Award Winning Blog

Wednesday, May 15, 2024

I’m Not Buying the Plausible Deniability Gambit of AT&T Wireless

             AT&T Wireless has appealed the FCC’s $57 million fine for monetizing up to the minute subscriber location data that the company had no legal right to release, absent “opt in authorization from subscribers https://www.law360.com/articles/1835513/attachments/0.  The company’s primary defense relies on the deliberate strategy of ignoring the actual uses of the data by third parties of the two location information aggregators with which it sold the data.

             If even a few of the 300+ million wireless subscribers in the U.S. (see https://www.ctia.org/the-wireless-industry/infographics-library; https://datareportal.com/reports/digital-2024-united-states-of-america) fully understand how extensive their location data has been exploited, the court of public opinion would lash out vigorously against the wireless carriers.  This probably will not happen, because no one, other than the carriers and their information broker customers, will know the total revenues accrued and the extensiveness of the data exploitation.   

            Consider the efficacy of non-disclosure agreements, the lack of full evidence gathering by the FCC and reviewing courts, and attorney client privileges that block disclosure of how extensive the data selling was. AT&T is banking on the premise that because no one will ever know the breadth and value of the location data, no one can refute the company’s assertion that the FCC has overreacted to one minor incident that the company resolved years ago. AT&T wants us to believe that only one bad actor existed, the one identified by reporters of New York Times.  See  https://www.nytimes.com/interactive/2019/12/19/opinion/location-tracking-cell-phone.html.  

            Arguably (in its most expansive context), we should accept AT&T’s premise that everybody else, including the massive number of third-party data location brokers and users, absolutely complied with any and all non-disclosure and anonymization requirements.  

            AT&T deliberately structured its disclosure of subscriber locations in a manner that insulated the company from knowing how the data was used by customers of the “Location-Based Services” the company provided two location information aggregators: LocationSmart and Zumigo.  See https://docs.fcc.gov/public/attachments/FCC-24-40A1.pdf. In legal terms, AT&T had direct, “privity of contract” with only two commercial ventures.  AT&T had every reason to insulate itself from knowing what its direct contractors did with the data, how much money they made, and how many location disclosure deals the two ventures cut with third parties.  

            No one should buy AT&T’s plausible deniability rationale that it’s possible that the thousands of the information aggregator clients did nothing wrong.

Tuesday, May 14, 2024

About That Universal Service “Tax”

            Universal service opponents like to claim in real courts, and the court of public opinion, that the surcharge imposed by carriers represents an unlawful tax.

             Consumers’ Research, the advocacy group seeking to have universal service funding deemed unconstitutional, wants several courts to endorse its view that the “revenues raised for the Universal Service Fund pursuant to 47 U.S.C. § 254 are taxes and therefore Congress’s standardless delegation to the FCC of authority to raise and spend nearly unlimited taxes violates Article I, section 8 of the U.S. Constitution.” https://storage.courtlistener.com/recap/gov.uscourts.ca5.215996/gov.uscourts.ca5.215996.1.1.pdf?ref=broadbandbreakfast.com at p. 4.

             When asked whether universal service funding constitutes a tax, former FCC Commissioner Harold Furchtgott-Roth stated:  “I think the way it’s structured now it’s unambiguously a tax. It’s -- the people who pay in — and the statute’s very clear.” https://fedsoc.org/events/consumers-research-v-fcc-and-the-legality-of-the-universal-service-fund-contribution-regime.

             Several advocacy groups preach the gospel that Congress has no legal authority to create a universal service funding mechanism and in turn the FCC has no basis to establish policies and rules, nor can it delegate administrative responsibilities to the Universal Service Administrative Co.

             If, somehow, they never learned the distinction between a tax and a legislatively mandated charge, that carriers pass through in its entirety to subscribers, consider what a wireless reseller discloses in its terms of service:

             Surcharges

When imposed, unless prohibited by applicable law or agreement, you agree to pay all surcharges (“Surcharges”), which may include, but are not limited to: Federal Universal Service; various regulatory charges; Kroger Wireless administrative charges; gross receipts charges and certain other taxes imposed upon Kroger Wireless; or charges for the costs that we incur and pass along to you. Surcharges are not taxes, and we are not required to assess them by law. They are charges we choose to collect from you, are part of our rates, and are kept by us in whole or in part. The number and type of Surcharges will be provided and may vary depending upon the location of the transaction or the primary account address of the payment method or Device and can change over time. We determine the rate for these charges, and these amounts are subject to change as are the components used to calculate these amounts. https://www.krogerwireless.com/support/terms-and-conditions

             When creating contracts and tariffs, wireless service providers must play it straight.  Elsewhere it’s caveat emptor.

 

Tuesday, April 30, 2024

Thought Exercise on CPNI

             I recognize that many of my posts are technical, complex, and “inside baseball.”  However, the matter of wireless carrier disclosure of location information is really, really, important, and rather easy to understand.  

             For public safety, national security, emergency response, and a host of other issues, location data can save lives.  On the other hand, commercial exploitation of location data can kill people. 

             It does not take too much speculation to come up with scenarios where disclosure for compensation by commercial ventures can trigger catastrophe.  For every bail bond professional tracking of a client who failed to show up in court, there are scenarios where location information makes it far easier for stalking and worse.

             Here’s a thought exercise.  Can you come up with any scenario where a landline or wireless telephone company will reveal to you the name and address of a subscriber?  There are commercial ventures that can disclose home and business addresses associated with a telephone number.  But no telecommunications carrier has ever agreed to disclose either a fixed or mobile location of a subscriber upon a one off, anonymous request. Directory Assistance provided a telephone number if you identified a name and address.  The carriers even monetized unlisted numbers for subscribers who did not disclosure of such relatively benign information.

             What could entitle the wireless carriers to disclose such location data on a commercial, contractual basis?

             Is anyone else livid that their location data was commercialized and monetized for years?  Is anyone disgusted by assertions that the FCC has no legal basis to act?

How Much Did the U.S. Wireless Carriers “Earn” From “Location Information Aggregators”?

             The FCC lawfully fined U.S. facilities-based wireless carriers nearly $200 million for selling highly intrusive location data about subscribers without their “opt-in” consent.  See https://www.fcc.gov/document/fcc-fines-largest-wireless-carriers-sharing-location-data.

             In Section 222 of the Communications Act, Congress comprehensively specified how the carriers bore an affirmative duty of care not to disclose clearly defined Customer Proprietary Information (“CPNI”).  See https://www.law.cornell.edu/uscode/text/47/222. The Act explicitly required the FCC, and no other agency, to protect telecommunications consumers.

             The language in this section is quite unambiguous.  Congress surely answered the “major question” whether and how the FCC has jurisdiction to protect telecommunications service subscribers from the unconsented commercial exploitation of data about their immediate location.

             There is no basis for the carriers, or certain dissenting FCC Commissioners, to state that the Federal Trade Commission has exclusive jurisdiction over any and all consumer privacy issues.  See https://docs.fcc.gov/public/attachments/FCC-24-40A3.docx.  Wireless carriers need subscriber location information to route calls to consumers and to provide access to their networks.  Privacy surely can be invaded by unlawful disclosure, but the reason wireless carriers generate and process this information is a fundamental technological element in how they provide service to subscribers.

             There is no doubt that all the facilities-based carriers “monetized” this information, but we will never know how many millions they received, because the carriers would scream bloody murder that such information is “business confidential” and “proprietary.” I’ll bet the carriers received far more than the $200 million they have to forfeit.

             If you follow the logic for exonerating the wireless carriers, it is okay for the carriers to provide nearly instantaneous location information for compensation, because such disclosure does not constitute anything proprietary within the meaning of Section 222 of the Communications Act. The exonerators dug themselves an even deeper jurisprudential hole when they claim the FTC has exclusive jurisdiction to decide whether and how to sanction CPNI disclosures.

