Wetmachine Blog: Econoklastic

Auction 86 — All Over, But Rural America is Shafted Again.

Auction 86, the BRS auction, is over and all bids have cleared. There were no defaults. The auction netted a mere $19,426,600, rather less than most industry analysts speculated before the auction. However, it must be remembered that the BTA licenses up for auction were heavily encumbered with the need for interference agreements with P35 license holders and resembled more “white space” swiss-cheese spectrum than real BTA licenses.

The bidding ended after 24 rounds in four days on Oct. 30. However, it took until now to be certain that no winning bidder was going to default.

As expected, Clearwire took the overwhelming majority of licenses at offer, 42 of them for $11,177,000. Those licenses represent a deepening of Clearwire’s spectrum pool for national footprint and, in a few cases, even expanded it. Utopian Wireless and DigitalBridge Spectrum, companies which are concentrating on providing WiMax in areas where Clearwire is not deploying, acquired 4 and 2 licenses, respectively. As expected, Stratos Offshore Services and Trident Global Communications shared the three new Gulf of Mexico licenses, 2 and 1 respectively, for a little over $2.5 million, the third most expensive acquisitions. Vermont Telephone Company acquired three licenses in its current footprint for the second highest expenditure in the auction, $2.8 million.

The other successful bidders included James E. McCotter (3 licenses), Ztark Communications (2), Cellular South (1), and Twin Lakes Telephone Cooperative (1) — all reinforced existing license footprint. Broadcast Cable Bloomington, Chevron USA, Emery Telecom-Wireless, Gateway Telecom, N-1 Communications and Pulse Mobile all walked away with no wins.

More interesting still, 17 licenses failed to clear. These licenses were overwhelmingly in rural areas, continuing the pattern established by Clearwire and its cableco and telco partners of redlining a substantial portion of rural America for broadband service generally and WiMax in particular. If this pattern had been allowed to prevail in rural electrification, much of the West and the South would still not have electricity. It makes you wonder where FDR is when you really need him.

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The Embarq/CenturyTel Merger Is Moving Fast in Oregon

The Embarq/CenturyTel merger is not just pending FCC approval. The transaction, which affects more than eight million access lines in 33 states, must be approved by regulatory agencies in several states.

Washington and Oregon are pivotal in this, partly because of the extensive rural coverage CenturyTel has in both states, and the merger raises substantive issues about industry consolidation and quality of rural service. Were the Washington or Oregon Public Utility Commission to deny the merger, it would likely kill the deal. It is for this reason that Embarq and CenturyTel tried to avoid having the Oregon PUC rule on the merger until a decision by the Oregon Attorney General forced them to do so.

Embarq and CenturyTel tried to fly under the radar, quietly filing their petition on January 1, 2009 with the Oregon PUC (note that the actual petition doesn’t start until page 218 of the .pdf; the rest is data pro forma required by the PUC — got to love state PUCs for having data requirements for corporate petitioners that the FCC never thought about having). There was no public notice until Administrative Law Judge Allan J. Arlow issued a Notice of Prehearing Conference on the PUC website today. The conference will take place on Friday, March 6, 2009 at 1:30 p.m. at the PUC in Salem. This conference “will be to identify parties and interested persons, establish a service list with addresses and telephone numbers, identify issues, and set a procedural schedule.” It is possible to be conference-called into this conference from out-of-state. Call the number on the Notice to arrange it.

What is extremely important is that this proceeding is moving forward very quickly. Parties which have filed as intervenors in other states, including public interest groups, have apparently not taken notice of this fact, as evidenced by the lack of filers in the relevant docket, UM-1416. It is possible to file as an intervenor or interested party electronically. Essentially, if there are few intervenors, it is likelier that public hearings will not take place.

There is a real chance to get serious conditions imposed on this merger if people move fast.

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Set a Fire Under Obama — and Abolish the Filibuster

The stimulus bill has been larded with tax cuts which will have virtually no impact on aggregate demand, and infrastructural spending which does have demonstrated immediate positive effect on aggregate demand has been trimmed back, to placate Republicans by a pusillanimous Obama administration. And despite the Obama administration’s determination to have a kumbaya moment with right-wing Republicans, not a single House Republican voted for the scaled-back stimulus package. This is a recipe for another Great Depression.

Obama supporters point out that he needs 60 votes in the Senate to avoid a Republican filibuster, and will only have 59 once Franken is seated (God alone knoweth when that will happen, and perhaps only 58 if Lieberman channels Vikdun Quisling again). Since Obama is essentially conservative, as reflected in all his economic appointments, and unlikely to challenge the status quo without substantial progressive pressure, it is incumbent on progressives to apply that pressure and to lean on Senate Democrats to smack the Republicans down hard by abolishing the anti-democratic filibuster rule.

