Tales of the Sausage Factory

Why The Stimulus Speed Upgrades Are Right, Or Public Utility Meets Zeno's Paradox.

Many folks talk about broadband build out as if it were rural electrification. I do agree with this in one sense — it is a critical part of our infrastructure and links to our tradition of ensuring that we remain one country with access to vital services for all. In this respect, broadband is similar to telephone/voice, electric power, sewage, roads, and other other public utility/natural monopoly type investments. But it is fundamentally different from all of these in a fundamental way. Other public utilities have high initial construction cost, but then have very predictable maintenance and upgrade costs. This makes it possible to solve some problems with a huge one-time grant or, for the private sector to make a serious cap ex investment, but then budget for regular upgrades based on projected need and maintenance based on standard depreciation.

Not so broadband. As our technological capacity increases, we increase both the potential capacity for the network and our capacity to use the network in unpredictable ways. But we have neither public policy nor private sector models that acknowledge this — with the possible exception of Verizon, which solved the problem from their perspective by aggressively pulling fiber/overbuilding capacity as to current demand where profitable and aggressively selling off high cost rural regions. And, while that works for Verizon and its shareholders, it rather sucks from a public policy perspective.

I call this the Zeno’s Broadband Buildout Problem. No matter how much Achilles invests in build out, he will never catch up to the limit of possible upgrades. As I explain below, my tentative conclusion is that the right public policy result is a recognition that we don’t get to do a one time investment and go away, but need to continue to experiment to find sustainable models that factor in growth rather than simply look at build out followed by steady state. I’m not sure beyond that, other than my conviction that anyone who shrugs and says “that’s why the government shouldn’t do this at all” is definitely wrong.

OTOH, it also means I find the speed upgrade in the stimulus package — 45/15 for wireline and 3/1 for wireless — pretty good despite the fact that many of us want to reach the 100 mbps or even 1 gigabit/second capacity for future network needs. Broadband Achillies may not be able to catch up to Bandwidth Demand Tortois, but that doesn’t mean he gets to slack off either. A good swift stimulus in the patootie is actually a pretty good idea, given the open ended nature of the problem.

More below . . . .

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Tales of the Sausage Factory

My Simple Net Neutrality Fix.

In what Rob Friedan accurately describes as an obtuseness so thorough it looks suspiciously like deliberate misinformation, the Wall St. J. has yet another piece on what it imagines the network neutrality fight is about and why the best thing in the whole wide world is to do nothing.

Rather than rehash old ground (Rob does a fairly good job of it in his post), I will move on to my handy and simple network neutrality solution. “Simple,” in the sense of being a fairly straightforward piece of legislation. It would pass the buck back to the FCC for implementation — with all the attendant hassle and complications that brings. But from a Congressional standpoint, it is really quite straightforward. In fact, Congress already resolved this problem once a long time ago, back when the FCC was struggling with them new-fangled mobile wireless networks.

How did they do it? And what would I do for broadband? See below . . . .

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Tales of the Sausage Factory

Matt Stoller Interviews Me Over On OpenLeft

As anyone reading the sidebar can tell, I’m a big fan of the folks over at OpenLeft. So I was extremely happy when Matt Stoller asked to interview me on what the November 4 white spaces vote at the FCC means for the future of media and telecom policy.

You can find the interviews here:

Day 1: Broadband and Breaking Up Telecom/Cable/Broadcast Monopolies.

Day 2: Real Use Anywhere ‘Skype-style’ Phone In The Offing.

I have no idea if the Obama people — or anyone else for that matter — agree with me on this stuff. The views expressed in the interviews are my own, just like any other time I talk to the press. In particular, I am pretty sure no one else agrees that our priority should be to “crush monopoly incumbents, drive them before us, and hear the lamentations of their shareholders.” “have a strong national broadband policy that includes federally funded fiber-to-the-home and greater access to federal spectrum for intelligent devices.”

But I hope we can persuade them to agree with me.

Stay tuned . . . .

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Econoklastic

Well, Yeah, Actually, I Am Gloating…

I try not to gloat, but it’s impossible not to take a certain amount of satisfaction in the Wall Street Journal‘s confirmation on Nov. 16 that Google intends to bid in the 700 MHz auction in January, regardless of whether it has partners in a bidding consortium. This confirms my prediction back on August 2 in Econoklastic that Chairman Martin’s refusal to impose a wholesale open access condition on the C block would not prevent Google from bidding, despite naysayers in the press and on Wall Street.

The underlying reality is that Google needs a third broadband pipe to escape imposition of monopoly rents by the wireline and cable carriers, since net neutrality provisions with real enforcement teeth are nowhere to be seen on the horizon: that means do it themselves or get someone to do it for them. That reality hasn’t changed, and the guys at Google clearly recognise this fact. I am equally heartened by assurances from Google counsel Rick Whitt at a conference in NYC week before last that Google still intends to implement its full wholesale open access business plan over any spectrum it obtains in the 700 MHz auction.

