Tales of the Sausage Factory

Canada Continues To Play With Itself For My Amusement — CRTC Allows New Tarrif for Metered/Capacity Limited Wholesale Services.

Back in December, I was very excited by the decision of the Canadian Radio-Telecommunications Commission (CRTC) to permit Bell Canada to throttle traffic for its wholesale customers. This represented the first OECD country taking a major step away from mandatory unbundling since the FCC deregulated our telcos in 2005. As a lover of empirical data, the thought of another country playing games with its critical infrastructure to test market absolutism struck me as a welcome relief from the U.S. always playing the guinea pig on free market absolutism.

And now, CRTC has gone further. In this Order, the CRTC approves an interim tariff for usage based billing (UBB) or, as we would call it here, metered billing with a capacity cap. I’m not sure if, reading this, it merely permits Bell Canada to offer a wholesale metered plan or if it allows Bell Canada to drop their unmetered plans and offer only metered plans. If the later, CRTC has pretty much delegated the entire industry structure over to Bell Canada. But even if this is just an option, it lets Bell Canada set the business model for how ISPs can do metered billing. So again, Bell Canada is going to have pretty tremendous influence on how the business model for DSL delivery evolves going forward.

Bell Canada had also asked for a fairly steep charge against an ISP if the ISP could not identify the specific customer using capacity, since that would evade the capacity cap. Happily for independent ISPs in Canada, the CRTC decided to hold off on that one for a bit.

As always, I shall be very interested to see what happens as a result. It’s always rare to see a similarly situated country willing to become a laboratory for experiments with its critical infrastructure. I look forward to seeing multi-year data on what happens to their broadband penetration, pricing, and overall use as a consequence.

Stay tuned . . . .

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Tales of the Sausage Factory

Mr. Moffett, I Thought You Said Cable Was Vibrantly Competitive?

In an interesting turn of events, industry analyst Craig Moffett takes a look at the growth of cable broadband and overall subscriber growth, as compared with that of telcos and satellites, and comes to this interesting conclusion: Cable is a natural monopoly in the making — and has been on course to do so since about 2005.

What is interesting to me is this is the same Craig Moffett who, during the fight last year on whether cable penetration had triggerred the 70/70 rule that would enable the FCC to significantly regulate cable by reaching 70% penetration, rushed to Commissioner Adelstein (the swing vote in last year’s fight) to explain that cable penetration remained stuck at 60% and would never reach 70% because of all the amazing competition.

Mind you, we all make bad predictions (I still remember with considerable heartbreak my Great Google Prophecy). But Mr. Moffett has a habit of telling Wall St. what a great investment cable stocks are while telling Washington how wildly competitive the market is, how cable can’t possibly exercise market power, and how in no way shape or form should anyone even think about regulating this market.

With Kevin Martin repeatedly saying he is unlikely to act on a proposal by small cable operators to unbundle expensive cable programming and retransmission rights for broadcast signals at the wholesale level, the coast no doubt looks clear to start explaining why cable is such a great investment and will crush its competition. But I will be curious to see what happens if, for example, Congress holds hearings on the FCC’s decision in the Comcast complaint and asks whether we need to regulate broadband. Will Mr. Moffett stand by his “natural monopoly” analysis — even if he argues for deregulation for other reasons? Or will he suddenly discover new life in FIOS, WiMax, and other potential broadband competitors?

Stay tuned . . . .

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Tales of the Sausage Factory

The Final FISA Sellout and My One Last Desperate Push for Sanity

The capacity of the Democratic Leadership to destroy the party will never cease to amaze me. In 2006 the Dems ran to take over Congress on a platform that included, among other things, ending illegal wiretaps on Americans. Now, the same Democrats propose to grant immunity to the telcos who cooperated with the Administration on a theory that — and I kid you not — if we don’t immunize the telcos for breaking the law this time, they might not break the law for us next time. Alternatively, some argue we should not “punish” companies whose only crime was that they cared so deeply about the safety and security of the United States that they “stepped up to the plate” when the President asked them to break the law and spy on people for their own good. Of course, these same selfless, patriotic, noble companies refused to implement judicially authorized wiretaps because the DoJ neglected to pay the fees. But it appears that Republicans, and now a sufficient number of Democrats, understand that we cannot expect patriotism to extend to things that actually cost megacorporations money. You can read this shameful betrayal of everything the Democrats pledged in ’06 here, with EFF’s analysis here.

What makes this more astounding is that there is not a single, rational reason for the Democrats to do this, and every reason not to do it. The Republicans tried to scare monger and make this an issue for them. That tactic failed miserably. You may recall how back last winter when the Republicans pulled out all the usual stops about how this was about national security and blah blah blah. No one bought it. The magic deadlines lapsed and nothing happened.