Contrary to popular misconception, filibuster was neither a constitutional provision nor part of the original Senate rules. A simple majority could close debate from the adoption of the constitution until a rules change during the recodification of Senate rules under Vice President Aaron Burr’s supervision in 1806. There is debate among historians whether the rule allowing unlimited debate in the Senate was an unintentional error or was introduced by Burr in anticipation of conflict with President Jefferson’s administration. In any case, it overturned the original procedure used by the Senate.

The filibuster was not used until debates over the National Bank in the 1830s and its repeated use in that period culminated in an attempt by Henry Clay to restore the Senate’s ability to close debate by simple majority vote, which failed only narrowly. Republican Senate obstructionism to President Wilson’s war policies led to a threat by the Democratic majority to restore simple majority vote to close debate and this action was averted only by adoption of Rule 22, which permitted the Senate to vote cloture by a three-fifths majority. This is the rule under which the Senate currently operates.

The history of the filibuster has not been particularly distinguished, being primarily the refuge of southern racists to thwart civil rights legislation and right-wing Republicans to attack the New Deal, the Great Society, and progressive judicial appointments under Democratic Presidents.

Obama’s “bipartisanship” is nothing more than Clinton’s “triangulation” dressed up as “change we can believe in.” Progressives know very well that “bipartisanship” only ends up with Republican-crafted policies being implemented by Democrats, because it is always the Democrats who have to yield to intransigent Republicans. If FDR had tried to win a Republican majority for Social Security, there would be no Social Security today. The same goes for the Voting Rights Act and Medicare under LBJ. If LBJ had tried Obama’s nonsensical approach to dealing with right-wing Republicans, there would be no President Obama today.

Progressives need to set a fire under Obama to cease caving in to failed Republican policies. It’s time to remind him that the Republicans are the party of Hoover, Reagan and Bush — the authors of the failed policies that have twice brought us to economic collapse in a century — and that the Democrats are the party of FDR and LBJ.

And a major step forward would be to prevent further Republican obstructionism by abolishing the filibuster rule in the Senate and restoring the cloture by simple majority rule that the founders adopted.

Unless, of course, we want 20% unemployment by this time next year.

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Same Old, Same Old: How T-Mobile and the Rural Telecommunications Group Propose to Wreck the AWS-3 Auction.

M2Z Networks recently filed a study I prepared for them in the AWS-3 service rules proceeding (07-195) before the FCC.

In this study I identified how a coordinated effort between T-Mobile and the Rural Telecommunications Group threatened to wreck the AWS-3 auction by writing rules excluding technology proposed by key potential new entrants, including M2Z Networks, and adopting disastrous combinatorial bidding rules like those which provided a nearly half-billion dollar windfall for Verizon in the 700 MHz Band auction.

In brief, T-Mobile has proposed a “bandwidth maximization plan,” first mooted in this filing and elaborated here. The T-Mobile plan would split the J Block in half, giving 5 MHz for uplink and joining the other 5 MHz of J Block with 20 MHz of AWS-3 spectrum for downlink. This would force abandonment of the Time Division Duplex (TDD) technology envisioned by the FNPRM in favor of Frequency Division Duplex (FDD) technology favored by T-Mobile.

That might seem innocuous enough at first glance, but it eliminates consideration of a technology which is both more efficient and more robust than T-Mobile’s FDD alternative, and it is never a good idea to throttle new technologies at the bidding of vested incumbents. However, it is more pernicious still in that it aims at excluding the TDD technology on which Sprint, Intel, Arraycom, and M2Z proposed to build a nationwide network, effectively erecting entry barriers to major competitors to T-Mobile.

The irony is that T-Mobile proposes to kill TDD technology in AWS-3 on the pretext of preventing interference between AWS-3 and AWS-1 spectrum (T-Mobile was a major acquirer of AWS-1 spectrum). However, the FCC’s Office of Engineering and Technology conducted extensive testing and found that such interference presented no significant problem. T-Mobile’s justification for the technologically-discriminatory erection of this entry barrier is, thus, a lie.

But it gets worse.

More below…

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A Recovery Plan Which Would Actually Work (and which isn't designed by the ex-chairman and CEO of Goldman Sachs for his buddies)

I have watched with a combination of amazement and horror at the way the Democratic leadership has caved in to demands that Congress enact the Paulson Plan. There are many reasons for opposing this ill-conceived plan, including the facts that it aims only at rescuing the shareholders and unsecured creditors of financial institutions and it was crafted by a former chairman of Goldman Sachs to bail his banker buddies out while leaving the rest of us with a bill for as much as $700 billion. But the worst of it is that it will do very little to address the fundamental credit contraction arising from deflation of a massive housing bubble which underlies the current crisis, as evidenced by the continued worsening of money markets even after the Senate’s adoption of the revised plan.

