Telecom & Cable Regulation

Singleton on Build Out Requirements

by Tim Lee on April 6, 2006

Solveig Singleton has a great post over at the PFF blog setting the record straight on build-out requirements. She really should have posted the post here herself, but since she didn’t, I’ll do it for her:

This whole debate is saddening, and a little surreal. Here are some basic realities about build-out: Whether or not an area can be profitably built out has to do mainly with population density. Low-income areas tend to be high-density (at least in urban centers) and therefore historically the tendency has been that these areas are built out well before more sparsely populated suburban areas. Furthermore, lower-income areas have had a pretty healthy demand for tech services. The odd thing is that legislators such as Rep. Markey, who have been around the tech legislation scene for years, really should know this. The second fact is that build-out requirements have a rather sad history themselves: As economist Tom Hazlett has thoroughly documented, these requirements were rarely imposed on the first entrant into the cable market. Generally it was rare for such entrants to build out into the entire market immediately, it usually took a few years. The idea that first entrants have labored under such requirements is a myth, a myth fostered largely to present formidable obstances to the entrance of a second competitor in the market.

The more I learn about the issue, the more amazed I become at how weak the arguments of franchise reform opponents are.

Never Negotiate with Terrorists (or City Councils)

by Tim Lee on April 4, 2006

It warms my heart to see AT&T playing hardball with local governments that are trying to micromanage the rollout of its next-generation video services:

What’s not to love about a brand-spanking-new fiber deployment (even if it’s only to the node, and not the curb)? Consumers will get higher Internet speeds, better service over new infrastructure, plus more choice when it comes to television. If you’re a local government that is used to revenues from cable franchises, the fact that AT&T is not willing to enter into local franchise agreements to deliver its IPTV service is a serious drawback. The Chicago suburb of Roselle is firing back at AT&T over the issue, passing an ordinance that will require the telecom to halt work on Project Lightspeed for 180 days… AT&T is responding to Roselle’s action by essentially threatening to take its ball and go home. “Roselle passed an ordinance and our lawyers are looking at it,” said Mike Tye, AT&T Midwest vice president for legislative affairs. “We’re dismayed that Roselle halted a network upgrade to bring enhanced services to its citizens. But we have finite capital and will allocate it to communities that want us there,” Tye said.

Although statewide franchise reform is certainly a good idea, AT&T may very well have a stronger bargaining position than municipalities even without reform. There are doubtless thousands of Roselle residents who want what AT&T is selling. Roselle’s elected officials might want to keep in mind that AT&T sends a bill every month to the vast majority of Roselle voters. A series of “Dear Customer…” inserts in those bills explaining that their city council is preventing them from getting competitive TV service might change some minds. And if not, I’m sure there are plenty of other municipalities whose elected officials would be happy to have AT&T provide new and better service to their constituents.

Deregulating by Doing Nothing: The FCC Makes the Right Non-Decision

by James Gattuso on March 21, 2006

One problem at the FCC–and most other regulatory agencies–is the difficulty of getting obsolete restrictions off the books. Even minor changes get bogged down in endless notices of proposed rulemaking and further notices of proposed rulemaking. This make good business for lobbyists, but not good policy. But a provision adopted in the ’96 Telecom Act–until recently rarely used–may change that. Known as “forbearance,” the provision directs the Commission to “forbear”–stop enforcing–regulations it finds are no longer necessary. And, if it doesn’t act within a year on a petition to forbear, the petition automatically takes effect.

That’s exactly what happened this Monday when the deadline for action on a Verizon forbearance petition expired. The petition has asked for deregulation of Verizon’s business broadband services–which operate in a fairly competitive market. It has now taken effect–freeing Verizon of common carrier requirements, line sharing requirements, and a raft of other unnecessary rules.

The exact extent of the change is a bit unclear, since there was no written decision implementing the change. But they are likely substantial, and given the competition in this area, well-justified.

Not all members thought this a good thing. Democratic Commissioner Jonathan Adelstein was apoplectic, saying the non-action “erases decades of communications policy in a single stroke.” That’s an exaggeration, but wouldn’t that be a good thing if true?

Congratulations to Chairman Martin and the FCC for getting unnecessary rules off the books. Hopefully, there will be a lot more to come.

Economists Speak Out Against Regulation

by James Gattuso on March 10, 2006

The AEI-Brookings Joint Center on Regulation yesterday released a statement by 25 top economists on broadband reform. The economists–an impressive group including airline deregulation pioneers Alfred Kahn and Elizabeth Bailey, former CEA member Richard Schmalensee, and FCC veterans Tom Hazlett, Greg Rosston and Howard Shelanski–make two recommendations:

Congress should eliminate local cable franchising regulations; and
Congress and the FCC should make more spectrum available to private parties, and allow them to use it or trade the right to use it, so that it will go to its highest-valued uses.

