Telecom & Cable Regulation

Verizon’s Hoewing: Why Rome Isn’t Burning over Broadband

by on October 5, 2006 · 4 comments

Posting on Verizon’s newly-launched blog, VP for Internet and Technology Link Hoewing makes the case that the U.S. isn’t doing as badly on broadband deployment as advertised. Says Hoewing:

Lots of attention has been paid recently to announcements that a French company is planning to test a fiber network soon that will supposedly run at speeds far surpassing virtually anything in the U. S. The implication some are drawing? Yet more evidence that America is falling farther behind in the race to build better broadband networks.
But the violins are not playing yet and Rome is not burning. The reality is that fiber to the home networks are growing faster in the U. S. than any place else in the world.

An interesting, and encouraging perspective. And a good start to Verizon’s new blog, which promises to be more than your typical corporate mouthpiece. Don’t expect Bell lobbyists to start working from home in their pajamas anytime soon. But with contributions from folks from Hoewing–who I’ve known for over 20 years as an insightful and candid observer of technology trends–it promises to be a valuable contribution to the blogosphere.

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A Win for California Consumers

by on October 2, 2006

Good news from California: Governor Schwarzenegger has signed legislation liberalizing cable franchise rules:

television providers of all kinds will be able to offer services throughout the state without having to negotiate individual franchise agreements with each and every municipality where they desire to provide service. The new law represents a big victory for AT&T, which plans to spend $1 billion on a new fiber deployment by the end of 2008, and Verizon, which is already rolling out its FiOS service in the state. Both telecommunications companies plan to use the fiber networks to offer a triple play of voice, video, and broadband, putting them on equal footing with the incumbent cable companies.

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CableCARD: Still a Flop

by on September 28, 2006 · 8 comments

Ars covers an FCC filing by the National Cable & Telecommunications Association concerning the uptake of CableCARDs. The CableCARD has not proven a hit with consumers, to put it charitably. So far, 200,000 have been deployed, out of 73 million households with cable TV service. That’s about a quarter of one percent.

This is not a surprise. CableCARDs incorporate two of my least favorite things–digital rights management and government technology mandates–so I might be biased, but I have trouble seeing why anyone would want one. The cards were mandated by the FCC as a way of creating a competitive market in set-top-box replacements. The cable industry likes its set-top boxes, resents the FCC’s attempts to abolish them, and so they’ve done everything they could to resist their roll-out. Their primary weapon has been foot-dragging. They released a first generation CableCARD spec that was were crippled by limited functionality. More than a year after the first generation was unveiled, it remains unclear when the second generation will become available.

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Sol Schildhause

by on September 22, 2006 · 3 comments

Supporters of free markets and free speech in communications lost a friend this past week with the passing of Sol Schildhause at the age of 89. While perhaps not well-known to many today, Sol was for decades a fixture in the world of cable TV, serving as the first head of the FCC’s cable bureau from 1966 to 1974–where he fought against rules that protected broadcasters from cable TV competition–and later as an attorney and chairman of the Media Institute, where he worked tirelessly for competition in cable TV itself. He was particularly instrumental in the effort to end exclusive cable franchising on the grounds that it was an unconstitutional violation of free speech. The Supreme Court decision that resulted from those efforts established that cable television firms’ were entitled to First Amendment protection, although it stopped short of banning exclusive local franchising.

Schildhause always seemed the maverick in his work, a happy warrior fighting against the status quo. This was evident even during his years at the FCC, where he was far from your typical bureaucrat. Sometimes this caused difficulties, as related by Tom Hazlett (now of George Mason University) in a 1998 article for Reason Magazine entitled “Busy Work”:

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How Much For Those Tubes? Stevens Telecom Bill Priced at $5.2 Billion

by on September 20, 2006 · 2 comments

More bad news for Sen. Steven’s struggling telecom bill this week, as the Congressional Budget Office toted up the price tag for the 200+ page measure: $5.2 billion over the next ten years. That’s worth saying again. $5.2 billion. That’s billion. With a “b”.

