The Progress & Freedom Foundation Blog

11.30.2004
Christmas Comes Early...
Today I opened my Hotmail account and found that I now have an expanded 250 megabytes of storage space! This, of course, is Microsoft’s long anticipated response to the introduction of Google’s Gmail service last spring which boasts 1 gigabyte of storage and Yahoo’s subsequent expansion to 100 MB (now 250MB). Larger account sizes make it easier for users to share all kinds of data (photos, documents, etc.) and allow users to store files online in their accounts.

The interesting thing about the dynamic and consumer friendly email market is that it is a sector of the communications industry that has matured and advanced with minimal regulatory oversight. Email carriers operate in an unregulated market and this morning my inbox benefited from the competitive forces that this environment engenders.

The email storage wars demonstrate that the communications industry will remain dynamic because of advances in network capacity and compression techniques, not distortionary taxes and regulations. With millions of users worldwide, free email accounts have become the ultimate ‘universal service.’

FYI: If you are still waiting for your own 250MB upgrade from Hotmail, a Microsoft spokesperson explained that they “expect to have completed the roll out in the US by the end of the calendar year.”

- posted by Rich @ 11/30/2004 05:42:43 PM

11.29.2004
No Preemption for Broadband over Powerline
Comm Daily (subscription required) reports today that state regulators do not anticipate federal preemption over broadband over powerline (BPL):

State regulators don't see a VoIP-like FCC preemption of broadband over power lines (BPL), said Mich. PSC Comr. Laura Chappelle, who heads the NARUC BPL task force. "I don't see the FCC or FERC [Federal Energy Regulatory Commission] as overly anxious to jump and try to preempt BPL," she told us.

Commissioner Chappelle is correct, though I feel sorry for any regulator who has to try and untangle the regulatory conundrums that BPL presents. With a regulated electric utility, the costs for the BPL infrastructure are in theory all collected through the electric rates that consumers pay. Thus, the incremental facility costs for BPL are zero, or so some would argue. Of course, one company's incremental cost of zero is another's predatory price, which is a consumer counsel's double recovery.

The cost allocation is quickly insoluble -- how much of BPL's cost is allocated to the regulated, electric side and how much to the competitive, broadband side? And how the regulator answers this question determines whether or not BPL is viable in the marketplace. Of course, if the regulator allocates all the costs to the electric side, the cost picture for BPL looks quite good. On the other hand, if costs are allocated to the broadband side, electric rates go down but the broadband cost may not be competitive. Complicating all of this: there is no principled way to do the cost allocation.

This is a little like the line-sharing context, where the incremental cost of the high frequency portion of the loop is zero. However, since the HFPL has economic value, there must be a positive price -- and hence an allocated cost -- to the HFPL. Trouble is, you can only theoretically describe that the cost should be allocated, you can't determine what it really is.

Like I said, cost allocation for BPL must be done, and the states would appear to be the ones to do it -- but I don't envy them.
- posted by Ray @ 11/29/2004 11:42:12 PM

When You Come To A Fork In The Road
"One of Yogi Berra’s famous sayings is: 'When you come to a fork in the road, take it!' But what is good enough for Yogi is not good enough for the Commission. Not now. This time the FCC must take the right fork in the road. In light of the reality of the competitive alternatives that already exist in the telecommunications marketplace, not to mention still more potential competition in the wings, it is time for the Commission to opt for the Dynamic Deregulation vision."

The above is from the conclusion of the new scorecard I released today regarding the FCC's forthcoming UNE action. The Commission is at yet another fork in the road in this long-running play. How the Commission grades out on the scorecard's benchmarks will determine whether it takes the right (deregulatory) fork, or merely another wrong (overly regulatory) fork.

Stay tuned!

