Don’t believe ‘special access’ hype

A new coalition, NoChokePoints, has been formed to lobby Congress and the Federal Communications Commission to further regulate the prices that incumbent telephone companies (Regional Bell Operating Companies or Incumbent Local Exchange Carriers) can charge for special access services purchased by businesses and institutions. Special access circuits are dedicated, private lines. For example, Sprint purchases special access circuits to connect its cell towers to its backbone. According to a coalition spokeswoman, Huge companies like Verizon and AT&T control the broadband lines of almost every business in the United States. The virtually unchallenged, exclusive control of these lines costs businesses and consumers more than $10 billion annually and generates a profit margin of more than 100 percent for the controlling phone Read More ›

Bracing for new regulation

Observers predict stepped-up regulatory battles in telecom, according to the Wall Street Journal, New congressional leaders as well as policy makers in the Obama administration are expected to press for fresh limits on media consolidation and require phone and cable firms to open their networks to Internet competitors, lobbyists and industry officials say. The article overlooks the fact that broadcast ownership limits and forced access policies are restraints on the free speech rights of broadcasters and network providers, and that the constitutionality of new regulation could ultimately be decided by the courts.

Regulation and investment?

Misguided regulatory policy is “among the most important inhibitors of capital investment in telecommunications,” conclude Debra J. Aron and Robert W. Crandall in a recent paper. The authors observe that Business firms do not make investments for altruistic reasons but rather make investments in order to earn a return on the invested capital. For any company to make any investment, it must determine, and convince the capital market, that the investment is reasonably likely to produce a positive return in net present value (NPV) terms sufficient to compensate for the risk incurred. When companies seek funding to execute a project, they compete for those funds with all other potential projects in the economy, not just with other investment opportunities available Read More ›

Reform intercarrier compensation

The Federal Communications Commission began a broad inquiry of intercarrier compensation in 2001 and now it may finally be getting around to acting on it on Nov. 4 while everyone’s thoughts are on something else. This is about 12 years overdue. Congress in 1996 foresaw that implicit phone subsidies were unsustainable and ordered the FCC to replace them with a competitively-neutral subsidy mechanism. Due to political pressure, regulators have failed to complete the job. Intercarrier compensation refers to “access charges” for long-distance calls and “reciprocal compensation” for local calls. A long-distance carrier may be forced to pay a local carrier more than 30 cents per minute to deliver a long-distance call, but local carriers receive as little as .0007 cents Read More ›

Evolving theory of network effects

Should antitrust enforcers be concerned about entry barriers in the search ad market? Some believe the market exhibits “network effects,” according to the New York Times. Although traditionally applied to Industrial Age industries with high fixed costs like railroads and telephone exchanges, anything now exhibits a network effect if its value increases because more people use it. Network effects are “everywhere,” according to a top former antitrust official. Coke and Pepsi drinkers, for example, “benefit from the network of their fellow consumers because Coke and Pepsi are widely available in restaurants and in vending machines,” claims Timothy J. Muris. A preexisting network of vending machines is admittedly tough for soft drink imitators to replicate. But a barrier to imitation can Read More ›

Defining ‘anticompetitive’

Is it anticompetitive for Google to let Yahoo use some of its technology to earn more money in the search ad business if Google had 61.6 percent of the search market in April while Yahoo had 20.4 percent and Microsoft, 9.1 percent? It’s only anticompetitive if you believe search ad revenue is–and always will be–the bedrock of the Internet economy. But that’s quite an assumption. Not too long ago some believed Microsoft’s success in desktop software would allow it to monopolize the online world. Then along came Google and search ads, which no one foresaw. An outsourcing deal between Google and Yahoo could be profoundly procompetitive because Yahoo makes less than it could in search ads. Using Google’s technology may Read More ›

Build a better mousetrap

The Rural Cellular Association wants the FCC to eliminate exclusivity arrangements between cellphone carriers and manufacturers of popular handsets. For many consumers, the end result of these exclusive arrangements is being channeled to purchase wireless service from a carrier that has monopolistic control over the desired handset and having to pay a premium price for the handset because the market is devoid of any competition for the particular handset. Exclusivity deals are common throughout the business world and often serve procompetitive purposes. And there is no way to condemn AT&T-Apple iPhone, Verizon Wireless-LG Voyager or Sprint Nextel-Samsung Ace without condemning exclusivity generally. For one thing, there are five major cellphone carriers and many smaller competitors. AT&T (Mobility), the largest, has Read More ›

‘We’d have nothing to do!’

Several state public utility commissioners are pleading with the Federal Communications Commission to preserve unnecessary, burdensome and anticompetitive accounting requirements that I have discussed below. Sara Kyle, Tre Hargett and Ron Jones of the Tennessee Regulatory Authority say they review the data required of telephone companies, even if their review has little or nothing to do with the purpose for which the data was originally required. This information is particularly useful in evaluating competition levels in Tennessee; further, such information may be necessary in fulfilling our Commission’s responsibilities should we decide that a state universal service fund is necessary. The argument the FCC essentially is hearing is without the data there would be less work for state regulators, which would Read More ›

Settling accounts, part 2

Recenty I commented that the Federal Communications Commission has an opportunity to relieve AT&T of several unnecessary, burdensome and anticompetitive accounting requirements. I noted that the data derived from the legacy accounting procedures simply isn’t used anymore to regulate revenue or set prices. That’s true, by the way. This week a group which calls itself the Ad Hoc Telecommunications Users Committee filed a letter (in which it didn’t identify its members) claiming: As we explained at the debate, the data produced by the cost allocations at issue have been used by the Commission and private parties in the past (CALLS), are being used by the Commission and private parties in the present (272 Sunset Nonstructural Safeguards, Separations reform and theSpecial Read More ›

Settling accounts

The Federal Communications Commission is facing another deadline at the end of this month to accept or reject a petition for regulatory forbearance. The petition would relieve AT&T of several unnecessary, burdensome and anticompetitive accounting requirements. The accounting rules at issue were designed to restrain telephone prices when AT&T was a monopoly entitled to recover its costs plus a reasonable profit. Rate-of-return or cost-plus regulation, as it was known, was a complete failure. It gave companies like AT&T an incentive to inflate, misallocate and manipulate costs. The companies responded, according to critics, by gold-plating their operations. AT&T hasn’t been subject to rate-of-return regulation at the FCC or in any of the states in which it operates for 10 years. And Read More ›