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Tales of the Sausage Factory

The 700 MHz Dramedy Continues

Ya know, I had real hopes that, barring a Petition for Reconsideration or two, I was pretty much done with the 700 MHz auction. Sure, Verizon filed a lawsuit with the DC Circuit, but at least we could sit back and stop worrying about the FCC stuff. And besides, the lawsuit didn’t really have much of a chance anyway. So, after a grueling 6 months or so, I thought I could finally relax and turn to something new, like kicking the bejeezus out of the cable monopoly.

Hah.

As recent reports indicate, Verizon has apparently pressed the FCC to “clarify” the C Block conditions. I say “apparently” because Verizon has not actually filed a request for any sort of clarification, reconsideration, or declaratory ruling. Indeed, to my considerable annoyance, it took a modest reprimand from the Wireless Bureau and Martin’s staff for Verizon to actually put something in the record vaguely resembling a description of what Verizon’s most senior lobbyists actually discussed with the Chairman and his staff. Verizon, meanwhile, vigorously denies they ever asked for reconsideration (and, separately, that it finds the accusation that it violated the ex parte shocking and deeply offensive).

In any event, it appears the issue is whether or not Verizon (if it won the C Block licenses) could continue its practice of asking manufacturers to strip out or limit features or applications on devices that run on the C Block. Verizon argues that consumers love subsidized handsets and letting the cell phone operator make all the tough decisions (like what applications can run on the device), and it would therefore be cruel to deny the C Block licensee the right to offer such fantastic products and deals — as long as the C Block licensee will hook up any third party device that meets the technical standards.

To Martin’s credit, he reached out to the Public Interest Spectrum Coalition (PISC) and asked our opinion on whether the C Block licensee should be able to sell “crippled” devices as long as it will also connect any third party device to the network. Martin was apparently sufficiently impressed by my wisdom that he then tried to issue a clarification that Harold Feld is right and Verizon is wrong. The Democrats promptly moved to block, because they suspected a trap, since the idea that Martin would side with me over Verizon is apparently laughable (I have no doubt the Democrats mean that in a nice way and that it does not reflect on the quality of my wisdom). Of course, I have no idea what the proposed clarification actually said, since it is illegal to show me the actual predicisional text. But it is not illegal for Martin to say that he agreed with me or for the Dems to say that’s not how they read the proposed clarification. Remember, ambiguity is the essence of comedy.

In any event, as in any good dramedy, further hijinks naturally ensue from this potent combination of distrust and lack of information. Rumors of this “clarification” prompted Verizon’s arch-nemesis, supporter of wholesale access, and potential rival bidder Frontline to challenge Verizon’s efforts to get the rules changed. This triggered a response from Verizon that they hadn’t asked for a rules change, and that furthermore, on reconsideration, the FCC should issue a declaratory ruling that “Frontline is ugly and their VCs dress them funny.” Meanwhile, now with a full posse of PISC buddies, I went back to the FCC to explain that while I am always flattered to have the FCC declare my interpretation of its rules to be the law of the land (and encourage them to do this on a more regular basis), we at PISC think the Order is perfectly clear and that if anyone wants it clarified they should have to formally file a motion and ask.

One might logically ask why, if Verizon wants the Order changed or clarified, it doesn’t just file a motion and ask. That would be a problem for Verizon, however, because it cannot simultaneously file a Recon Petition under 47 USC 405 and a Petition for Review by a federal appellate court under 47 USC 402. There are ways to try to get around this, but this statutory conflict would explain why Verizon has danced around this issue and pretended it is merely a continuation of its previous arguments properly filed in this docket. Assuming, of course, that they actually want a clarification, which they claim they don’t.

So, if Verizon hasn’t put in an explicit request, why does Martin feel a need to act? Does Verizon really have a leg to stand on, or is this just an effort to refight the same battle? And what about the tech companies? Why don’t we want the FCC to proclaim that I am right on my interpretation of the Order? And will the Red Sox finally face the Cubs in a World Series “curse off?”

O.K., I have no clue on the last one. But as for the rest of these questions (and perhaps a bit more), see below….

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Tales of the Sausage Factory

Great Paper on NN Out of University of Florida

I’m back from a vacation in Israel to discover an amazing economic analysis of network neutrality posted by my good buddies at Consumers Union on hearusnow.org. Written by University of Florida Economists Hsing Cheng, Subhajoyti Bhandyopadhya and Hong Guo, Net Neutrality: A Policy Perspective applies game theory to the network neutrality debate. They conclude that abandoning network neutrality would create a disincentive for broadband network providers to build fatter pipes.

