Tales of the Sausage Factory

The Fragmentation Games Continue: Cable Has a Plan So Cunning Even THEY Can't Figure It Out.

So back in September ’08, when ESPN.com cut a deal with Verizon and AT&T to lock out subscribers to rival ISPs, I predicted the cable guys would try to lock up content of their own. and, indeed, the cable guys have proven uniquely ambitious. As reported at DSL Reports and elsewhere, the cable guys want to lock in all cable network programming. But subsequent reports, and a lack of object from competitors like DIRECTV, make it look more like a cable programming network play and less like an incumbent cable ISP play.

One way or another, I expect this to keep getting interesting over time.

More below . . .

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Tales of the Sausage Factory

MLB Network Pays To Play To Get On Cable — Dumb NFL Stupidly Relies on FCC To Enforce Federal Law. Suckers.

On New Year’s Day, Major League Baseball launched its new cable network. Unlike the NFL Network, which has fought numerous battles with Comcast and Time Warner to try to get carriage, the MLB Network will debut in 50 million homes.

Gee, I wonder if it has anything to do with MLB giving Comcast, DIRECTV (now run by the guy who engineered this strategy, John Malone), and a bunch of other big cable boys an equity share?

Oh if only we had a federal law to prevent such extortionist use of market power, and a federal agency to enforce it! Oh wait, we do. Well why hasn’t the NFL filed a complaint? Oh wait, they did. Well then, why do Comcast, DIRECTV, and the rest of the cable cartel think they can get away with it? Oh right, because the FCC has done absolutely jack on this. Why? Because, as we all know, everything is perfectly wonderful and competitive in cable-land and trying to address the NFL’s complaint is just all part of Evil Kevin Martin’s wicked vendetta against this customer-oriented highly-competitive industry.

A bit more below . . . .

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Tales of the Sausage Factory

700 MHz Aftermath: Assessing A Rather Complicated Result — But Not A Disaster As Some Maintain.

The intervention of the Jewish holiday of Purim, which is celebrated by getting drunk until you cannot tell the difference between Verizon winning the C Block and Google winning the C Block, kept me from posting sooner. I would have held off until I could give more details, but there are so many people rushing to call it a disaster that a few words need to be said here.

O.K., Google didn’t win, but Echostar did, giving me a .500 batting average in prophecy against the conventional wisdom. I’m not covinced that Echostar winning gives us a third pipe (Martin’s suggestions about combining this with other spectrum assets to the contrary). But even if not, it is important for keeping Echostar competitive with cable and with DIRECTV (which will have an advantage in programming assests). I shall try to do a more detailed analysis of Echostar and what the E Block does for them in a future post.

It is also interesting to note that some non-incumbents like Cavtel picked up licenses, although I am not as enthusaistic about this for competition as Martin was at the press release.

That said, I do not see how the rules could have been structured any better without barring Verizon and AT&T from playing. While we might have done better for new entrants after all with smalled licenses rather than REAGs, as demonstrted by Echostar doing an end run to assemble a near national footprint after they begged and pleaded to have the FCC offer a national license, I can’t say for sure (I’ll have a longer discussion on this later, and I expect Greg Rose will have some things to say on his blog once he has crunched the numbers). My preliminary conclusion is that Verizon (and to a lesser degree AT&T) was simply determined to get the spectrum it wanted and did not let anything stand in its why. The fact that Verizon paid $9 MHz/Pop for a B block license for Chicago, and that Verizon and AT&T spent over $16 billion of the approximately $19 billion raised should tell anyone who cares about the reality all they need to know. Verizon and AT&T were not “bargain hunting.” They were at each other’s throats and cutting out anyone who dared to get in their way. The only way to stop them was to keep them out entirely, and there was not a heck of a lot of support for that from the Hill or at the FCC beyond the Dems.

I think Commissioner Adelstein gives a fair assesment when he says we won on revenue and openness and lost on diversity and competition. But again, the only way we could have done any better was by adopting auction rules that banned Verizon and AT&T from playing and by using aggressive means to address minority and women ownership (as MAP requested as early as March 2006). Perhaps now Congressional Democrats will add their voices to those of Commissioners Adelstein and Copps on restoring the minority bidding credit and supporting incumbent exclusions or — at a minimum — restoring the spectrum cap.