So either the Democratic Leadership continues to suffer from a pre-11/06 mentality, or they think they can continue to abuse their active base and collect corporate contributions as well. After all, the thinking goes, it’s not like the mainstream electorate cares about this and its not like the netroots are going to vote Republican. So why not treat them the way we’ve treated unions, African Americans, and unions over the years? i.e., talk tough, but cave when it counts because we know there are no consequences for it.

I’ve already made my impassioned plea based on the ideal of the Rule of Law. Now, in a last desperate effort, I shall make my plea based on practicality and — in what is apprently the universal language of party leadership — cash.

Democrats, meet me below . . . .

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Tales of the Sausage Factory

It's Nice WhenThe FCC Listens — Sorta. Why I like The Proposed Resolution Of Comcast's Complaint Against Verizon But Why Some Of It Makes Me Uneasy.

Back in February, I blogged about Comcast’s complaint against Verizon for its “retention marketing” practices. That’s Verizon’s practice that, when they get a request from another carrier to terminate voice service and transfer the phone number of a customer who is switching from Verizon (a practice called “porting” the number), they make one last run at trying to persuade the customer to stay. At the time, I observed (as I have for well over a year now, since I first made this argument at the at the Federal Trade Commission’s 2007 workshop), that if we are going to rely on competition, then we cannot have rules that privilege one side over another. To cancel video service, you have to call the cable operator, who then gets a last chance to pitch you hard to stay and makes it as difficult as possible to terminate service. But to change telephone provider, the cable company can ask the telco provider and the telco provider isn’t allowed to try to keep the customer — but must wait to pitch the customer until after the customer has already switched. That’s crazy. It needs to be consistent, or it puts the telcos at a serious disadvantage against the cable cos.

Well, back in April, the Enforcement Bureau issued a recommended decision that adopts this same argument. (I’ve been a shade busy, or would have blogged on this earlier.) It strongly recommends that the Commission commence a notice of proposed rulemaking designed to harmonize the rules for switching video and voice. No surprise, as this also tracks a Verizon Petition for Declaratory Ruling — as noted by the Bureau in a footnote.

Needless to say, I wholeheartedly approve of such harmonization, having supported this approach for well over a year. So why does the recommendation make me uneasy?

Because of the legal reasoning around the facts of the instant complaint. The Bureau recommends a finding of no violation because number porting is not a Title II telecom service and cable providers offering voice over IP (VOIP) are not providing Title II services. Which means that the FCC can flit back and forth between Title I and Title II at will, depending on its policy needs of the moment. It also means that Title II telecommunications service has now been reduced to only the voice component of plain old telephone service. And even critical elements of POTS, like managing the phone number systems, no longer count as telecommunication services under Title II.

I’m even more queasy about this because it is probably right under the enormous deference shown to FCC definitional hair splitting thanks to the combination of the Brand X decision and the D.C. Circuit’s decision on CALEA in ACE v. FCC. Well, Scalia warned the Brand X majority, but they didn’t listen. And Michael Powell, by trying to put broadband services beyond the reach of FCC regulation, ended up enormously expanding the power of the FCC to regulate services on a whim.

More on what I’m talking about and what this means for the future (if adopted by the Commission) below . . .

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Tales of the Sausage Factory

White Spaces and the CTIA Game Changer

The idea of auctioning the broadcast white spaces, rather than opening them for unlicensed use, is not new. It started out as an NAB “poison pill” back in 2005, when we looked like we might be making progress on getting a pro-white spaces amendment in the DTV transition bill that ultimately became the Digital Tranisition Act of 2005. When the FCC reinvigorated the proceeding in 2006, the NAB managed to get the FCC to put the question of licensed v. unlicensed in the Further Notice. But the NAB doesn’t want any neighbors, either licensed or unlicensed, and has focused its efforts until now on trying to kill the whole idea rather than on trying to promote licensing and auctions rather than unlicensed.

But the idea of licensing the white spaces for cellular or backhaul has gained new life recently, particularly after the 700 MHz auction. Both Verizon’s Steven Zipperstein and analyst Coleman Bazelon recommended this in their testimony at the House Telecom Subcommitte hearing on the 700 MHz auction. That comes on top of a serious filing by CTIA on the benefits of auctioning some of the white space and leaving a smidge so that unlicensed technologies can continue to develop.

We’ve now gone from NAB poison pill to serious issue. The proposal has not yet gained traction, but it does not do to underestimate CTIA and its members because, particularly after the 700 MHz auction, a number of its members really need that spectrum. This has the potential to change the game radically, including shifting alliances as the threat becomes more credible.

Analysis below….

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Tales of the Sausage Factory

Telco Sock Puppet Picks Clinton As Best of Bad Field, Worries That Martin Has “Lost His Way.”

Occasionally, folks at industry trade conferences make the mistake of forgetting that press are there and say what they are actually thinking. In fairness, most of these guys probably figure that trade press isn’t really press and who the heck reads Communications Daily anyway? After all, it’s not available online.

Heh heh heh.

