YAMA (“Yet Another 'Mission Accomplished'”) On Wireless Carterfone.

“Mission Accomplished” has become a useful catch phrase denoting a declaration of victory so premature as to be ironic, comical, and/or tragic. Sadly, Kevin Martin’s decision to circulate an Order denying the Skype Petition is the latest YAMA (for “yet another ‘Mission Accomplished’”). To refresh folk’s memories, in the Skype Petition, Skype asked the FCC to enforce the Broadband Policy Statement against wireless broadband networks: specifically, the part that says that consumers have the right to attach any device to the network that will not harm the network, and run any application of their choosing.

While not official, Martin has stated that he has circulated a draft Order dismissing the Petition, although Martin indicated at last week’s House 700 MHz hearing that he would dismiss the Petition “without prejudice” (meaning “not now, but try again later if things don’t improve”). Indeed, although none of the coverage of the 700 MHz hearing focused much on this, Martin’s statements and answers to questions indicate that he thinks (a) the C Block open device condition was the right thing to do, and (b) the FCC shouldn’t do anything else on “wireless Carterfone” until we see how the C Block open device condition works out.

While disappointing, this decision is hardly surprising. And, as usual, it is weirdly consistent with Kevin Martin’s First Church of the Market, Reformed ideology and a dash of realpolitik (waste not, want not after all, and if you can make what you think is the right decision serve your political ends, so much the better). Lamentably, Martin clearly has the votes from his fellow Republican Commissioners — although Tate appeared to hedge a bit. Nor do I expect there is much for Copps and Adelstein to do here, other then issue a strong dissent and make sure the damage (in the form of bad precedent) is limited. Indeed, there is a certain appeal to taking a dismissal without prejudice and living to fight another day rather than getting into a fight that may end up with stronger language a future Commission would need to overcome.

Some more analysis below . . . .

Ideological Analysis

Let’s cover ideology first. How is it possible for Martin to reject the Skype Petition but do the C Block conditions? McDowell and other more orthodox free marketers argue the wireless market was trending to include an “open” option before the 700 MHz Auction (although I am dubious). Meanwhile, we supporters of open networks will point out that not only is it unclear if Verizon will honor the C Block conditions in any meaningful way, but that all the AT&T customers and other “stranded customers” still cannot enjoy the benefits of open wireless networks (and may have to pay high early termination fees to cancel contracts on closed networks to move to open networks). How can the Commission leave the wireless open network job half done?

Part of the answer lies in Martin’s ideological outlook. Consider two ends of the scale. Myself, yr hmbl obdn’t blogger, a Progressive Capitalist Congregationalist (Second Reformation), holds that public policy is about determining what world you want to live in and then making policies that get you there. Because market mechanisms are powerful engines, agencies are subject to capture by the industries they regulate, and because any economic system that isn’t self-sustaining will eventually collapse, we favor systems that promote fundamental freedoms by channeling market actors in a way that maximizes value throughout the value chain and eliminating gatekeepers and bottlenecks. That means occasionally designating certain businesses as common carrier or limiting certain business models as too likely to produce concentration, gatekeepers, oligopoly or monopoly control, and all the other stuff that gets me red baited by the Worshipers of the Gods of the Marketplace. On the other end, you have the Orthodox Church of the Free Market that views any intrusion by government into the functioning marketplace as an evil to be most devoutly resisted.

Martin lies a heck of a lot closer to the later poll than the free market folks give him credit for, although close enough that folks in the progressive capitalist camp and others further to the left remain perpetually suspicious whenever Martin seems to agree on the need for regulation. That means that even if Martin is convinced that the powers of government should be invoked, he looks to do so in the least intrusive way possible, and preferably with a carrot rather than a stick.

So whereas the Free Market Absolutists like McDowell see no reason to use regulatory powers to create a universe where consumers can attach any device to the network (however personally desirable such an outcome) if “the competitive market” does not produce an ‘open option’ on its own (where “the competitive market” is any market that is not an absolute monopoly), Martin became convinced sometime last year that (a) open wireless networks would absolutely be a good thing, and consumers would love them; but, (b) because of the existing market structure, open wireless networks would never come into being without some form of government action. But having reached the same conclusion I and my fellow progressive capitalists reached, Martin did not come all the way to our solution. Nor did Martin share the same conviction I and others do that freedom of speech on wireless networks is a normative value that the FCC must enforce or, in the words of Red Lion Broadcasting, a “paramount” First Amendment right that outweighs the rights of licensees. While I think Martin probably views the freedom of users on wireless networks as an “important government interest” (a la Turner), I don’t think he shares my view that this right trumps the rights of licensees. Heck, I’m not sure all my allies would share my unabashed Red Lion view of the wireless world.

