Tales of the Sausage Factory

Why Do Competitive Markets Keep Misbehaving? The Curious Case Of Cellular Txt Msging.

Been meaning to get to this for awhile now, which is why the links are so old.

It has long been an article of faith among the worshipers of the Gods of the Marketplace that once you achieve “competition” (generally described as at least one more possible new entrant, but certainly where multiple providers exist) you eliminate regulation, because a competitive marketplace gives consumers what they want — like high fuel efficiency standards and a secure financial system. Thus, for the 30 or so years, we have more and more framed the debate in telecom and media policy around whether or not we have “enough” competition rather than about the benefits or drawbacks of any actual policy. Unsurprisingly, you can always argue that we have “enough” competition (or that competition is about to emerge) and thus side step the whole question of the actual state of reality and what reality we might prefer.

Enter the curious case of cellular telephony. I’ll take the case of text messaging, although the same argument applies in varying degrees to other aspects of the wireless market like network attachments and ring tones. As Randall Stross wrote in the NY Times at the end of December, the cost charged to consumers for txt messaging has absolutely nothing whatsoever to do with the actual cost of the service. Yet — as we are constantly reminded — the cell phone market has four national players and numerous regional players. This makes it squindoodles more competitive than, say, the broadband market in most places in the country where you can generally get two somewhat comparable services (cable and DSL) and a whole bunch of also rans that folks like to claim are competition.

Text messaging is so overpriced compared to cost that last year Senator Herb Kohl, Chair of the Senate Antitrust Subcommittee, has sent a letter to AT&T, VZ, T-Mobile, and Sprint (more details here)asking ‘Ello, ‘ello, ‘ello and what’s all this ‘ere, then? — you’re nicked!’ (no, I have no idea why Kohl sounds like a British Bobby from 50 years ago — ask him). As Kohl noted in his letter, the consistent ridiculously high prices for SMS txt messaging “is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace.”

Short answer: it is utterly consistent with the nature of the wireless market. But — and here’s the shocker — real world markets are often much, much more complicated than the followers of the Gods of the Marketplace like to believe. Cell phone companies charge outrageous prices for text messaging (and other services like ring tones) not because they conspire with one another, or even because they engage in conscious parallelism. Nor do they do so because they must as a result of actual costs. They do so because — to use that classic phrase — it is what the market will bear, and the structure of the market ensures there is no benefit to any cellular carrier to offer text msging plans at anything approaching cost plus reasonable profit.

In economic terms, this is an oligopoly. Washington regulators treat oligopolies as if they were the same as competitive markets, unless one can show evidence of actual collusion — in which case it becomes a question of price fixing. But in reality, it doesn’t always work out that way. Even absent collusion, the ability of players to engage in strategic planing can negate the anticipated benefits of competition. Applying this framework to the CMRS market, and the question of the price of text messaging goes from suspicious riddle to entirely predictable. Whether you regard this as a reasonable outcome or not has nothing to do with “competition” or “market failure” and everything to do with whether we make a policy choice to care about it or not.

(Much) longer answer below . . . .

Read More »

Posted in Spectrum, Tales of the Sausage Factory | Also tagged , , , , , | 8 Comments (Comments closed)

Tales of the Sausage Factory

A Reminder Why the PK Petition On Mobile Texting Matters (lest you think I only pick on cable operators).

Today’s NYT has this op ed on Obama’s use of text messaging to announce his VP pick. It provides a nice reminder about the importance of the pending Petition by PK and others on text messaging. Filed after Verizon denied NARAL a short code but reversed itself within 24 hours the mobile texting petition often gets bundled with the Comcast complaint as if they were essentially two examples of the same thing. They aren’t. The Comcast complaint asked the FCC to follow through on its previous commitment to prevent broadband providers from blocking or degrading content or applications. For all the (well deserved) hoopla around the decision, it was at heart, as Commissioner Tate described, “a normal enforcement proceeding, regarding a particular complaint within the confines of the specific circumstances presented.”