             Once upon a time both Democratic and Republican FCC Commissioners acted in a nonpartisan, unanimous manner to protect consumers. So did Congress when it enacted Section 222 and amended it on several occasions.

             Now we have apologists for truly egregious behavior by carriers who surely knew they were creating a lucrative, but illegal, new profit center.  It does not help that they mended their ways a few years ago.

Monday, April 29, 2024

Does the FCC Have a Safe Harbor to Deregulate Despite the 1994 MCI Case Precedent?

             The prior blog entry suggested that the Supreme Court would have to use a semantic sleight of hand to approve FCC deregulatory initiatives while vacating new or resurrected regulatory rules and requirements.  See https://telefrieden.blogspot.com/2024/04/does-supreme-court-conservative.html. On further review, I think there just might be a way to pull this blocked on one side, open on the other gambit.

             Despite all the speculation about pending foreclosure of regulatory agency discretion, there is a provision in the Telecommunications Act of 1996 that the Court might deem sufficiently clear to withstand the major question and ambiguity roadblocks: 47 U.S. Code § 160 - Competition in provision of telecommunications service.  See https://www.law.cornell.edu/uscode/text/47/160.

             This Section establishes three evaluative criteria for the FCC to use when considering a deregulatory proposal for Title II, telecommunications service providers:

 (1)       enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;

(2)       enforcement of such regulation or provision is not necessary for the protection of consumers; and

(3)       forbearance from applying such provision or regulation is consistent with the public interest. 47 U.S.C. §160(a)(1)-(3).

             There’s a lot of wiggle room in the criteria for a pro marketplace-oriented FCC to abandon common carrier rules and regulations.  Despite all the conservative majority’s antipathy toward regulatory agency activism, Section 160 just might provide enough clarity to green light major deregulatory initiative.  

             No questions asked.

Friday, April 26, 2024

Does the Supreme Court Conservative Majority Want to Prevent Regulatory Agencies from Responding to Technological Innovation and Changed Circumstances?

             Despite ample and longstanding case precedent, the Supreme Court appears ready to prevent regulatory agencies from acting when a statutory mandate is ambiguous and outdated. 

The Court appears ready to prevent regulatory agencies from “changing its mind” about the proper scope of regulation, either to increase, or decrease oversight.

            The Court’s conservative super majority wants to reverse its Chevron Doctrine that conditionally supports judicial deference to the expertise resident in agencies such as the Federal Communications Commission.  See https://www.law.cornell.edu/wex/chevron_deference.  Additionally, the Court wants to deem off limits any issue that constitutes something so important that Congress must legislate. See West Virginia v. EPA, 142 S. Ct. 2587 (2022); https://law.stanford.edu/publications/testing-the-major-questions-doctrine/.

             This means that if Congress does not enact timely clarifications and updates to a law, regulatory agencies cannot “fill in the blanks.” If the FCC and other agencies cannot act, doesn’t this mean that they cannot establish new rules and regulations, but also they cannot deregulate, despite changed circumstances?

             Does it also foreclose actions by both Democratic and Republican majorities to alter a regulatory regime by changing what Communications Act Title applies? Having done so previously, the FCC recently restored the application of Title II telecommunications service, common carrier to Internet access. https://www.fcc.gov/document/promoting-fast-open-and-fair-internet, ¶153-186.

             I hope this Court will not attempt a textual analysis of original statutory intent to establish the basis only for regulatory agency abandonment (but not new, or renewed application) of a statutory mandate, absent congressional authorization.

             If the Court wants to endorse unilateral, unauthorized deregulation, then it will have to reverse another longstanding case precedent that prevented the FCC from removing telecommunications common carrier tariffing requirements in light of marketplace dynamics favoring more facilities-based competition and less regulation.  See MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U.S. 218 (1994); https://supreme.justia.com/cases/federal/us/512/218/.

             In a decision written by Justice Scalia, a far more principled Supreme Court in 1994 did not allow a Democratic majority FCC to “jump the gun” with a deregulatory initiative that contradicted a clear statutory mandate: “It is effectively the introduction of a whole new regime of regulation (or of free-market competition), which may well be a better regime but is not the one that Congress established.” 512 U.S. at 234.

             The Court properly decided that Congress had to act and it did so in a timely manner. Sadly, the current gridlocked congress has little likelihood of enacting essential statutory revisions. 

             Unless the Court comes up with a clever and undisciplined roadmap for unilateral deregulatory initiatives, while prohibiting new rules and regulations, agencies like the FCC will become powerless to make deregulatory, regulatory, or re-regulatory actions.

             Now that would be job killing, investment thwarting, and innovation stifling.

Thursday, April 25, 2024

The Wall Street Journal Editorial Board's Faulty Memory

             You would think the Editorial Board of the Wall Street Journal would remember what it wrote about network neutrality. In its April 24th diatribe against network neutrality regulation,

https://www.wsj.com/articles/fcc-net-neutrality-jessica-rosenworcel-biden-administration-internet-b427c825?mod=opinion_feat1_editorials_pos1; the Board appears has forgotten how it spread the gospel that classifying Internet access as telecommunications service, subject to streamlined regulation, would stifle investment, innovation, and employment in the wireless industry. No 5G, no billion-dollar acquisitions, and nothing but stagnation in an industry otherwise considered quite dynamic and robust.

             The Editorial Board joined a large cast of characters, including former FCC Chairman Ajit Pai, and gobs of “coin-operated” sponsored researchers, in ignoring a basic tenant in high tech finance: Research and development, as well as capital expenditures in next generation service, trump any regulatory initiative, no matter how misguided.

             The Editorial Board also lost track of where U.S. wireless carriers operate along a technology curve in any given year.  High investment occurs when competitive necessity requires carriers to install next generation equipment, followed by far less investment once the new plant becomes operational.

             Wireless carriers cannot afford to punish overzealous regulators with skimpy investment at the onset of next generation service, nor do they overinvest simply because a more lenient and favorable regulatory environment exists, soon after a high point in new technology deployment.

             The Editorial Board also seems to have forgotten the initiatives by much loved fellow conservatives to require content neutrality by liberal and biased Internet Service Providers.  Some of the Journal’s best buddies urged Congress to mandate common carriage regulation of the Internet.

Thursday, February 22, 2024

Can You Hear Me Now?


            Yet again, a significant wireless network outage has caught users unaware.  See https://www.nytimes.com/2024/02/22/business/att-outage.html; https://www.cnn.com/2024/02/22/tech/att-cell-service-outage/index.html. There’s an inverse relationship between one’s growing reliance on wireless networks and their reduced reliability compared to less elegant wireline technologies the carriers want to abandon.

            Our near exclusive reliance on wireless cellphone service increases the risk of both carrier responsible outages and a subscriber self-induced service disruptions.  These outcomes are an inconvenient truth: centrally managed, software driven networks regularly fail.  When they do so, emergency 911 service also fails.  On the consumer side, cellphone batteries typically need daily recharging.  If the electrical grid has an outage, cellphone batteries cannot get recharged.  Even standalone battery charging units also need recharging as they lose power over time.

            Once upon a time, telephone companies of the world championed “toll grade” sound quality, redundant, “self-healing” networks, and high quality of service.  They generated their own power with 99.9999+ percent reliability.  On the other hand, they did have financial incentives to “gold plate” networks, because doing so supported higher rates, more revenues, and larger profit margins.  Now, the incentives work the other way. Scrimping on maintenance enhances profits and market concentration makes it possible to avoid any major subscriber churn to another carrier perceived as offering more reliable service. 

            Today, some inconvenienced AT&T Wireless subscribers may get ticked off, but they have no recourse at the FCC, the court of public opinion, and the marketplace.  The FCC has no perceived upside in imposing quality of service minimum standards, outage reporting, refunds for service disruptions, truth in billing disclosures, etc. Such consumer protections would make the wireless carriers howl about overreach given how robustly competitive and self-regulating the wireless market operates.  The court of public opinion already loathes the wireless carriers, but having a oligopoly of three national carriers means they do not suffer when outages occur, providing poor customer care, and engaging in “consciously parallel” conduct such as collusion and price fixing.

