Chairman and CEO Masayoshi Son of SoftBank again criticized U.S. broadband (see this and this) at last week’s Code Conference. The U.S. created the Internet, but its speeds rank 15th out of 16 major countries, ahead of only the Philippines. Mexico is No. 17, by the way. It turns out that Son couldn’t have been referring to the broadband service he receives from Comcast, since the survey data he was citing–as he has in the past–appears to be from OpenSignal and was gleaned from a subset of the six million users of the OpenSignal app who had 4G LTE wireless access in the second half of 2013. Oh, and Son neglected to mention that immediately ahead of the U.S. in Read More ›
View my remarks during a panel discussion entitled “Regulation and Competition in the Digital Economy,” sponsored by the American Consumer Institute on Jun. 6, 2013.
In her new book, Captive Audience, Susan Crawford makes the same argument that the lawyers for AT&T made in Judge Harold H. Greene’s courtroom in response to the government’s antitrust complaint beginning in 1981, i.e., that telephone service was a “natural monopoly.” In those days, AT&T wanted regulation and hated competition, which is the same as Crawford’s perspective with respect to broadband now. Here is what she said today on the Diane Rehm Show: Diane Rehm: “Is regulation the next step?” Susan Crawford: “It always has been for these industries, because it really doesn’t make sense to have more than one wire into our homes. It is a very expensive thing to install; once it’s there, it has to be Read More ›
The hottest companies in Washington, DC right now include Netflix, Sprint and T-Mobile. What do these firms have in common? They are all marketplace losers.
A few years ago, the Supreme Court said that the Sherman Act “does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition” (see: Verizon v. Trinko, 2004). Yet this is precisely the course of action that technocrats are taking as a result of accepting invitations from Netflix to conduct a “wide-ranging antitrust investigation” of the cable industry and from Sprint and T-Mobile to find a way to block Verizon Wireless’ acquisition of additional spectrum.
Netflix built a successful mail order DVD business when it wasn’t very practical to download movies over the Internet. Fortunately for Netflix, consumers can send and receive, but they cannot rent DVDs from the Post Office. There are legal and political constraints that prevet the U.S. Postal Service from diversifying into new lines of business, and these restrictions conferred a significant degree of monopoly protection on Netflix. Incidentally, saving the Postal Service requires diversification, among other things. What was great for Netflix wasn’t so good for the postal system (upon which we all depend).
Although some advocates of network neutrality wanted to postalize broadband, the Federal Communications Commission said no. Apparently, we are going to have that debate all over again.
Cable companies obviously will not be prevented from competing against Netflix and other online video providers. But a drive to eliminate any conceivable competitive advantage that cable providers may have would ultimately lead to extensive regulation, including, most likely, infrastructure sharing rules like those the Supreme Court looked at in AT&T v. Iowa Utilities Board (1999). In his separate opinion, Justice Stephen Breyer warned that “rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms.”
The current administration promised to reinvigorate antitrust enforcement. What that means is a return to the economic stagnation of the 1970s, when antitrust forced consumers to do business with uncompetitive, inefficient firms. It is no exaggeration to speak of antitrust as a form of corporate welfare financed by hidden taxes on consumers. The reality is that government cannot create competition; it can only suppress competitors.
More this week on the efforts of Reed Hastings of Netflix to reignite the perennial debate over network access regulation, courtesy of the New York Times. Hastings is seeking a free ride on Comcast’s multi-billion-dollar investment in broadband Internet access.
Times columnist Eduardo Porter apparently believes that he has seen the future and thinks it works: The French government forced France T�l�com to lease capacity on its wires to rivals for a regulated price, he reports, and now competitor Iliad offers packages that include free international calls to 70 countries and a download speed of 100 megabits per second for less than $40.
It should be noted at the outset that the percentage of French households with broadband in 2009 (57%) was less than the percentage of U.S. households (63%) according to statistics cited by the Federal Communications Commission.
There is a much stronger argument for unbundling in France – which lacks a fully-developed cable TV industry – than in the U.S. As the Berkman Center paper to which Porter’s column links notes on pages 266-68, DSL subscriptions – most of which ride France T�l�com’s network – make up 95% of all broadband connections in France. Cable constitutes approximately only 5% of the overall broadband market. Competition among DSL providers has produced lower prices for consumers, but at the expense of private investment in fiber networks.
