December 2013

John Malone: Cable's Pied Piper of Consolidation

[Commentary] Never have so many been spurred to such frenzy by so few. By "few," of course, we mean John Malone. Malone, the original cable guy, has sidled back into the industry he helped create decades earlier. In March, his Liberty Media bought a 27% stake in Charter Communications, a midsize operator with a laggard history. Malone announced the time was ripe for consolidation. That's all it took. Malone sees cabledom's "scale" challenge as involving much bigger stakes than just getting on even terms with content suppliers.

The cable industry is both blessed and cursed by its history as a bunch of noncompeting local franchises. Cursed, because no operator can achieve a national footprint the way its suppliers (e.g., CBS, HBO, ESPN) or the way its emerging competitors (e.g., Netflix, Amazon, YouTube) can. But cable is also blessed. In most of the country, it owns the premier last-mile network, upgradeable at low cost to meet customers' rising bandwidth demand. And as noncompeting monopolists, cable operators in theory are free to cooperate with each other and engage in extensive joint ventures without triggering antitrust scrutiny.

Malone sees salvation here. He sees the cable industry pooling not just R&D dollars to advance broadband technology, but to create its own Netflix-like programming packages to market nationally. The industry just needs "fewer big players," which will make it "easier to get alignment." Cablers could remake their own customer relationship. Instead of annoying households by trying to pass along higher and higher programming costs for shows watched by fewer and fewer people in the fragmented audience, cable could claim it's working hard to keep customer broadband bills low by making sure content suppliers like Google and Netflix pay their "fair share." This will be salable to programmers and regulators, however, only if the cablers aren't simultaneously competing to offer their own content bundles. Cable has been lucky lately. Net neutrality, the principle by which regulators have sought to regulate how operators use their networks, has been dying a natural and legal death. Malone and big cable ought to be leery of adopting a business strategy guaranteed to resurrect it.

Mark Zuckerberg, Gates foundations give $9 million to improve schools' Internet connections

In the backyard of Facebook, Oracle and moneyed Sand Hill Road, more than half of public schools lack the Internet speed and connectivity needed to harness digital learning. Still, they're far better off than the nation as a whole: An estimated 70 percent of schools endure slow speeds or lack wireless connections, according to partial findings of an ambitious national survey by the San Francisco-based nonprofit EducationSuperHighway.

The effort to expand schools' digital infrastructure will get a boost from a $9 million grant, mainly from Mark Zuckerberg's Startup-Education foundation and the Gates Foundation. The grant will enable EducationSuperHighway to get more schools to test their Internet speeds. So far, 26 state education departments -- but not California's -- have signed on to assess their schools' digital tools. "You can't fix it if you don't know where the problem is," said Evan Marwell, CEO of EducationSuperHighway. And it will help schools improve their Internet connections.

White Spaces and Rural College Towns: the Beginning of a Beautiful Friendship

[Commentary] Several years ago we joined forces -- Michael as an advocate for allocating White Spaces for unlicensed use, Blair from the direction of providing the high bandwidth networks rural college towns need and often don’t have -- to create AIR.U, a project dedicated to using White Spaces to accelerate the deployment of next generation broadband networks in rural areas.

AIR.U is a collaboration with the Declaration Networks Group and various Higher Education Groups, including the United Negro College Fund, the New England Board of Higher Education, the Corporation for Education Network Initiatives in California, the National Institute for Technology in Liberal Education, and Gig.U, as well as Google, Microsoft and the Appalachian Regional Commission. We've made progress in addressing the chicken and egg issue, including the first AIR.U network deployment on the West Virginia University (WVU) campus, providing wireless access to the Internet at WVU's Personal Rapid Transit platforms.

Now it's time for another step forward. Last month, Declaration Networks Group announced a "Quick Start" Network Program tailored for Higher Education communities to evaluate, design, and deploy high capacity broadband networks leveraging White Spaces. The program includes an assessment of expansion approaches and a sustainable path to increase the coverage and capacity of high-speed wireless connectivity to the community. The program is offered exclusively to the AIR.U institutions. It includes a network with a base configuration supporting multiple Wi-Fi hotspots, and a user group for AIR.U Quick Start participants to collaborate in developing White Space technology, establish best practices, and share approaches for community expansion activities. We believe this partnership between rural college communities and white spaces networks is the beginning of beautiful friendship, catalyzing more extensive deployments, and accelerating economic and educational development throughout the United States.

House Subcommittee Begins Comprehensive Look at the FTC on Eve of 100th Anniversary

The House Subcommittee on Commerce, Manufacturing, and Trade kicked off a series of hearings examining the work of the Federal Trade Commission as the agency approaches its 100th anniversary next year. The subcommittee is examining the commission’s mission, operating budget, and statutory authorities and what improvements are needed to help the agency protect consumers and promote competition in an ever-changing market.

FTC Chairwoman Edith Ramirez testified alongside commissioners Julie Brill, Maureen K. Ohlhausen, and Joshua D. Wright. The FTC was originally established in 1914 by the Federal Trade Commission Act to enforce competition law and prevent anti-competitive business practices, but over the past 100 years, the commission’s authority has evolved and it now employs broad jurisdiction across most sectors of the economy.

Politico reports that all four FTC commissioners defended their agency’s regulatory role even as they asked for more authority in evolving areas of the Internet economy. The four commissioners, who testified in their first-ever joint appearance in Congress, gave a rundown of their enforcement and policy work at a time when the agency is delving into new topics ranging from the wave of digitally connected appliances known as the “Internet of Things” to litigious “patent trolls.” But the commissioners also faced tough questions from Republicans who took issue with the size of the agency’s budget and the scope of its regulatory involvement.

