Report hits Martin’s leadership

A report prepared by the staff of the House Energy & Commerce Committee is critical of FCC Chairman Kevin Martin’s leadership. Among the findings: “There are instances in which the Chairman manipulated, withheld, or suppressed data, reports, and information … in an apparent attempt to enable the Commission to regulate cable television companies.” The report mentions that Martin’s actions “have certainly undermined the integrity of the staff. Moreover, it was done with the purpose affecting Congressional decision-making…” Shocking. Oh, and the report notes that there is some friction between Martin and some or all of his four fellow commissioners. The report concludes that Martin’s management style is “heavy-handed, opaque, and non-collegial,” and that his leadership has led to “distrust, suspicion, Read More ›

Telecom collapse

Hawaiian Telcom has entered Chapter 11 bankruptcy (see this and this), FairPoint Communication’s CFO is under siege as the company looks for a new CEO and Qwest Communications is cutting another 1,200 jobs as it tells investors not to worry about massive debt repayment deadlines. Times are tough for a lot of people, of course. However, phone companies have a special problem: Basic phone service is not profitable. Regulators have matched prices with costs; and they have defined costs narrowly, so as to shift some costs, for accounting purposes, to services which are profitable. As a result, basic phone service has to be subsidized by overpriced calling features such as voice mail, Caller ID, etc.; Internet access; video or wireless 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 ›

Events overtaking net neutrality

The conventional Beltway wisdom would be that net neutrality legislation should have a real chance now with the election of President-Elect Obama and strengthened Democratic majorities in the Senate and House. But there are two recent developments which make the case for net neutrality regulation less compelling. Free Airwaves The Federal Communications Commission approved the use of unlicensed wireless devices to operate in broadcast television spectrum on a secondary basis at locations where that spectrum is open, i.e., the television “white spaces.” In other words, a vast amount of spectrum will soon be available to provide broadband data and other services, and the spectrum will be free. George Mason University Professor Thomas W. Hazlett notes that [S]ome 250 million mobile 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 ›

Winners and losers

The Federal Communications Commission picks winers and losers, which is why we ought to get rid of it. During the chairmanship of Reed E. Hundt, the losers were incumbent phone companies, whom Hundt considered too Republican. Now it is a cable company, who some consider too Democratic. The FCC issued an order last week concluding that Comcast acted discriminatorily and arbitrarily to squelch the dynamic benefits of an open and accessible Internet, and that its failure to disclose it’s practices to its customers has compounded the harm. Wow. The FCC will require Comcast to end its network management practices and submit a compliance plan, which is code for submitting to bureaucratic micromanagement. FCC Chairman Kevin Martin recently asked, “Would you Read More ›

Reports no one reads

Here is a specific example of why we need a strong forbearance procedure to eliminate or modify telecom regulation which is no longer necessary for the protection of consumers, which proposals in the Senate and House of Representatives — S. 2469 and H.R. 3914 (110th Congress) — would eviscerate: The Federal Communications Commission is considering a petition of AT&T seeking forbearance from the requirement to file reports detailing its service quality, customer satisfaction and infrastructure investment. Opponents of regulatory reform want the Commission to consider whether to eliminate or modify the reporting requirement, if at all, in a normal rulemaking proceeding rather than a forbearance proceeding. The principal difference between a forbearance proceeding and a normal rulemaking proceeding is that Read More ›

Competitive it is

My colleague George Gilder and I have completed a paper, entitled “More Broadband, Increased Choice and Lower Prices Begin With Regulatory Reform.” We examine various shortcomings in telecom regulation in Illinois, Michigan, Ohio and Wisconsin as a result of robust competition. We explain why regulation and competition don’t mix, and offer legislators specific ideas for regulatory reform. The above chart, which appears in the paper, projects the growth in competition from cell phones and Internet Protocol-enabled voice services provided by cable operators. The curve is in the shape of a hockey stick. Phone competition from cable operators took off beginning in 2004 as a result of the FCC scaling back its wholesale competition rules. Those changes prompted phone companies to 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 ›