- posted by Randolph May @ 11/29/2004 07:53:40 PM

11.26.2004
VoIP compensation debate continues to heat up
As most policymakers digest Thanksgiving turkey, the debate heated up further regarding how telephone companies will be compensated for use of their traditional networks when they are used to connect "voice over IP" (VoIP) calls. FCC Chairman Powell issued a carefully worded statement regarding a recent filing by one major telephone company about a new service option by which Internet voice providers can connect to the telephone company's network. Critics have assailed the plan as an attempt to perform an "end run" around ongoing compensation proceedings, while the company underscores that it will comply with any forthcoming FCC rulings and that the new service is optional (TRDaily, Nov. 24, 2004 - subscription required). Powell's statement does not clarify whether the FCC has permanently rebuffed a call to suspend and investigate the new service. But it does make clear that pressure to resolve these network compensation issues will continue to mount as use of Internet voice services grows.

- posted by K Dixon @ 11/26/2004 01:15:41 PM

11.24.2004
Biz Week on "Spectrum Showdown"
Business Week paints what may be an overly-optimistic picture on the growing "resolve" in DC to facilitate the digital TV transition, but reports that there is "an informal proposal circulating from the Federal Communications Commission staff to end analog TV broadcasts by 2009," at which time the analog TV spectrum could be made available for wireless services.

- posted by Adam @ 11/24/2004 02:05:14 PM

11.23.2004
Indecent horses with prostitutes, or is it vice-versa?
Great moments in indecency regulation:

Despite my colleagues’ assurance that there appeared to be a safe distance between the prostitute and the horse, I remain uncomfortable. I respectfully dissent.

If you're looking for context, you really don't want to know. (And how many perverted hits do we get from Google with that headline?)
- posted by Ray @ 11/23/2004 10:59:12 PM

Privacy: Tu Quoque
She believes in privacy rights, except when she doesn't believe in them (LA Times registration required):

A San Diego Gas & Electric Co. executive is suing California Public Utilities Commissioner Loretta M. Lynch, alleging that she helped a TV station record what he thought was a private conversation with her — and that ended up on the air as part of an investigative report on the PUC.
- posted by Ray @ 11/23/2004 07:43:30 PM

SBC TV --You Say You Want A La Carte?
Well, the FCC is surely correct in recommending that Congress not mandate that cable operators be required to offer channels on an a la carte basis. Did you see the SBC news release concerning its deal with Microsoft that will enable it "to provide next-generation television services using the Microsoft TV Internet Television (IPTV) Edition software plaktform." SBC says the deal is valued at $400 million over 10 years.

According to SBC, its Internet-based service will change the way people experience television: "Finally, customers will watch what they want, when they want--from a virtually unlimited and interactive content selection." SBC says it plans on the availability of the IP-based television in late 2005.

I know, I know--the date almost certainly is hyped up a bit, and it likely will slip. It may be 2006, or 2007, or....but Internet Television is surely coming. And it will be "a la carte" out of the kazoo, beyond John McCain's fondest dreams. The marketplace and technology are driving this.

And this too: The regulatory metaphysicians are likely to have a field day arguing about the classification of Internet Television unless Congress acts in the not-too-distant future to free all digital services from the traditional stovepipe regulatory mandates.

And speaking of Congress, this too: Think about all that valuable spectrum that will be devoted to provision of over-the-air digital TV service by "broadcasters" at the same time that many people incresingly will be satisfying most of their video fix through non-spectrum delivered Internet TV.

- posted by Randolph May @ 11/23/2004 04:06:09 PM

A Totally Different Form of Self-Regulation
The Register has an interesting commentary on OFCOM's directive to British Telecom to fix itself in three months or face the threat of divestiture.

- posted by Adam @ 11/23/2004 03:54:21 PM

Primary Line Restriction Gets "the Heisman"
It's Rural America Week for telecom issues on the Hill. Commissioner Adelstein got the nod for a full stint at the FCC and, as part of the "Consolidated Appropriations Act," the FCC's consideration of a primary line restriction is now moot. A previous posting discussing the pros and cons of a primary line restriction is available here, but for now it is apparent that political considerations will temper the possibility of meaningful USF distribution reform.

- posted by Adam @ 11/23/2004 02:43:17 PM

11.22.2004
Cable A La Carte
On November 18, the FCC released its report to Congress on the cable a la carte pricing model. The report was requested by several members of Congress, including Senate Commerce Chairman John McCain, who has been particularly keen on the idea.