            Does anyone truly believe a market share of 95% shared by three carriers forces sleepless afternoons competing and innovating?  That “free” video streaming service you get with a wireless subscription and the not free “on us” carrier handset has less value when you cannot use them.

            Carriers to customers: “Get a grip and deal with it. We will restore service as soon as we can.”

 

           

Friday, February 16, 2024

A Brief Primer on Anti-satellite Warfare Tactics

A Brief Primer on Anti-satellite Warfare Tactics

Satellites make it possible for governments to provide essential services, such as national defense, navigation, and weather forecasting.  Private ventures use satellites to offer highly desired services that include video program distribution, telecommunications, and Internet access. The Russian launch of a satellite, with nuclear power and the likely ability to disable satellites, underscores how satellites are quite vulnerable to both natural and manmade ruin. See https://www.nytimes.com/2024/02/14/us/politics/intelligence-russia-nuclear.html.

The Russian launch increases the risk that satellites can be disabled, immediately evaporating billions of dollars in value, while also adding to space debris that can collide with satellites, rendering them worthless.  Having a nuclear power source, extends the available time in space and probably the maneuverability of the satellite.  This capability arguably violates a treaty-level Russian commitment to keep space nuclear-free. Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies, Article IV (1967); https://www.unoosa.org/oosa/en/ourwork/spacelaw/treaties/outerspacetreaty.html.

However, the U.N. document lacks any enforcement option and Russia surely will characterize its technology as a source of operational power and propulsion, not weaponry.  

Set out below, I explain how the sun and manmade anti-satellite techniques can annihilate satellites.  Despite global consensus to promote peaceful uses of outer space for the benefit of everyone, the stakes have increased that space will become “weaponized” of as a new theater of warfare See Rob Frieden, Dangers From Regulatory Vacuums in Outer, Inner, and Near Space (Nov. 2023); https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4628699; https://www.reachingcriticalwill.org/resources/fact-sheets/critical-issues/5448-outer-space; https://armscontrolcenter.org/fact-sheet-space-weapons/.

Natural Risks

Satellites are launched into various locations above earth where solar radiation can rise to a level that disrupts circuitry and orbital stability.  The earth’s gravitational force, pulls satellites downward.  Satellites need on-board propulsion to offset gravity, but such “station keeping” capability is limited by available fuel and power.  Because satellites cannot be repaired or refueled in orbit, components, like batteries, eventually fail.  Satellites in outer space, from about 60 to 22,300 miles above earth, typically have a useable life of 10 years.  Low earth orbiting satellites, closer in proximity to earth and smaller in size, have much shorter life expectancies.

Human Risks

While satellite technology has vastly improved, roughly one in three launches fail to insert space objects into proper orbit.  Leaky rocket boosters, design defects, weather conditions at launch, and other factors can render a massive investment of time, money, and effort worthless.  Even if a satellite reaches the proper location, components may fail prematurely resulting in diminished performance and early end of life.

The risk of costly calamities in space has risen at an alarming rate, because national governments understand the importance of space orbiting resources, for surveillance, communications, earth observation, and navigation.  China, India, Russia, and the United States have developed so-called anti-satellite technologies designed to disrupt or eradicate operational satellites. See https://aerospace.org/sites/default/files/2020-10/Gleason-Hays_SpaceWeapons_20201006_0.pdf. The techniques include earth-based and orbiting resources that can directly impact a nearby target or do so from a distance. Currently available options include missiles and other projectiles, as well as using radio, lasers, and software to disrupt the satellite’s ability to receive instructions and perform as designed.

Nations can render satellites worthless in ways that limit the damage solely to the satellite, by nudging it out of a stable orbit father outward into deep space, or downward toward earth at a trajectory resulting in complete vaporization.  Failing to execute either of these two strategies can result in the creation of thousands of intact space debris that can later collide with other satellites.

Space Treaty Obsolescence and Ineffectiveness

Just as the private and public opportunities increase using space to benefit everyone, a chronic lag in government oversight, consumer safeguards, and essential operational guardrails, has the potential to frustrate and possibly thwart progress and stability. The five Space Treaties, administered by the United Nations, see https://www.unoosa.org/oosa/index.html; has not foreclosed the growing risk of catastrophic space vehicle collisions, the proliferation of space debris that increase the odds for additional collisions, and the incentive and ability of some to weaponize space.

Unless the nations of the world quickly revise the treaties to clarify what is meant by peaceful uses of outer space, some space faring governments will exploit ambiguity with potentially disastrous consequences.


Tuesday, February 13, 2024

Lies, Damn Lies, and Selective Statistics About Our Great Wireless Marketplace Thanks to the TMobile Acquisition of Sprint

             In the February 13th edition of the Wall Street Journal, Professor Thomas W. Hazlett offers a breathless endorsement of market concentration with the TMobile acquisition of Sprint his go to example.  See https://www.wsj.com/articles/t-mobile-proves-that-mergers-can-benefit-consumers-8fab2890.  Apparently, mergers and acquisitions benefit consumers, because they enhance competition and generate all sorts of positive outcomes that could not possibly have occurred, but for the reduction in the number of industry players.

            Professor Hazlett has cherry picked statistics to create the false impression that mergers are the primary trigger for all events enhancing consumer welfare.  Conveniently, he ignores the benefits accruing from technological innovation, maturing markets, and the likelihood that just about all of his evidence would have occurred even if TMobile had not acquired Sprint.

             Do not be fooled into suspending disbelief and ignoring common sense.  Companies merge, because senior management believes industrial consolidation will enhance shareholder value, generate bonuses, and make it less essential to work sleepless afternoons, reduce operating margins, and enhance the value proposition of the goods and service offered.

            Here’s a reality check: consider whether and how TMobile continues to serve as the wireless marketplace maverick keen on innovating and distinguishing itself from the clueless market leaders AT&T and Verizon.  The judge approving the $26.5 billion acquisition of Sprint shared Professor Hazlett’s enthusiasm that a bolstered TMobile would have even greater capabilities and incentives to acquire market share and trounce the bigger incumbents:

 

[I]t is highly unlikely that New TMobile executives, upon the company being reinforced  nearer in size and resources to AT&T and Verizon, would do a commercial about-face and instead pursue anticompetitive strategies. State of New York et al v. Deutsche Telekom AG et al, No. 1:2019cv05434 - Document 409 at 160-61 (S.D.N.Y. 2020). available at: https://cases.justia.com/federal/district-courts/new-york/nysdce/1:2019cv05434/517350/409/0.pdf?ts=1581513636 … [T]estimony and documentary evidence revealed . . . a company reinforced with a massive infusion of spectrum, capacity, capital, and other resources, and chomping to take on its new market peers and rivals in head-on competition. Id. at 161

             Do you consider TMobile as operating with the competitive zeal anticipated by an approving court and attributed by Professor Hazlett?  Put another way, post-merger, what has TMobile offered to distinguish itself as the better of three options?

             TMobile has relaxed its maverick, competitive muscles making it possible for all three gigantic carriers to raise rates, well above the general inflation level.  TMobile matches, and in some instances, exceeds comparable options from AT&T and Verizon. https://www.lightreading.com/5g/t-mobile-s-premium-pricing-passes-at-t-verizonhttps://ktla.com/news/money-smart/t-mobile-planning-to-move-customers-on-older-phone-plans-to-newer-ones/https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. The three carriers have nearly identical rates and differentiate primarily on what “free” video streaming service they bundle and how clever they can confuse consumers into assuming “on us” means a free handset.

             There’s an inconvenient fact that U.S. wireless subscribers pay some of the highest rates globally. See, e.g., https://communitytechnetwork.org/blog/why-is-the-internet-more-expensive-in-the-usa-than-in-other-countries/https://kushnickbruce.medium.com/at-ts-wireless-profits-are-outrageous-at-t-s-5g-wireless-prepaid-prices-are-obscene-compared-dc15c57926fhttps://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-countryhttps://www.quora.com/Why-are-phone-plans-in-the-US-so-expensive-compared-to-other-countries-not-hate/.

