Can’t you just picture it, Dick Notebaert, CEO of Qwest, yelling “food fight” in the manner of Bluto Blutarsky (John Belushi) in Animal House. Building upon James’s recent entry about the MCI merger, a new group has entered the food fight between Verizon and Qwest over who should buy MCI. The CLEC carriers – XO Communications, Savvis Communications, Eschelon Telecom, Cbeyond Communications, Covad Communications and Broadwing Communications announced yesterday that they formed a working group to challenge the acquisitions of both MCI and AT&T by legacy Bell companies.
The group consists of antitrust lawyers and economists, so it is clear that they intend to build an antitrust case against these mergers. Here we go, back to the “market definition” question. Will antitrust regulators look to telecom law to define the market, even though everyone agrees it is outdated and doesn’t reflect the market? Will they poll customers and interview people within the industry, and use this as the failed basis for the market definition, as was the case in DOJ’s lawsuit against Oracle?
Qwest started this food fight with their rent seeking behavior, in trying to convince Congress that it is the preferable candidate to acquire MCI (the heck with what the MCI shareholders say!). And as James says in his blog: “firms have (rightly) fought for years to relax the grip regulators have had on the industry. But now they are inviting those regulators to come right back in. Its a strategy they – and their customers – will regret.”
Indeed, we need to break away from the thought of telecom as one big regulatory fraternity, or else telecom companies will continue to yelp “Thank you, sir! May I have another?”
I recently sent an open letter to Michael Powell and the other FCC Commissioners about the Level 3 petition. Level 3 sure has a genius of a petition out there. It is requesting that the FCC not apply access charges on VoIP calls that originate or terminate on the public switched telephone network (PSTN). This forbearance petition touches on key issues of interest regarding the future treatment of IP-based communications.
Under the rubric of “deregulation” Level 3 has created a possible arbitrage bonanza for itself. And the amazing thing is that many policy gurus (including Ray Gifford at PFF and Jeff Pulver) are in favor of it, although they too express reservations. The thought is that having IP traffic pay lower access charge rates (set by the states no less! – don’t we want the states out of this?) will somehow speed things up for broader intercarrier compensation reform. To me, though, it just doesn’t seem fair. And far from speeding up the process, it will entrench those VoIP companies that benefit from regulatory arbitrage and could end up hurting broader efforts at reform. That’s why the Commission should give this one a thumbs down. As I say:
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Y’all should check out chapter 6 of the annual report of the Council of Economic Advisors, which is on Innovation and the Information Economy. The CEA issued the report this month, but I haven’t read much on it, other than a recent PFF blog posting.
The report has a good discussion on contestability theory in telecom:
However, natural monopoly does not necessarily mean economic regulation is needed to protect consumers from monopoly prices. While natural monopoly means that competition in the field is unlikely to arise, there could still be vigorous competition for the field–that is, competition among firms to attain the position of monopolist.
I’ve never thought there was anything “natural” about having one company be the phone service provider for the entire country.
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Digital rights management is technical term for digital packaging. It is also a digital contract. An article I published earlier this week talks about the future of digital content that draws from both property and contract law. We should not be scared by contract law’s growing role in copyright. Nor should we attempt to provide affirmative consumer rights as a sort of public policy exception to certain contractual provisions. I write:
Most consumers would welcome the benefit of a DRM contractual bargain, but only if they perceive that the agreement is fair. What is a fair bargain in the marketplace and what is “fair use” according to copyright law are much different, though not necessarily conflicting, concepts. The legal conception of fair use is a loose definition that is a defense to infringement, often associated with free speech such as for criticism or parody. Fair use, in a colloquial sense, is often used as a proxy for consumer expectations and preferences–the desirability for backup copies, transfer to different hardware devices, etc.
Consumer expectations of “fair use” that extend beyond criticism, news reporting, etc. should also be defined by contract, not property law. Competition in the digital content market will dictate that consumer preferences be met.
Adam’s entry indicates that the market is working to utilize DRM with P2P and that the result will be pro-consumer. After all, a government that is big enough to provide affirmative content rights is big enough to restrict content (see the entry by James on broadcast censorship).
The President’s Budget includes $304 million for the FCC in fiscal year 2006. That’s an increase from $281 million appropriated for this year. Number from past years (using FCC Change Analysis data):
2004 – $274 million
2003 – $268 million
2002 – $245 million
So if this budget amount goes through, we will have a 24% increase in the FCC budget from five years ago. The FCC’s press release lists some run-of-the-mill reasons why an increase is needed for FY2006 – salaries, benefits, office space, enhancing electronic filing systems. But it also mentions one reason that should ruffle the feathers of policy folks – “to fund additional staff to assist with program oversight associated with USF audit activities.” Of course this oversight funding is needed to counteract the fraud within the universal service program, especially E-Rate fraud, and to pay for the salary of Mark Stephens, who last week was named Special Advisor for Universal Service Fund Oversight in the Wireline Competition Bureau’s Telecommunications Access Policy Division (TAPD). As Universal Service grows out of control, so does the budget needed to administer it….