I cannot provide an internet link or copy the entire relevant section without violating copyright. Nor would I want to do so. The folks at Comm Daily do good reporting, and if they chose not to make this stuff available online, so be it. Happily, however, principles of fair use allow me to report here a rather interesting story from the Wednesday March 12, 2008 edition (pages 7-8). David McClure, President of the United States Internet Industry Association, addressed his fellow telecom industry buddies at a conference in Monterey Califonia, where he had some very interesting things to say (for me at least) about his personal pick for the White House in 2008 (hint: It’s not Obama) and his opinions about Kevin Martin — the supposedly wholly owned telco asset.

More below . . . .

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Tales of the Sausage Factory

Senator Pryror Angry At Right Problem, But Picks Wrong Solution.

UPDATE: On reflection, I’ve decided to modify the tone of this considerably. After all, when someone basically agrees with you (the incumbents have too much market power), slapping them around for relying on the press is a pretty stupid and counterproductive move. Besides, my real frustration is with the press for offering up speculation as if it were fact, not Pryor for reading the press and getting upset about the supposed failure of the auction to produce a new competitor. So with apologies to Pryor for needless snark the first time around, here we go again.

Senator Mark Pryor (D-Ark) is upset with reports that AT&T or Verizon probably won C Block. More specifically, he is angry that we don’t have more wireless competition. That’s good. But he accusses Kevin Martin of fixing the 700 MHz auction to benefit the telcos. That’s where he goes wrong, in my opinion. As I’ve said before, I don’t think Martin rigged this for the telcos, especially in light of Verizon’s persistent efforts to get the C Block conditions “clarified” away and Martin’s telling them to go take a hike. Further, adoption of the anonymous bidding rules means that we don’t know yet who won the licenses. We may very well be surprised when we see the results.

But if it turns out that, as predicted, the incumbents did win the lion’s share of the licenses, that doesn’t make the outcome Martin’s fault. Rather, Senator Pryor should direct his anger where it belongs — at the statutory requirement for the FCC to auction licenses for use of the public airwaves. As I explain below, and as many of us explained before the auction, incumbents enjoy real advantages even under the best of conditions because they don’t have additional costs new entrants have — like building the network from scratch or pulling customers away from a service they already use. To make matters worse, Senator Pryor’s Republican colleagues are constantly haranguing the FCC to “not pick winners” and objecting to any kind of mechanism that could neutralize these incumbent advantages.

We can’t have it both ways, and Congress makes the call. Either Congress eliminates auctions, or allows the FCC to exclude incumbents from the auction, or gives up on auctions as a way of generating competition and goes back to regulating market power directly. But blaming Kevin Martin and the FCC for the fact that incumbents keep winning auctions makes as much sense as blaming Bud Selig for the fact that the Yankees and the Red Sox always make the playoffs and the Nationals haven’t gotten to the World Series.

More below . . . .

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Tales of the Sausage Factory

Cable Operators Shocked…Shocked I Tell You…about Verizon Marketing Practices.

I may occasionally (O.K., more than occasionally) have some snarky things to say about the free market philosophies of my opposite numbers at places like CATO and Progress & Freedom Foundation. But what distinguishes them in my mind from industry shills and sock puppets is their ideological integrity. When they want everything deregulated, they really mean it. Not so the industry and its true sock puppets, who can spin on an ideological dime without the least regard for even the vaguest notions of consistency with their previous statements.

Case in point, this FCC complaint by the cable companies against Verizon for “retention marketing.” Mind you, these are the same folks that complain whenever the FCC even thinks about interfering with the “vibrant and competitive telecommunications market,” and who protest that enforcing the laws passed by Congress to require interoperable set top boxes and set a numeric limit on the number of subscribers they can have constitutes a “vendetta.” But, as usual, consistency is not exactly a strong point for industry. As I continually remind folks, industry does what is best for its bottom line, period. And here, it means using the big bad evil FCC to slap the telcos around.

Which brings me to the point I expound upon below. Too often, the industry gets to win by making this a fight about process and “level playing field” and confusing the issue. But what we really need to care about is what our actual policy IS. If we want to encourage competition because we prefer it to regulation of monopolies, then we damn well better make sure competition actually happens, which means subjecting the incumbents with market power (at least initially) to a very different set of regulations than the new entrants. For many years after the break up of AT&T, the FCC subjected AT&T to a set of regulations designed to keep it from using its position as the dominant long-distance carrier to prevent the new entrants like MCI and Sprint from attracting customers. The FCC did not worry if that was “fair” to AT&T to have different rules that prevented exercise of market power by a dominant firm. It said “hey, we want competition! That’s about economic policy, not about being fair.”

Mind you, I don’t expect my opposite numbers to agree. But they will at least have the virtue of consistency.

More below . . . .

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My Thoughts Exactly

My defiant “that'll show 'em” vote, 2008

I voted today in the Massachusetts primary.

I voted for Chris Dodd.

That’ll show ’em!

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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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