December 2009

A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC

by on December 2, 2009 · 147 comments

I’ve just released a new PFF white paper looking at the hysteria that has often accompanied major media mergers and then taking a look at the marketplace reality years after the fact.  Here‘s the PDF, but I have also pasted the entire thing down below.

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A Brief History of Media Merger Hysteria:
From AOL-Time Warner to Comcast-NBC

by Adam Thierer

Although the pending union of Comcast and NBC Universal has not yet made it to the altar, Chicken Little-esque wails about the marriage have already begun in earnest. For example, the pro-regulatory media organization Free Press has already set up a website to complain about the deal.[1] And Jeff Chester, executive director of the Center for Digital Democracy, has called it “an unholy marriage.”[2] The fever only promises to spread once the deal is formally announced, and a lengthy fight over the deal is expected at the Federal Communications Commission (FCC) and whichever antitrust agency reviews the deal.[3]

But reality tends to play out somewhat less dramatically than the script penned by the media worrywarts. It’s worth looking back at some of the more prominent examples of media merger hysteria in recent years to understand why such panic is unwarranted, and why a deal between Comcast and NBC Universal is unlikely to lead to the sort of problems that the pessimists suggest.[4] Continue reading →

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Ready, Fire, Aim: GAO Issues Warning on Broadband Stimulus Grants

by on December 2, 2009 · 7 comments

November was certainly a bad month, public relations-wise, for the Administration’s stimulus program, what with claims that the program had created huge new numbers of jobs debunked.  (Who would have guessed that numbers given for Arizona’s 15th congressional district or Minnesota’s 57th district were wrong?)  But, as pointed out last week by my collegue Meinan Goto, there may be further trouble ahead.    In a report recently released by the GAO, the government watchdog agency warns of possible waste, fraud and abuse in $4.7 billion broadband stimulus grants to be made by NTIA and the Rural Utilities Service.  

The risks stem from a variety of sources, including the speed with which the grants are to be made, and the two agencies near-total lack of any experience with grants of this magnitude.   The GAO  also points out that, in true cart before horse fashion, NTIA and RUS will have to complete its first, and perhaps both, funding rounds before  a  map showing where broadband is needed is completed, and before the FCC completes its congressionally-mandated plan on to make broadband available.

GAO, of course, isn’t the first to point out this cart-and-horse situation, but that doesn’t make it any less serious.  While less headline-grabbing than invented congressional districts, the report is nevertheless worth reading by anyone who thinks $4.7 billion is still real money.

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Genachowski Widens the Net Neutrality Loophole

by on December 2, 2009 · 7 comments

FCC Chairman Julius Genachowski linked spectrum management, universal service and network neutrality in a speech yesterday at the Innovation Economy Conference in Washington, and in the process may have signaled some comprehension of the negative consequences network neutrality regulation may have.

His most significant statement was a concession that network management will be required to keep wireless networks and services economically sustainable. The FCC’s Notice of Proposed Rulemaking on network neutrality seeks to apply a “non-discrimination” principle to wireless—that is, to prohibit service providers such AT&T, Sprint, T-Mobile and Verizon Wireless from using network intelligence from grooming, partitioning or prioritizing data to ensure quality performance of voice, data, gaming or video applications.

Yet yesterday, as reported by Wireless Week, Genachowski acknowledged that the explosion of data use was placing “unsustainable strains” on operators’ wireless networks.

“[There] are real congestion and network management issues that operators must address, particularly around wireless networks, and we must allow reasonable network management…,” he said, emphasizing the importance of developing policies that “encourage investment and the development of successful business models.”

While the NPRM does allow for “reasonable network management,” it never really defines what that may be. In light of this, Genachowski’s injection of “investment” and “business models” into his side of the debate is both startling and welcome.

For one, it acknowledges the rising chorus of critics (examples here and here), who, independent of ideology, have questioned the economic wisdom of barring carriers from recouping their investment in intelligent network technology from large applications providers who generate these necessary costs. A recent conference on Capitol Hill, sponsored by the American Consumer Institute (full disclosure: I was a participant), featured comments a number of economists who said mandated non-discrimination was a recipe for higher consumer prices, lower quality and ultimately, declining investment in broadband infrastructure. Much of the Q&A discussion focused on whether numerous wireless data services and applications that have arisen out of innovations such as the iPhone, because of the continual network management they require, would be possible under a network neutrality regime.