             Statistics do show a long-term reduction in cost based on increasing minutes of use and data consumption, i.e., the per voice minute or per megabyte of data price has dropped precipitously.  As markets evolve and carriers accrue greater economies of scale, prices should decline.  However, the rate of decline in the U.S. pales in comparison to that occurring just about everywhere else.  

             Recently, all three U.S. wireless carriers have raised, not further reduced rates.  See, e.g., https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. TMobile triggered major pushback when it sought to eliminate service tiers and force an “upgrade” to something significantly more expensive. https://www.fiercewireless.com/wireless/t-mobile-will-migrate-customers-higher-cost-plans.

             I can find nothing about the T-Mobile acquisition of Sprint proving how mergers can benefit consumers.

 

Thursday, February 8, 2024

The Quickening Pace of Landline Retirement

Sooner rather than later, landline telephone service will completely transition to wireless and Internet-based calling, commonly referred to as Voice Over the Internet Protocol ("VoIP").  While the FCC, for over a decade, has precluded a “flash cut” service termination, I expect the timeline for copper wire service retirements to shorten. Last year, the FCC removed a federal statutory obligation for landline, copper service where “Plain Old Telephone Service” alternative service exists. See https://docs.fcc.gov/public/attachments/FCC-19-72A1_Rcd.pdf.     Recently, AT&T sought removal of its status as “Carrier of Last Resort” legally obligated to provide wireline phone service in California  See https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M502/K977/502977267.PDF; and https://www.rcrcnet.org/cpuc-announces-public-hearings-att%E2%80%99s-request-discontinue-landline-service.

I terminated landline service with reservations that had kept my household wired for years. I miss the “toll quality” sound, ability to send faxes with ease, and having a standalone answering machine that readily shows inbound voicemails.  I can see how so-called Digital Immigrants might not want to ascend the learning curve on setting up wireless voicemail and programming smartphones to provide notification of calls to a virtual mailbox for messages.

The big problem, particularly for specific households like the elderly, and homes with fax machines, burglar alarms, health monitoring, is the added risks and burdens that consumers must bear.  Landlines use power provided by the telephone company, while wireless and VoIP require home-based power. Cellphones need daily recharging, or the use of portable battery packs.  VoIP calling requires modems and special terminals that may run out of backup battery power after a few hours.

The recent floods in California, Superstorm Sandy, hurricanes, tornados, earth quakes, volcanic eruptions etc. trigger days long power outages. Wireline phone service rarely fails

A few statistics worth noting about 30% of all U.S. households still have landline service, but most also have a wireless option. 75% of households with Seniors and people with certain medical conditions still rely on landline service.  Fewer than 5% of Digital Natives, i.e., people less than 25 years of age, have landline service.

I anticipate a faster pace of landline service closure requests to state Public Utility Commissions like that from AT&T in California.  Because landline service involves local and intrastate service, state PUCs (not the FCC) have jurisdiction.

I expect consumer friendly state regulators, to hold public hearings and to impose tough requirements before agreeing to service terminations.  I anticipate a reduction to single digit national market penetration within the next few years.  The top 100 urban markets should see service closure in the next 2-3 years. The Today Show for Feb. 8, 2024 has a piece that includes my forecast; see https://www.today.com/video/phone-companies-phase-out-landlines-in-homes-203846213929?search=landline%20telephone%20service%20terminations.

Wednesday, January 17, 2024

Antitrust Judicial Review That Gets It Right

             Just when one reasonably could assume that no federal appellate court could possibly do the right thing in a merger review, pigs fly!  Judge William G. Young of the District Court in Massachusetts did not buy the conventional wisdom that all mergers “promote competition.” He rejected the proposed JetBlue’s $3.8 billion acquisition of Spirit Airlines. https://www.nytimes.com/2024/01/16/business/jetblue-spirit-airlines-ruling-merger.html; https://www.law360.com/articles/1786317/attachments/0.

             Millions of dollars in sponsored research and litigation expert witnesses have persuaded jurists and their law clerks that even though a merger reduces the number flights and airlines operating on the same city pairs, consumer welfare somehow increases. The conventional rationale explains that the combined carrier will have greater resources and no less incentives to compete aggressively with larger incumbents.

             How could it ever make sense that a profit maximizing business venture would prefer to devote sleepless afternoons reducing consumers’ out of pocket costs and enhancing their value proposition?  Why would any merged venture take the harder glide path of aggressive pricing and innovation rather than “go along and get along” by matching the dominant carriers’ rates?    

            I remember the unshakable confidence expressed by Judge Victor Marrero of the Southern District of New York, that $37 billion merger between T-Mobile and Sprint would benefit consumers by promoting more competition in the wireless marketplace. See https://casetext.com/case/united-states-v-deutsche-telekom-ag.  

             It did not happen!  

            Since acquiring Sprint TMobile evidences nothing of its former iconoclastic nature.  It has become a happy camper more than willing to engage in “consciously parallel” conduct, quite willing to follow the lead of AT&T and Verizon on price, performance, handset deals, freebie streaming subscriptions, etc.  

            The combination of Sprint and TMobile tower sites has improved TMobile’s reliability, especially in rural locales. But what evidence can anyone show that TMobile now is a deep cost cutter and conscientious innovator?  

            The Big Three now compete on what “free” video streaming service they offer and how much they can deceive consumers about “free” access to the latest and greatest smartphone.  AT&T advertisements first touted free Iphone 15s “on us” https://about.att.com/story/2023/iphone-15.html.  Soon thereafter both TMobile and Verizon quickly used the same “on us” deception.  https://www.t-mobile.com/news/devices/get-iphone-15-pro-on-us-and-be-upgrade-ready-every-year-only-at-t-mobile; https://www.verizon.com/smartphones/apple-iphone-15-pro/.  

            You call this maverick innovation?  The three national carriers deliberately use the same slogan to imply that consumers can get a free handset on them. This is evidence of robust competition?  

            The con job usually works, but maybe someday more consumers will understand that a marketplace with Alaska Airlines, JetBlue, Hawaiian Airlines, and Spirit Airlines works better than if two evaporate.  

            It does not take a rocket scientist to conclude that consumers suffer when four national wireless carriers dissolved into three.

Tuesday, December 5, 2023

Remarkably Bad Consumer Protection at the FCC

 Wireless carrier deception and outright violations of FCC rules and regulation should not come as a surprise.  No wonder consumers hold AT&T, Comcast, Verizon, and TMobile in low esteem. They accrue billions in profits thanks to lax antitrust enforcement, FCC reticence to sanction carrier deceptions, and an apparent inability to require wireless carriers to comply with longstanding rules, including truth in billing, the right of consumers to activate used wireless handsets, and market assessments that ignore inconvenient truths about the lack of effective competition.

 My blood boils at the numerous instances that U.S. wireless carriers do not offer globally competitive rates both wireless service and handsets in the world. See https://www.billshark.com/blogs/u-s-mobile-plans-expensivehttps://voicenation.com/resources/general-resources/where-around-the-world-are-people-paying-the-most-for-their-cell-phone-bill/; https://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-country.

Apparently, senior FCC officials do not travel abroad.  If they had, they would see something ubiquitous outside the U.S.:


See: https://londoncheapo.com/technology/uk-sim-card-options-london/

Contrary to cherry picked data provided by both the FCC and wireless industry trade, associations, wireless rates in the U.S. are not particularly cheap, compared to most other developed countries, and these already high rates are rising, well in excess of general inflation measures. Compare https://www.ctia.org/the-wireless-industry/infographics-library; with https://www.whistleout.com/CellPhones/Guides/average-phone-plan-price.

