February 2014

Chicago: A Test of Comcast Merger Promises

[Commentary] The Chicago Committee on Finance will begin consideration of the 10-year renewal of Comcast's cable franchise in Chicago at its March 4, 2014 meeting in City Hall. CAN TV, the organization I represent, was founded by Chicago cable ordinance 30 years ago as the most significant public benefit to come out of cable franchising. Since that time, thousands of Chicago groups and residents annually take advantage of training, facilities and channel time to create programs at CAN TV on health, job opportunities, arts initiatives, education issues, and more. In fact, more local programs are on CAN TV each week than on Chicago's broadcast stations combined. CAN TV's future ability to serve the public will be determined by the outcome of the negotiations currently taking place between the City of Chicago and Comcast. It will be a clear indicator of Comcast's commitment to the local community, particularly with the Time Warner merger deal now in the pipeline.

Why does Netflix deny it's buying preferential treatment?

[Commentary] Netflix is paying cable giant Comcast a pile of cash for what the companies say will be "no preferential network treatment." Sure, because corporations routinely give money to one another just for the fun of it.

The reality is that Netflix is handing Comcast an unspecified chunk of change, likely millions of dollars, for what they say is a "more direct connection" to the cable company's broadband network. That's preferential treatment. And that's not necessarily a bad thing. The deal has broad ramifications for consumers. First, it could place the cost of Netflix's bandwidth-hogging service on the shoulders of Netflix subscribers, who will presumably see their rates rise to accommodate the payoff to Comcast. Secondly, it demonstrates the growing muscle of network owners such as Comcast, Time Warner Cable, AT&T and Verizon -- companies that are the gatekeepers of broadband Internet access. These telecom behemoths are beginning to use their market power to extract hefty sums from content providers desiring extra-zippy access to their networks. And never mind that this is completely contrary to how federal regulators say things are supposed to work. "This agreement is in no sense the outcome of a free market," said Craig Aaron, president of the digital rights group Free Press. "This isn't voluntary. This is Comcast having Netflix over a barrel."

Netflix, Comcast put final nail in Net Neutrality's coffin

[Commentary] The network-sharing agreement between Comcast and Netflix has likely buried the idea that providers of high-speed Internet connections into US homes have to take into account anything but market forces when setting prices for their service. In other words, network neutrality is dead. Now that the largest cable provider, Comcast, and perhaps the largest user of consumer bandwidth in Netflix have struck a deal, any legislation or executive action to authorize new federal telecom rules will have very little momentum in Washington.

The Comcast-Netflix agreement marks the end of the concept of an open or free Internet and presages a more-competitive landscape for digital entertainment and information. Look for more mergers and acquisitions such as Comcast's proposed offer for Time Warner Cable. Any cable provider, phone company, wireless operator or satellite provider owns a network that can now be used to provide digital entertainment to consumers in a less-regulated market. Investment usually follows such deregulation, so it's easy to see more deals that will tie up wireless and satellite providers, or tech and telecom firms and assets. Deregulated markets usually lead to lower prices in the long term, but only where there is full-blown market-based competition. And since the U.S. Internet services market is built on top of the US telecom infrastructure, more than half the country has access to either high-speed cable Internet or phone-based DSL service, but not both.

Getting a clearer picture on Netflix-Comcast deal

[Commentary] Now that Netflix has relented to Comcast, the largest US broadband service, similar deals are more likely to be reached with other Internet providers such as Verizon, AT&T and Charter. Here's a closer look at what this shift means for subscribers to Netflix and high-speed Internet services:

Netflix subscribers relying on Comcast should already be seeing fewer interruptions as video streams over the network. The quality of the picture should be better, too. The improvements started to appear Feb 20 when Comcast and Netflix began working together, though their collaboration wasn't revealed until Feb 23. Some analysts believe the alliance might set the stage for Comcast to eventually include an application for Netflix's service on its cable-TV boxes, making it even more accessible. If the claims of better performance are true, it would reverse how Netflix's video had been performing on Comcast's Internet service -- the average speed during prime-time viewing hours fell 25 percent from January 2013 to this January, based on Netflix's own measurements.

Danger of Netflix-Comcast deal

[Commentary] Netflix, the country's leading online video service, has agreed to directly pay Comcast, the country's largest provider of home Internet access, to deliver its streaming movies and TV shows. It seems unlikely that either company could be a real loser -- Netflix, concerned about the pauses and hiccups that streaming customers are getting, can rest easy that it's bought more reliability for its content delivery, and Comcast gets, well, money. The real losers, consumer advocates fear, may be the rest of us.