Genachowski also deserves credit for tying the network neutrality issue in with spectrum management and universal service. Previous commissions have tended to pursue these issues separately, as if the policies addressing one had no effect on the others. Contemporary telecom policy must be holistic, understanding how spectrum allocation affects wireless network management, and how allowing the industry greater freedom to formulate the business models and partnerships can yield the investment needed to deliver universal service.

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Is the FCC jumping the gun on broadband and the universal service fund?

by on December 2, 2009 · 0 comments

In a speech yesterday, FCC Chairman Julius Genachowski pledged to revisit the Federal Communications Commission’s universal service programs for telecommunications as part of the National Broadband Plan: 

 The key points for today are these: USF is a multi-billion dollar annual fund that continues to support yesterday’s communications infrastructure. The goal of universality is as important as ever — and to meet our country’s innovation goals, we need to reorient the fund to support broadband communications. This is a thorny issue, with no shortage of practical and statutory challenges. We need to wring savings out of the system, protect consumers, avoid flashcuts, while ultimately moving USF in the direction it needs to go to support our 21st century platform for innovation. 

The USF program spends approximately $7 billion annually. Most of the money goes to subsidize phone service in “high cost” areas. Eeuww – phone service.  So twentieth century! All of us who have not yet shifted 100% of our personal communications to Facebook and Twitter pay for the universal service fund via surcharges of about 12 percent on our wireless and  wireline phone bills, including VOIP. (Dirty little secret: you also pay for universal telephone service if you use a wireless broadband card, because each card is assigned a phone number.) 

Genachowski’s comment follows some rather interestingly-timed announcements from the FCC’s broadband task force. On November 13, the task force asked for public comment on the role the universal service fund and “intercarrier compensation” (another, more opaque set of transfers from consumers in general to rural phone companies) should play in the national broadband plan. Comments are due December 7. Five days after soliciting comments, on November 18, the FCC announced that the structure of the universal service fund is one of the “critical gaps” in the path to universal broadband.

I doubt the FCC has telepathically determined what the parties will say in the comments they file on December 7, but there’s no need to. The FCC has ground through so many rounds of comments on universal service reform that the problems and potential solutions are well-known. At a conference on universal service about five years ago, I recall one speaker commented, “Everything that can be said about universal service has already been said, but not everyone’s had a chance to say it, so that’s why we still have conferences on it.” About a year ago, the FCC almost used a court-imposed deadline as an opportunity to actually reform universal service and intercarrier compensation, but the commissioners failed to reach consensus.

Here are some major problems with the universal service fund, in no particular order:

  • It subsidizes voice phone service with built-in incentives for inefficiency on the part of providers.
  • It subsidizes wireless voice service without limiting the subsidy to one essential connection per household, so it has effectively created an entitlement to both wired and mobile phone service in rural areas.
  • The FCC does not measure or track the outcomes produced by the subsidies to see what they actually accomplish for the public. (Section 201 of the draft Boucher-Terry USF reform bill would require the FCC to adopt outcome-oriented performance measures.)
  • The contribution mechanism acts like a percentage tax that discourages use of price-sensitive services like long-distance, wireless voice, and wireless broadband.
  • The “death of distance” has slashed long-distance phone charges, which means wireless bears a growing percentage of the burden and the funding mechanism may well be unsustainable.

(For more detail on these issues, read the assortment comments on USF reform by various Mercatus Center colleagues and me here, here, here, here, here, here, here, here, here, and here. BTW, did I mention this issue has been beaten to death?)

So is the FCC jumping the gun, rushing to judgment on universal service before the comments are in?  Heck no. It’s about time.

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Lawsuits and Enforcement, not Legislation: Balancing Social Media and Consumer Protection

by on December 1, 2009 · 7 comments

What are the consumer protection issues of online social media sites and what’s the right regulatory balance? That was the focus of today’s Northern Virginia Technology Council (NVTC) event called “Social Media and Consumer Protection: Finding a Balance.” The breakfast event featured Tim Sparapani of Facebook, Pablo Chavez of Google, and Ari Schwartz of the Center for Democracy and Technology (CDT).