 Part of the problem lies in the persuasiveness of endless advertising by the carriers touting the bundling of wireless service with so-called “free” handsets.  Few consumers do their homework to detect the bait and switch.  See https://finance.yahoo.com/news/cheaper-mobile-plans-aim-dislodge-141119809.html.

 Not Free, Top of the Line Handsets

 With impunity, Verizon currently has a video ad with a Christmas caroler touting the carrier’s generous offer to give subscribers an incredible deal on Apple iPhone 15 handsets.  In the Christmas spirit of giving, the caroler reports that the handset is available “on us.” 

 Should we infer that “on us” means free?  Bear in mind that the FCC, not the Federal Trade Commission, has consumer protection jurisdiction for so-called Title II regulated common carriers, including ventures offering pre-paid and post-paid wireless service.  Apparently, the FCC has no problem with the use of “on us” marketing. 

 In reality, the fine print in the deal provides wireless carriers and resellers ample opportunity to limit the subsidization of handsets. The phone is not free.  Consumers must subscribe to “unlimited” plans costing $75 or more.  The subscribers locks into a multi-year service agreement.

Ineffectual or Nonexistent Merger Review

 The FCC and Department of Justice failed to convince a reviewing court that TMobile’s acquisition of Sprint would reduce competition and raise prices.  The judge bought hook line and sinker the counter intuitive premise that three gigantic wireless carriers, controlling most of the market, better serve consumers than two gigantic carriers battling two smaller, renegade carriers.  Contrary to the Judge’s conclusion and the sponsored researcher’s studies presented at trial, TMobile has relaxed its maverick, competitive muscles making it possible for all three gigantic carriers to raise rates, well above the general inflation level. https://www.lightreading.com/5g/t-mobile-s-premium-pricing-passes-at-t-verizon; https://ktla.com/news/money-smart/t-mobile-planning-to-move-customers-on-older-phone-plans-to-newer-ones/https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html

 Subsequently, the FCC did not seem to have any problem with Verizon’s billion dollar acquisition of prepaid, wireless service heavyweight Tracfone; https://www.verizon.com/about/news/verizon-completes-tracfone-wireless-inc-acquisition and TMobile’s $1.35 billion acquisition appears similarly benign. https://www.t-mobile.com/news/business/t-mobile-to-acquire-mint-and-ultra-mobile.

Why would a facilities-based carrier pay over $ 1 billion to acquire a reseller of the carrier’s network?  To promote competition? You bet!

 Barriers to the Use of Second-Hand Devices

 In 1956, the FCC started to establish the right of consumers to connect devices to telecommunications networks, limited only by confirmation that such attachment will not cause technical harm.  This Carterfone policy should allow consumers to acquire wireless handsets on the secondary market and have carriers and resellers permit such use.  It’s not happening in far too many instances.

On several occasions, I have tried unsuccessfully to activate a used handset that a carrier has “locked.”  Carriers can legitimately lock handsets, but only during a time when a subscriber has not fully paid for the device.  Some carriers, including Verizon, state that they voluntarily unlock handsets after installment payments have paid for the device. 

Most carriers and resellers conveniently fail to unlock handsets, resorting to clearly bogus assertions that they cannot determine whether the handset has been fully paid.  Both Mint, soon to be owned by TMobile, and Xfinity Mobile prohibit unlocking with an often impossible to satisfy precondition.

This weekend I acquired a 3-4 year old Samsung Galaxy Note 9, primarily to see if I can use the 128 Gigabyte capacity to store and play music files.  Glutton for punishment, as I sometimes appear, I also wanted to see if my dear friends at Comcast would unlock the handset.

 Of course, Comcast imposed a ridiculous condition: the company would only provide an unlock code the current subscriber provided it can determine that the handset is fully paid.  In my case, I acquired the handset at an estate sale for the deceased former owner of the phone.  He’s dead and I have a worthless handset, currently operating as a paperweight and eventually contributing to the glut of electronic waste.

The Comcast agent only would recite scripts in broken English.  I got nowhere explaining that surely Xfinity Mobile could use the IMEI serial number for the phone to research whether the handset was stolen or unpaid.  Common sense would suggest that a 3-4 year old phone, worth no more than $75, surely could pass the paid for threshold.

Not in Comcast world.  I either could activate the handset on Xfinity Mobile, or acquire a different handset.  So much for my Carterfone right to interconnect a not network harming device.

No wonder why people take the path of least resistance and bundle handsets with service, particularly in light of the enticements: free Netflix, Hulu, Disney, etc. and better yet, handsets “on the carrier.”

Such a deal.

Thursday, November 16, 2023

New Publication: REMEDIES FOR UNIVERSAL SERVICE FUNDING COMPASSION FATIGUE

     I am pleased to offer my thoughts on universal service funding reform: Remedies for Universal Service Funding Compassion Fatigue,  39 Santa Clara High Tech. L.J. 395 (2023); available at: https://digitalcommons.law.scu.edu/chtlj/vol39/iss4/2/.

     Here’s the Abstract:

     Nearly every nation in the world has a government mandated program aiming to make telecommunications service more widely available and affordable. Universal service funding subsidies have garnered popular support largely based on the shared view that society and individuals benefit from progress in achieving ubiquitous and affordable access, initially to voice telephone service.

     Technological developments and changes in consumer requirements have generated support for expanding the universal service mission to include broadband access to the Internet, and to identify a growing number of subsidy beneficiaries, now including schools, libraries, healthcare facilities, telephone companies operating in high-cost areas, and people with low incomes.

     This Article summarizes the history and structure of the universal service funding in the United States with an eye toward identifying matters warranting immediate reform. The expansion of the mission to include affordable and widespread access to broadband service has added significant cost, complexity, and incentive to secure funding through fraudulent acts.

     Telecommunications carriers can lawfully pass through universal service funding requirements directly to subscribers, many of whom now question the efficacy and efficiency of the funding process. For the first quarter of 2023, consumers paid a 32.6% surcharge on telecommunications services, but incurred no contribution obligation when providing broadband Internet access and other data services. “Compassion fatigue” has encouraged litigation challenging whether the Federal Communications Commission (“FCC”) has clear statutory authority to impose the functional equivalent of a tax on consumers and to delegate management of the collection and distribution of funds to a private company.

    This Article evaluates the validity of such claims especially when the Covid-19 pandemic highlights the essentialness of broadband access. Additionally, congressional legislation, enacted in 1996, codified the universal service mission and required the FCC to act. The Article also evaluates several different types of universal service funding reform proposals with an eye towards identifying their marketplace impacts.

    Most proposals recommend expanding the categories of universal service contributors to spread the burden more equitably that in turn would reduce the subsidy cost now exclusively borne by telecommunications service subscribers. New categories of subsidy contributors include federal income taxpayers, any venture assigning telephone numbers to subscribers, broadband carriers delivering data to and from subscribers, platform intermediaries, such as eBay, Facebook, Google, and Twitter, and creators and aggregators of content, such as Amazon Prime, Netflix, and YouTube. The Article concludes with an assessment of what reforms can possibly occur in the short term.

 

Friday, October 20, 2023

Network Neutrality Redux and the Return of Falsehoods and Disinformation

            Despite vowing to eschew involvement in the latest Network Neutrality drama, I cannot sit back and let stand the resumption of the distorted gospel preached by the anti-network neutrality crowd.  This group has legitimate criticisms, many of which I have tried, via hundreds of law review pages—to analyze, and even endorse, in specific instances.  

            For example, see Freedom to Discriminate: Assessing the Lawfulness and Utility of Biased Broadband Networks, 20 VANDERBILT JOURNAL OF ENTERTAINMENT AND TECHNOLOGY LAW, 655-708 (2018); https://scholarship.law.vanderbilt.edu/jetlaw/vol20/iss3/2/; Grey nuances in the black and white debate over subsidized Internet access, 41 TELECOMMUNICATIONS POLICY 1017-1026 (2017); http://dx.doi.org/10.1016/j.telpol.2016.10.002; Network Neutrality and Consumer Demand for “Better Than Best Efforts” Traffic Management, 26 FORDHAM INTELLECTUAL PROPERTY, MEDIA & ENTERTAINMENT LAW JOURNAL, 71-102 (Fall, 2015); http://www.fordhamiplj.org/publications/network-neutrality-and-consumer-demand-for-better-than-best-efforts-traffic-management/; Internet Protocol Television and the Challenge of “Mission Critical” Bits, 33 CARDOZO ARTS & ENTERTAINMENT LAW JOURNAL, No. 1, 47-87 (2015);http://www.cardozoaelj.com/wp-content/uploads/2014/01/Frieden-FINAL.pdf.

