Telecom & Cable Regulation

Some people are never happy

by on May 12, 2008 · 15 comments

Broadband Reports ran an opinion piece by Karl last week discussing the rumors that Comcast will soon adopt a 250GB a month maximum with overage fees for excessive consumption.

As the piece points out, implementing overage fees runs the risk of giving FiOS (and, to a lesser extent, U-Verse) an even bigger edge on cable broadband. AT&T and Verizon, because of their last-mile network architectures, are less susceptible to congestion caused by heavy users than Comcast, with its shared cable network. AT&T and Verizon have gotten by without terminating heavy users or even charging them extra.

Yet right after Karl finishes explaining about how overage fees will change the competitive landscape, he starts ranting about the prospect of “investor pressure constantly forcing caps downward and overage fees upward.”

Competitive pressures make this scenario a remote possibility, especially as content portals serving massive files like Apple TV and Xbox Marketplace gain mainstream appeal. If Comcast wants to deflect criticism from other ISPs over bandwidth limits, any cap must be high enough to ensure very few customers even approach it. Arguably, 250GB a month is enough to satiate even power users, at least for a couple more years.

ISPs are competing fiercely to attract subscribers, so providers regularly make hay out of trivial product differences such as the “ugly cabinets” that AT&T sometimes installs when upgrading a neighborhood’s DSL speeds. Imagine the ads Verizon will run if Comcast starts charging customers for heavy use—“With Comcast, you never know when you’ll be hit with an enormous monthly bill if your kids go on a YouTube frenzy or your computer is overtaken by hackers. Here in FiOS land, rest assured there are no extra fees, no matter how much you download.” It’s not hard to see this message resonating with customers, especially those living in households with multiple Web-savvy residents.

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Thoughts on Apple, MBA’s, and Distribution

by on April 30, 2008 · 2 comments

An interesting analysis of Apple and competing distributor and network business models appears on “Going Private.” Agree or disagree? Agree with about half.  

One point that I thought worth noting; the allegedly pernicious influence of MBAs laden with theory. This runs counter to the classic free-market (Austrian-school-influenced) model of the entrepreneur taking advantage of local knowledge and designing from the bottom up. But the latter could be, in the long run, a better description only of the more successful contenders, the ones whose actions are rewarded. At the starting line, a more motley crew will be assembled, and markets will not necessarily bring them  to account immediately or in an obvious way for mediocrity. But they will do so eventually. By comparison, regulators may never bear any consequences for poor decisions at all.

 

 

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‘We’d Have Nothing To Do!’

by on April 24, 2008 · 5 comments

Several state public utility commissioners are pleading with the Federal Communications Commission to preserve unnecessary, burdensome and anticompetitive accounting requirements that I have discussed here and here.

Sara Kyle, Tre Hargett and Ron Jones of the Tennessee Regulatory Authority say they review the data required of telephone companies, even if their review has little or nothing to do with the purpose for which the data was originally required.
This information is particularly useful in evaluating competition levels in Tennessee; further, such information may be necessary in fulfilling our Commission’s responsibilities should we decide that a state universal service fund is necessary.

The argument the FCC essentially is hearing is without the data there would be less work for state regulators, which would diminish their power.   

The state commissioners think they have a chance to persuade FCC commissioners Robert M. McDowell and Deborah Taylor Tate to reject the AT&T petition along with one or both of the commission’s two Democrats.

The question McDowell and Tate ought to be asking is whether it is the role of the feds to collect information primarily for the use of the states?  The states can do that for themselves.

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Settling Accounts, Part 2

by on April 23, 2008 · 6 comments

Recenty I commented that the Federal Communications Commission  has an opportunity to relieve AT&T of several unnecessary, burdensome and anticompetitive accounting requirements.

I noted that the data derived from the legacy accounting procedures simply isn’t used anymore to regulate revenue or set prices.  That’s true, by the way.