I have nearly laughed myself silly at Republican claims that the Paulson Plan amounts to socialism (in fact, it’s far closer to the Mefo Bill scheme that Hjalmar Schacht designed than anything the left would come up with). So I offer a plan designed by a left social democrat that would actually address the economic basis of the current credit crisis (and, thus, a socialist way to really pull capitalism’s chestnuts out of the fire). The plan is heavily influenced by Nouriel Roubini’s excellent analysis — I heartily recommend his blog for extremely insightful discussion of the credit crisis — but goes much further in remedying the underlying flaws in the financial system.

More below….

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Esurance Assumes We're Stupid

Maybe I’m just a grumpy old economist, but I was struck just how misleading a recent commercial from the Esurance auto insurance company is.

It suggests that there are real savings, economically and ecologically, associated with the fact that Esurance provides only online proof of insurance cards. Since states still require you to have a paper proof of insurance in your car, all this amounts to is transfer of the transaction costs associated with printing a paper proof of insurance from Esurance to the customer. That’s hardly a savings to the customer.

What’s worse is that the claimed ecological savings is complete bunkum. If Esurance provided the paper proof of insurance, it could ensure ecological benefits by a corporate policy of printing them only on recycled stock. By forcing the customer to print it, Esurance virtually guarantees that only customers who assume the transaction costs of obtaining recycled stock to use with their own printers provide the promised ecological savings. Esurance’s policy virtually guarantees that the vast majority of its paper proofs of insurance will benefit the environment not a whit.

Just for the misleading economic and ecological claims I’d be inclined to give Esurance a thumbs down, but the assumption that people are too stupid to think this nonsense through really seals the deal.

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Verizon's “Perfect Storm”: A Reason Why 700 MHz Band's C Block Cleared On the Cheap

Some critics of the 700 MHz Band Auction (Auction 73) attribute the failure of C Block — which consisted of large Regional Economic Grouping (REAG) licenses — to clear at the kinds of premium over the licenses in the AWS-1 auction that the Economic Area (EA) and Cellular Marketing Area (CMA) in the A, B, and E Blocks did to the fact that C Block had wireless Carterfone service rules attached.

However, careful analysis of the dynamics of the auction suggest that interaction of the auction’s combinatorial bidding, eligibility and activity rules, and the way in which minimum acceptable bids were calculated created a “perfect storm” in which Verizon was able to scoop up the two most populous REAGs for nearly half a billion dollars less than bidders were willing to pay earlier in the auction. This had a seriously depressing effect on the price at which C Block cleared and had nothing to do with the wireless Carterfone service rules.

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Why Obama is Wrong Even When He's Right

It’s amusing to see Hilary Clinton and John McCain blasting Barack Obama for his remarks explaining why despair and bitterness over the way economic elites have marginalised them economically and politically have motivated large portions of the working class to vote for politicians and issues which are utterly contrary to their economic self-interest: “It’s not surprising that they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment.”

It’s less amusing to see Obama backtracking now with his claim that “I didn’t say it as well as I should have.”

While Obama got it wrong on free trade — Chicago School free trade fanaticism has been a potent weapon for extracting surplus value from working people internationally by breaking unions and depressing wages, and people are justifiably angered about it — he got it right about the basis on which large elements of the American working class embrace right-wing causes and politicians who serve the interests of the economic elite rather than working people. There are two fundamental explanatory principles here.

First, as an insightful nineteenth-century political economist put it, religion is the opiate of the masses. There is a direct correlation internationally and in the U.S. between the degree of economic pain which globalisation and other forms of primitive accumulation against labour have imposed and the rise in the prevalence of fundamentalist religiosity since the late 1970s. The rise of the Religious Right and their issues in American politics, and their attraction to elements of the working class, are directly tied to this. When it looks like nothing can be done because the system is owned lock, stock, and barrel by an economic elite who profit from gutting your union, shipping your job to a Chinese slave-labour factory, plundering your pension fund, and dropping your health care, people get religion. And right-wing politicians play on this to keep working people from effectively opposing the underlying economic causes by focusing on gay marriage, abortion, and other social issues. It’s called creating false consciousness.