The Commission concluded that "although an a la carte option would allow consumers to pay for only the programming they choose, given current viewing practices, few consumers would experience lower bills for multi-channel programming."

In comments filed with the FCC last July, my colleague Tom Lenard and I explained why it would be bad for consumers to have the government dictate the pricing and program packaging of cable services. In its report, the FCC cites our comments in explaining that "when viewers purchase a bundle of programs, they have the option of watching programming that they might not have purchased separately."

Let the marketplace work!

- posted by Randolph May @ 11/22/2004 05:51:29 PM

11.18.2004
A Word on the NARUC Resolutions…Milquetoast

On the heels of the FCC’s Vonage decision, an association of state utility commissioners met, debated issues and passed 21 unique resolutions. Nine resolutions that emerged from the Telecommunications Committee were approved by NARUC before the meeting ended.

It is fair to say that I didn’t linger too long at NARUC. In fact, if you discount time spent at the airport, I was in Nashville less than a day and only in the convention area for a few hours. Notwithstanding this limited experience, even I picked up on the heightened level of engagement generated by four resolutions brought to the table by veteran Maine PUC Chairman Tom Welch. Three of the resolutions were adopted and a fourth, on VoIP was tabled until the February meeting.

In a nutshell, NARUC’s line in the sand against all federal preemption was significantly eroded and some old-line, “regulate the world based on a 1920’s utility doctrine” regulators were seriously upset. So what did the resolutions actually say?

On the NARUC Telecommunication Policy Resolution, the new resolution calls for three changes:

1. “NARUC is open to the possibility that, as markets evolve and local products and services take on more national and international characteristics, traditional jurisdictional principles may need to be re-evaluated.” Okay so far. But the fact that this was viewed as controversial says more about NARUC’s starting point on these issues than the resolution itself. The resolution doesn’t call for reevaluation of jurisdiction. Rather, it states an openness of mind to the possibility of reevaluation. How very noble.
2. At section 4.1, the amended resolution states “NARUC is willing to work with the FCC and telecommunications service providers to seek a simpler and competitively neutral system of intercarrier compensation.” Another good idea; intercarrier compensation reform will necessarily entail state-federal cooperation. But why is NARUC elevated to the level of a sovereign? Am I the only one who thinks that perhaps it would be better if NARUC would pledge to encourage the several States to “work with the FCC and telecommunications service providers”? On one hand is an honest broker attempting to bring parties toward consensus. On the other, unfortunately where NARUC has placed itself, is an interest – like so many others – promoting itself for a seat at the table.
3. And at section 7.4, the amended resolution reserves to state authority the ability to regulate based on anticompetitive behavior (state regulation excepted,) universal service, public safety and welfare, quality of service, “consumer rights” and to ensure just and reasonable rates. Translation: We’ll admit that maybe a situation exists where we should not regulate but we won’t consider scaling back any of our current authority.

The amendment to the Telecommunications Policy Resolution on “national consistency” was much more clear. While it too has caveats, there is less of the bait-and-switch feel than in the above-mentioned amendment. In part, it reads “National preemption of State authority may be justified under some circumstances. Before preempting State jurisdiction, however, Congress and the FCC should consult with the States and U.S. territories…” It is a pretty straightforward and a darn newsworthy statement, considering the source.

Finally, a resolution on UNE pricing was adopted. The resolution acknowledges that UNEs set too low “may discourage investment in new infrastructure and services." Indeed it may. The resolution goes on to say, “NARUC is open to the possibility that unbundling should be treated as a transitional approach to opening markets, and that the goal should be, for most if not all areas, facilities-based competition.” Again, NARUC is “open to the possibility” instead of simply stating a preference.

All in all, by any reasonable standard revolutionary statements were neither proposed nor adopted. (Not to say that Welch and his erstwhile supporters didn’t have their hands full. Several announced to me that they simply wanted an acknowledgement from the group that their point of view existed. i.e. ‘All states are not monolithic.’) The NARUC amendments represent progress and should be seen as a step forward for a deeply wounded organization. Congratulations Tom.