While much of the rest of the world is privatizing state-owned enterprises, there’s a growing movement here in the U.S. for local municipalities to get into the business of broadband. This is a testy issue that draws visceral responses over the proper role of government, property rights, and democracy itself. But the focus of my contribution to the publication released by the New Millennium Reach Council concludes that public sector competitors have a form of “home field advantage” that discourages entry from private firms.
I didn’t include a discussion on the hybrid municipal approach in the report but I wish I did. Some municipalities take a hybrid approach – they build the networks and sell wholesale access to private firms or they outsource to firms that then manage the customer relationship. But these are still a second-best solution.
Utah’s government-backed multi-city fiber project, UTOPIA, has promoted its model of private competition combined with public ownership of facilities by analogizing it to an airport.
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Well it seems like UNE-P – that wonderfully hyphenated acronym that in non-telecom speak stands for “pure reselling” – is on its way out. Today’s FCC press release gave us a teaser of the rules that the Commission adopted for network unbundling “open access” mandates. While there was some small reform of access rules for providers who are merely resellers, the Commission still hasn’t embraced the market alternatives available, leaving a narrow and misleading picture of the overall telecom marketplace.
Competition is much broader than just wireline vs. wireline. Indeed, CEI released a study today that finds that for every 1% increase in local phone rates, demand for wireless services increases by nearly 2%. Thus it concludes that there is true intermodal competition, despite the fact that the FCC rules do not acknowledge this. There is a check on wireline phone rates from going sky-high in the absence of UNE rules from cable, wireless and VoIP.
I think that the paper would be a good reference in light of the FCC Order, especially to refute the dissents of Copps and Adelstein, who proclaim that the sky is falling (and prices rising) for consumers. And long-term, the study will be important ammunition in the debate over telecom reform and how to think of “competition.”
Yesterday’s news that IBM sold its PC division to Lenovo got me all sentimental. I worked at IBM’s PC support headquarters in Research Triangle Park, NC for a bit about ten years ago, back when IBM was going through some turbulent times. The future of the mainframe business was definitely looking grim, but its PC division – the future of computing – had already lost its dominance in the PC market and was struggling to sell its OS/2 operating system. And I remember some jaded folks there that blamed IBM’s fall (at least partly) on an obscure proprietary technical feature called MicroChannel (MCA) – an example of how a closed standard can be bad for business.
IBM had reached 40% market share by 1985. But its open (non-IP protected) architecture meant that the PC was easily “cloned.” According to this site, Compaq was “the first with an 80386-based machine in 1986. IBM attempted to re-establish control over the PC platform in 1987 with a homegrown replacement for the DOS operating system, OS/2, and the introduction of the PS/2 based on the proprietary MicroChannel architecture. Neither had the desired effect. By 1995, IBM’s share had fallen to 7.3% behind Compaq at 10.5%, and in 2003, IBM (6%) was a distant third behind Dell (16.3%) and HP (16.9%).” What is a bus? (interface between a computer’s CPU and its expansion cards and their associated devices – MCA was 32 bit, ISA was 16 bit).
The problem, as this site documents, was that MCA, while technologically superior to the industry standard ISA bus, was not what the market demanded.
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Using a computer makes a kid less able to compute. Or so one study says. An article in The Register reports on a study that finds students who use computers in school do worse than their computer-less peers in math and reading.
From the article: “The researchers suggest two theories to explain their findings. One is ‘ability bias’ – that it might be that teachers do not want lower-ability students to use computers. The other theory proposed is that students who use computers frequently do so at the expense of traditional learning methods.”
This is from the FCC’s page on the E-rate (the Gore tax, the part of the universal service tax for school and library technology funding):
“Welcome to the FCC’s informal education page. Technology has great power to enhance education. The FCC is working to bring every school and library in America into the information age. Join the dialogue to help spread the benefits of technology to schools and libraries nationwide.”
Perhaps the benefits of technology are not as great as people or the FCC think.
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Information wants to be free, and thanks to the decision of a federal court, online real estate listings will be unencumbered by California licensing requirements. Congratulations to the Institute for Justice, who represented ForSaleByOwner.com, a company that runs a classified advertising website that allows individuals to buy and sell homes. California’s demand that websites obtain a real estate broker’s license to publish real estate advertising and information was held a violation of the First Amendment. California law exempted newspapers, and the California Department of Real Estate argued that a listing in a newspaper is somehow different than on a website – the court labeled this as “wholly arbitrary.”
This case exemplifies the disparities in laws that favor brick-and-mortar companies over e-commerce. I wrote this NRO article about a similarly situated company in New York City that provides online real estate listings. LaLa Wang, owner of MLX.com, ran into the powerful New York state regulators (who are just as bad as their California brethren) and against a bad license requirement to be an apartment information vendor. The circa-1974 law requires anyone providing real estate rental or sale information to save paper copies of transactions and correspondence – not particularly applicable to a 24/7 website. This open letter to the NY Secretary of State on her behalf was a principled gesture from which I received no response.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.