So unsurprisingly, Martin will not go nearly as far as I would like. He will deviate from free market orthodoxy just enough to create the possibility for an open network to come into the market place by placing the open device condition on a big juicy block of beachfront spectrum, but he won’t free the users locked on to other networks. If folks think openness is so important, goes the reasoning, they’ll flock to it no matter the switching cost. Heck, they paid $600 for flippin’ iPhone, along with a $200 early termination fee and other incidental expenses. From Martin’s perspective as a moderate Free Marketer, it’s enough to create the opportunity for the market to chose, even if the cost is high.

I think he’s wrong, and I think that only going so far and no more sends a dangerous signal to the wireless players that the FCC is not really serious about enforcing openness on the C Block. But I can’t prove that to the satisfaction of even moderate free marketers until bad stuff happens. Heck, to Orthodox Free Marketers, the fact that bad things happen is merely proof that bad things are really good or that consumers don’t care. The chief difference between Orthodox and Moderate Free Marketers in this regard is that Moderates understand that when a giant hand shows up and writes mene mene tekel upharsin, it’s time to consider regulation, whereas Orthodox Free Marketers argue that if you squint, it looks kinda like “stay the course, keep government from ‘picking winners.’”

(As an aside, is anyone really surprised that this “there’s no proof of a problem until something happens, a few incidents are merely anecdotal, the market has plenty of incentive to police itself, government regulation strangles industry, etc., etc., has now gifted us with massive crisis in airline safety, financial markets, food safety, product safety, drug safety, etc., etc.? I suppose we will just have to wait until more countries kick our asses in telecom and all out tech businesses move to other countries before I stop hearing this ”solution in search of a problem“ crap.)

Realpolitik

O.K., so the above would support doing nothing. But why actually go and deny the Skype Petition? Why not let it sit there?

Anyone who follows FCC news these days knows Martin has political problems. As I observed before, the man willing to do whatever he thinks is right ends up with a heck of a tab. And so it is with Kevin Martin. Dems are mad because he relaxed media ownership rules and sided with phone companies against local communities on franchising. Rs are mad that he keeps trying to enforce the law against cable and has sided with local communities against broadcasters by doing things for the low-power radio service and beefing up public file requirements. He has pissed off the wireless companies, including Verizon, by pushing the C Block open device condition. He has pissed off his fellow Commissioners by his CEO-like hardball negotiating tactics, such as mammoth negotiating sessions right before agenda meetings.

Ironically, Martin would actually be much better off if he really were the Bellhead or Big Media lap dog my colleagues in the media reform movement and elsewhere accuse him of being. Then he would have a solid base of industry support from somewhere. As it is, the closest he has to an industry fan club is Silicon Valley and, bluntly, they absolutely suck for political support (sorry guys, ya know I love ya, but it’s true).

So now Martin has an unfortunate situation on his hands. While the 700 MHz auction proved successful in raising revenue and had a few bright spots, such as ECHOSTAR winning a decent footprint in E Block, the auction pretty much cemented Verizon and AT&T’s position as kings of the wireless world. Worse, as we all know, the D Block did not sell. So Martin has to go through the pain in the rear of a 700 MHz auction proceeding again when he would much rather declare victory on revenue and leave it for the next Commission to enforce the C Block condition. To make this even less fun, there is absolutely no good answer for D Block. Everybody has different solutions and different needs, from ‘keep it public safety oriented’ to ‘stop trying to do a public/private partnership, chop D Block into smaller chunks, and auction them off to give competitors a chance (but don’t pick winners!).

Wow, a controversial proceeding involving conflicting public interest goals and powerful constituencies, to the accompanying background of a Congress that hates you. Man, who wouldn’t want a fun assignment like that? Because stone cold guaranteed that no matter what you do, there will be a raft of disappointed/angry stakeholders and it will provide one more excuse for folks to call for your head.