- posted by Kent @ 11/18/2004 04:02:27 PM

A helping hand reaches out
Yesterday, the National Emergency Number Association (NENA), which encourages use of the "911" emergency phone number, further intensified its outreach to industry and policymakers to help it promote public safety with respect to newer technologies, such as voice over the Internet. The initiative, which some major companies have already joined, describes itself as a "public-private partnership" and aims "to improve our nation's planning, leadership and innovation" in the delivery of 911 service. Although NENA's press release does not appear to foreclose regulatory mandates in this area, it does emphasize voluntary cooperation, a feature which will be critical in developing workable solutions to 911 and other issues related to the evolution of communications beyond "plain old telephone service" (e.g., network reliability, wiretapping for law enforcement). The announcement also merits praise for its acknowledgement that emerging technologies should be viewed less as problems and more as opportunities to provide consumers better service more reliably and cheaply. FCC Chairman Powell applauded the new initiative, urging other companies to participate.

- posted by K Dixon @ 11/18/2004 10:12:20 AM

Internet Taxation and VoIP
It appears Congress, in the 13th hour (we're past midnight when in a lame duck), is finally ready to extend the moratorium on discriminatory Internet taxes and access taxes, more than a year after the previous moratorium expired. Jonathan Krim of The Washington Post reports today that a year-long deadlock on legislation has been broken. A key victory is that the moratorium, while not permanent, for the first time explicitly bans taxes on DSL service.

This debate is far from over, however. VoIP will loom large between now and November 2007, when this new moratorium is due to expire. Former governors now in the Senate, including Lamar Alexander (R-Tennessee) and Tom Carper (D-Delaware), will make sure of that. These two successfully prevented the moratorium from becoming permanent, and fear that as consumers shift from regulated wireline phone service to potentially unregulated VoIP, the tax revenue states and localities draw from those wireline services will disappear.

The Senate sponsors of the moratorium, George Allen (R-Virginia) and Ron Wyden (D-Oregon), insist their legislation doesn't address taxation of VoIP. But just as VoIP is forcing a reexamination of universal service subsidies (a topic PFF will examine in a December 3 congressional seminar), VoIP also should force a reexamination of the logic behind telecom taxation. If current telecom taxes aren't justifiable, does it make sense to migrate them to VoIP?

As Kyle and Randy have noted, the FCC has taken its first step in preempting states from regulating VoIP. Keep in mind, however, there are thousands more state and local taxing authorities than there are public utility commissions.

- posted by Patrick Ross @ 11/18/2004 09:40:15 AM

11.17.2004
Price Discrimination: You Gotta Better Idea?
Tom Lenard's excellent post on differential pricing in the drug industry has broad application throughout high fixed cost, low marginal cost industries, as Jim DeLong notes. Thus, industries from communications to airlines to drugs to software to movies and recording all engage in differential pricing as a second best means to recover their high fixed costs, even though their incremental costs might be very low or even zero.

This differential pricing creates a big problem though, arbitrage. Arbitrage is the practice (and wasteful investment) of efforts to avoid the differential pricing; that is, the efforts of high value customers to pay the prices low value customers are paying. Technology has incidental arbitrage effects. TiVo and VoIP, for instance, allow arbitrage play around the broadcast advertising model and the access charge pricing model, respectively. Thus, these new technologies impede the ability of companies to differentially price.

Arbitrage is neither per se good or per se bad, but a fact of economic behavior. If I can easily and cheaply avoid being the high-fixed cost payor, I will do it. My VoIP calls then are a cheap and easy was of avoiding access charges. My mother-in-law thinks she has a absolute right to Canada's price-controlled drugs. In both cases, though, the destruction of the ability to differentially price causes a crisis for the existing model, and for future pricing models. If I collapse the access regime through VoIP, then rural phone companies especially will be hard hit and investment in the PSTN will decline. Likewise, my mother-in-law's drug buying habits will eventually: a) bring down the Canadian price control system; b) force pharmaceutical companies to stop selling to Canada; and, c) decrease investment in new drugs (or as the Thalidomide article shows, investment in new uses for old drugs).