Cecilia Kang of the Washington Post reports that
the telecom industry is forcing policymakers to re-examine what has long been a basic guarantee of government – that every American home should have access to a phone, along with other utilities such as water or electricity. Industry executives and state lawmakers who support this effort want to expand the definition of the phone utility beyond the century-old icon of the American home to include Web-based devices or mobile phones.
The quid pro quo for a monopoly franchise was an obligation to provide timely service upon reasonable request to anyone, subject to regulated rates, terms and conditions. The Telecommunications Act of 1996 eliminated the monopoly franchise, but the obligation to serve remains in the statute books of most states. Telecom providers, aka carriers-of-last-resort (COLR), are stuck with the quid without the quo.
This has become a problem as more and more consumers are “cutting the cord” in favor of wireless or VoIP services. AT&T, for example, has lost nearly half of its consumer switched access lines since the end of 2006. However, most of the loops, switches, cables and other infrastructure which comprise the telephone network must be maintained if telecom providers have to furnish telephone service to anyone who wants it within days.
AT&T and T-Mobile withdrew their merger application from the Federal Communications Commission Nov. 29 after it became clear that rigid ideologues at the FCC with no idea how to promote economic growth were determined to create as much trouble as possible. The companies will continue to battle the U.S. Department of Justice on behalf of their deal. They can contend with the FCC later, perhaps after the next election. The conflict with DOJ will take place in a court of law, where usually there is scrupulous regard for facts, law and procedure. By comparison, the FCC is a playground for politicians, bureaucrats and lobbyists that tends to do whatever it wants. In an unusual move, the agency released an analysis Read More ›
The Federal Communications Commission issued its Connect America Fund Order to ensure ubiquitous broadband Internet access services on Friday.
When Congress debated the Telecommunications Act of 1996, the section concerning Universal Service (Section 254) was somewhat controversial. Broadly speaking, there seemed to be considerable support in the House of Representatives for limiting Universal Service, and there were some influential senators who wanted to expand it (the House is somewhat more representative of urban areas that contribute subsidies, and the Senate is somewhat more representative of rural areas that receive subsidies). The result was a compromise in which Universal Service is defined (in Sec. 254(c)(1)) as “an evolving level of telecommunications services that the Commission shall establish periodically … taking into account advances in telecommunications and information technologies and services.” Notice how information services are missing in the first half of that sentence. Although the FCC is allowed to take notice of information services, Universal Service has to support telecommunications services only.
This is relevant because the FCC subsequently ruled that broadband Internet access is an information, not a telecommunications service (Order at paragraph 71). The commission also subsequently ruled that a service has to be one or the other, and that it cannot be both (“hybrid services are information services, and are not telecommunications services,” ruled the FCC in a 1998 Report to Congress at paragraph #57).
Chairman Julius Genachowski of the Federal Communications Commission spoke of the need to reduce subsidies for traditional wireline telephone service last week, as well as a perceived need for his agency to use the savings to subsidize broadband services (see the press release and the text of the speech).
Genachowski is absolutely correct about the need for reforming universal service and intercarrier compensation. Unfortunately, his determination to reform telephone subsidies is not for the purpose of generating consumer savings, but about redirecting resources currently at his disposal for the purpose of gaining some measure of control over unregulated broadband networks. Though cleverly disguised, this is actually a third major attempt to (slowly) impose public utility regulation on broadband service providers.
Julius Genachowski is in a hurry.
The chairman of the Federal Communications Commission is arguing that the commission must act quickly to “restore the longstanding deregulatory–as opposed to ‘no-regulatory’ or ‘over-regulatory’–compact” that governed broadband Internet access services prior to a recent court decision. Such an approach is urgently needed to “restore the status quo,” he claims.
If the FCC cannot regulate the Internet, it may die. The telephone and television industries are declining, whereas communications industries which the FCC monitors to some extent but does not regulate, e.g., the Internet backbone, broadband Internet access and wireless, are thriving.
Genacowski’s plan would reclassify broadband as a “telecommunications” service subject to blunt, onerous, industrial-era regulation under Title II of the Communications Act of 1934 — which governs common carriers — and then forbear from enforcing most of Title II’s heavy-handed provisions.
Broadband services haven’t been subject to Title II regulation for several years, so reclassification would not restore the status quo. It would harken back to a bygone era.