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

            The D.C. Circuit Court of Appeals affirmed the lower court’s unconditional approval of AT&T’s acquisition of Time Warner. [1]  The appellate court opted not to second-guess the lower court’s findings that dismissed, ignored or misinterpreted the government’s evidence and the findings of its expert witnesses.  The D.C. Circuit Court of Appeals accepted the lower court’s near complete embrace of the findings by AT&T’s expert witnesses who purported to show that the vertical combination of AT&T and Time Warner would have no impact on content prices and create no increased ability for key content outlets, such as CNN and HBO, to demand higher compensation and weather longer blackout period of no compensation to extract better terms. 

            The appellate court also emphasized the offer by Time Warner to accept a seven year period of binding arbitration and to maintain current compensation arrangements instead of withholding content.  Additionally, the court appeared to agree that having alternative sources of “must see” video content, such as DirecTV and Uverse, did not create significantly greater incentives for AT&T to drive a hard bargain with video programming distributors, such as cable operators, knowing that during an extended black out period, disgruntled subscribers could migrate to AT&T-owned options.

            The D.C. Circuit accepted the lower court’s emphasis on “real world” empirical analysis whether a vertically integrated firm would have greater incentives to raise the cost of content to competitors.  Even though AT&T itself had made this assertion in pleadings before the FCC, [2] its expert witness attempted to show that the merger of Comcast with NBC Universal did not trigger increased content costs.  In a battle between conflicting expert witness testimony, the lower court’s preference for AT&T’s expert was not challenged perhaps based on the sense that it was based on real world circumstances while the government’s expert used economic bargaining theory. [3] 

            The D.C. Circuit credits the lower court for accepting the premise that vertically integrated firms could change bargaining tactics, but in this particular situation changed incentives and perception of leveraging power would not end up altering the outcome of content price negotiations. [4]  The appellate court did not question the lower court’s conclusion that even if the merged corporation would have greater resources to survive the loss of revenues during a blackout and even though it could offset losses from subscriber migration to AT&T content options, AT&T would have little more incentive to risk longer and more frequent black outs:

The district court’s statements identified by the government, then, do not indicate that the district court misunderstood or misapplied the Nash bargaining theory but rather, upon considering whether in the context of a dynamic market where a similar merger had not resulted in a “statistically significant increase in content costs,” the district court concluded that the theory inaccurately predicted the postmerger increase in content costs during affiliate negotiations. [5]

             The D.C. Circuit Court of Appeals concluded that in:

finding the government failed to ‘prov[e] that Turner [Broadcasting]’s post-merger negotiating position would materially increase based on its ownership by AT&T,’ . . .  the district court reached a fact-specific conclusion based on real-world evidence that, contrary to the Nash bargaining theory and government expert opinion on increased content costs, the post-merger cost of a long-term blackout would not sufficiently change to enable Turner Broadcasting to secure higher affiliate fees. [6]

            The appellate court also gave short thrift to the lower court’s assumption that AT&T would pass through all of the $352 million in program cost saving to its customers.  While the D.C. Circuit acknowledged that not all savings would flow through to consumers, as the lower court mistakenly assumed, the court returned to its point of emphasis: that the merger would not trigger content cost increases borne by other video program distributors that they would have passed through to consumers:

The district court accepted Professor Shapiro’s testimony about the $352 million cost savings from the merger. . . . [T]he district court found that the quantitative model as presented through Professor Shapiro’s opinion testimony did not provide an adequate basis to conclude that the merger will lead to “any” raised costs for distributors or consumers, “much less consumer harms that outweigh the conceded $350 million in annual cost savings to AT&T’s customers.”

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

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

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

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

[3]              “At this point, however, the issue is whether the district court clearly erred in

finding that the government failed to clear the first hurdle in meeting its burden of showing that the proposed merger is likely to increase Turner Broadcasting’s bargaining leverage.” Id. at 17-18.

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

evidence that the district court credited.” Id. at 19.

[5]              Id. at 21.

[6]              Id. at 22.

[7]              Id. at 32.

[8]              Id. at 33.

The FCC Really, Really Does Care About Making Spoofing Illegal

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

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

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

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

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

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

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

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

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

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

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

OMG! The FCC Just Legalized Spoofing!

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

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

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

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

Another Day, Another Massive Cellular Location Data Privacy Scandal We'll Probably Do Nothing About; https://www.techdirt.com/articles/20190108/11090741358/another-day-another-massive-cellular-location-data-privacy-scandal-well-probably-do-nothing-about.shtml

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[1]              “Last year, Americans received approximately 30 billion robocalls, and for the first five months of 2018,147 more than 16 billion robocalls have already been placed.148

 And the Commission receives over 200,000 complaints about unwanted calls each year—around 60% of all of the complaints that the Commission receives from consumers.”