In all cases of successful arbitrage then the subsequent problem is the prisoner's dilemma, where all of us want to get the marginal price and none of us wants to pay the price of the higher fixed costs.

All of this is to say, differential pricing is necessary and pervasive in network industries -- but it will remain forever problematic. High fixed cost industries need to engage in differential pricing to survive, and technology should make it easier for them to do so with greater precision. At the same time, technology enables consumers to engage in arbitrage more easily. So, you end up in a technological and legal arms race over differential pricing, all the while with the big prisoner's dilemma problem looming in the background.

A solution to this? There aren't any pat ones, and manifold stupid ones. Starting with the Robinson-Patman Act -- thank goodness for the legal doctrine of desuetude -- and continuing to the "government should subsidize the high fixed costs so the firms sell at marginal costs," there is no good legal or regulatory response. So, I end with the challenge: You gotta' better idea?
- posted by Ray @ 11/17/2004 10:13:08 AM

11.16.2004
MCI Induces a Moment of Zen
Today's Telephony Online reports that MCI sent an open letter to NARUC's winter meeting supporting the state deregulation of retail pricing and reporting requirements for all local exchange carriers. According to the article:

"It is MCI's view that states should have less of a role in regulating retail telecommunications services and service providers," Marsha Ward, MCI’s national director-state regulatory, wrote in the letter. "Simply put, convergence means that telecommunications can no longer be thought of as a traditional, state-regulated utility any more. Attempts to keep such regulation on ‘traditional providers’ such as MCI or the ILECS simply skew the marketplace by creating an asymmetry of regulation."

MCI is also reportedly calling for access charge reform and market-based USF reforms such as voucherizing, among other things.

- posted by Adam @ 11/16/2004 07:44:54 PM

Well done, albeit not done yet
It will probably be some time before the FCC can piece through the myriad issues it must address to set the regulatory framework for voice over the Internet. But the Commission deserves a hearty pat on the back for its work on its Order preempting state regulation of Vonage's "DigitalVoice" service. The Order's thorough and compelling reasoning issues a stiff rebuke to those who wish to regulate Internet voice applications because they "quack" like the "duck" of traditional telephony. Among other things, the Order emphasizes how very different (and superior) the service is, both in terms of how it works and in terms of what it offers consumers.

The FCC also deserves kudos for signaling that it will preclude states from over-regulating similar services where a company provides the service over its own "last mile" broadband network (see para. 46). Throw in a prudent nod to states that the FCC expects to work cooperatively with them to safeguard interests such as public safety (para. 45), and the FCC has provided a constructive roadmap for tackling the remaining regulatory issues pertaining to Internet voice. (The welcome sway held by wiser heads in recent state discussions of Internet voice suggest states may be willing to follow that roadmap, at least for now. Lexis subscription required or see Nov. 16, 2004 edition of Comm Daily.)

So even if the FCC did not go as far as I had hoped last month, it has provided a great deal to be thankful for well before the holidays. With any luck, the appellate courts will be similarly thankful.

- posted by K Dixon @ 11/16/2004 11:40:21 AM

WTO Regulating the Internet?
Has the FCC opened the door to international regulation of the Internet by the WTO? Former FCC commissioner Harold Furchtgott-Roth believes so. In a piece in today's New York Sun (subscription required) , he discusses the FCC decision on Vonage, praised here, that declared its Voice over Internet Protocol (VoIP) service to be interstate, if not international in nature. There's no question the FCC made the right move in preempting states from micromanaging Internet traffic. But perhaps preempting state regulation has enabled international regulation, Furchtgott-Roth argues. Citing a recent WTO ruling that U.S. law prohibiting Internet gambling was an anti-trade move against Antigua and Barbuda, he says the WTO can seize on the FCC ruling as precedent for ruling on any U.S. law affecting the Internet, such as restrictions on drug purchases. "With an international Internet, the strength and threat of WTO regulation can only grow," he writes. The WTO shouldn't "be given a privileged position of operating above and beyond the reach of legitimate American laws."