If this analysis seems familiar, it’s because I wrote something similar (but without the fancy math) about a year ago. As always, I get warm fuzzies whenever economists confirm my Econ 101 “gut check.”

Of course, these guys being real economists (as opposed to undergrad posseurs like yours truly) have a bit more to say on the subject and use lots of fancy math that I will not try to reproduce. But I offer some brief plain language explanation (including what I think are the brilliant points in the analysis) below….

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My Thoughts Exactly

Quasi-muni wireless for Colorado Springs?

This front page article in today’s Colorado Springs Gazette discusses a proposal for a private company to provide wireless throughout the city. There would be a user fee; it would not be a free service.

This would not be a “Muni wireless” of the kind favored by many of us Wetmechanics, but still, given my recent experiences with Adelphia, (see Wetmachine article below this one (including comments)), I might tend to favor it, on the theory that anything is better than having to rely on the local cable monopoly. Colorado Springs is generally a very conservative town, despite having liberal pockets here and there, and I don’t think a muni wireless would have much chance of passage.

Yesterday’s Gazette carried another front page article about (outrageous?) bonuses paid by the municipal utility company, and the tenor of comments on the Gazette’s website indicates a quasi-religious belief in the virtues of private companies relative to municipalities. And religion is very strong in Colorado Springs.

I would be interested in Harold Feld’s analysis of the proposal for Colorado Springs, and in your comments too-also, even if you are not Harold.

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Tales of the Sausage Factory

Quick Reaction to AT&T-BellSouth Merger

Not really a surprise. The government has made clear it will accept the vicious cycle of “the previous merger you approved means I now have to merge.”

Sadly, because the regulators till think of these primarily as monopoly voice markets, and long ago gave up hope the Bells will compete with each other, they don’t worry about the increased size of the national footprint as an indicator of market power in any of the relevant service markets. If anything, it’s regarded as a plus because under the logic of “convergence,” this makes AT&T a better video competitior to Comcast, TW and other incumbent cable companies, while doing no “damage” in voice markets.

The complexity of interelated markets, the nature of market power on “upstream” internet content and service providers, and question of what the mature market looks like aludes them.

Oddly, I am at a conference on municipal broadband right now. Soon, cities may be the only competitors. I hope they will realize that they need interconnection and net neutrality to make a real go of it. Or so I will try to persuade them tomorrow.

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Tales of the Sausage Factory

Cable Market Power For Dummies

Most folks outside of Washington DC still find their cable company an obnoxious monopoly, despite the presence of competitors like DirecTV, Dish Network, and the occassional overbuilder like RCN. But, despite the fact that customers express far more satisfaction with satellite and overbuilder service, most folks remain subscribed to cable. What gives? And how does cable get away with raising prices and favoring affiliated programming in the face of this “vigorous competition.” Needless to say, the cable folks respond with a host of fancy economic papers that they file with the FCC and present to members of Congress.

My own impression, having spoken with a number of economists, is that the Cable Cos use economics the same way Creationists use intelligent design. The point isn’t to engage in real scientific inquiry. The point is to throw enough scientific sounding stuff out there to confuse the issue and make people believe there are two equally valid sides to the debate. My problem is that the FCC and Congress usually end up playing the the Dover School District Board rather than Judge Jones.

Anyway, in an attempt to cut through some of the nonesense, MAP released a white paper of my authorship yesterday: “The Switching Equation” and Its Impact on the Video Proramming Market and MVPD Pricing. As you can tell by the title, even an attempt to write a simple, plain language version of this ends up more complicated than I’d like. (Sad fact is, economics is hard.)

So here’s the short version — most people find it such a pain in the butt to switch from one service to another that they will put up with higher prices, worse programming, and worse customer service rather than kill two days futzing with unsubscribing to cable and resubscribing to someone else. As long as cable doesn’t stink too badly, they can keep enough market power to make it even harder for competitors by cutting exclusive deals for regional sports programming and jacking up the price of video on demand to competitors (Comcast and Time Warner own 78% of iN Demand, the leading supplier of VoD). If we want real competition, we need to have rules that actually address market power and make it easier for people to switch to competitors. Otherwise, we get a lot of empty rhetoric about “level playing field” and “free market” and blah blah, and we still pay ridiculously high prices for cable and broadband service that still suck.

You want proof? Go read the paper.

Stay tuned . . .

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Tales of the Sausage Factory

Tales of the Sausage Facotry: Will WiFi Phones Displace Cell Phones?

Esme Vos comments on a WSJ article suggesting that WiFi and cell phones are mortal enemies. Sorry, but such a simplistic view of the world doesn’t hold water for me. Sadly, I think the cell phone companies believe it.

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