June 2011

Most of the anxiety about AT&T’s proposed merger with T-Mobile centers on the wireless market. Critics say that the deal will create a duopoly in which AT&T and Verizon control nearly 80 percent of the wireless business. But, in fact, that nightmare may already exist -- in an entirely different arena: the complex system of payments for landline services. As Rep. Darrell Issa (R-CA) complained at a hearing last month, “We’re reassembling a duopoly in the back end.”

That “back end” refers to landline communications companies that lease access to their networks -- a market variously referred to as backhaul, special access, or high capacity. The good news is that there is a fair amount of competition when it comes to carrying voice and data traffic between large cities. The bad news is that there are a lot fewer options -- and sometimes just one -- when it comes to the “last mile” connection between these competitive networks and, say, a medium-sized office building or a cell-phone tower next to a highway. Together, AT&T and Verizon own 70 percent of backhaul nationwide, according to the NoChokePoints coalition, an interest group. What the Federal Communications Commission does about it may come to define the telecommunications market for years to come. Ownership of those landline networks gives players a major competitive advantage. When the FCC deregulated the special-access market in the mid-1990s, interstate special-access fees made up only 5 percent of Verizon’s and AT&T’s total revenues. But consolidation, and the lack of competition, allowed them to raise the price for back-end use. By 2007, the service had jumped to almost 25 percent of Verizon’s revenue and about one-fifth of AT&T’s income, according to a 2009 report by the National Regulatory Research Institute that provides the latest available data. “The backhaul issue is the Rodney Dangerfield of telecom issues—it never gets the respect it deserves,” said Maura Corbett, executive director of NoChokePoints, whose coalition includes public-advocacy groups and wireless companies such as Sprint. “It is the plumbing of the Internet and wireless communications,” she said. The coalition is urging the FCC “to determine what changes are necessary to ensure reasonable prices.”

[Commentary] Richard Nixon did some terrible things in order to maintain a grip on the Oval Office, but the dumbest may have been recording what went on there. Nowadays, the hidden recorder is no longer necessary: the Internet has become the Rose Mary Woods of the digital age, dutifully transcribing every wiggle and wobble of the people who hold office.

Public officials are being ambiently recorded, one way or another, regardless of whether they intend to be. Extensive efforts were expended over the weekend to comb through Sarah Palin’s e-mails from her time as the governor of Alaska. Ms. Palin may have thought that she was just chatting with her staff and friends, but now every comma, every aside, every random thought is being picked apart for meaning. There may have been some legitimate news buried in the trove of e-mails, and she remains a person of significant public interest. So the press response makes sense, but she could not be blamed for feeling that she was under attack from a horde of biting ants. “A lot of those e-mails obviously weren't meant for public consumption,” she told Chris Wallace of Fox News, where she is a source, a commentator and a subject, all wrapped into one. As it turns out, the 24,000 pages of e-mails that journalists and the public spent the weekend poring through contained nothing notable — quite an achievement that Palin seems guilty of nothing more than the excessive use of exclamation points. But the results are beside the point. She is of interest not because of what she did as governor but because she has almost perfected the modern hybrid of politician and celebrity: once your daughter appears on “Dancing With the Stars,” your celebrity is far more important that your position on off-shore drilling. That means that all those e-mails are destined for public consumption whether she likes it or not.

Amazon and Ebay, two of the biggest names in online retail, have staked out contrary positions in a debate over the taxation of US Internet shopping, which enables many buyers to escape paying sales tax. The two companies are divided in the face of a lobbying challenge from bricks-and-mortar rivals including Walmart and Sears, which complain that a tax loophole gives their online rivals an unfair price advantage. The issue is being pushed up the political agenda by the weak public finances of many US states, which are struggling with budget deficits and are eager to find new sources of tax revenue. The US does not have a federal tax law on Internet commerce, but since 2008 seven states have changed their laws in an effort to make Amazon and others collect sales tax from customers. Amazon has fought such moves aggressively, but says it would support a federal law provided it was simple and applied even-handedly. Ebay, by contrast, remains a staunch opponent of any catch-all legislation. The controversy has implications for cash-strapped consumers, whose shift to tax-free online shopping was accelerated by the economic downturn.

As US television industry executives gather in Chicago this week for the Cable Show, their largest annual conference, a good deal of mutual congratulations will be going around. By most measures, it is a very good time to be in TV.

Consternation over “cord cutting” proved unfounded, as users did not abandon cable and satellite subscriptions en masse during the recession. Total subscriber numbers are instead slightly up. The biggest shows on broadcast networks such as CBS and cable networks such as USA are both drawing strong ratings, enticing advertisers to pay near-record prices. Media buyers have just committed more than $10 billion to advertise this autumn, a strong showing for the annual “upfront” buying season. “It’s a good time to be selling premium original TV content,” said Nomura analyst Michael Nathanson last week, after meeting many of the largest content companies. But US television is in the midst of profound transition. While total subscriber numbers are not falling, growth has slowed from 1.6 per cent a year ago to just 0.3 per cent, Bernstein Research analyst Craig Moffett said last month. Pay-TV’s gains are also well short of population growth, and possibly even weaker than “anaemic” new household formation, he said. At the same time, new online entertainment offerings from Netflix, Hulu and Apple are offering customers low-cost alternatives for consuming shows and films when they want, on the devices they want. Cable operators like Cablevision and Time Warner Cable are pushing premium broadband Internet connections and phone services. Comcast has taken a further aggressive step to diversify, by buying NBC Universal. Now, however, the sudden popularity of other tablet computers has cable operators scrambling to make more content available on mobile devices.