This week a group which calls itself the Ad Hoc Telecommunications Users Committee filed a letter (in which it didn’t identify its members) claiming:

As we explained at the debate, the data produced by the cost allocations at issue have been used by the Commission and private parties in the past (CALLS), are being used by the Commission and private parties in the present (272 Sunset Nonstructural Safeguards, Separations reform and theSpecial Access Rulemaking) and will in all likelihood be used by the Commission and private parties in the future (Special Access Rulemaking, Inter-Carrier Compensation Reform  and monitoring the efficacy of the Price Caps formula).

What’s going on here?

Well, like I said, the commission doesn’t use the data to regulate revenue or set prices, but competitors apparently do use the data to argue that incumbent telephone companies can “afford” to charge lower wholesale prices.

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A Bill of Rights to enshrine Net Neutrality?

by on April 23, 2008 · 3 comments

After changing its mind about throttling Bittorrent traffic last month, Comcast has pulled a 180° on network neutrality. Last week, Comcast announced plans to publish a consumers’ “bill of rights and responsibilities,” detailing what subscribers should expect from their ISP and laying out network management best practices.

Naturally, the “Save the Internet” crowd isn’t satisfied with Comcast’s declaration. Being protocol-agnostic wasn’t enough for them, and neither is a consumer bill of rights. Customers will only be safe from evil ISPs, they say, with aggressive neutrality mandates like Rep. Markey’s proposed legislation.

On one hand, Comcast’s declaration is good news for Bittorrent users, and illustrates the responsiveness of market forces. And as a Comcast subscriber, I’m all for non-discriminatory networks. (Though I seed torrents quite rarely, it’s nice to know the option exists.)

But declaring a consumer “Bill of Rights” is a risky approach. Comcast is ceding key ground to interventionists by implicitly admitting that consumers have some inherent right to unfiltered, unmanaged networks. They don’t—despite what lawmakers like Byron Dorgan have suggested.

Essentially, Comcast is saying “If we have to be neutral, then so should all the other guys. Otherwise, they’re violating consumer rights.”

Yet some ISPs are making just the opposite argument, identifying the benefits of curbing bandwidth-intensive applications.  In comments filed last week, Bell Canada contended that throttling is in the public interest, explaining that 95% of subscribers suffer on account of file sharing. GigaOM posted a story yesterday that lends further credence to claims that peer-to-peer traffic is a major culprit of network congestion.

Perhaps we shall see a competing bill of rights—one holding that customers have the right to affordable broadband access free from file sharing-induced slowdowns.

As bandwidth demand continues to grow, ISPs must make tough choices. Between price increases, bandwidth caps, and protocol discrimination, it is far from clear what’s best for the average user. If AT&T’s prediction is correct that in three years time, 20 typical households will consume as much bandwidth as the entire Internet does today, then carriers will need to invest billions upgrading both the backbone and last-mile. Discouraging investment through regulation poses a far greater threat to the Internet’s future than hypothetical neutrality violations.

If neutrality truly is as virtuous as its proponents suggest (and I suspect it is) then it will ultimately triumph on its own merits, without the need for government intervention. Still, exclusionary, proprietary networks may yet play an invaluable role in propelling connectivity, despite closed systems’ shortcomings.  Who knows what will work out best in the long run? Market experimentation is the only way to find out.

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More on regulatory relief for telcos

by on April 15, 2008 · 14 comments

As Hance discussed last Thursday, the FCC will soon rule on AT&T’s petition for regulatory forbearance. Over at Openmarket.org I blog about why the FCC should grant phone companies relief from costly reporting requirements:

America’s two largest phone companies, AT&T and Verizon, recently filed forbearance petitions asking the FCC for relief from various regulations. Verizon is asking for the freedom to set prices on wholesale connections to competitive local carriers, and AT&T has requested exemption from certain FCC audit requirements and service quality reporting mandates.  

The real question is, why should Verizon have to ask permission from bureaucrats to decide how much to charge for its products? And why must AT&T spend millions of dollars to fill out intricate paperwork just to prove to the FCC its product is good enough for customers? 

Interventionists say this is because phone companies won’t ensure service quality unless they are subject to government oversight. But this claim ignores market conditions. With competition intensifying between phone providers and new wireless networks on the verge of completion, the market will discipline any communications company that skimps on service or price. Sprint and Comcast have learned this lesson the hard way.  

