fair minded advocate for Network Neutrality has rejected reasonable efforts by ISPs to manage their networks, nor does Network Neutrality somehow convert ISPs from information service providers into common carrier, public utilities as Mr. Crovitz alleges. He also makes the bold assertion that the United States’ poor standing in terms of broadband access directly results from Network Neutrality advocacy that creates disincentives for ISPs to invest in infrastructure.

Surely Mr. Crovitz knows that the FCC does not treat ISPs as telephone companies. Likewise neither the FCC nor any reasonable interpretation of its Internet policies foreclose ISPs from providing tiered services, or from accruing triple digit rates of return for Internet access, a reality some of the WSJ’s buy side stock analysts could confirm.

Perhaps Mr. Crovitz sees common carrier regulation in the manner in which the FCC responded to complaints about how Comcast throttled peer-to-peer traffic. Of course the FCC did not mandate common carrier nondiscrimination. The Commission did state that an ISP cannot use software that deliberately drops packets and thwarts delivery of traffic all the time without regard to whether actual network congestion exists. It strains credulity to characterize Comcast’s tactics as nothing more than ensuring that non peer-to-peer traffic “could move more smoothly,” unless Mr. Crovitz has some new evidence to prove that if Comcast did not resort to traffic throttling its network would perform in an inferior manner.

Lastly Mr. Crovitz appears to dismiss the Network Neutrality as nothing more than a tactical strategy by major content providers to avoid having to pay their fair share of the costs ISPs incur to provide Internet access. Like other opponents of Network Neutrality he ignores the major investments Google and other content providers have made to create compelling content which provide reasons for consumers to pay sizeable rates for Internet access. He conveniently ignores that the ISPs providing content delivery offer reciprocal access in lieu of cash payment, or perhaps he has bought into the notion that somehow Goggle and other content providers have managed to cheat ISPs of the right to charge both end user subscribers and upstream content providers.

Unlike telephone networks, the Internet seamlessly combines telecommunications bit delivery with access to content. Monthly Internet access subscriptions amply compensate ISPs and one would think Mr. Crovitz and the WSJ would use their bully pulpit to praise Google and others for providing new revenue streams for incumbent telephone and cable companies.

Edge Caching and Better Than Best Efforts Routing

A recent WSJ article has caused a tempest in a teapot over the possibility that standard bearers for network neutrality, such as Google, have gone over to the dark side in favor of something akin to “better than best efforts” routing. See http://online.wsj.com/article/SB122929270127905065.html; Others dispute this; see http://www.circleid.com/posts/google_seeking_preferential_treatment_isps/. In reality, Google seeks to pay a premium for distributing most likely to be requested search answers to proxy servers closer to the search initiator.

I do not see how this violates network neutrality, because Google seeks only the very same sort of expedited delivery of “mission critical” packets as CBS would for its coverage of March Madness basketball and Victoria’s Secret for its webcasted fashion shows. Better than best efforts routing, like that offered by Akamai, reduces the number of routers and the potential for lost packets and latency. Both subscribers downstream from content and upstream content providers should have the opportunity to pay for better than best efforts, plain vanilla packet routing. But network neutrality concerns weigh in when and if ISPs deliberately drop packets as a ruse to force either end users or content providers to trade up in service, or when ISPs so partition their networks to all but guarantee that best efforts routing will result in inadequate service.