Tales of the Sausage Factory

Please Tell Idiots In Industry Wireless Broadband Is ALREADY Metered, So Stop Spreading FUD To Support Price Gouging.

If I had a dime for every article I have seen since AOL went to flat rate back in 1996 that foretold the coming end of flat rate internet access plans and the inevitability of metered pricing, I’d have so much money I could actually afford what wireline providers dream of providing as a monthly fee. Despite the “inevitability” of metered pricing for nearly 15 years, it hasn’t happened and I don’t expect it any time soon. Why? Because not only is it wildly unpopular with the customers (it is one of the few things powerful enough to overcome the switching cost for anyone with a choice), but the economics of it do not make a heck of a lot of sense. Heck, Comcast (the largest residential broadband provider) announced in its earnings call on 4Q 09 that it is reducing its capital expenditure on network capacity for 2010 because it has nearly completed necessary upgrades for DOCSIS 3.0, which gives it all the capacity it needs for the foreseeable future. “We don’t need to invest anymore in our network because we have all the capacity we need” is a might inconsistent with “we need to switch to metered pricing so we can afford to expand our network capacity and create incentives against ‘bandwidth hogs’ and other mythical beasts.”

I can forgive wireline providers for indulging in metered pricing fantasies, while admiting them for perpetuating the useful myth og limited capacity to ward off regulation. But when this article on the purported inevitability of metering wireless plans. This strikes me as “Keep The Government Out of My Medicare” lunacy.

As the article itself concedes without saying directly, wireless broadband plans are already metered. Blow past your monthly usage cap and you will pay per-minute charges. For those not old enough to remember, this was the old AOL metered pricing model. You got ten hours for free, then got charged on a per-minute basis. They abandoned it because customers hated it and moved to flat rate price plans. So what wireless providers apparently mean by “metered” is “find a away to reduce the usage cap further by pretending to call it something else.” I expect this will not catch on any better than the efforts to change pricing structure on the wireline side, and for the same reason. The economics don’t make sense.

Which brings us to the next lesson on network economics. The cost structure of building and maintaining the network is marked by high fixed cost and low marginal cost. That is to say, the vast majority of cost comes from building the network itself, regardless of how many customers use it. Once the network is built, the actual marginal cost of each customer is fairly low. Even an intense user does not “consume” very much of the network resources (the supposed “bandwidth hog” is a problem only because network capacity is ridiculously oversold). The argument that the majority of subscribers subsidizes the few “bandwidth hogs” is simply rubbish. The question is simply how obscenely high a rate of return can the network operator squeeze out of each customer.

Back in the old days, we used to require providers to prove cost. Sure we had metered pricing, but that was so that the very profitable areas could subsidize the high cost areas. Nowadays, we rely on “the market” to regulate cost, with the result that profit per customer for the major providers continues to rise. I’m cynical enough to wonder if that’s why we see this endless parade of speeches by network operators and articles by their sycophants about the “inevitability” of metered pricing — so we will thank our lucky stars that when we are outrageously ripped off that it is at the “bargain” of overpriced flat rates.

Stay tuned . . .

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Tales of the Sausage Factory

Could the FCC Structure A Broadcaster Clearance Auction Without Congress? Yeah, actually . . .

Progress and Freedom Foundation has recently published this piece by Adam Theirer and Barbara Esbin on how encouraging a deal between broadcasters and wireless providers to reduce the spectrum used by broadcasters and auction more spectrum for wireless use would serve the public interest. The piece raises some good points. For one thing, it is happily free of the “broadcasters are obsolete and we ought to take their spectrum back” rhetoric that often accompanies these proposals (not from PFF, I should add, but from a number of others). But the paper is woefully short on specifics. It touts the value of such a deal (freeing up spectrum for wireless) and lays out some general approaches, then urges the FCC and Congress to broker a deal between the broadcasters and the wireless industry through a number of possible auction mechanisms.

And now, the FCC has issued a public notice in the National Broadband Plan soliciting input on what they should think about using broadcast spectrum as part of the national broadband plan.

This got me thinking. Is there a mechanism the FCC could use, consistent with existing law, which would allow for the sort of broadcast band clearance the FCC would like to see? And, as a bonus, could this also clear some space for white space use? After some consideration, I hatched the scheme below. It is somewhat slower than than the wireless industry would like. I expect it would take about 5 years to finish the transition. But that is not bad given that it took 4 years to manage the DTV transition and auction from the time Congress set the hard date in 2005 to the end of analog broadcasting in June 2009. Also, my plan would allow continuing gradual build out, and combines some sticks to go with the carrots.

I’ll add that I’m not convinced this is worth doing. I think the current obsession with broadcast spectrum as the solution for the upcoming spectrum crisis suffers the same myopia as focusing on offshore drilling to cure the energy crisis — it defers the crunch but doesn’t solve the underlying problem. Wireless demand is going to continue, and we need to fundamentally change how we manage spectrum access (rather than spectrum allocation) to remain on a sustainable path for growth. I also point out, as we discovered while doing the broadcast white spaces proceeding, that there are a lot of non-broadcast uses in the existing television bands that are not broadcast users. These secondary services are going to get awfully squeezed if we crunch the broadcast bands further.