So from Kevin Martin’s perspective, now is an excellent time to start gaining some allies and smoothing some feathers in the wireless industry. Why not throw them a bone you were going to throw them anyway? Verizon, which won the C Block and thus kept out the evil interloper Google, has shown it can live with the C Block condition. If Martin shows the industry that he doesn’t intend anything more radical, it will help calm things down for him. And in an industry otherwise increasingly divided on whether the FCC should start regulating, resistance to wireless Carterfone was one of the few common rallying points for the anti-Martin crowd in wireless, and a way for McDowell to win points for himself at Martin’s expense as the keeper of the true Orthodox Free Market flame. Dismiss the Skype Petition and the industry breathes a sigh of relief while McDowell loses a talking point. And (whether they admit it publicly or not) CTIA will owe Martin a modest something for not leaving this over their heads (especially with a new FCC coming in another year, which may feel a lot more agressive on regulating industry in the name of the public interest). At the very least, they will be forced to say something nice about Martin, which will make a pleasant change from what has become the non-stop carping chorus.

Mind you, one should be careful not to overestimate the political impact of dismissing the Skype Petition. This is only one proceeding in the grand scheme of things, and plenty of folks are still sore about how the 700 MHz auction came out (whether or not Martin is to ”blame“). And, of course, Democrats are likely to be annoyed at a move favoring incumbents when most Ds at the Hearing voiced an opinion that there is too much concentration in the market. But from Martin’s perspective, that’s O.K. This is a chance to take something he was inclined to do anyway and use it to both reestablish his credentials as an anti-regulatory Republican (which are pretty badly tarnished in the eyes of the Orthodox Free Marketers like Rep. Barton) and gain some modest brownie points with the wireless industry, for the relatively modest cost of disappointing the tech industry (which never really expected Martin to grant the Petition) and giving the Ds one more thing to be annoyed about.

And Then There’s Google

Not that Kevin Martin is annoyed at Google at the moment. I’m sure there was absolutely nothing he loved better than explaining to his fellow Republicans at the 700 MHz oversight hearing that when Google said their primary goal was to see that the reserve price got met, they weren’t ”gaming“ the system. But the failure of Google to capture the spectrum, followed by their blog post explaining their ”strategy,“ has once again made Google a great distraction and opened Silicon Valley up to the ”you’re just parasites looking for a free ride“ argument. Frankly, Google would have done itself, the Skype Petition, and other open spectrum initiatives a big favor if they’d said ”the thought of the beating we would take on Wall St. if we won the C Block — especially after losing a third of our stock value already — made us pee ourselves, so we wussed out“ instead of trying to make this look like ”oooooohhh we had a big strategy and thanks to us the American people are the real winners.“

As with the Realpolitik analysis, I don’t think that Kevin Martin decided to tell CTIA that he planned to dismiss the Skype Petition because he is annoyed at Google. But I gotta imagine it made it easier for Martin to toss this one to CTIA instead of Silicon Valley.

To make my own position clear, I think ”if you want an open network, spend billions to get licenses and then more billions to build a business“ is a rather stupid position and totally misses the point. Either an open network is a good idea or it isn’t. More to the point, the fixation on Google ignores all the smaller companies and public interest groups who are NOT Google and who would (a) benefit from an open network policy and (b) have demanded it from the Commission. But, as evidenced by Rep. Sterns at the 700 MHz hearing, the ”Google=Parasite“ argument because they (a) have a financial interest in open networks, and (b) lobby the FCC and Congress to try to make that happen works on Republican Orthodox Free Marketers like a laser pointer on my cats. Shine it toward them and you can get them to frantically climb walls, chase their tails, and generally ignore everything else while you jiggle the laser pointer. CTIA are excellent laser pointer jigglers, to judge by Mr. Sterns’ fixation on Google and C Block.

But to circle back to the main point. I don’t think Martin is permanently pissed at Google or Silicon Valley for not winning C Block or other major licenses. But I do think that in ”waste not want not” fashion he is happy for a way to show he is irked by doing something he was inclined to do anyway.