As it was, thanks to anonymous bidding, Echostar was able to do an end run and acquire a national footprint — something previously denied to it in the AWS Auction in 2006. And, while AT&T and Verizon got most of the licenses, they had to pay through the nose to get them — rather than sopping them up dirt cheap as happened in the AWS auction (where licenses equivalent to the A & B block licenses went for 45 cents MHZ/pop not $9 MHZ/pop). This auction attracted more new bidders and more minority bidders than previous auctions, so the field was ripe for a success on these fronts. But they were simply outspent by Verizon and AT&T.

To conclude, unlike the utter failure of the AWS auction (which everyone else hailed as a success — despite the incumbents winning more licenses for less money), this auction produced some very positive results. But it also shows us the limit of what purely competitive auctions will do. Neither this auction nor freeing more spectrum for future auctions, on their own, will provide us with a third pipe or introduce new competitiors in wireless. The advanatges enjoyed by incumbents in a relatively mature industry (as opposed to back in the early/mid-1990s when the first auctions were conducted) are simply too great to overcome just by “leveling the playing field.”

Finally, one last question remains: Why didn’t Qualcom drop their bid on D Block? Why did they tie up all that eligibility, instead of using it to go after more E Block licenses? For us spectrum geeks, this is the equivalent of asking Why did the Minbari surrender at the Battle of the Line (best answer from a friend of mine: “turns out Echostar bidders have Qualcom souls”). Did Qualcom hope they could keep the D Block for such a low price? Did they wish to avoid a penalty for dropped bids by the time they realized no one would bid on D Block? Hopefully, we will find out.

Stay tuned . . . .

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Tales of the Sausage Factory

700 MHz PreGame Show: Ergen’s Echostar Dances Alone; Brave Little Toaster Or Stubborn Idiot?

Echostar has decided to bid in the 700 MHz auction, despite DIRECTV sitting this one out. This raises the obvious question. Is Echostar founder and CEO Charlie Ergen a “brave little toaster,” boldly defying the odds and the nay sayers to reap a well-deserved reward in the end? Or is this another example of the stubborn idiocy that earned the proposed Echostar-DIRECTV merger the distinction of being the first merger in living memory actually rejected by the FCC because he refused to pull it when it became obvious it was doomed?

Actually, I’m betting on the “brave little entrepreneur” scenario, but the jury is still out.

More below . . . .

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Tales of the Sausage Factory

Adelstein Publicly Calls for Open Access

Two important updates from my most recent post. First, Commissioner Adelstein publicly supported some kind of open access requirement for the 700 MHz auction licenses. Wooo Hoooo! For us policy geeks, it’s kind of like the moment when the Millenium Falcon comes out of nowhere and blasts the Imperial tie fighters targeting Luke as he barrels down toward the access port. Not that I had any doubt where Adelstein’s heart was, but it’s always reassuring to see him commit himself.

The second update is that DIRECTV and Echostar got out bid by some Brits for Intelsat. This makes it more likely that they will want to bid aggressively in the auction, assuming they think they can win.

Stay tuned . . . .

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Tales of the Sausage Factory

Enforcement Staff Respond to Application of Clue By Four to Head

After the very public tongue-lashing from FCC Commissioner McDowell as part of deciding the Comcast/TW/Adelphia transaction, the “lazy and indolent bureaucracy” charged with processing cable complaints has finally issued an Order designating for hearing MASN’s complaint that Comcast refuses to air the DC Nationals games violates the law. Sort of. There are a few interesting little oddities, as well as a big, heapin’ WHAT THE HECK TOOK SO LONG!

We’ll have to see if they now move to the other proceedings — such as the leased access rulemaking — promised in the Adelphia Order, or if this is just a one shot because Washington Nationals coverage (or lack thereof) has become such a sore point for folks here in DC. But it gives some modest hope that (at least for the moment) the FCC has some genuine interest in actually enforcing the laws already on the books that limit the ability of cable operators to abuse their market power.

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