What’s Wrong With Some Types of Sponsored Research?

          
           In various blog entries and publications I have expressed or implied my disapproval of certain kinds of sponsored research.  An author of such research recently chided me for using the term in this blog, because it can create an inappropriate tone perhaps implying illegitimacy of the work on its face.  The author suggested that branding my unsponsored research as ideological would cast a similarly inappropriate and unfair tone.

            I should clarify that I understand there to be two types of sponsored research: 1) financial support granted for a research proposal with no expectation that the output will support an already established outcome; and 2) financial support granted with the expressed or implied understanding that the output will support a sponsor-desired outcome.  In the former researchers are free to find the truth, but in the latter the primary goal is to support an outcome regardless of whether the output is true.  Sponsored researchers engaged in the latter will claim that the receipt of financial support in no way influenced the outcome of their work.  It just so happens that the findings and conclusions coincide with what the sponsor had in mind.

            I consider results-driven sponsored research as questionable, because the research does not pose and try to answer research questions without preconceived, desired outcomes.  Such research would not pass must with blind peer review where an expert, unknown to the authors and not knowing who the authors are, assesses the work product.  Peer review does not challenge the author’s ideology and preconceived notions, but instead assesses whether research findings are reproducible and plausible.

            Much of the sponsored research on telecommunications and Internet issues are financed with an eye toward influencing the policy making process.  But instead of being presented as advocacy documents, they are presented as pure research perhaps because such labeling confers greater credibility to the work product.  I have no problem with stakeholders funding advocacy documents that no one would confuse with research, particularly work having no desired outcomes.

            I have great problems with stakeholders using research to support a preordained outcome, particularly when the fact finder, e.g., the FCC, may be all too willing to treat the work product as pure research and heavily rely on it when making policies. 

Consider the recent instance where the large pharmaceutical firm Glaxo submitted research to support a drug’s safety, but later acknowledged that it removed findings that called into question the drug’s efficacy and safety.  Should Glaxo have the option of sponsoring research based on the view that the FDA would have the resources to conduct its own research, or at least to identify instances where the Glaxo research would not pass muster with peer review?  Should Glaxo have the option of deleting and not submitting any part of research that would hamper its goal of securing FDA approval?

            In any event I do not want to come across as a better researcher simply because I limit the types of financial support and grants I seek. I only assert that I do not have to deliver a particular work product.  I have the freedom to challenge the conventional wisdom and to identify instances where stakeholders are misrepresenting the truth as I understand it.

  Of course reasonable people can disagree on the truth. 

Questions Sponsored Wireless Competition Researchers Don’t Ask

          The Federal Communications Law Journal recently published a comprehensive assessment of the U.S. wireless marketplace with an eye toward challenging the FCC’s qualified concerns about the adequacy of competition.  See Gerald R. Faulhaber, Robert W. Hahn and Hal. J. Singer, Assessing Competition in U.S. Wireless Markets: Review of the FCC’s Competition Reports, 64 FED. COMM. L. J. 319 (2012) available at: http://www.law.indiana.edu/fclj/pubs/v64/no2/Vol.64-2_2012-Mar_Art.-03_Faulhaber.pdf.

        The authors have produced high quality sponsored research and I appreciate their disclosure of AT&T’s financial underwriting.  You’d be surprised about the surfeit of undisclosed results driven research sponsored by a major stakeholder.  These authors go so far as to ask “Are we missing something?” 

            I’ll take it on good faith that they are sincere in wanting to confirm what they consider obvious—that the U.S. wireless marketplace is robustly competitive, innovative and not so concentrated as to warrant antitrust concerns.  So even if they are overconfident—as many economists surely are—and disinclined to consider the questions from someone like me I’ll pose five of the many I have anyway.

1)         You substantially rely on downward prices in the wireless marketplace to support your robust competition finding. How much of the decline results from competition as opposed to the nature of the wireless business which has substantial sunk costs and low incremental costs?  For good measure as the wireless marketplace has matured don’t businesses have to “sharpen their pencil” to attract late adopters?

2)         Speaking of pricing, you and others place heavy emphasis on a calculated per minute of use rate.   One can calculate for the U.S. globally lowest per minute cost based on globally highest usage.  But what about subscribers who have no need or interest in talking for even 450 minutes a month, or who don’t want to send several thousand texts per month?  Their per unit rates are much higher, especially the occasional user who does not see the need for an unlimited $20-30 a month texting plan, but who questions how a carrier can justify charging 20 cents a text for something that uses the built-in polling system carriers use to track operating handsets.