They're right to be afraid - although for a different reason than they might believe. The Netflix deal doesn't violate net neutrality principles. Netflix was already paying Internet middlemen to deliver its content to Comcast and other Internet service providers. These companies, like Limelight, Level 3 and EdgeCast, also deliver content to Internet service providers from other big content companies like Disney, Fox and others. But as Netflix has gotten bigger (traffic to Netflix drove one-third of peak Internet data usage in the U.S. in 2012), Internet congestion has slowed everything down for its subscribers. Now that Comcast has come through with the right price, Netflix may make similar deals with other providers. This may not be a bad thing - if the providers can supply Netflix with greater reliability at a decent price, the consumers may actually benefit in the short term. But in the long term, consumers will only suffer because of the growing market domination of Comcast.

What's behind Google Fiber's expansion push?

Google, which has market capitalization of about $405 billion (plus $60 billion in cash), just announced it's expanding its fiber network rollout, which Netflix consistently clocks as the speediest in the sector. Google Fiber claims to be 100 times faster than the typical household broadband connection -- good enough to download an entire HD flick in half a minute. The cost of a full nationwide rollout of Google Fiber could well hit $140 billion, according to Goldman Sachs estimates. By comparison, Google made $2.26 billion in the way of capital expenditures -- mostly for production equipment, data-center construction and real estate purchases -- in its latest quarter. To hedge its cost commitments, Google is asking (coaching, even) municipalities for infrastructure blueprints and streamlined construction plans. Jonathan Atkin, a telecom analyst with RBC Capital Markets, believes the media giant is talking big fiber chiefly to send a message, especially in the wake of Comcast announcing its intention to take out Time Warner Cable. "I think they just want to keep vendors, distributors and regulators on their feet," he says, noting that the prospect of a content- and distribution-heavy Google would make consolidating cable companies think twice about impinging on network neutrality.

FCC Chairman Tom Wheeler May Tighten Media Ownership Rules

The Federal Communications Commission could be close to a long overdue review of media ownership rules come March, and there’s bad news for media owners: Early indications are that the FCC Chairman Tom Wheeler is likely to propose tightening them.

Chairman Wheeler isn’t expected to loosen the rules but rather firm them up even more, which will no doubt bring strong opposition from TV broadcasters and newspapers, and will split any vote along party lines. First, Chairman Wheeler is expected to bend to public interest groups and make joint sales agreements between TV stations count as owned under current ownership rules. Stations that find themselves over the ownership limits would have 18 months to two years to unwind these agreements. There are JSAs in more than 100 mostly smaller markets. Broadcasters, who have all but given up trying to convince the FCC to loosen the long-standing limits on how many stations can be owned in a single market, are likely to appeal the JSA change, especially since the FCC has allowed them for 20 years.

‘The Wild West of Privacy’

[Commentary] We are fast approaching a privacy crisis in the United States.

Google, Facebook and other big Internet companies collect information about us, which they deploy in the service of advertisers. Big data brokers, like Acxiom, have developed sophisticated tools that allow them to know almost as much about us as we know about ourselves; they then sell that data to all kinds of companies that want to learn everything from our habits to our health, from our sexual orientation to our finances. The digital age has made it easy to collect medical data, which is supposed to be protected under federal law. Huge data breaches at big retailers like Target have made it seem unsafe to use credit cards. And I haven’t even mentioned the Edward Snowden revelations about the massive data collection by the National Security Agency.

“The United States,” says Barry Steinhardt, the founder of Friends of Privacy USA, “is basically the Wild West of privacy.”

I Thought Facebook's WhatsApp Deal Was Crazy. Then I Did Some Math.

[Commentary] There's no disputing that Facebook paid a huge premium for WhatsApp, an untested company in a hotly competitive communications sector. But it takes less than I thought to turn WhatsApp into a decent, if justifiable, business. And that doesn't even count other benefits of scale, strategic defense and Google-rattling that are harder to quantify. Here’s the most obvious and powerful of Web dynamics: Massive global reach at nearly zero marginal cost. Up close, it can be majestic.

AT&T Targets Flexibility, Cost Savings With New Network Design

AT&T is planning to rebuild its sprawling network with less expensive, off-the-shelf equipment controlled by software, a move that could cut its capital costs by billions of dollars and put further pressure on telecom gear makers.

The shift will mean the second-largest US carrier will buy less specialized equipment from vendors such as Ericsson, Alcatel-Lucent and Cisco, and instead purchase more generic hardware from a wider variety of producers. That equipment will be tied together with software, making it easier and cheaper to upgrade to new technologies, roll out new services or respond to changes in demand for connectivity. AT&T said it is hoping the new network plan will broaden its pool of suppliers and keep it from being locked into any one vendor at a time when the number of gear makers has withered. Much of the software running the network will be open source, which will allow other carriers and researchers to join the effort to advance its development.

Benton

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