Tales of the Sausage Factory

I Suggest Giving Comcast What It Asks For . . . . Heh, Heh, Heh . . . .

As the FCC’s examination into our complaint against Comcast winds down, with what looks like a win for us (although with an opponent like Comcast, I am not going to celebrate a win until after the order is voted), Comcast has increased its efforts to woo McDowell and Tate with a show that “the market” will magically cure all ills by cutting a non-aggression pact with Vonage and a new ex parte filing listing all the wonderful things it has done since the Commission put our complaint out on public notice, which is an obvious sign that no regulatory action is necessary since it is merely coincidence that Comcast (and other broadband providers) have been scrambling with ever more serious urgency as the resolution of the complaint moves closer. Ah Comcast “Change we can believe in until all you stupid regulators go away and we can get back to crushing folks like insects beneath our fiber-coax heel.”

More of interest to us legal (and less credulous) types, Comcast filed a lengthy rebuttal to Marvin Amori’s magnum opus on Commission jursidiction. Marvin’s piece was, of course, a response to the Comcast filing after the Boston Hearing, that asserted the FCC had no authority to sanction Comcast or regulate Comcast’s broadband in the first place. Mind you, Comcast told the a California district court otherwise, and got a stay of the pending class action for blocking bittorrent as a consequence. But the first lesson of law school is that consistency is only a virtue if it serves your client. In any event, this most recent filing (which has not yet shown up online for me to link to) is therefore either the rebuttal to FP’s reply or merely the Nth go round in a “permit but disclose” proceeding.

This is reflected by Comcast’s argument, which largely rehashes previous arguments about the limits of Commission authority and whether Comcast had proper notice it could be subject to a civil complaint and civil sanction. Fair enough. Time now for the FCC to decide and then on to the D.C. Circuit. That’s what process is for, to get the arguments out so we can get a judgment and get on with our lives.

But Comcast does raise one new argument, and an intriguing one at that. And ya know, I think the Commission ought to give it to them. Heh, heh, heh . . .

Why am I chuckling? See below . . . .

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Tales of the Sausage Factory

The Economics of Telco Deregulation: Califronia Dreaming, Economic Realities, and the “Reverse Ramsey” Pricing Model

This article in the LA Times on the impact of telco price deregulation in California is a good illustration of the complex nature of the economics of competition and deregulation, and why it’s so friggin’ important for regulators and the public to understand this stuff. In 2006, the California PUC decided that voice service faced sufficient competition to phase out price regulation. In theory, competition would lead to lower costs and increased services and would remove the invariably stultifying impacts of regulation.

The result has been an increase in the availability of services and an overall decrease in the cost of service, but not in the way that ordinary folks understand or that regulators professed to expect from deregulation. Most customers have, in fact, increased the amount they pay for telecommunications services overall. But because they buy larger bundles of services that profess to discount the price of each element in the bundle, the average cost per service is lower although the amount of money paid has gone up. That might seem a good value trade if it were driven strictly by consumer choice. But consumer choice is driven by the decision of telcos to increase the cost of stand alone services. So people not looking to bundle do so because it is “cheaper” while poor people who cannot afford the higher price for the bundle get a real price hike with no value added.

Example: Feldco the Telco raises the price of basic local voice from $10 to $20, and raises the price of additional services taken a la carte from $5 to $10, but I offer a package of basic voice and five additional services for $30 (which I tell you charging $5 for voice and $ 5 for each additional feature). Any customer that can afford to upgrade to my bundled package will do so, because the “value” of the bundle (at my new prices) is $70 and you are getting it for $30. So even though you upgraded and are paying me more, the cost of basic voice (calculated as part of the package) just dropped by $5. What a savings! of course, the customers who cannot afford the additional $10 a month for the bundle experience a real price increase of $10.

Basically, the problem of wealth inequity that we have seen in every other sector of the economy — where the highest earners have enjoyed the greatest increases — is now mirrored in California’s telecommunication service market. How did this happen? Do we care? And what does this tell us about the future of the metered internet, wireless competition, and the ever popular video competition?

Answers below . . . .

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Tales of the Sausage Factory

Iowa, oh Iowa, Iowa, Ooooohhh Iowa

I can’t be the only Dar Williams fan out there, especially on the day after the caucuses. Especially after Iowans appear to have gone through the screen door of discretion while some candidates wake up to a nightmare/that I could not bear to see/They were out caucusing/A freezing night in Iowa/But they were not voting for me.

I’m actually on sabbatical for the next two months trying (among other things) to actually get the stupid blog book done (talk about New Year’s resolutions), so I’ve been trying to cut back on other work and focus. But what political junkie can resist the urge to comment on last night’s Iowa result? I will, however, try to keep it to TotSF appropriate topics and bipartisan snarkiness.

My take, as aways, below . . . .

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Tales of the Sausage Factory

Why Teens Are Smarter Than Regulators — The Difference between Ubiquity and Substitutibility

Greetings gentle reader! Welcome to another chapter in my occasional series “What All Policy Wonks Need to Understand About Economics So They Can Spot The Industry Baloney” aka “The Econ 101 Gut Check.”

In today’s lesson, we look at two concepts often confused with one another. UBIQUITY, which means how widely available something is; and SUBSTITUTIBALITY, which means whether people regard one thing as a substitute for their first choice. Most arguments for deregulation of the media and the internet rest on confusing these related but very different concepts. For example, the argument that the availability of video clips on YouTube or other types of content creation confuses ubiquity and substitubality, as does the argument that cellphones compete with DSL and cable for broadband access.

But according to this USA Today article (reporting on this study by the PEW Internet and American life project), teenagers who actually use this stuff on a regular basis understand the differences perfectly. And if regulators, policy types, or even just folks who care about getting it right for its own sake want to get our national media and broadband polices right, then we better learn from these teenagers and get the difference between ubiquity and substitutibility straight.

Class begins below . . . .

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Tales of the Sausage Factory

Not Only Will the Lion Lie Down With the Lamb, He Will Make Big Bucks Opening a Feed Store (While Still Running a Butcher Shop on the Side)

Y’all remember how AT&T (under its old name SBC) launched over a hundred lobbyists into the Texas legislature to kill muni broadband in TX? How it tried to kill muni broadband in Indiana? Not just once, but twice?

Guess what? AT&T has now cut a deal to build a muni wifi system in Springfield, Il. The article quotes an AT&T spokescritter as saying that AT&T expects to close many more such deals, and will seek them out where it makes economic sense.

Whoa! What happened to all of that rhetoric about the brave incumbent telco capitalist captain of industry going eyeball to eyeball with the evil Socialist menace of a publically financed internet? Answer: increasingly, the incumbents have realized this is a losing issue for them and have decided to figure out how to make money out of it.

While I take this as the latest and most potent sign that the move to outright kill muni broadband has run out of steam, I think a note of caution is advisable as well. Some victory snark and reflections on the future challenges for both muni broadband and other forms of community-based broadband below.

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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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