Even current FCC Commissioners, who ought to know better, will trot out the same clearly untrue parade of horribles.

            Network neutrality regulation will not create a suffocating Internet rate regulation regime.  The Democratic majority has clearly exempted broadband internet access from Title II common rate regulation. By the way, Title II still explicitly applies to wireless telecommunications, like cellphone service, and no one can credibly claim that carriers are severely constrained by  overpowering FCC oversight.  Network neutrality orders have always applied light-handed regulatory oversight.

            Title II of the Communications Act does not impose some atavistic, old school “public utility” regulation.  Despite the growing efforts of the Supreme Court to prevent regulatory agencies from responding to changed circumstances, the FCC has frequently recalibrated its Title II regulatory toolkit over time.  My prior blog post https://telefrieden.blogspot.com/2023/10/upcoming-limits-on-fcc-statutory.html noted that an expansive reading of West Virginia. v. EPA,  https://www.supremecourt.gov/opinions/21pdf/20-1530_n758.pdf might prevent the Commission from streamlining and reducing regulation, unless the Court can craft language that creates an exemption for deregulatory initiatives that require a new and improved statutory interpretation.

A doctrinal and wrong-headed insistence on legislative clarity, ironically could prevent the FCC from improving regulations and make them better in light of fast changing technological and marketplace conditions.  Bear in mind that the last major revision to the Communications Act of 1934, took place in 1996, a time preceding the emergence of a mission critical Internet for most people.  It appears that some of the six conservative Supreme Court Justices now expect Congress to act early and often in revising the Communications Act.  If Congress fails to act—and we surely can expect that--then apparently the FCC is powerless to respond to changed circumstances.

Over several decades, I have tried to explain that much of the problems in applying statutory definitions to Internet access, stems from the FCC’s insistence that a single classification must apply.  The FCC created mutually exclusivity between telecommunications services and information services in 1998 in response to a letter of inquiry from a Senator Ted Stevens. See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd 11501(1998).

Nothing in the Communications Act prevents the FCC from recognizing that technological and marketplace convergence creates service offerings that combine basic and enhanced, telecommunications and information services. Our wireless handsets offer basic plain old telephone service, texting, which used to be a legacy telecommunications service, and other services that combine data processing/information services with telecommunications carriage.

            The FCC does not have to insist on an either/or dichotomy,  Nothing in the Communications Act mandates this.  We have had to tolerate decades long regulatory toggling between telecommunications service and information service, because the FCC cannot wrap its head around the reality that convergence requires a nuanced and admittedly more complicated blend of definitions.  Sometimes the statute does not even provide a definition, such as “advanced telecommunications capability.” The FCC interprets these words to include broadband, but the Republican Commissioners want to ignore the word telecommunications and instead insert information service.  This sure looks like overreaching, legislating by unelected bureaucrats so reviled by the right.  Then again, some of them want to convert social networks into involuntary common carriers to deny them any sort of First Amendment editorial freedom.

            Lastly (I hope!), we really ought to laugh at the false notion that a single regulatory initiative will exclusively impact the aggregate level of infrastructure investment carriers will make in a given year.  Former FCC Chairman Ajit Pai preached this gospel relentlessly and it became a truth for anti-network neutrality advocates. One has to ignore the carriers’ business plans and the ebb and flow of technology investment as a function of innovation and product life cycles. 

To believe the network neutrality investment disincentive canard, one would have to discount the billions invested in new 5G spectrum and network upgrades.  I expect sponsored, voodoo economists to “prove” a decline in carrier network investment going forward.  Should aggregate investment actually decline, this outcome more likely results from the winding down of 5G investments, not the onset of innovation and investment stifling regulation.

Thursday, October 19, 2023

The Resilient Advertiser-Support Video Content Model

             Changes in the rates for Netflix and other video content show a major nudge (make that push) toward a cheaper advertiser-supported option.  Just now, Netflix has raised its ad-free plans to $11.99-22.99 monthly, but kept its newly offered ad-supported plan at $6.99. https://www.cbsnews.com/news/netflix-price-increase-2023/.  Apparently, the company can accrue higher revenues and profits by combining monthly subscriber payments with advertising revenues.  I expect the number of advertising minutes to creep up incrementally, but who counts?

            The more things change, the more they remain the same.  Not too long ago, pundits touted the pay per view, and all you can eat pricing models, often with no advertising.  HBO considered ad free a competitive advantage underscoring its premium status. Now, the new HBO, called Max, offers an ad-supported option, for $9.99 compared to the $15.99-19.99 ad-free option. https://www.cabletv.com/hbo-max.

            The ad-support model comes at a time when consumers appear inclined to trim their monthly video content expenditures.  Increasingly, cable subscribers have “cut the cord,” no longer willing to pay an average $112.70 monthly for an array of content, much of which they do not watch. https://cordcuttersnews.com/the-average-cable-tv-bill-from-comcast-spectrum-more-is-now-112-70-a-month-just-for-tv-in-2023/. Why pay a cable operator $9.42 or more a month for ESPN channels (https://www.sportico.com/business/media/2023/sports-tv-cable-bundle-license-to-print-money-1234734446/) if you don’t care about sports programming?

            The resiliency of the advertiser supported pricing model presents consumers with a mixed bag.  On one hand, advertising interferes with the flow of programming, especially long form content, such as movies.  While Max currently emphasizes that it will interrupt programming with comparatively fewer minutes, it will join the bandwagon of incrementally more and more ads.  I recently watched programming on Amazon’s Freevee, https://www.amazon.com/gp/video/splash/freevee_findus and YoutubeTV.  It seemed that viewers face a sequence of 5 minute content blocs followed by 5 minutes of advertising.  A two hour movie extends well beyond three hours. 

            On the other hand, while you have to tolerate interruptions, you do not have to consume the products and services advertised.  You are not a complete “free rider,” as you still pay for a subscription, but there are growing out of pocket savings compared to the ever increasing ad free option.

            Content vendors will do more with less as they reduce programming expenses.  Another economic fact of life comes to mind: you get what you pay for.  Expect a speedy decline in the value proposition from streaming video.

 

 

 

Tuesday, October 17, 2023

Upcoming Limits on FCC Statutory Interpretations Unless It Deregulates

             The activist, results-driven Supreme Court appears ready to limit severely the ability of the Federal Communications Commission and other independent regulatory agencies to interpret ambiguous statutory language and answer essential questions about statutory meaning, even when vastly changing markets and technologies makes such work essential.  Lacking humility and common sense, the Court appears hellbent to outlaw statutory interpretation like what kinds of services fit within the following ambiguous words Congress crafted, circa 1996: “advanced telecommunications capability.” 47 U.S.C. § 1302(a), codified by the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, (1996)

            If one applies basic jurisprudence, telecommunications means what Congress defined it to be in the applicable statute, i.e., 47 U.S. Code § 153 – Definitions. It just so happens that Congress did provide a definition of advanced communications services, information service, telecommunications, and telecommunications service.  Applying the yet to be reversed Chevron Doctrine, the FCC has no need to interpret unambiguous statutory language, because it can apply the plain meaning.

            However, Congress failed to provide a definition for something that is both advanced and telecommunications.  The legislature did not define “advanced telecommunications capability.” Heretofore, no one has questioned the lawfulness of the FCC’s determination that this undefined category includes broadband, Internet access.  Additionally, no one has challenged the lawfulness of the FCC’s determination that its universal service mission, spelled out in Section 254 of the Telecommunications Act, includes promoting affordable access to broadband, interpreted by the Commission to fit somewhere within the definition of advanced telecommunications and/or information services.