- posted by Patrick Ross @ 11/16/2004 09:23:10 AM

11.15.2004
Universal Service on the Hill
Congress returns tomorrow to do the one annual task required of it in the U.S. Constitution -- fund the federal government for another year. But Communications Daily (subscription required) is reporting today that Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) may use this week to push through legislation addressing a recent FCC decision that changes the way in which Universal Service Fund fees are accounted. USTA, NCTA and others fear contribution costs will rise under the FCC's new rules.

Regardless of the merit of Stevens' proposed legislation (and not addressing the distaste one is left with at the idea of slipping it through in a lame-duck Congress), the controversy highlights the larger problem facing the USF -- namely its relevance in a completely transformed communications landscape. Ray recently argued that if USF is to be preserved in a digital world, it must be converted into "a transparent, non-bypassable tax where the net contributors will be able to trace their compelled largesse to the net beneficiaries."

- posted by Patrick Ross @ 11/15/2004 10:42:29 AM

11.10.2004
Cause to complain??
It was with some disappointment -- but little surprise -- that I read in TR Daily (Nov. 9, 2004 [subscription required]) threats of litigation by state commissions in response to the FCC's decision that "voice over Internet" services are inherently interstate, in part, because users' locations are unknown or irrelevant. (The threats are particularly troubling given that the text of the FCC's order has not even been released yet.) To the extent such litigation threats derive from a simple turf battle, the threats make "sense"; declaring these services interstate means that the FCC, and not state commissions, will decide what role states will play in implementing the federal Communications Act. But beyond such arguably petty justifications, the litigation threats remain, at best, mysterious and are probably counterproductive.

States have generally claimed they have no interest in subjecting Internet voice providers to onerous rules that have applied to traditional phone service, such as regulation of rates. Certainly, there is reason to doubt this claim on its face given how active states have already been in this area, not to mention their reliance on the idea that, at base, Internet voice is simply a new type of telephone service.

But leaving aside worries that following a "trust me" approach with states contradicts the facts (or common sense), the FCC expressly declined to preclude them from regulating in many areas that even states admit they want to regulate, primarily intercarrier compensation, universal service, public safety and consumer protection. The Commission's press release this week expressly invites state involvement in addressing public safety, scrupulously avoids preempting state fraud and consumer protection statutes and leaves open the possibility of a state role in deciding or implementing reforms to intercarrier compensation and universal service policies. So if states really do plan to limit their regulation of Internet voice to specified areas, the FCC's decision this week won't complicate that plan.

Which leaves the question: why threaten litigation? Or perhaps more interesting for states trying to decide whether to sign on to the litigation bandwagon: why threaten litigation now, rather than attempt to work cooperatively with the FCC?

Inquiring minds want to know . . .

- posted by K Dixon @ 11/10/2004 11:43:49 AM

11.9.2004
Recognizing the Value of Facilities Investment
The Commission's action this morning on the Vonage petition seems to provide further evidence that it is more cognizant now than it was a year or so ago of the need for its policies not to disadvantage those companies who are investing in facilities. Thus, in addition to granting Vonage's petition for preemption of state regulation of its VoIP service, the Commision's press release points out that: "The Commission also stated that other types of IP-enabled services, such as those offered by cable companies, that have basic characteristics similar to DigitalVoice would also not be subject to traditional state public utility regulation."

This makes eminent sense, of course. Conversely, it wouldn't make sense to exempt from state regulation those companies like Vonage that essentially ride on the facilities of others, while leaving those offering services of the same inherently borderless nature over their own facilities to the vagaries of 50 different state regulatory regime.

So, if the full text of the Commisison's Vonage order comports with the news release, kudos to Michael Powell and his colleagues for taking an important step in the future.

(But don't ever bet your house on an FCC action without considering that the courts have the last word!)

- posted by Randolph May @ 11/9/2004 01:08:18 PM

The Schump Trumps Again (with some help from the FCC)
I am telecommuting, so I decided to celebrate VoIP State Freedom Day by calling Ray on his VoIP connection from my landline.