The Petition for Declaratory Ruling on mobile text messaging and short codes is not a complaint (although it is an adjudication). It does not seek to punish Verizon as a bad actor, and it only refers to the NARAL incident as an illustration of why the Commission needs to act. Rather, we ask the Commission to decide — for the first time — whether mobile text messaging is a Title II telecommunications service, like the underlying phone number and voice service. If the Commission decides that it is a actually a Title I enhanced service (like the internet access you can buy separately), we ask the FCC to impose rules that would prevent wireless carriers from denying a short code to someone or from messing with anyone’s text messaging.

Not that Verizon or any other provider would be so foolish as to deny the Obama or McCain campaigns short codes or block their text messages. I’m not even worried about independent candidates like Barr and Nader. No, I’m worried about us ordinary schlubs, or even unpopular folks who can’t count on getting a front page story on the NYT if something happens but still deserve the right to organize and spread their message to willing listeners.

More below . . . .

Read More »

Posted in Spectrum, Tales of the Sausage Factory | Also tagged , , , , , , , , , | Comments closed

Inventing the Future

“The Medium is the Message”

One of the arguments against sharing music was society will be diminished because no one will create music without a sufficient intellectual property incentive.

We now have a flourishing culture of sharing for video, in which people of diverse skill levels are creating huge amounts of content. No shortage there.

So I want to ask, “Is there a flourishing of digital music content today?” Surely it is easier to both create and enjoy music than it is for video. (Music requires lower bandwidth and less power, play-anywhere music devices are good and plentiful, and music creation software are quite fantastic.)

It feels like there is lot of free music available in video form. I wonder if the legal fight against music sharing — rather than sharing itself — has stifled the medium of sound-only recording, even as the more demanding but less legally bullied video medium has exploded. The music itself has just been switched to a new medium, and may ultimately be better for it.

Meanwhile, it seems that half the top 10 best selling printed novels in Japan were written on and for cell phone distribution. I’ve heard that the explosion in the genre coincides with the spread of flat-rate pricing on text messaging.

Posted in Inventing the Future, meta-medium | Also tagged , , , , | 3 Comments (Comments closed)

Tales of the Sausage Factory

Martin Gets the Ball Rolling On “Blocking” Investigation: What Does It Mean And What Happens Next?

As always, I am impressed with the ability of so many people to hate whatever Kevin Martin does, and for so many different reasons! At CES, Martin announced that the FCC would investigate allegations of blocking content and determine whether they violated the FCC’s four broadband principles. Comcast pledged to cooperate in any investigation (although, unsurprisingly, Comcast representatives — along with supposed object of Martin’s affection AT&T and other big telcos and cablecos — said at CES they would restructure or eliminate FCC altogether).

As I said in my PK blog post, while details remain unclear, I am “cautiously optimistic” that this will be a good thing. But it did not take long for the folks in the “Martin is a bastard 24/7 crwd” to express themselves. DSL reports doubted this would go anywhere, while the “why ya gotta hate on cable” crowd at Techdirt opined that Martin would never investigate if it were a telco rather than a cable co.

So we flash forward to yesterday, when new developments began to percolate out of the FCC. Of significance:

1) The FCC issued a public notice asking for comment on our Petition for Declaratory Ruling that Comcast’s “network management practice” of messing with BitTorrent uploads violated the FCC’s “Broadband Policy Statement,” which includes a principle that network operators may not block or degrade content or applications. In a separate public notice (but as part of the same proceeding), the FCC also seeks comment on the Vuze Petition for Rulemaking on how broadband access providers handle and shape IP traffic generally. (Copy of Vuze Petition here, copy of our Petition here).

2) Separately, the FCC issued a separate public notice seeking comment on a Petition filed by Public Knowledge and the usual suspects asking the FCC to declare that wireless carriers cannot deny short codes or block text messaging. This goes after Verizon’s high profile “oopsie” of denying a request by NARAL for a short code. Although, as we pointed out in the Petition, the more likely and pernicious problem is with plain old anticompetitive blocking, such as denying a short code to VOIP provider Rebtel.com and denying applications to major banks offering competing services.

3) Comcast confirmed that the FCC has lanched a formal inquiry into whether it violated the FCC’s broadband policy statement. Comcast reiterated that it will fully cooperate with the FCC, and expects any investigation to show that Comcast did not block content and has engaged in legitimate network management practices.

Not bad for a commitment made a week ago. But what does it mean and where will it go from here? Analysis below . . . .