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Another digital transition? Cuban says yes

by on April 11, 2008 · 10 comments

cuban2_2.jpgThe always provocative Mark Cuban has an interesting post on his blog today. He writes:

There is a dirty little secret in the cable industry. Its being kept secret not by the cable distributors, but by the big cable networks. End this practice and the United States goes from being 3rd world by international broadband standards, to top of the charts and exemplary. …

What is the dirty little secret ?

That your cable company still delivers basic cable networks in analog. Why is this such an important issue ? Because each of those cable networks takes up 6mhz. That translates into about 38mbs per second. Thats 38mbs PER NETWORK. …

If we want to truly change the course of broadband in this country, the solution is simple. Just as we had an analog shutdown date for over the air TV signals, we need the same resolution for analog delivered cable networks.

Obviously this would entail a government mandate to an industry, which we’re all biased against. If it really were so easy, I would expect to see the cable industry make the move on its own—if nothing else to respond to FIOS. But all that aside, my question to the cable-savvy folks I know read this blog is this: how true is Cuban’s claim? How much “spectrum in a tube” is really potentially available? How difficult would it be to make a digital transition in cable?

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Settling Accounts

by on April 10, 2008 · 11 comments

The Federal Communications Commission is facing another deadline at the end of this month to accept or reject a petition for regulatory forbearance. The petition would relieve AT&T of several unnecessary, burdensome and anticompetitive accounting requirements.

The accounting rules at issue were designed to restrain telephone prices when AT&T was a monopoly entitled to recover its costs plus a reasonable profit. Rate-of-return or cost-plus regulation, as it was known, was a complete failure. It gave companies like AT&T an incentive to inflate, misallocate and manipulate costs. The companies responded, according to critics, by gold-plating their operations.

AT&T hasn’t been subject to rate-of-return regulation at the FCC or in any of the states in which it operates for 10 years. And no one is proposing to bring it back.

The FCC and the states now merely set maximum prices AT&T can charge (“price caps”), which is why the rules cited in the petition are no longer necessary. The data derived from the legacy accounting procedures simply isn’t used anymore to regulate revenue or set prices.

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Ike Elliott’s “fiber vs. coax” series

by on March 26, 2008 · 0 comments

Technology blogger Ike Elliott has a terrific series underway over at his blog this week looking at the differences between cable and telco-fiber infrastructures. He is “looking at why cable companies are kicking the tires on fiber-based passive optical networks, even though they have a heavy investment in hybrid fiber coax (HFC) networks.” The series is a good primer on these issues. Here are the entries in his series so far:

* “Internet Capacity Demands Increasing”
* “Does Cable Need Fiber to the Home?”
* “How Far Does Cable Fiber Go?”
* “Fiber vs. Coax”
* “DOCSIS 3.0 Upstream Still Skinny”
* “When Will Cable Bite The Bullet and Upgrade to Fiber?”

And here’s a handy table that Ike put together comparing the capabilities of fiber vs. coax:
fiber v coax

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Same Old Song & Dance for Telecom & VoIP Regulation

by on March 13, 2008 · 2 comments

Earlier this week I testified in Pennsylvania in support of SB 1000, legislation designed to prohibit price and terms of service regulation of Voice over Internet Protocol (VoIP) and other IP-enabled products and services.

At the hearing it was clear that most favored the bill. And why not? By not regulating IP-enabled services and VoIP, I testified that it would actively promote consumer welfare and business innovation in Pennsylvania. One study from Micra finds that Pennsylvania residents would save up to $4.8 billion over the next five years.

Yes, yes, all fine and good. But what about access charges, asked Embarq? What about union jobs, cried the CWA? What about consumer protection? What about the children? (OK, nobody said this last one).

The bill will probably pass into law, but the hearing was a microcosm for the greater debate needed for real telecom reform, so we don’t import old-world telecom regs meant for the AT&T monopoly onto today’s more competitive landscape. But in the meantime, we need to deal with entrenched parties that benefit from regulation and old school natural monopoly thinking about the communications marketplace. Creating a regulatory firewall based on technology – which VoIP non-reg bills do – is perhaps the best we can get right now…until we have communications without commissions.

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