I figure the torch was passed in parts unknown between the originating end of my POTS call and the terminating end of his IP-enabled application. It was a "local" call only in the sense that I dialed a local TN, but reached him at his office in Denver. And although I assume that I am paying a below-cost rate for my basic local package thanks to state retail regulation, a service I only (and temporarily plan to) retain due to my roommate's inertia in changing his wireless number, somehow I think Ray still got the better end of the deal.

- posted by Adam @ 11/9/2004 12:30:32 PM

VoIP State Freedom Day
As expected, the FCC today ruled on the Vonage petition, declaring VoIP services like Vonage to be interstate in nature and thus beyond the reach of state regulation. Just as important, the Commission appears to have ruled that integrated VoIP offerings are also interstate and exempt from state regulation. Anna-Maria Kovacs reports:

We believe these rules will apply both to VoIP services that are pure applications as well as services in which the application is to some extent integrated with the underlying facility. We do not expect that it applies to pure cable modem or pure DSL as access media. We do believe it applies to an integrated cable VOIP offering and might be extrapolated to apply to an ILEC integrated VoIP offering as well.

This is important to both phone companies and cable companies because it gives them a path to regulatory escape from the state retail regulation and taxation through their own VoIP offerings. Oh, and those calling for intercarrier comp and universal service reform, the timetable just became accelerated. Congrats finally to Vonage, which with one petition seems to have accomplished more unregulation of communications than the FCC managed in the previous eight years.

- posted by Ray @ 11/9/2004 11:49:32 AM

Red Herring Returns
Welcome back to Red Herring, which returns to newsstands this week. One notable tidbit from the issue - that troubling reminder of the early 90s, Vanilla Ice's "Ice Ice Baby" has resurfaced in the Billboard Top 25. For ring tones.

Ran across this belatedly, but RH online contains an interesting summary of their report on the cost estimate of running fiber to every home in the U.S. ($233 billion).

- posted by Adam @ 11/9/2004 10:09:14 AM

Happy Meals and DVDs
What CNET calls the "lowest tech high-tech business around," the DVD rental market, is now exploding with competition. Wal-Mart, Netflix and Blockbuster are engaging in a price war in anticipation of Amazon's entry into the rental market. Even McDonald's is test-marketing a 99 cent rental service (begging the question of whether Super Size Me will be one of the options). All of this as broadband platform providers continue to ramp up their video-on-demand services.

- posted by Adam @ 11/9/2004 09:39:58 AM

11.5.2004
The Net Neutrality Police
Last week, “Mr. Blog” alleged that “British Telecom appears to be explicitly blocking VoIP for their DSL subscribers.” Jeff Pulver, as the operator of an open VoIP network, polled visitors on his own blog to see if this was actually occurring in practice. Pulver concluded that it was not and today, Mr. Blog agreed. Apparently BT had deployed a faulty router.

While this “incident” serves as an example of self-regulation, it is safe to assume that there are interests out there who hope that the blocking of VoIP applications occurs, if nothing more than to provide a nice anecdotal example to support a net neutrality mandate. In the current domestic broadband market, I am an optimist, recalling the ICE principle, or “internalizing complementary efficiencies,” which holds that even a platform monopolist (which is not the situation in many geographic markets) will have incentives to voluntarily offer access when it is efficient to do so. For these providers, then, continued voluntary compliance with Chairman Powell’s “Internet Freedoms,” reiterated once again at the VON conference last month, eliminates any premise for regulatory intervention. As is now clear, well-intentioned folks like Jeff Pulver will be watching.

- posted by Adam @ 11/5/2004 08:50:16 PM

Quantifying the Turning Point for Illusory Competition Policy
The decisions by AT&T and MCI earlier this year to halt the marketing of local service to new customers was certain to have an impact on the growth of UNE-P access lines. The following data are taken from the quarterly earnings reports of the RBOCs:

BellSouth: Third quarter UNE-P residence lines totaled 2,082,000, up 35.7% from the third quarter of 2003. However, this reflects a decrease of 3.1% from 2,149,000 lines in the second quarter of 2004.