Read More »

Posted in Series of Tubes, Tales of the Sausage Factory | Also tagged , , , , , , , , , , , | 1 Comment (Comments closed)

Tales of the Sausage Factory

The Verizon/NARAL Flap And Lessons for NARAL (and all the rest of you advocacy orgs out there)

It seems like every time I go away, something fun happens on Net Neutrality. I go on vacation and AT&T accidentally censors Pearl Jam. I go away for Sukkot and Verizon makes a major faux-pas by blocking NARAL’s text messaging campaign.

As one might expect, faster than you can say “crap, it’s a Democratic Congress these days,” Verizon went into immediate damage control. It reversed its decision and issued a statement that this was all a big mistake based on an antiquated policy that Verizon had now fixed. Heck, I even believe Verizon that this was an accident. Unlike Comcast or AT&T, Verizon has no prior history of such censorship (although they apparently did play ball with NSA when it came to spying on American citizens). But I make my usual point that I don’t want my free speech dependent on the good will of megacorps, enforced with non-stop vigilance and the ability to raise a great virtual cry every time wrongdoing occurs. The First Amendment is too damn important to depend on getting a front page story because somebody directly blocks access, even if it is an accident. I want my freedom to communicate protected as a matter of right, not as a matter of grace and political pressure.

No, I shall let my more eloquent colleagues like Susan Crawford and Tim Karr make the usual arguments. Instead, I direct my comments to NARAL and other organizations on both the left and the right with potentially “controversial” messages.

Scan this list of organizations, businesses and individuals that are part of the Savetheinternet.com coalition. Are you on it? I don’t see NARAL, or NOW, or a whole bunch of other orgs (left or right) that should care about this stuff — preferably before they get bit in the butt on it. And it’s not just Savetheinternet.com. It’s also about stopping big media and corporate censorship by opposing further media consolidation. Think NARAL will be able to buy ads in the Wall St. Journal after Rupert Murdoch buys it? Heck, the good folks over at the United Church of Christ can’t even get their church advertisements shown on major networks because they might possibly in two frames hint that they accept gays and therefore (by implication) support gay marriage. So you would think that folks with so much to lose, on both the right and the left, would jump on this campaign.

But sadly, they don’t. It is the unfortunate truth that far too many organizations that should support these campaigns “do not play well with others.” They fret about “expending their political capital.” They distrust working with others where they cannot “Control their name and message.” They refuse to participate in coalitions or causes with certain others including people on the same side, because of accumulated bad blood that began with an incident so long ago no one even remembers what it is about. But most fundamentally, they don’t see how issues of network neutrality and media concentration impact them or their core issues.

Hopefully, the recent Verizon/NARAL flap will serve as a wake up call not merely to NARAL, but Second Amendment Sisters, GLAD, and anyone else with a potentially controversial message. YOU NEED TO CARE ABOUT THIS STUFF! Really. Yes, I know you’re busy on a gajillion other things, you hate half the people listed on Savetheinternet.com list, whatever. If you don’t get your rear ends in gear and start dealing with Network Neutrality and media concentration, then it won’t matter what your actual issue or message is, because no one else will freakin’ hear it, see it, or care about it. Because your ability to get your message out and communicate directly with your membership will depend entirely on hoping you can suck up to/brow beat/bribe a handful of megacorps into letting you communicate with your members and the rest of the world, because you will have no legal right to force them to do so.

If that’s the world you want to live in, then keep doing as your doing. Decide that you “don’t have the resources to get involved,” that this “really isn’t your issue” and you don’t want to “dilute your name or spread yourself too thin.” I’m not sure exactly what you’ll do with all your horded “political capital” when you can’t actually get your message out, but clearly that’s not a concern of yours.

Or you can take two whole minutes and sign up on Savetheinternet.com to join the campaign.

Your choice. But if any members of any of these orgs are reading this, you might want to ask your home offices why they can’t take two minutes to fire up the old web browser and go to Savetheinternet.com to join the campaign.

Stay tuned . . . .

Posted in Censorship Public and Private, Tales of the Sausage Factory | Also tagged , , , , , , , , | 5 Comments (Comments closed)
  • Connect With Us

    Follow Wetmachine on Twitter!

Username
Password

If you do not have an account: Register