            Just now, the Court finds it mission critical to ignore regulatory agency expertise, because deference might legitimize more, different, or possibly even improved regulation.  Apparently, any recalibration expands the dreaded regulatory state, managed by unelected officials intent on micromanaging our lives and depriving us of life, liberty, and the pursuit of happiness. 

            How ironic, that no one raised a peep when the FCC unilaterally decided to reclassify as an information service a legacy technology for decades fitting snugly in the telecommunications category.  With an eye toward expanding further the array of convergent services that combine both basic and advanced telecommunications capabilities, in 2018 then FCC Chairman Ajit Pai championed a new determination that paging, texting, and short messaging was much more sophisticated and “advanced” than simply keying in letters and numbers on a telephone handset.  See Petitions for Declaratory Ruling on Regulatory Status of Wireless Messaging Service, Declaratory Ruling, 33 FCC Rcd. 12075 (2018); available at: https://docs.fcc.gov/public/attachments/FCC-18-178A1.pdf.

            In a Declaratory Ruling, the FCC asked and answered whether it should shift its classification of texting from “old school” basic, common carrier telecommunications to something advanced and largely unregulatable information processing.  Most short messaging still involves keying in letters and numbers on a wireless handset, but clever statutory reinterpretation made it possible for a deregulatory-driven FCC to take matters into its own hand without awaiting new legislation.

            With the Supreme Court’s newfound antipathy to regulatory agency overreach, would the FCC’s reclassification of texting as data processing pass muster now?  If so, why would deregulatory freelancing not constitute unlawful overreach by a regulatory agency unwilling to await new statutory instruction?

 

Sunday, October 15, 2023

Show Me One Merger or Acquisition That Promotes Competition or Enhances Consumer Welfare

            I marvel how sponsored researchers have perpetuated the myth that mergers and acquisitions are great events. Can anyone provide an example how consumers benefits?  How did removing Sprint from the marketplace make the wireless ecosystem more rewarding to consumers?  TMobile improved their quality of service, but no longer offers lower prices, or innovations.  Anyone care to assert that the company remains an iconoclastic champion of competition and enhanced consumer welfare?

            Why companies merge reminds me of the question why robbers target banks.  There’s money in banks and higher revenues, less competition, better stock prices, more annual bonuses, and less senior management wear and tear when markets concentrate.  Why spend sleepless afternoons competing when you can reduce the number of competitors making it more likely that the cartel can fix prices.  That’s what has occurred in meat packing, healthcare, commercial aviation, insurance companies, car rentals, and every other concentrated marketplace

            There’s an inconvenient fact that U.S. wireless subscribers pay some of the highest rates globally. See, e.g., https://communitytechnetwork.org/blog/why-is-the-internet-more-expensive-in-the-usa-than-in-other-countries/; https://kushnickbruce.medium.com/at-ts-wireless-profits-are-outrageous-at-t-s-5g-wireless-prepaid-prices-are-obscene-compared-dc15c57926f; https://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-country; https://www.quora.com/Why-are-phone-plans-in-the-US-so-expensive-compared-to-other-countries-not-hate/.

Statistics do show a long-term reduction in cost based on increasing minutes of use and data consumption, i.e., the per voice minute or per megabyte of data price has dropped precipitously.  As markets evolve and carriers accrue greater economies of scale, prices should decline.  However, the rate of decline in the U.S. pales in comparison to that occurring just about everywhere else.  Recently, U.S. carriers have raised, not further reduced rates.  See, e.g., https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. Also, the three national carriers remarkably have the same prices for service, with differentiation a matter of which “free” content subscription is offered.

I also cannot wrap my mind around the persistent view that markets can be viewed from a static and fixed vertical and horizontal template.  The conventional wisdom views market “food chains” in a discrete, mutually exclusive frame where ventures compete, or not.  Horizontally, companies must compete, because they operate in the same market.  Vertically, they target separate markets and accordingly do not compete.

            This is a simplistic and ill-conceived conceptualization of how markets operate.  Of course, ABC, CBS, Fox, and NBC compete on a horizontal plane for advertising revenues and viewers’ attention.  If two of these companies sought to merge, a court might interpret the Sherman Act as a bar, based on the sense that market concentration would harm consumers.  But if any one these multinational giants wanted to acquire a wireless carrier, a reviewing court would have no concerns, based on the false notion that a content creator and distributor has no interest in, or impact on the wireless telecommunications marketplace.  If a venture does not directly compete with a merger or acquisition target, then where is the actual or potential harm to consumers?

            There’s plenty, because markets do not conveniently operate in mutually exclusive ecosystems. Vendors of video content have an interest in distributing their content in wireless markets.  They might consider a wireless carrier acquisition as a way to reduce their carriage costs, or a way to raise consumers’ total out of pocket costs, because a complete service requires both content and delivery of the content to screens.

            Consider the recent approval of Microsoft’s $69+ billion acquisition of Activision. https://www.nytimes.com/2023/10/13/technology/microsoft-activision-blizzard-deal-closes.html.

Reviewing courts and oversight bodies dismissed antitrust concerns, based on the simple notion that Microsoft, a software vendor, was acquiring a computer game content vendor.  As the two ventures presumably did not compete, no harm no foul.

            Yes foul, if you free your mind of this ridiculous locked in frame of mutual exclusivity.  Microsoft surely operates in gaming markets.  The company sells a gaming computer, Xbox.  It has created an operating system for gaming and surely wants that software to become dominant in the wireless gaming marketplace.  Did anyone think that Microsoft would use the compelling content available from Activision as a lure for consumers to migrate to devices, operating systems, and platforms controlled by Microsoft? Where is the enhanced consumer welfare in a more concentrated marketplace for games, gaming devices, gaming platforms, and gaming operating systems?

            I understand that in capitalism, companies do not operate as charities. They generate revenues to reward shareholders and to earn more money.  It’s their money, but our marketplace.

Tuesday, August 1, 2023

Lessons in Humble Pie

As a parent, college educator, husband, middle child, retiree, etc. I have had my share of humble pie.  It's calorie free and oh so dislodging. Like everyone, I deserve comeuppances and getting knocked down a few notches.

But (of course, a but was coming) . . . today marks a high or low point in my diet.

I just completed a draft of my first law review manuscript after having retired from Penn State.  I intend on continuing to make contributions to the academic literature and recently received the honorific title of Academy Professor, in recognition of my ongoing work.  This 15,000 word manuscript took six months to prepare, and some of the comprehensive footnotes required hours of research, writing, and editing.  

I am proud of the work.  Imagine my surprise when not more than 20 minutes transpired before I received my first rejection.

The law review submission process involves the use of a monopoly platform intermediary that handles the formatting and online delivery of manuscripts to editors of law reviews.  Unlike in other disciplines, law review authors submit the same work to multiple prospective publishers.  Younger, ambitious law professors strategize how to get an offer from the best possible publisher.  The intermediary platform operator, known as Scholastica, encourages the maximum number of submissions and offers to notify editors when authors seek expedited consideration, because they have an offer in hand and hope to secure one from a more prestigious journal.

This automated process saves time, but requires payment for each delivery.  I took great pains to draft a compelling abstract and the all important "pitch letter." How disappointing to receive a rejection in less time that it would have taken to read the abstract and pitch letter.  Adding insult to injury, and humble pie volume, the rejecting journal had previously published one of my articles.

Are law review editors relying on artificial intelligence to process and make a judgment about manuscripts?  Could the rejecting journal management, with or without computerized help, make a publication decision based on the title of the manuscript?  Maybe.

In any event, as I increasingly fade away, I at least can feel proud that I have a new lifetime achievement in humble pie.