The bottom line, according to the group: “…investment in broadband should be as easy as possible. Regulations that primarily protect incumbents or serve as barriers to entry should be removed.”

Worth reading.

Reed Hundt on Telecom Mergers: From “Unthinkable” to “You Want ’em Big” in Less than 10 Years!

by Adam Thierer on March 7, 2006

My oh my, how things change. Less than 10 years ago, FCC Chairman Reed Hundt preemptively declared that a rumored merger between AT&T and SBC would be, in his words, “unthinkable” under antitrust laws.

So I found it peculiar when I opened up the papers yesterday and today and read Reed Hundt’s analysis of the pending merger of AT&T–which has already taken over SBC–with Bell South. In yesterday’s Wall Street Journal he argued rather matter-of-factly that: “It’s like a marriage between a couple that’s been dating for a decade. It’s so predictable as to not attract a great deal of questioning.” And then I opened up the Washington Post business page today and read this from Hundt: “It’s a sport. It’s a competition. In this business, scale really matters. It’s like NFL linemen. You want ’em big, you want ’em fast, but most important, you want ’em big.”

Talk about your sudden changes of heart! Let me just reprint a bit more of what he said back in the summer of 1997 about such mergers:

“Combining the long distance market share of AT&T in any RBOC region (even as it may be reduced by RBOC entry) with the long distance market share that reasonably can be imputed to the RBOC yields a resulting concentration that is unthinkable. [If we impute] to AT&T even a modest percentage of [local] market share taken form the existing Bell incumbent in that Bell’s region, as we must do under our potential or precluded competitor doctrine, then under conventional and serviceable antitrust analysis, a merger between it and the Bell incumbent is unthinkable.”

So, in less than ten years, he’s gone from thinking such a combination was “unthinkable” because of the “resulting concentration” to now calling the move “predictable” since “scale really matters” and “[we] want ’em big.”

File this one under “The Re-Education of a Regulator”!

But seriously, I have to give Hundt credit for recognizing the changed competitive landscape since 1997. Long-distance has largely been canabalized by the rise of rigorous wireless competition and flat-rate, nationwide calling plans. The Internet is everywhere, which means IP-enable calling is a new threat to the old players. And the old Bell copper empire has now become a copper cage they are fighting their way out of. It’s all about fiber now to ensure they can compete against cable’s high-speed offerings and whatever else competitors might throw at them. The world has changed in amazing ways in just 10 short years. Reed Hundt’s changed thinking on this issue proves that.

Possible Conditions on the AT&T-Bell South Deal

by Adam Thierer on March 6, 2006

The AT&T-Bell South deal will be approved, that much is certain. After approving the previous deal between T & SBC, regulators know it would be silly to oppose T’s deal for Bell South. The two firms don’t compete directly and the combination could offer significant scale economies as the telcos continue to dig in for full-fledged trench war with cable operators. On those grounds alone, the deal will get through. The only real question is: What conditions might regulators impose on the deal?

While the so-called “consumer groups” will ask for a litany of restrictions, I want to address just three here:

Continue reading →

AT&T-BellSouth: No Big Deal

by James Gattuso on March 6, 2006

There no doubt will be much gnashing of teeth in the wake of yesterday’s announcement that AT&T (the former SBC) has agreed to buy BellSouth. WIthin hours, to no one’s surprise, old-line consumer groups called for regulators to reject the merger. In truth, however, the acquisition just won’t make that much difference, and to the extent it does, it likely will help consumers in the southeastern states BellSouth serves.

Sure, the deal reduces the number of “Bell” telephone companies to two–down from the original seven created in 1984. But does that mean less choice and less competition for consumers? Far from it. Today’s traditional telephone companies are quickly becoming but one choic among many for consumers wanting to make a telephone call. Cable TV companies alone now provide telephone service for some six million Americans, a number that is rapidly increasing. And that doesn’t include the millions more service by stand-alone Internet telephone companies such as Vonage. Wireless telephone service provides another source of competition to traditional telephoney, with millions of Americans cutting the cord, and dropping their traditional service entirely. And while the merged AT&T-BellSouth will own Cingular, one of the leading wireless firms, the wireless market is still vibrantly competitive.

Perhaps more important for the future is the market for broadband Internet service. The networks that connect Americans to the Internet are increasingly important–serving as the platform for everythng from e-mail to Internet telephony, to (soon) television. Here, however, the traditional telephone companies are even less dominant. In fact, they are the challengers in this market, trailing cable TV firms, who have some 60 percent of the market.

