Democracy and Technology Blog

Block a wireless merger because regulators might be able to produce a superior outcome?

The Wall Street Journal quotes two high-ranking former officials from the Federal Communications Commission who are skeptical of the AT&T/T-Mobile merger. AT&T is citing the need for more spectrum in urban areas to keep up with the increasing amount of wireless data traffic. As the article points out, data traffic is up 8,000% on AT&T’s wireless network over the past 4 years. Meanwhile, T-Mobile’s network uses the same technology as AT&T’s, and T-Mobile’s spectrum is underutilized. A former chief technology officer at the FCC shares his thoughts on the best way to fix the shortage. The correct way to do it is to change policy and release a huge amount of spectrum. Spectrum is in short supply where you want Read More ›

Going, going, gone: the telephone

Wired telecommunications carriers are one of 10 doomed industries, according to Toon Van Beeck at IBISWorld. Of the 10 chosen industries that are dying, Wired Telecommunication Carriers is by far the largest, at $154.0 billion in turnover. While this number may sound sizeable, it’s considerably smaller than the $341.8 billion at the end of 2000. Since then, this industry has declined in every year, and it is now close to 55% smaller than it was at its peak; with an additional decline of 37.1% expected in the next six years. While major players like AT&T and Verizon continue to dominate the industry, they are generating lower returns each year as consumers switch to VoIP and wireless products. That’s a far Read More ›

A cyber-security dictator?

It’s no secret that hackers can penetrate networks which deliver essential products and services. At the Los Angeles Times, Ken Dilanian writes: The U.S. is vulnerable to a cyber attack, with its electrical grids, pipelines, chemical plants and other infrastructure designed without security in mind. Some say not enough is being done to protect the country. * * * * The basic roadblocks are that the government lacks the authority to force industry to secure its networks and industry doesn’t have the incentive to do so on its own. Not so fast. Government itself played an important role in the design of the networks. Traditionally, most of them were and/or still are subject to pervasive government regulation designed to provide Read More ›

Kill the messenger?

According to this report, The liberal group Media Matters has quietly transformed itself in preparation for what its founder, David Brock, described in an interview as an all-out campaign of “guerrilla warfare and sabotage” aimed at the Fox News Channel….Media Matters, Brock said, is assembling opposition research files not only on Fox’s top executives but on a series of midlevel officials. It has hired an activist who has led a successful campaign to press advertisers to avoid Glenn Beck’s show. If their opponents are spreading false or misleading arguments, couldn’t “progressives” disprove those arguments? If progressives have a sound case to make, why would these thuggish tactics be necessary?

Why would Sprint oppose AT&T/T-Mobile merger? What could Sprint hope to gain?

Sprint’s CEO, Dan Hesse, worries that “too much power” would be in the hands of AT&T and Verizon Wireless if AT&T acquires T-Mobile USA.
sprint_nextel.03.gifSprint has been losing customers and revenues ever since its own problematic merger with Nextel in 2005. The carrier lost about $3.5 billion last year alone. Although Sprint’s troubles would not be solved if regulators block a merger between AT&T and T-Mobile, Hesse’s words suggest the possibility that Sprint may nevertheless urge policy makers to block the deal.
This is not sour grapes; it is a shrewd abuse of the regulatory process, which provides a golden opportunity for struggling competitors and others who are well-connected politically to practice legal extortion. For example, AT&T could be forced by the Federal Communications Commission and the Department of Justice or the Federal Trade Commission to sell assets at firesale prices, or to provide services to Sprint at overly-generous prices. AT&T could literally be forced to subsidize its competitor.
This raises the question whether government can and should intervene to preserve the wireless industry as a whole? As a general matter, when government intervenes to protect weak competitors it risks diverting private investment away from enterprises that are well-managed and efficiently-configured to firms that couldn’t otherwise proposer in a free market.