Petitions for Declaratory Ruling on Regulatory Status of Wireless Messaging Service, Declaratory Ruling, FCC 18-178, ¶45, p. 23 (rel. Dec. 13, 2018); available at: https://docs.fcc.gov/public/attachments/FCC-18-178A1.pdf [hereinafter cited as Texting Information Service Declaratory Ruling].

[2]           Texting Information Service Declaratory Ruling at ¶43, p. 21. “[W]ireless providers [currently] prevent large volumes of unwanted or malicious text traffic from reaching consumers’ phones.  They do this by applying filters, blocking robotexts, and using anti-spoofing measures, among other things.” Id. Statement of Chairman Ajit Pai, p.30.

[3]              Communications Act of 1934, as amended, codified at 47 U.S.C. §153 (20)(2018)(emphasis added).

[4]              Texting Information Service Declaratory Ruling at ¶24, p. 11.

[5]           “The Communications Act, as amended, divides communications

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

How Smart are Algorithms?

            The algorithmic verdict arrived in less than sixty seconds: credit card application denied.

            My application resulted from a clerk’s scripted suggestion at checkout that I could get a 10% reduction on my 4k HDTV purchase at Best Buy simply by applying for their branded Citibank credit card. Sure, why not?

            Imagine my embarrassment when, at point of purchase, with other buyers in line behind me, “Deadbeat Rob” was holding up the line insisting on his creditworthiness.  After a full minute of “careful consideration,” (language contained in the scripted letter from Citibank explaining its verdict), three coordinating players reached a conclusion that I lacked “sufficient credit experience.”

            A pox of all their bourses: Experian for failing to generate a complete record of my credit “experience” and its policy of preventing interaction with a live person, EVER; Citibank for relying on Experian’s lazy, defective and incomplete credit recording; and Best Buy for allowing Citibank and Experian to ruin my interest in ever setting foot in their stores.

            I base my grievances on the common-sense view that I AM credit worthy: nearing 64, I have managed to make timely payments on six figure mortgages and hefty credit card balances.  I have an 800+ credit rating and five figure credit allowances.  I would reach the important 15-20 year experience with the same credit card, but the number drops to zero almost every time I receive an unsolicited, new card, with a different account number, because of a security breach.

            I have plenty of evidence to prove credit worthiness, if Experian and the other credit rating and reporting companies had algorithms making decisions based on the likelihood of not defaulting.  I have concluded that Experian has a mandate to predict likely use of credit, particularly likely need/inclination to pay on time.  Creditworthiness appears to be a secondary consideration.

            It may be that Experian deemed my credit history “inadequate,” because I have this measurable and reportable history of paying debts on time and a predisposition not to incur debt in the first place.  I apparently lack credit experience, because I have not joined the more common ranks of people willing, or obligated to pay 24% or more on credit card debt.

            I did get the opportunity to discuss this matter with a live, breathing human at Citibank.  She started with a scripted response mentioning that I while I did not “qualify” for a platinum colored card, I could receive a gold one upon paying a $59 annual fee.  With some prodding, she suggested that I could become more experienced with credit if I took out a mortgage, paid interest on credit card debt, used my cards more frequently, generated balances closer to my allowance and used more cards—like most red-blooded Americans.

            This experience and my ongoing research of two-sided markets confirm that people who pay in cash subsidize credit card users and encourage debt, perhaps even unsustainable debt. 

            Perhaps the Experian algorithm detected me as someone unlikely to incur debt, or even to use the credit card regularly.  Guilty as charged.

Top Ten Irreverent Predictions for 2019 (Part Two)

6) Tough love and interventions won’t cure our 

         social network addictions.

Just now, Facebook has experienced yet another disclosure of unsavory business practices that contradict its preferred persona as a trustworthy steward of valuable and private data.  Yet again, the company did exactly what it stated it would not do.  In response to the disclosure, Facebook senior management uses a “no harm, no foul” defense.

Despite ample evidence that the company willfully breaks things like the truth and transparency, the vast majority of subscribers will not abandon Facebook.  This company appears invincible and not subject to creative destruction of their business plan by new ventures.  Facebook has the financial resources to buy insurgent firms and has so exploited scale and networking externalities apparently making it irreplaceable.  

Don’t buy the argument that dominant firms are one click away from obscurity. 

Do not expect the companies like Facebook to turn over a new leaf, because their existing business plan works incredibly well: extract maximum value about of consumer data and mouth words about self-regulation and respect for the subscriber.

7) Consumer surplus from two-sided markets 

declines further.