Conclusion

I have no intelligence on timing or possible end game here. It’s been a pretty brutal week for the FCC, and there is no real rush on this, so we are looking into May. But I also don’t see any good rabbits to pull out of the hat here — unless Verizon or AT&T does something so outrageously stupid that it requires an FCC response. So rather than stretch this out like Clinton and the Democratic Primary, hoping that somehow something will happen, I expect the FCC to wrap this up sometime around Memorial Day, especially given the absence of strong signals from Congress to the contrary.

Stay tuned . . . .

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3 Comments

  1. barry payne_economist says:

    One take on Martin’s thinking emerged in the media ownership concentration issues, when he noted that traditional newspaper sales were declining and reporters were being layed off.

    By allowing cross-ownership of other media, Martin argued in effect, that the economies of scale and scope needed the concentration per the expansion that soaked up the slack in such efficiency.

    While this may be correct from a “provisional pipe” perspective (some point out those newspapers were not in trouble at all), it begs the question of how it affects competition in the “content market” itself, where efficiency is easily achieved with little or no scale and scope economies.

    So when all those layed-off “content” reporters are herded together under one ownership tent, they’re not competing among the respective outlets controlled by the owner and worse, the “competition between the giants generally turns to mush via sensationalized, dumbed-down trivial differences pumped out in a 24-hour news cycle.

    Where the ”Free Market Absolutists“ get it exactly wrong as Harold puts it, is the confusion between ”efficiency“ and ”competition“ – in the content market, competition yields efficient outcomes but in the ”pipe“ market, it does not.

    And because technology generally drives ”pipe“ efficiency, it dictates the number of heavily concentrated players, i.e., 3 in the case of ”telecom, cable and wireless”, each of which has strong incentives to usurp the other two in order to achieve the critical mass necessary to recover cost, including monopoly profit-economic rent collected beyond the tipping point.

    This instability remains unless the market is large enough to support two or more players per technology, as in concentrated urban areas, but the tipping point of survival is usually confused with exploitation of a monopoly position and the high entry and exit costs.

    That’s why they have a strong incentive to close their systems. As Harold explains well, they play a game between open and closed networks, but the end-game is winner-take-all.

  2. Robb Topolski says:

    The Internet Policy Statement reads like a Constitutional Amendment. These are loose and broad by design, and simply describe what the powerful cannot do to the weaker. But they are — all by themselves — “enacted.”

    If it hasn’t been done so, maybe it’s time someone draft an example NPRM that is both textually complete and not to exceed one 8.5×11 inch page, that broadly describes who is among the powerful, who are the weaker, and the general rights of the weaker that are to be preserved.

    I’m very new to this debate. Has this ever been attempted?

  3. barry payne_economist says:

    Here’s one take on it Robb.

    Set up net neutrality as the default “opt in” standard requirement based on a “no competitive advantage shall be made available to some content over others” in terms of (fill in blank here – yes, on one page), similar to how kilowatts and kilowatt hours are produced and consumed over the electric grid, unbundled from the inputs on the supply side and outputs on the demand side.

    Contrary to popular claims against net neutrality, this does not regulate prices, metrics or TOS in any way – other than preventing them from being tied to specific content, the same way that “air conditioner” rates are the same as “lighting” rates, whether supplied by “windmill farms” or “coal plants”.

    (that certain protocols and applications must be allocated bandwidth internally is a separate but not contradictory topic, and as Robb points out elsewhere here, arises in conjunction with the congestion problem)

    If an ISP wants to have 20 different pricing plans, fine – just make it available to everyone on the same basis in terms of Mbs and GBs, the way electric companies do over the grid.

    And if ISPs choose to allow the system to congest, that’s fine too, just manage it neutrally. (Even monopolists don’t allow the system to collapse, but they do have strong incentives to exploit restricted capacity with high risks of congestion.)

    From a Constitutional perspective, it’s a conservative approach of applying “principles” over specific metrics, as in “if not enumerated here” as the default opt in provision, then everything else is delegated to the states – or the ISPs in this case.

    Note the absolute level of prices and revenue can still be higher than “efficient” levels associated with a declining cost industry (see Japan and South Korea for example), but this is not what net neutrality is about – it doesn’t come close to this type of regulation – it only maintains neutral provision and access under deregulated conditions of powerful monopolies and duopolies.

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