Most of the cost comes from extending communications subsidies to broadband. CBO pegs the cost of the proposed new “Broadband Service Fund” at nearly $4.5 billion. Other provisions–such as permanently exempting the Universal Service Fund from the Anti-deficiency Act (allowing grants to exceed fund revenue)–expansion of rural health care spending, among others–make up the rest of the new spending. (Among the others are, presumably, the provision expanding subsidies to “States that are comprised entirely of islands”. See this post.)

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“Continuity and Community Presence” in Universal Service

by on September 14, 2006

A few weeks ago, the FCC courageously requested public comment on the merits of using auctions to determine who gets Universal Service support to provide subsidized phone service in rural areas. One difficulty with a reverse auction is what, if anything, to do about stranded investment. What are the legitimate investment expectations that the incumbent provider deserves to recover?

Under the current system, the incumbent rural phone companies will be subsidized in perpetuity. Yet, cable VoIP service and wireless systems have been built in many rural areas without Universal Service support. Many of the competitors are now seeking their fair share. Chairman Kevin Martin noted Tuesday at a Senate hearing that these competitors received $1 million when he came to the commission but get $1 billion now.

Martin stood up for reforming Universal Service so it supports the best and most efficient new technologies, and he took a beating from Senate Commerce Chairman Ted Stevens (R-AK)–an ally of the incumbent rural phone companies–who, like most politicians, focused on who would be the winners and losers:

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Telecom Taxes: The Golden Goose

by on August 25, 2006

State and local lawmakers learned in the 1990s that large, broad-based tax increases are political losers and that they redistribute taxpayers (to lower taxing jurisdictions) rather than redistributing income. Hence, the growing interest in targeting tax increases to divide taxpayers into smaller groups and minimize voter backlash. Tobacco and alcohol are the favorites, but the same thing is happening in telecom and housing. These are some of the findings from a study by Daniel Clifton and Elizabeth Karasmeighan for Americans for Tax Reform.

According to Tom Tauke, “broadband and, in particular, wireless services are increasingly viewed by state and local governments as the golden goose for raising new revenue. The state and local tax burden on communications is now two and a half times what it is for other businesses … Today in some states, taxes on cell phones exceed that of liquor and tobacco.”

Broadband and cellphone providers don’t pay these taxes, of course. They are merely tax collectors. Unfortunately, the taxes lead to higher prices for broadband and cellphone services, which lowers demand, as Tauke points out. Lower demand is bad for innovation, the economy and the future spending plans of politicians and social service advocates.

Clifton and Karasmeighan recommend that states limit spending to the rate of population growth plus inflation to ensure that revenue gains during upturns can be used to offset losses during recessions. They also recommend that states reduce their reliance on volatile revenue sources such as capital gains and dividends. States used temporary surges in capital gains revenue in the 1990s to increase spending permanently. When the stock market declined, states lost 80% of this revenue but kept spending anyway. Many fooled voters into raising taxes to cover the “unforseen” gap.

State and local tax policies are one of the chief threats to investment and innovation in the tech sector today.

See: “State Tax Trends Over Twenty-Five Years: Tax Increases Down, Revenue Sources Shifting,” by Daniel Clifton and Elizabeth Karasmeighan, Americans for Tax Reform, Aug. 2006

See: “Staying Ahead of the Broadband Curve,” Remarks by Tom Tauke, Executive Vice President–Public Affairs, Policy and Communications, Verizon Communications, at the Progress & Freedom Foundation’s Aspen Summit, Aug. 22, 2006

See: “The Excessive State and Local Tax Burden on Wireless Telecommunications Service,” by Scott Mackey, Economist, Kimbell-Sherman-Ellis, Jun. 2004

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Another Case of “Rights Inflation”: Sports on Cable TV

by on August 9, 2006 · 4 comments

It never ceases to amaze me what some people think they have a “right” to in this country. The latest example comes from the field of cable television where “rights inflation” has been spiraling out of control for years. Consider some of the things that people have claimed that they have “a right” to in the context of cable and satellite television over the past 20 years:

  • In the 1980s and 90s, a great number of people claimed they had a right to cheap cable TV programming. As a result, the Cable Act of 1992 was passed imposing price controls on basic cable.

  • During that same period, it was also argued that certain broadcast channels should have a right to reserve capacity on cable networks to distribute their programming. Consequently, “must carry” mandates were formally enshrined into law requiring it.