As a result, this merger, like last years mergers before it, is no big deal to consumers. However, at least one area, consumers will likely be better off. BellSouth has trailed AT&T and Verizon in making plans to enter the television market. While the two larger phone companies are already starting to offer TV service in competition with traditional cable firms, BellSouth–with more limited resources – has lagged behind. As a result, while consumers in many areas of the country could soon be enjoying the benefits of more cable TV competition, consumers in the southeastern U.S. were facing a long wait for the same benefits. If the proposed deal goes through, cable competition could come sooner to the South.

Despite the easy rhetoric, this deal does not signal a return to the days of monopoly in telephone service. Instead, it serves as a reminder of how far competition has come, and how choices have increased, for American consumers. And that competition and choice will, if anything, be stronger due to this merger.

Jupiter Research: Increased Choice a Major Driver for IPTV

by James Gattuso on March 5, 2006

A new Jupiter Research study released recently found, unsurprisingly, that the biggest attraction of Internet Protocol TV for consumers was prices–just over half said that they would switch to IPTV if they could get a lower price. Perhaps more surprisingly, however, was that potential a la carte service came in a close second–with 46 percent of those polled saying they would switch to get a la carte pricing. That number dwarfed features such as high-definition service and video on demand, which excited only six and three percent of consumers.

The lesson for potential IPTV operator, Jupiter says, is that their “services should focus on giving consumers greater choice and control over their television experience, if not true a la carte.” The lesson for policymakers interested in consumer choice is to reduce regulations that hinder IPTV competition, rather than impose new regulations on cable TV.

A Cheer for Tate: New FCC Member Gets it Right on Cable

by James Gattuso on March 5, 2006

There is always a period of uncertainty whenever a new member of the FCC takes his or her seat. No matter what the background of the individual, no one ever knows how the new commissioner will fill the role. That has been true of Deborah Tate, the newest commissioner–despite her service at the state level, she is not yet well known in the insular world of Washington telecom policy. That’s one reason why some comments she made last week on the cable “a la carte” pricing issue are especially encouraging. At a meeting of the National Association of Broadcasters, she called on cable companies to do more to combat indecent content. But, rather than call for regulation, she indicated that new technology and new competition might be the answer to the problem, making regulation unnecessary. “If IPTV becomes viable, it’s not a problem because you are going to call [up] what you want.”

That point–one I’ve been pounding on for months–may sound obvious, but it’s been strangely overlooked by most policymakers. The next day, for instance, members of the House Appropriations committee, hearing testimony from FCC chair Kevin Martin, showed outright enthusiasm for regulation: “I think you have made such a powerful case for a la carte,” subcommittee chair Frank Wolf told Martin, “[i]t will be shocking if this Congress does not deal with the issue.” If the concept that IPTV and new competition could address the problem better than regulation was apparently not raised.

Tate deserves plaudits for her common-sense, pro-market approach to this issue. Its an encouraging and welcome start on her new job. We are looking forward to more such common-sense in the years to come.

Video Competition, pt. 3: IPTV Something Familiar To Americans

by James Gattuso on February 16, 2006

Telecom policy is famous for its acronyms. Everything from POTS (Plain Old Telephone Service) to PANS (Potential Advanced Network Services) has its own TLA or FLA (Three Letter Acronym or Four Letter Acronym). And technology being what it is, they change all the time–with new generations of acronyms constantly being coined. Thus its not surprising that most people I know just glaze over when hearing about them all. Most of the terms so familar to tech geeks and us policy wonks may as well be Aramaic to the average person.

For that reason, I found a new Harris Interactive poll released this week rather surprising: over half (56%) of Americans are familar with IPTV. Not bad for a relatively new acronym, and a service that’s only available in a few markets. Moreover, those polled are interested in getting IPTV–one in four said they’d like to have it on their TVs. One in five were interested in getting it on their PCs.

That’s good new for companies like Verizon and SBC, who are challenging cable firms with new IPTV (or IPTV-like) services. However, there’s bad news too for them: one-third of respondents said they’d be most comfortable getting IPTV from their cable company. Only 13 said their telephone company. Still, the overall numbers indicate that Americans are receptive to change here, providing more reason to believe a TV revolution may be coming soon.

Also interesting is the reasons that people are interested in IPTV. Not surprisingly, lower cost was the most important factor–with 42 percent citing that. However, the next two reasons related to individual choice and control over programming, with on-demand viewing mentioned by 33 percent, and a broader array of programming content cited by 24 percent.

This seems to support the argument that IPTV could be a major factor in the on-going debate over TV content. Pro-family groups are pressing for more consumer choice in cable (eg a la carte pricing) as a way to filter out offensive programming. IPTV very well may provide that choice, and this poll shows people are getting the message that IPTV is about choices as well as prices. This could be a classic case of TBOS (Two Birds, One Stone).

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