Social networks and other broadband intermediaries can offer lots of desirable “free” services.  These platform operators can decide which market side to demand compensation and regularly calibrate who gets subsidized access.  This process can benefit consumers.  For example, credit card users like cash rebates and “free” airline miles.  It appears that consumers get something for nothing.

Think again.  Even in the credit card, bricks and mortar world, vendors have to recoup the 1-5% swipe fees they pay for processing credit card purchases.  In the Internet ecosystem, platform subscribers surely pay to subscribe to services.  Big data has value and intermediaries have mastered the ability to collect, collate, and sell consumer data.

Data mining does more than make sure dog owners do not receive cat food commercials.  The process makes it ever more likely that vendors can “size up” a prospective buyer and know the price a specific customer will agree to pay.  So-called surge pricing calculates, with great precision, the current state of supply and demand.  Uber customers like having the opportunity to pay less than the fixed tariffs of taxi companies.  Not so much when dynamic pricing far exceeds the cab fare.

8) Fresh water economics trumps the salt water version.

Antitrust economists increasingly adhere to vastly different philosophies and market assumptions based on which academic “school” of thought they embrace.  Curiously, coastal universities have a majority of scholars inclined to support some degree of judicial and regulatory intervention to remedy marketplace flaws and to pursue equity goals.  Scholars located in interior locales appear more inclined to trust an unfettered marketplace to serve consumers.

For several decades, antitrust courts have embraced the interior, fresh water school of thought originally championed by academics at the University of Chicago.  This Chicago School orientation supports a libertarian view that government and courts should not intervene if near term consumer benefits accrue.  

Several of the assumptions made by Chicago School economists appear questionable in the Internet ecosystem.  For example, Amazon continues to forgo profits in the quest for expanded shelf-space of products and services.  Chicago School adherents would not expect any venture to eschew profit maximization based on the view that it might not have future opportunities to recoup predatory, or long term promotional prices.

It has become increasingly clear that a short-term emphasis on downstream benefits to consumers from platforms ignore both near term and future harms upstream.  Platform operators like Uber can change prices quickly and extract maximum returns, despite having made negligible investment in physical assets like cars. Social networks like Facebook accrue billions in advertising without having to make any significant investment in self-generated content. 

I question the value proposition touted by many platform operators, but not many others apparently agree with me.  I suspect that consumer welfare actually suffers from judicial adoption of Chicago School doctrine, but a new policy and philosophical regime does not appear likely in the near term.

9) Information, Communications and Entertainment 

markets further concentrate.

While the occasional article notes a vast increase in market concentration, few legislators or antitrust courts seem bothered.  I think they should be, particularly when a sober, clear thinking publication like The Economist detects considerable harm to both consumers and competition.

It appears that sponsored researchers, spin doctors and lobbyists collectively remain effective in their pitch that mergers accrue ample public service dividends.  The merged company—like TMobile-Sprint__will become a “more effective competitor.  What does that mean?   Will consumers benefit from lower prices, more options and greater innovation? How are three 5G wireless networks better than 4 networks?

Consider the recent consolidations in pharmaceuticals and commercial aviation.  I do not see less as more.  Big Pharma, acquires insurgent firms, exploits patent loopholes to prevent market entry of generic options and raises prices by thousands of percentage points.  Big Aviation devotes sleepless afternoon improving their business class seats while imposing ever more draconian rules and fees on economy customers.

How can companies reduce the value position of their goods and services while simultaneously raising prices?  

10) Restoring Internet Freedom translates into lots of costly 

“free” enhancements.

FCC Chairman Pai’s Internet deregulatory bandwagon continues its merry way, most recently declaring wireless messaging as an information service even when the service travels via conventional telephone networks and appears as letters and numbers.  On the other hand, Chairman Pai’s beneficiaries correctly note that the world has not stopped spinning on its axis and that consumers definitely like services that appear to cost zero, as in zero rated video that does not debit a still limited data plan.

The possibility exists that Chairman Pai has not restored Internet freedom, but merely facilitated the opportunity for carriers to operate biased networks that harm individuals and society. Beneficiaries of better than best efforts routing and service subsidies welcome such flexibility.  However, First Amendment freedoms decline when a wireless carrier can refuse to carry content, or throttle it when in its sole judgment the content is deemed inappropriate, or competitively harmful.

The court of public opinion likes subsidizes and zero-rated access to content. Consumers may not like it when more and more anecdotal evidence shows how biased carriage distorts the truth in much the same way as bots and fake news contaminate social networks.

Top Ten Irreverent Predictions for 2019 (Part One)

1)         TMobile CEO John Legere opts for a shorter hair style and 

             develops an aversion to pink.

           

            At age 60, Mr. Legere never convinced me with his “maverick”

hair and clothing style.