All that said, a well constructed auction could free up a nice chunk of spectrum in the short term that could promote wireless services and competition — especially if it came with a spectrum cap so VZ and AT&T didn’t hog all the good stuff again.

More below . . . . .

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Tales of the Sausage Factory

Proposed Wireless NN Rule “No Block, But Not No Lock?”

An interesting tidbit from Washington Post Reporter Celia Kang’s interview with Ruth Milkman, the FCC’s Wireless Bureau Chief. Of interest, Milkman states that the application of network neutrality to wireless would still allow cellular companies to lock cell phones to wireless providers.

How are the proposed rules different from conditions on the C block during the 700 MHZ auction? There, net neutrality rules were put in place that allow any device to attach to the network and prevent Verizon Wireless, who won the spectrum, from blocking Web content.

The difference between what we are thinking about in the general NPRM (notice of proposed rule-making) and the C Block is that we are not proposing a no-locking rule. So I guess it’s no block but not no-lock. If consumers can get an unlocked device and not harm the network, the consumer ought to be able to attach that device to a network. Does a service provider have to unlock the device it provides to the consumer? The draft doesn’t go that extra step.

This is an interesting twist on the application of the third principle of the 2005 Internet Policy Statement:

To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to connect their choice of legal devices that do not harm the network.

(emphasis in original). This is generally taken as the application of the “Carterfone” principle (and the Internet Policy Statement cites the Carterfone decision in case anyone misses this point). This is the decision that held that AT&T could not refuse to allow you to connect any device, like and answering machine or a phone you owned or a dial-up modem, to the phone network.

Milkman is right that the freedom to connect to a network is not necessarily the same thing as the freedom to move a device that comes locked from one network to another. In the old days, it wasn’t necessary to say it that way because there weren’t other networks to attach your device. The question was whether somebody other than Ma Bell could make something and attach it to the phone network. By the time we got to multiple wireline networks serving the same neighborhood, the consumer electronics market was so well developed that the idea of trying to lock particular laptops or wireless routers to specific network providers did not make much sense. Indeed, even in the never ending fight over set-top boxes and cablecard, the fight is over the ability to attach to an MVPD network, not the ability to unlock a device and move it from one MVPD network to another.

Most of us have always assumed that network neutrality applied to wireless would include both “no blocking” of content and applications and “no locking” devices to networks. But I suppose it doesn’t have to be that way. And, of course, this does not stop the FCC from dealing with handset exclusivity separately.

Still, it comes as a bit of a surprise. Nice to have the heads up, and tip ‘o the hat to Celia for doing this series of interviews with important folks at the FCC.

Stay tuned . . . .

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Tales of the Sausage Factory

We Win Again On 3650-3700 MHz. So What Does It Mean?

Back in 2004-05, a bunch of us fought to open up the 3650-3700 MHz band for unlicensed use (Sometimes refered to as 3.65 GHz rather than 3650 MHz). While we did not get “pure” unlicensed, the FCC’s “hybrid unlicensed” regime gave us pretty much everything we wanted.

In August 2005, a group of tech firms led by Intel filed a Petition for Reconsideration. This group, which I dubbed the “WiMax Posse,” wanted the Commission to reverse itself and optimize the band for WiMax operations. Notably, this meant adopting a licensing regime instead of the open spectrum rules we won in March 2005.

By this time, Powell had left and been replaced with Kevin Martin. Martin had earned the eternal scorn of Netheads by deregulating DSL (actually a process begun by Powell). And, unlike Powell, Martin had no record of support for open spectrum. So even though the WiMax Posse and the various licensed wireless providers who came in to support them raised no new arguments, no one knew whether Martin would reaffirm the 2005 rules or side with the licensed spectrum/WiMax posse.

So I let out a huge sigh of relief and felt a modest sense of accomplishment when the FCC issued an Order denying the WiMax Posse Recon Petition and basically reaffirming our March 2005 win. Commissioner Adelstein had a very nice concurring statement highlighting the important roll played by WISPs and Community Wireless Networks (CWNs) in getting wireless connectivity to rural and underserved urban communities.

So what does this mean for wireless deployment for WISPs, CWNs, and muni systems? How do I read the FCC tea leaves in light of last month’s FCC decision terminating two important open spectrum proceedings? See below . . . .

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Tales of the Sausage Factory

Appears that Rose and Lloyd (and me) were right . . .

A month or so back, I reported that Greg Rose and Mark Lloyd had written a study for the Center for American Progress concluding that incumbent wireless providers used spectrum auctions to block the mergence of new competitors. Then came the AWS auction, with its legion of bidders. “A ha!” Declared the Wall St. Journal and others in the anti-net neutrality, anti-regulatory, pro-spectrum property camp. “Look at how the market-based policies create competition! No need for regulation here!”

Turns out, not so much . . . . Either for new spectrum entrants or for broadband competition.

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