Thursday, July 20, 2023

Nipping in the Bud Any Reassessment of Merger Guidelines

             The Department of Justice and Federal Trade Commission have released for public comment proposed new guidelines designed to address "the many ways mergers can weaken competition, harming consumers, workers, and businesses." See https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines. Rather than participate in a thorough debate on the merits of the new government guidelines, a variety of stakeholders have launched a preemptive strike to discredit the inquiry and individuals like FTC chairwoman Lina M. Khan. 

             Sponsored researchers, Chicago School antitrust doctrine advocates, and maybe some true believers in the virtues of maintaining the status quo have become apoplectic in their disapproval, some preemptively oppositional even before release of the proposal. See e.g., https://www.uschamber.com/finance/antitrust/a-shift-in-merger-enforcement-risks-damaging-our-economy; https://cei.org/studies/turning-back-the-clock-structural-presumptions-in-merger-analyses-and-revised-merger-guidelines/.

             Using a commonsense standard, I smell a rat.  Advocates for maintaining the status quo have much to lose if DOJ, FTC, and eventually, reviewing courts, respond to changing marketplace conditions such as the proliferation of "winner take all" platform intermediaries, like Facebook and Google.  Information Age markets do not always match the manner in which bricks and mortar markets operate.  See Rob Frieden, The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers, 63 Vill. L. Rev. 269 (2018); https://digitalcommons.law.villanova.edu/vlr/vol63/iss2/3/; Two-Sided Internet Markets and the Need to Assess Both Upstream and Downstream Impacts, 68 Am. U. L. Rev. 713 (2019); https://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=2085&context=aulr. Nevertheless, stakeholders tenaciously adhere to doctrine, rules, laws, and assumptions that surely need reassessment in light of changed circumstances.

             Here are a few significant new challenges to the status quo.

1) Chicago School emphasis on consumer welfare and price ignores harmful secondary and tertiary impacts.

             It does not take a Ph. D in economics to see financial and reputational harms resulting from mergers and acquisitions that further concentrate markets. Even using monetary impact as the sole evaluative criterion, market dominance makes it possible for firms to extract monopoly rents.  Chicago School advocates note how firms like Facebook and Goggle and offer a valuable service "for free." Using their narrow focus, free represents a remarkable value proposition. However, a broader focus on economic impact readily identifies offsetting harms: identity theft, insufficient data protection resulting in stolen email addresses and passwords, disinformation leading to distrust in government, media, organized religion, and other bedrock institutions, threats to elections, national security, and individuals' overall sense of wellbeing, etc.

             Free does not mean without cost, particularly in an ecosystem where "surveillance capitalism" offers a "free" service as an inducement for the opportunity to mine, collate, market, and generate revenues from data.

2) Vertical and horizontal mergers are not necessarily separate transactions.

             Conventional antitrust theory, subsequently baked into case precedent and current DOJ-FTC merger guidelines, considers as gospel truth the mutual exclusivity of vertical and horizontal mergers.  The former qualifies for relaxed scrutiny based on the assumption that the acquiring firm did not compete in the markets served by the acquired firm.  The rationale concludes that no harm will beset consumers in a merger of firms that did not compete with each other in the first place.  Because horizontal mergers involve the elimination of a competitor and expanded market share for the acquiring firm, closer scrutiny should apply.

             There are several grave problems with this convenient and simplistic doctrinal model.  Many markets, especially information, communications, and entertainment ("ICE") ones, have dominant firms that operate throughout vertical and horizontal "food chains."  For example, Comcast creates content (NBC Universal), syndicates and licenses content for distribution by unaffiliated firms, and also delivers content to consumers (cable, broadcasting, streaming).  The company is vertically integrated and horizontally integrated.  It competes with companies that also have to pay it for access to "must see" content, e.g., NBC as a broadcast network still offering mass market programming such as network news and live sporting events.

             If courts did not assume vertical acquisitions lack any adverse impact on markets and consumers, a vertical acquisition might get the kind of close scrutiny it warrants.  Consider Comcast's acquisition of NBC.  The conventional wisdom framed the deal as vertical integration, because Comcast mostly distributes content as a cable television operator, with seemingly limited investment in content creation.  Even accepting the obvious that Comcast does create content, reviewing courts assumed the company would never withhold access, because it would reduce licensing and syndication revenues.

             News flash: Comcast might want to withhold content, or extract higher payments from competitors.  So-called retransmission consent requires Comcast, as the owner of NBC to negotiate in good faith with unaffiliated cable television companies.  Frequently, the parties cannot reach a renewal agreement on time and valuable content is blocked.  These "black outs" have become more numerous and last longer.  See, Rob Frieden, Krishna Jayakar, & Eun-A Park, There’s Probably a Blackout in Your Television Future: Tracking New Carriage Negotiation Strategies Between Video Content Programmers and Distributors, 43 Colum. J.L. & Arts 487 (2020);  https://academiccommons.columbia.edu/doi/10.7916/d8-aq85-2z51/download.

3) Mergers rarely enhance competition.

             Has anyone empirically proven that a merger or acquisition enhances consumer welfare rather than just the acquiring company's profitability?  Does reducing the number of competitors somehow make the survivors more vigorous competitors, keen on innovating, reducing prices, improving customer service, and otherwise making the marketplace more robust?

             Consider TMobile's acquisition of Sprint.  The conventional wisdom, dutifully articulated in the court's approval of the transaction (see https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2019cv05434/517350/409/) assumed New TMobile would continue the tradition of being an innovator, lower cost competitor, and provocative pro-consumer warrior.  I see the wireless marketplace as an oligopoly of three offering roughly the same prices, happy to differentiate themselves on what "free" content like Netflix they will provide subscribers. Has New TMobile offered anything innovative and disruptive since acquiring Sprint?

             I readily acknowledge that Sprint had become a failing venture, perhaps on the brink of bankruptcy.  If an incumbent had not acquired the firm, I believe a new investor gladly would have paid pennies on the dollar for the opportunity to operate in a market with one of the highest average revenue per user in the world.  Yes, wireless rates have declined, but they are lower with better terms throughout most of the world.

4) Platform intermediaries, operating in two-sided markets, can adversely impact horizontal, vertical, secondary, and tertiary markets.

             Chicago School antirust doctrine provides simplistic, but easily understood and implemented rules. Judges and their law clerks, have become indoctrinated in "rules" that started as theory, but over time got baked into the jurisprudence.  I believe the Chicago School doctrine became unimpeachable gospel largely because stakeholders that would benefit from relaxed antitrust enforcement, invested heavily in making it a fundamental part of law and economics.

             How did this happen?  Millions of dollars spent over decades have made the doctrine appear legitimate and unimpeachable, despite regularly failing a simple smell test.  The combination of sponsored researchers, well-funded institutes, foundations, think tanks, and advocacy groups, all-expense paid seminars, endowed professorships, and the like have paid off.  Sponsored researchers create a plethora of work, framed as academic contributions, but designed to achieve support for a predetermined outcome. The process continues and builds on itself as sponsored researchers cite the prior work of sponsored researchers.  Over time, clearly results driven advocacy documents acquire the legitimacy and credibility of unsponsored work aiming to seek the truth.  In fact, sponsored research can crowd out work that does not have the public outreach and cheerleading provided by stakeholders.

             The whole process "stinks to high heaven."  Just now, sponsored researchers are noting that the proposed merger guidelines would harm the credibility of both DoJ and FTC, apparently before the court of public opinion and judges.  Of course, these very same pundits have the financial incentive to impeach the credibility of these government agencies and deem the proposed guidelines harmful, ill conceived, and bullying.

             It's a racket as my wife would say.  I am certain that so-called consumer stakeholders also have financial underwriters singing the praises of the proposed guidelines. However, these groups have substantially less funding available, because few stakeholders can see the direct monetary harm that would result from implementation of the guidelines.

             I understand that sponsored researchers often have the ongoing financial burden of having to generate annually enough "soft money" to keep graduate students employed. Sadly, that necessity has become yet another reason for the rats to proliferate.