American TV Viewing Falls

The amount of time that Americans spent watching live television plus DVR playback shrank in the third quarter of this year, after growing steadily in the preceding four years, according to the Nielsen Cross-Platform Report. Americans watched an average of 4 hours, 18 minutes of live TV and 25 minutes of DVR playback in the third quarter of 2013, down from 4 hours, 24 minutes and 22 minutes of DVR playback in the third quarter of 2012. Meanwhile, the average person spent 16 minutes watching video on mobile in the third quarter of 2013, up from 11 minutes the previous year; online video viewing rose to 46 minutes from 40 minutes.

China Mobile License Paves Way for World’s Largest 4G Network

China Mobile, the world’s biggest phone company, received a license to start commercial service on the largest fourth-generation wireless network as it tries to attract smartphone users seeking faster downloads.

China Mobile and two smaller state carriers got 4G licenses, China’s Ministry of Industry and Information Technology said. The government didn’t say when services using the TD-LTE standard will begin. Starting services on its 4G network may help China Mobile add users by winning over handset makers that hadn’t previously supported its homegrown 3G standard, including Apple. The high-speed network was scheduled to reach 100 cities covering 500 million people this year, making it the world’s largest.

House to re-write foundational communications law

The leaders of the House Commerce Committee announced that they will begin re-writing the Communications Act, a foundational law that regulates the television, telephone and Internet industries.

Updating the act will be a multi-year effort, and each potential change will likely prompt intense lobbying from powerful industry groups. The Communications Act, which outlines the power of the Federal Communications Commission, dates back to 1934, and was last updated in 1996. House Commerce Committee Chairman Fred Upton (R-MI) said the communications and technology sectors were "stalwarts of our national economy" throughout the economic downturn. "We must ensure that our laws make sense for today but are also ready for the innovations of tomorrow,” he said. Rep. Greg Walden (R-OR), the chairman of the subcommittee on Communications and Technology, said that when the Communications Act was last updated 18 years ago, "no one could have dreamed" of the coming advances in the Internet. The committee will begin its review with a series of hearings and white papers in 2014.

Did the FCC Chairman Just Endorse a Pay-for-Play Internet Fast Lane?

[Commentary] New Federal Communications Commission Chairman Tom Wheeler delivered his first formal public address. In a Q&A session following the speech, he appeared to endorse the opposite of network neutrality: allowing Internet service providers (ISPs) to charge websites and services in order to reach that ISP’s subscribers. In other words, giving ISPs the power to pick winners and losers online.

This endorsement was all the more unexpected because it followed his explicit endorsement of "net neutrality" and a speech that touted the FCC's role in protecting the public interest. What is going on here? It is time for Chairman Wheeler to clarify his position. He claims to support an open Internet -- but what does that mean to him? If his “open Internet” allows ISPs to charge websites and services to access subscribers, he may need to find another term. Why shouldn’t we be worried about ISPs charging websites and services in order to make those sites and services work correctly? If we should be concerned, what is the FCC doing to prevent such a market from developing? And regardless of the answers to those questions, when is the FCC going to start doing the observing that is so important to decision-making? When will it start asking questions about data caps and other practices that influence key regulatory decisions? These are important questions that need to be answered soon. If Chairman Wheeler’s version of net neutrality is different from everyone else’s version of net neutrality, we need to know that sooner rather than later.

Mixed Messages from Tom Wheeler

[Commentary] There was a lot to like in Federal Communications Commission Chairman Tom Wheeler’s first major speech.

A former top lobbyist for the cable and wireless phone industries, Chairman Wheeler acknowledged that he had “seen enough about how markets operate to know that they don’t always, by themselves, solve every problem.” He described himself as an “an unabashed supporter of competition.” He committed to ensuring that multiple carriers (read: not just AT&T and Verizon) have access to the airwaves -- which could prove crucial in the upcoming auction of valuable spectrum. He declared that the “right of access also means the ability of users to access all lawful content” on the open Internet. And he emphasized the crucial importance of “interconnection,” a bedrock principle of the Communications Act that makes competition possible.

So far, so good. But then the chairman took a few questions -- and his answers were more than a little troubling. As the New York Times reported, Chairman Wheeler’s answers were the opposite of everything he pledged to protect in his speech. Allowing usage-based Internet pricing would be antithetical to his promises to police market abuses and promote competition. Letting incumbent phone and cable companies exploit their dominant position by charging people more to use certain websites and services is a disastrous idea. Chairman Wheeler insists that in his new job as FCC chairman, he sees himself as the “public’s advocate in the midst of an historic revolution.” The public does indeed need such an advocate -- not another sales pitch for new price-gouging schemes from the already powerful phone and cable giants. So if the new FCC chairman really means what he said in his speech, he should use the next one to correct the record and commit to staying on the side of the Internet-using, cable-watching, competition-loving public.

Cyber Monday Sales at Record as Amazon, EBay Win Shoppers

Cyber Monday sales surged, sending online shopping toward a single-day record as Amazon and EBay siphoned consumers from brick-and-mortar stores.

Web sales on Dec 2 rose 21 percent from 2012, International Business Machines (IBM) said. Retailers catering to smartphone and tablet users benefited the most, with mobile traffic accounting for 32 percent of site visits, a 45 percent gain from a year earlier. E-commerce is projected to be the bright spot of an otherwise tepid holiday season marked by the first Black Friday-weekend spending decline since 2009. While Internet sales may climb as much as 15 percent, more than three times faster than overall retail growth, they still account for just 14 percent of the total, according to the National Retail Federation. “The results thus far from an e-commerce perspective have been very strong -- certainly strong relative to brick-and-mortar stores,” said Ron Josey, an analyst at JMP Securities. “This is the first holiday season where mobile is absolutely having its mark on overall retail sales, whether that’s from a smartphone or a tablet. It’s not going away.”

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