Verizon: "Resale and Unbundled Network Element-Platform (UNE-P) lines totaled 6.7 million at the end of the third quarter 2004, up from 5.4 million at the end of the third quarter 2003. For UNE-P only, this is a 105,000 increase from the end of the second quarter 2004, which is significantly less than in prior quarters this year."

SBC: "In a reversal of trends over the past three years, SBC posted a 213,000-line decline in wholesale lines (UNE-P and resale) during the quarter. This compares with increases of 323,000 a year ago third quarter and 137,000 in the second quarter of this year."

Qwest: "The company posted a significant improvement in wholesale line trends in the quarter. Total UNE-P lines increased by only 8,000 – a significant improvement from an increase of 125,000 in the second quarter and 138,000 in the third quarter of 2003."

- posted by Adam @ 11/5/2004 08:40:31 PM

The End of the NextWave Saga
It took far more time and money than The Lord of the Rings trilogy, but with Verizon Wireless acquiring its remaining PCS licenses today, NextWave is no longer a PCS carrier. Under the deal all of NextWave’s “customers,” loosely translated as shareholders, did just fine.

85 million shares of NextWave stock traded hands in the over-the-counter market today, closing at $6.90. NextWave now plans to “pursue broadband wireless market opportunities” after paying off what it owes to the FCC, its creditors and existing shareholders, who “will receive a distribution of cash and interests in the newly formed operating company.” About the only positive spin I can come up with is that between this deal and the FCC’s auction of previous NextWave licenses in an upcoming auction in January, all of NextWave’s original PCS spectrum will be back out on the market . . . eight years later.

- posted by Adam @ 11/5/2004 08:04:33 PM

11.2.2004
Details, details . . .
Notwithstanding election-eve efforts to weave a gripping narrative about how trying to promote broadband by minimizing regulation effectively denies these services to many consumers, third quarter results from several broadband providers suggest that such a tale would be a gross oversimplification of this policy's impact, or would just be plain wrong. As the proffered story goes, the failure of business-biased policymakers to regulate large cable and DSL providers transforms them into evil monopolists or duopolists hell-bent on raising or keeping prices artificially high, which in turn dissuades hapless consumers from subscribing.

But providers' third quarter results, as reported late last week in the Wall Street Journal Online [subscription required], remind us that reality is often more complex than fiction. A major DSL supplier cut its price -- already on the low end of broadband prices nationally -- in the hopes of stealing more customers from rival cable modem providers. A cable modem provider attracted a record number of new subscribers without emphasizing price cuts, relying instead on its product's growing appeal to consumers. And both providers emphasized (along with another DSL provider) the importance of their overall suite of services (e.g., voice, Internet access, video, etc.) in attracting broadband customers.

One could lament that these and similar developments over the course of broadband's brief history do not resemble some idealized notion of telecom markets based on decades past; in that outdated vision, competition turns heavily on price because product offerings are more akin to stable commodities about which consumer preferences and demand patterns are clear and well-established. Yet broadband offerings continue to differ from one another, and broadband Internet use continues to evolve rapidly. At the same time, consumers are still trying to figure out what features they want and why, and how much they are willing to pay above the cost of dial-up Internet service.

This doesn't suggest the story of broadband can never approximate the morality tale that some see now. But until then, perhaps the moral of the tale is that we should resist making simple a set of market dynamics that are inherently not.

- posted by K Dixon @ 11/2/2004 07:04:35 PM

Vonage Petition on Tap
Kyle's post ("And Another Thing . . .") below convincingly argues that the FCC should take a broad, definitive action on the jurisdictional issues surrounding VoIP. Today, the FCC announced that it has scheduled a vote on the Vonage Petition for a Declaratory Ruling at its open meeting next week, signaling a more "incremental," albeit positive approach.

- posted by Adam @ 11/2/2004 07:01:37 PM

11.1.2004
Here We Go.....
Telephony Online is reporting that USAC will request an increase to the USF contribution mechanism tomorrow because of a shortfall in the e-rate program. The current rate on interstate revenues is 8.9%, and it is expected that the requested increase will be 12.5% due to lower long-distance revenues and higher USF demands.

- posted by Adam @ 11/1/2004 11:09:23 PM