            In 2019, he will cut his hair and ditch the biker garb, because a combined TMobile-Sprint venture will not be the disruptive competitor that TMobile truly was when it had no alternative.  The merger enhances the ability of U.S. wireless companies to charge some of the highest rates in the world.

            Expect even higher rates, bolstered profits and lots of “free” and “unlimited” services that are neither.

2)         4-1 is less than 4.

            A reality check folks: does anyone honestly think reducing the number of major U.S. wireless competitors to three will benefit consumers?  Competitive necessity and the burden of devoting sleepless afternoon innovating declines when it becomes easier to match prices set by AT&T and Verizon.  A combined Sprint-TMobile means fewer 5G towers and less pencil sharpening.

            Unfake news flash: four viable competitors are better than three.  The combined company has no greater incentives to make capital expenditures and no greater access to capital than the efforts of two separate companies.

3)         It will get even more difficult to talk to a human 

             “customer service” representative.

            Recently, a series of remarkably bad corporate screw ups have sucked massive amounts of time and spirit from yours truly.  Vanguard Investments mishandled a major roll over of a retirement account and compounded the error by having a customer service procedure designed to prevent access to someone with authority to correct mistakes. 

            There’s a right way, a wrong way and the fill in the blank company way.  Vanguard cannot convert the registration of a retirement account while maintaining the identical number of shares.  To add insult to injury, the company generated a scripted letter that blames  unspecified government regulations requiring a two-step over process that imposed a sizeable financial risk when account one gets cashed out and account two cannot get funded for days.

            At least in the Vanguard screwup, I got to talk to a human.  Experian, one of the three major credit reporting companies, makes it just about IMPOSSIBLE to talk to, or correspond with, a human.

            At the tender age of 63, I would think that Experian could have reached the conclusion that I am credit worthy.  I have a multi-decade record of timely bill payments, have hefty lines of credit, handled six figure mortgages and have an excellent current credit score. 

            Imagine my surprise and embarrassment when, at point of purchase with other purchasers in line behind me, I was denied opportunity to apply for a BestBuy credit card and receive a 10% discount for my first purchase. The reason: Experian’s incomplete report convinced a Citibank algorithm that I lacked “sufficient credit experience.”

            I think insufficient credit experience means I do not pay 24% interest rates on credit card debts and lack other kinds of debt, such as a mortgage.  In other words, I do not deserve a high end credit card, because Experian does not have enough evidence that I can manage debt, or perhaps the algorithm projected insufficient fee and interest revenues.  Apparently, being debt-free is bad, but of course Citibank would allow me to get an inferior card if I agreed to pay it a $59 annual fee.

            Does this make sense to you?  Might human intervention and common sense have remedied these problems?  Ask the algorithm.

4)         If you can “handle the truth,” listen to buy side Wall Street 

             telecom analysts.

            Being an academic, telecommunications policy researcher and writer, I consider it a worthwhile duty to seek out all points of view and even alternative facts/statistics.  I am inundated with obviously bogus assertions how a specific regulation helps or hurts Americans.  This Blog attempts to refute unbelievable assertions such as the canard that network neutrality regulation singularly caused U.S. companies to invest billions less in infrastructure.

            Listen to financial analysts, if want to know the truth about the current state of play in 5^th generation wireless, the health of the broadband ecosystem and true marketplace conditions.  In a recent teleconference, an analyst advising what stocks to buy in the Internet/telecom sector, made several matter of fact statements that clearly dispute what Chairman Ajit Pai and others want us to believe:

1)         Network neutrality, or the lack of it, has limited—if any-- impact on carrier capital expenditures.  Capex ebbs and flows with the need to invest in next generation plant and that necessity trumps regulatory uncertainty, the potential for future disruptive litigation and whether carriers have duties to make their networks accessible, or not.

2)         The likely approval of the TMobile-Sprint merger will help carriers raise prices and increase Average Revenue Per User, no if, ands, or buts about it.

5)         In these uncertain times, don’t expect “unlimited” to have 

             a simple, singular meaning.

            Sadly, no court or regulatory agency (included the much touted reliance on the Federal Trade Commission) will insist that unlimited has a singular and commonly understood meaning.  Once upon a time it did: unlimited meant without limits, and no caps on usage, or throttling of bit transmission speeds. We live in a more sophisticated and complicated world now where unlimited has a new meaning: conditional and qualified use of a service.

            I readily admit that the court of public opinion likes to think that some service is unlimited and free.  There’s a suspension of disbelief and common sense when unlimited actually means that caps on usage will result in service so slow that it cannot provide reliable carriage of data.

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.

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.

           

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.

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 (6^th 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?