But the event wasn’t about consumer protection (in the traditional sense), it was about privacy. Privacy online is today’s issue du jour, whether it is marketing to children or collecting and sharing data for targeted ads. The FTC has devoted a series of roundtable discussions toward privacy, with the first one beginning Dec. 7.

Privacy’s getting so hyped-up that I believe it to be the next “online safety” sort of issue where isolated and particularized incidents become sensationalized in the media and among regulators, creating counterproductive techno-panics that other commentators have described. This shift is apparent as many policymakers and advocacy groups become increasingly hostile toward targeted online advertising.

But are social media and privacy at odds such that there needs to be a “balance”–whatever that entails? While this question was never explicitly asked, it is clear that Ari Schwartz would say yes because he asserts that consumers don’t know what information is being collected and that users need help to gain control over their own data. Continue reading →

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Internet Gambling Rules Get a Stay

by on December 1, 2009 · 14 comments

The U.S. Treasury and the Federal Reserve have pushed back the deadline for banking industry compliance with regulations pursuant to the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). UIGEA, the controversial tack-on to the Bush administration’s SAFE Port Act aimed at curtailing on-line gambling by making it illegal for U.S banks and financial institutions to participate in funds transactions between U.S. citizens and corporations that operate online casinos, effectively banning Internet gambling.

In a joint statement, the Treasury and the Fed delayed the compliance date, which had been set for today (December 1) to June 1, 2010, the Gambling Today blog reports. The decision also comes just days before Thursday’s scheduled hearing in the House Financial Services Committee on H.R. 2267, a bill introduced by Rep. Barney Frank (D-MA), which would overturn UIGEA and create a full licensing and regulatory framework for the Internet gambling industry in the United States.

As Financial Services Committee chairman, Frank has been a vocal opponent of UIGEA and has been working for its repeal over the past two years. In authorizing the delay, the two agencies said that financial institutions were not prepared with the mechanisms they needed to block unlawful Internet gambling transactions, but they also noted that the rules did not provide a clear definition of unlawful Internet gambling. This last observation could be significant as it acknowledges one of the bill’s principal vulnerabilities—it broadly defines Internet gambling as games of chance. Opposition groups, notably the Poker Players Alliance, have repeatedly argued (correctly IMHO) that certain online casino games, especially poker, are games of skill.

Online gambling blogs generally greeted the delay positively and hope it is another step in the direction of restoring the freedom to gamble online.

As the Gambling Today blog notes:

The postponement was greatly appreciated by the supporters of online gambling. House Financial Services Committee chairman Barney Frank has two of his sponsored bills coming up for hearing on December 3. Frank said, “This will give us a chance to act in an unhurried manner on my legislation to undo this regulatory excess by the Bush administration and to undo this ill-advised law.”

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Welcoming Steve Titch to the TLF

by on December 1, 2009 · 12 comments

Steve TitchIt is my great pleasure to welcome Steve Titch as a contributor to the Technology Liberation Front.  Like me, Steve has some journalism blood in his background but came to find that think tank hours were much better (even if the pay isn’t)! He has been a telecom and IT policy analyst for the Reason Foundation since 2005 and you can find a collection of his past work with Reason here.

Previously he was a senior fellow at the Heartland Institute and managing editor of Heartland IT and Telecom News. He has published research reports and editorials on a wide array of issues that are of interest to TLF readers, including: municipal broadband, network neutrality, universal service and telecom taxes.  We very much look forward to his contributions here.

Welcome to the TLF, Steve!

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Who’s Going Mobile (on the Internet)?

by on December 1, 2009 · 12 comments

We all know those “hyper-users” that are constantly connected with their cell phones, smartphones, or other mobile device. Often, they’re the person next to you on the metro or standing in line. Often, they’re young. And according to a new Pew report, most of these young hyper-users are young Latinos and blacks.

NPR had a great segment this morning about the Pew Hispanic Center study. It discussed the “digital divide” and the lack of computers in homes of minority populations. In an interesting twist, the Pew study says that many minorities are just skipping the home computer and upgrading their cell phone plans for data use.

Mobile devices are a great example of leapfrog technology. Who needs a desktop or a laptop when your phone is almost as powerful (and arguably even more useful)?

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