          If you are one of those snarky types, you might read the above paragraph and ask “is there a question here?” Yes; I’ll rephrase it:  Wouldn’t your evidence of declining cost be less substantial if you did not apply a single average and instead considered an average for each of several tiers of available minutes?  For example, in my unsponsored ignorance I would have tried to calculate the average actual monthly usage for subscribers in each of the tiers that currently exist, e.g., 450, 900, unlimited for AT&T Wireless.

3)      You may not have noticed this but all wireless carriers seem to have the same basic price points for the same type of service.  Your Appendix 1 shows an example of this: the 4 national carriers all offer 450-500 monthly voice minutes for $39.99 plus fees.  Are all the wireless carriers price takers having no carrier-specific efficiencies?  Antitrust specialists might infer something they call “conscious parallelism.”  How is that not happening in the U.S. wireless marketplace?

4)     Your paper shows declines in Average Revenue Per User (“ARPU”) as additional evidence of a robustly competitive market, yet you don’t acknowledge that the figures (and much higher ones I have found) range near the top globally.  I appreciate that high usage, stimulated by large baskets and by unlimited All You Can Eat plans, generate higher monthly revenues.  However you don’t separate ARPUs by type of user.  What do you think of Craig Moffett’s research that reports significantly higher ARPUs for smartphone users with minor declines in the last few years?  In a June 25, 2012 report this prominent Wall Street buy side analyst at Bernstein Research estimates AT&T’s first quarter 2012 ARPUs for 3 categories: $80.44 a month for postpaid smartphone users down 4.4% year over year, $42.34 for non-smartphone post paid users and  $64.46 average for all postpaid users.

           Do you think ARPUs will continue to decline when more subscribers add data plans?

5)        I’m confused about your views on spectrum and its impact on the wireless marketplace.  The conventional wisdom is that wireless carriers simply don’t have enough spectrum available, the product of government regulation and I’ll add the spectrum management and allocation process of the International Telecommunication Union.  But I got the sense from your paper that there is at least enough spectrum to support 5 or more facilities-based, robustly competitive carriers in most markets. So do you think there’s enough spectrum to support competition and more might promote greater competition, or would access to more spectrum simply help incumbents erect greater barriers to market entry by new competitors? 

        By the way, don’t you think you overstated the impact of the non-national carriers?  Clear’s data service is so far limited to personal computers with dongles, not smartphones.  Neither Sprint, T-Mobile or the super regionals have had much success offering an attractive alternative to the positive networking externalities that accrue when more and more subscribers pick the same network and when most developers offer their next killer app solely on the platform support by AT&T and Verizon.

         I’m sure you can easily answer and dismiss my questions, but with all due respect I see the wireless marketplace from a much different perspective.  I see the carriers basking in the limelight and exploiting the networking externalities of handset manufacturers, content creators and applications developers.  I don’t see them devoting sleepless afternoons competing.

       In the marketplace of ideas and consulting you surely win, perhaps because there doesn’t seem to be anyone interested in sponsoring research that answers the kinds of questions posed here.

           

Yale JOLT Article on Internet Access Regulation

     The Yale Journal on Law and Technology has recently published my article entitled Rationales for and Against Regulatory Involvement in Resolving Internet Interconnection Disputes (14 Yale J.L. & Tech 266 (2012); available at: http://yjolt.org/rationales-and-against-regulatory-involvement-resolving-internet-interconnection-disputes.
     Here's the abstract:

      This Article will examine the terms and conditions under which Internet Service Providers (“ISPs”) switch and route traffic for each of several links between a source of content and consumers. The Article concludes that the Federal Communications Commission (“FCC”) may lack direct statutory authority even to resolve disputes based on its determination that Internet access constitutes an unregulated information service.  Additionally the FCC may appropriately forebear from regulating, because sufficient competition favors industry self-regulation.

       Despite substantial reasons not to intervene, the FCC nevertheless might have to clarify its understanding of what subscribers of retail ISP services can expect to receive. Under truth in billing and other consumer safeguards the Commission might require ISPs to explain what an Internet subscription guarantees not only in terms of transmission speed and downloading capacity, but also what subscribers can expect their ISPs to do when receiving content requiring downstream   termination.

      The Article concludes that both customers of content services, such as Netflix, and retail ISP subscribers expect their service providers to guarantee delivery of movies and all sorts of Internet traffic respectively. For physical delivery of DVDs Netflix must pay the U.S. Postal Service and for delivery of streaming bits Netflix must pay one or more ISPs. But for Internet traffic involving two or more ISPs, the Article examines whether other retail ISPs providing last mile delivery of content violate their service commitments to subscribers by demanding additional payment from upstream carriers.