Second, it is a well-known phenomenon that in the absence of a class-conscious, well-organised, effective democratic left the exacerbation of economic oppression will produce support for the Right among working people. It happened in Weimar Germany when German social democracy dithered while working-class voters divided themselves between the Nazis and the KPD. It’s not surprising that the Bush administration’s penchant for corporatist-fascist ideology and the nativist Right’s racialist agenda have confused working people into supporting positions which help the economic elite keep power. We haven’t had a serious democratic left in this country since the Great Depression (some people might argue that we’ve never had a serious democratic left in the way European countries have).

I see nothing in Obama’s original remarks — the reference to ”anti-trade sentiment” aside — which isn’t entirely defensible.

In fact, it would have been refreshing as hell to have heard Obama respond to Clinton that eight years of her and her husband selling out the Democratic Party working-class base, trying to abolish the New Deal, blocking a single-payer national health care system on behalf of their buddies in the insurance industry, and triangulating on making the Gingrich agenda on everything but abortion the DLC agenda, while stuffing corporate cash into their pockets as fast as they could raise it (confirmed by their joint tax returns since leaving office), have led a lot of working people to despair about politics and embrace right-wing social and religious issues.

But that isn’t going to happen, largely because the principal difference between Obama and Clinton is that he hasn’t been around long enough to get his snout into the corporate trough as deeply as the Clintons, but he has hopes with his millionaire fundraisers. So he backtracks.

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700 MHz: Breaking the C Block Package

I apologise for the hiatus between this and my last 700 MHz Auction update, but with 36,419 bids over 261 rounds, analysing the data set is taking a bit of time.

Among the several controversies arising the from now-completed auction has been ATT’s claim that bidders were deterred from bidding on C Block because of the open access rules imposed on the block. I can say with confidence that this is a bald-faced lie.

Twenty-six companies bid on C Block spectrum: Alltel Corporation, AST Telecom, LLC, AT&T Mobility Spectrum, LLC, Bluewater Wireless, L.P., Cellco Partnership d/b/a Verizon Wireless, Cellular South Licenses, Inc., CHEVRON USA INC., Choice Phone LLC, Club 42 CM Limited Partnership, Copper Valley Wireless, Inc., Cox Wireless, Inc., Cricket Licensee 2007, LLC, Google Airwaves Inc., King Street Wireless, L.P., Thomas K. Kurian, MetroPCS 700 MHz, LLC, NatTel, LLC, PTI Pacifica, Inc., Pulse Mobile LLC, QUALCOMM Incorporated, SAL Spectrum, LLC, SeaBytes, L.L.C., Small Ventures USA, L.P., Triad 700, LLC, Vulcan Spectrum LLC, and Xanadoo 700 MHz DE, LLC.

Note that the lying buggers at ATT bid on REAGs 2 and 4. They were deterred, but only by Verizon’s deeper pockets.

The interesting dynamic in C Block is the effect of combinatorial bidding on the outcome. Under the combinatorial bidding rules three packages of REAGs were available (the 50 state package, the Atlantic package, and the Pacific package) as well as the individual REAGs. The rules provided that so long as the bid on a package exceeded the total amount of the bids on all the individual REAGs in that package, the package bidder would win (assuming that the package bid reached the reserve price). If the total amount bid on the individual REAGs exceeded the package bid in a round, then the package was “broken” and the package bidder wouldn’t be required to take any REAGs if it couldn’t have the whole package (this was to prevent a bidder who wanted a national footprint from getting stuck with less if another bidder outbid on one or two crucial components of the package).

Echostar was a strong proponent of combinatorial bidding, insisting that they wouldn’t show up and bid if the C Block did have a combinatorial bidding rule. Oddly enough, they got the rule and then their bidding entity, Frontier Wireless, didn’t even show in C Block bidding (they bid mainly in E Block without combinatorial bidding). But what they inadvertently did was screw at least one major bidder with the combinatorial bidding rules they insisted on.

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And the Wheels Fell Off…

For the first time since the Federal Reserve began tracking home equity data in 1945 the amount of equity homeowners hold in their homes fell below 50% in the fourth quarter of 2007 according to the Federal Reserve. More interesting still is the finding by Moody’s Economy.com that approximately 10% of homeowners now have zero or negative equity in their homes. This resulted from a 8.9% drop in U.S. home prices in the fourth quarter of 2007.

And analysts are predicting roughly an equal decline in home prices in the first quarter of 2008. That will put nearly 20% of homeowners at zero or negative equity.

What happens if homeowners are genuinely the rational actors of neoclassical economics? They default on their mortgages the moment they reach zero equity and wait for the up to two years it would take for their lender to force them out by foreclosure. That means large-scale bank failures even with a massive federal bailout. Can we say the magic words “conjunctural crisis of capital”?

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