Award Winning Blog

Saturday, July 22, 2017

The High Cost of Independence in Telecommunications Policy Analysis

            For over 25 years, I have strived to find the truth without regard to political party and economic doctrine.  My work fits no definitional template, or litmus test.   This fierce independence comes at a significant price.

            In these partisan times, the failure to make a team commitment places on in either, or both of two undesirable camps: 1) unreliable, “not one of us”; and 2) ignorable and invisible.

            For so many years, I though independence offered the opportunity to provide the “straight dope,” i.e., to offer unsponsored insights, the real deal.  On the plus side, independence has enhanced my qualifications to serve as an unbiased industry observer, legal analysist and forecaster.  On the negative side, few stakeholders and even the media want transparent analysis.  Stakeholders want advocates and they handsomely pay to use scholar-created “research” to promote their legislative and regulatory agenda.  So much sponsorship money sloshes around that the refusal to tap in generates questions about the value of one’s work.

            In light of a 24 hour news cycle, most journalists now appear content, or resigned, to interview and quote from scholars with a particular, often financially sponsored, viewpoints.  They offer no analysis leaving it up to consumers to make their own determination of the truth.

            Recently the Wall Street Journal had a front page article reporting on the breadth and reach of Google-sponsored, academic work.  See  The list contained far too many “false positives,” but it does provide ample evidence of what Google does to affect policy, just like more established ventures such as AT&T, Comcast and Verizon. 

            I did not make the list.  I should note that Google did provide financial support for one project, but the scope of editorial oversight proved uncomfortable.

            I don’t know whether to revel in this confirmation of independence, or to regret not joining the ranks of some very impressive scholars. Are scholars not on this and similar lists nobodies, because no one paid for their work making it close to valueless?

            I continue to hope that there will remain a place for unsponsored research which can have financial support, but no explicit or implicit expectation of outcome.  Of course there will always be well-funded place for sponsored advocacy that masquerades as research.  The policy making process –and sadly most media outlets as well—function largely on the assessment and balancing of divergent viewpoints. 

            But unsponsored, independent research continues to dwindle in volume, significance and impact at a time when industry, government and the learned community need it to offer, fair-minded strategic planning insights.

Thursday, July 20, 2017

Wireless Carrier Ambivalence about Wi-Fi and What This Tells Us About Competition and Incentives

            Once upon a time, well over a decade ago, most wireless carriers saw Wi-Fi as a technological competitor.  The carriers always metered traffic then and wanted their subscribers to “use their minutes” rather than conserve them.  Subscribers could not “bring their own device, because the carriers managed a closed distribution link, selling most handsets and restricting the resale market.  Because the wireless carriers had a shared monopsony (buyers’ monopoly), they could dictate terms and conditions, including a prohibition on Wi-Fi access.  Nokia determined it could disable an installed Wi-Fi chip rather than redesign some handsets.

            Time passes and now wireless carriers adore Wi-Fi.  The carriers want subscribers to offload traffic onto Wi-Fi.  Better yet, U.S. carriers have lobbied the FCC to permit them to use unlicensed Wi-Fi spectrum for their commercial, licensed services.  Note what a sweet deal this would be as the carriers could avoid having to competitively bid and pay for some spectrum.

            Obviously the complete 360 degree reversal of position reflected changed circumstances.  But does the integration of a Wi-Fi option show how robustly competitive marketplaces operate, or are their other factors in play?  It gets murky, particularly in this partisan and contentious time.  A free marketer could use this reversal of position as evidence of how competition destroys business plans and forces ventures to enhance the value proposition for consumers. 

            I readily accept that marketplace competition imposes discipline and forces “sleepless afternoons.”  However, the free marketer overstates her case, because of other factors that either have nothing, or little to do with competition. 

            First, one should consider spectrum supply and demand.  As wireless service demand grew and bandwidth requirements expanded, e.g., streaming video, wireless carriers considered Wi-Fi a free and easy way to offload traffic.  Wi-Fi abated spectrum scarcity.  Additionally Wi-Fi provided network access where dead zones existed, because of zoning restrictions, particularly difficult terrain and perhaps the financial burden from having to install ever more cell tower sites.

            Competition does pay a major role in stimulating demand for service, but one has to look at the market structure of the industry.  You might not know that the FCC first created a wireless duopoly with a guaranteed license and market head start for incumbent wireline telephone companies.  Back then, Republican and Democratic FCC Commissioners had no problem collectively agreeing on this sweet deal. 

            Over time, two more facilities-based carriers entered the market.  As late entrants, often using spectrum at higher frequencies having less geographical coverage, these carriers had to offer a better deal to acquire market share.  But these late to market entrants had to think quite strategically about how much of a better deal to offer.  Carriers like Sprint used the prices of the two major incumbent wireless carriers, Verizon and AT&T, as a price ceiling.  Sprint was more likely to match or slightly discount the price of the incumbents, relying on features to stimulate churn and new subscriptions.  Sprint offered handset subsidies, offered not to start metering until the second minute of use and provided free automatic number identification, a feature that cost carriers virtually nothing to offer.   

            Remarkably the wireless marketplace did not show much price competition until quite recently.  I used to compile charts showing the near identical terms, conditions and prices of the four national carriers.  So much for robust price competition; the carriers have mostly competed on features.

            TMobile has aggressively used feature competition to acquire market share.  This “uncarrier” maverick has provided most of the consumer friendly feature innovations, including lower roaming fees, particularly abroad, the option to buy and use your own phone, zero rating, etc.

            Simply put, wireless carriers compete because they have to, not because they want to.  Their initial reaction to Wi-Fi was to block its use.  They embraced the technology, because they had to, not because they wanted to enhance the value position for subscribers.

            Wireless carriers are not charities, nor are they role models supporting an unregulated telecommunications marketplace.