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Time for Tennessee’s hidden phone tax to go

In Tennessee, legislation to eliminate the hidden subsidies in intrastate access charges applied to long-distance calls which originate and terminate within the state has passed the Senate Commerce Committee and the House Sub-Commerce Committee. The votes in the two panels were overwhelming: 8-1 and 12-1. It has taken real leadership by the bills’ sponsors — Sen. Mark Norris and Rep. Gerald McCormick — and others to write and pass legislation dealing with this matter over committed opposition. As amended, SB 0598 would prohibit telecommunications providers from charging intrastate access charges that exceed interstate access charges. The amendment includes a 5-year transition, beginning in April 2012. The House bill is HB 0574. As I’ve blogged about here and here, eliminating the Read More ›

AT&T + T-Mobile = ?

Talk about gutsy. AT&T is set to buy T-Mobile for $39 billion. AT&T is a giant corporation. When AT&T acquires T-Mobile, the number of national wireless providers will go from 4 to 3. And struggling no. 3 (Sprint) may not have anyone with which to partner. Is this a disaster? Can government protect the little guy? T-Mobile is dead in the water. It has run out of gas. It can’t make money. T-Mobile and AT&T are a natural fit because their networks rely on similar technology. Not true for Verizon Wireless and Sprint. If the government blocks this merger it will force an economically inefficient (and ultimately unsustainable) outcome. Politicians cannot alter the laws of economics. This merger is likely Read More ›

Access reform moves forward in Tennessee

Tennessee’s House Commerce Committee heard testimony this week on reforming intrastate access charges that long-distance providers pay to local tlecommunications carriers to originate and terminate calls between local calling areas within the state.
Access charges traditionally have been set far above cost to generate subsidies to maintain ubiquitous and affordable local service. In the Telecommunications Act of 1996, Congress directed the FCC and the states to pull the hidden or implicit subsidies out of access charges, because they are unsustainable in a competitive market. The FCC reduced interstate access charges, and exhorted the states to reduce intrastate access fees.
A brief paper that George Gilder and I prepared notes that in Tennessee today, for example, a long-distance provider would pay one randomly selected small rural carrier only 4.45 cents per minute to originate and terminate a call between any location in Tennessee and Los Angeles or New York City. But the same phone company would collect 22.84 cents per minute to originate and terminate any non-local call between two points within Tennessee. Yet the carrier furnishing the same service and incurring the same cost in either case.

(Note: with respect to any particular call, a local carrier generally provides only an originating or terminating service, however the long-distance carrier pays originating and terminating fees to the local carriers on either end of the call. The combination is what a long-distance carrier has to recover from consumers. For illustrative purposes, both we and the FCC reduce the number of variables and avoid arbitrary selections by focusing on what carriers charge for both origination and termination.)

We recommended that Tennessee’s intrastate rates should mirror the interstate rate the FCC has established for each carrier, which is fully compensatory. The recent National Broadband Plan makes a similar recommendation (p. 148).

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Antitrust should not apply to conduct between non-competitors

goodlatte1.jpgIntellectual Property subcommittee Chairman Bob Goodlatte, R-VA (pictured), said he is considering legislation to tweak antirust law to address net neutrality concerns, according to the Hill. That’s apparently because Rep. Henry Waxman (D-CA) reports that,

According to DoJ, favoring websites that pay high fees and degrading websites that don’t is perfectly legal under the antitrust laws as long as the phone or cable company isn’t in direct competition with the websites being degraded.

Goodlatte and Waxman seem to be talking about a vast expansion of the antitrust laws, which are presently concerned with anticompetitive behavior. As a definitional matter, if two rivals are not in competition with one another, then neither can behave anticompetitively toward the other. Nor would they have any incentive for doing so. What would be the point? Neither could derive any tangible benefit if the other were harmed.

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Targeted ad bubble?

On Friday Scott Cleland predicted that online advertising is an investment bubble which will eventually burst as a result of latent consumer privacy concerns. Expect privacy concerns to be the eventual catalyst that ultimately bursts the Internet investment Bubble 2.0. It is rare when there is a profound disconnect and suspension of reality between industry behavior/investment expectations and customer wants, needs and expectations, but that is precisely what is at work in Bubble 2.0. In the Wall Street Journal, Scott Thurm reported that venture firms have invested $4.7 billion since 2007 in 356 online ad firms. The investment climate is “frothy” according to one of Thurm’s sources. And there’s an arms race among the start-ups for math specialists, he reports. Read More ›