  • More recently, a number of people are saying they have a right to cable television on any terms they wish including on a channel-by-channel, or “a la carte” basis, instead of as part of pre-packaged bundle of programming. Despite the fact that it could destroy the wonderful diversity of programming we see on TV today, Big Government liberals promote a la carte regulation under the guise of “consumer choice” while Big Government conservatives hail it as a worthy effort to “clean up cable.” The end result is an unholy alliance that seeks to create a new “right” to unbundled couch-potato fare.

  • Not satisfied that the push for a la carte regulation will go far enough (or perhaps fearing that it will not be passed into law), the “let’s-have-government-sanitize-cable TV” crowd has also pushed for a right to “family-friendly tiers” of programming. Cable operators started “voluntarily” adopting such tiers late last year.

  • Importantly, the reason the industry “voluntarily” adopted those family-friendly tiers was because they were threatened by far more serious censorship proposals from those who feel that have the right not to be offended by anything they see on pay TV. Proposals to extend broadcast indecency speech standards to cable and satellite systems have been seriously debated in the halls of Congress this session.

Could rights inflation get any more absurd? You better believe it. This summer, the Federal Communications Commission (FCC) has gotten all worked up over consumers’ “right” to sports programming!

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Shareholders Ask Microsoft: Why Support Regulation?

by on July 26, 2006 · 2 comments

One of the most frequently asked questions in the net neutrality debate has been why big Internet companies like Google and Microsoft support regulation so strongly. If, as they say, an unregulated market would squeeze out the little guy, you’d think these big companies would be dead set against regulation. And if opponents are right, regulation would make the Internet on which these companies depend much less efficient.

This should make more than a few shareholders of these companies nervous. So much so that one group–the Free Enterprise Action Fund–wants a shareholder vote to require Microsoft to prepare a report on its stance toward this regulation.

The Fund, it should be noted, is not a neutral observer. It is a mutual fund specifically geared toward “investment and advocacy to promote the American system of free enterprise.” But it raises a reasonable point. “We feel they should be worried about innovation and competition rather than perhaps running to the government for regulation,” says Tom Borelli of the Fund. ” “If they have thought this through and they know what they’re doing, what’s wrong with a report to your shareholders explaining your rationale?” he asks.

Good points. Of course, the proposed shareholder vote will probably not take place–corporation law provides plenty of ways to avoid such embarrassing things. Still, it would be interesting to see such a vote, and if Microsoft shareholders think regulation is in their best interest.

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Just How Inefficient Is Universal Service?

by on July 20, 2006

Many years ago, I largely quit following developments on the “universal service” front. It was just too damn demoralizing. After studying the system for many years, I came to the conclusion that the Universal Service Fund (USF) – – and the entire universal service regulatory process – – was one of the most unfair, illogical, counter-productive, regressive, anti-technology programs EVER created in American history, And yet, no one in government seemed to be willing to do anything to fix it. Matter of fact, they actually decided to expand it in recent years with the creation of the E-Rate (or “Gore Tax”) program. And they brought cellular and VoIP into the system as well. Absolutely insane.

I was reminded of that again today when I received a new report from communications guru Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University. Hazlett has just penned a devastating critique of the universal service system in which he asks: “What Does $7 Billion Buy?” Answer: not much. Let me just quote from his executive summary here and then encourage you to go read the entire study for more miserable details about this horrendously inefficient government program:

“The ‘universal service’ regime ostensibly extends local phone service to consumers who could not otherwise afford it. To achieve this goal, some $7 billion annually is raised – – up from less than $4 billion in 1998 – – by taxing telecommunications users. Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail–on net–to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies – – such as wireless, satellite, and Internet-based services – – that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks. Ironically, subsidy payments are rising even as fixed-line phone subscribership falls, and as the emergence of competitive wireless and broadband networks make traditional universal service concepts obsolete. Unless policies are reformed to reflect current market realities, tax increases will continue to undermine the very goals ‘universal service’ is said to advance.”

And, if you’re a real glutton for punishment and want even more grim details about the system, check out this recent report by PFF’s “DACA” working group on universal service reform. File all this under: “The Unintended Consequences of Misguided Government Regulation.”

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