March 2014

The Fallacies of Government-Run Broadband

There is no doubt that an effective broadband infrastructure is essential for the 21st century U.S. economy. This is why the misinterpretations of a recent Government Accountability Office (GAO) report are so problematic. The policy recommendations that are being derived from these incorrect interpretations, if followed, would significantly inhibit the growth and efficiency of the US broadband infrastructure. Cheerleaders for greater federal involvement in the broadband services, such as Rep Anna Eshoo (D-CA), erroneously concluded that “This GAO report confirms that when it comes to closing our digital divide, federal investment in broadband deployment has been pivotal to the success of America’s small businesses.” However, the GAO report does not demonstrate what Rep Eshoo or others suggest.

First, the report was not designed to be used as the basis for policy recommendations. In fact, the GAO states in the report that “the results of our interviews cannot be projected to all service providers and small businesses”.
Second, the report does not account for the total costs associated with government-run networks. The actual cost of a government-operated network, which should include the costs incurred by taxpayers to construct and operate the government-operated broadband networks, is much higher than a simple rate comparison implies.
Third, the role of government funding is dwarfed by the role of private capital in building and maintaining broadband networks. The nation’s broadband infrastructure has been developed, and continues to be driven by, private-sector investment.

[Winegarden is a Senior Fellow at the Pacific Research Institute]

Illinois wants Gigabit Squared to return $2 million grant

The state of Illinois is fighting to take back $2 million in grant money it awarded a company that promised to install ultra-high speed Internet access throughout the South Side of Chicago.

Gigabit Squared, a Cincinnati-based company that last May touted the high-speed project in nine South Side communities, “has lied repeatedly” about its intentions and may have spent only $250,000 of the grant money for legitimate purposes, said David Roeder, spokesman for the Illinois Department of Commerce and Economic Opportunity, which issued the grant. The state agency has tried since January to get the money returned. Roeder said Gigabit Squared failed to give the state the information it needed to trace how the money was spent, and “we have no patience with this abuse of the public’s trust.” The state sent a letter to Gigabit Squared asking whether they want to seek an informal hearing on the dispute. The company has until April 10 to respond. Gigabit Squared issued a statement, saying in part: “Gigabit Squared’s new leadership team has a proactive, open, and honest dialogue with the State of Illinois to move towards a positive resolution of the project. This has included access to the company, its records, leadership, and meeting every deadline provided as part of the State’s normal review process. We are particularly puzzled by the comments regarding our delaying the process which is contrary to both verbal and written comments from the State indicating its appreciation for our openness and cooperation during this process.”

Pew Updates Us on State of the News

[Commentary] On March 26, the Pew Research Center released State of the News Media 2014, the eleventh annual report by the Pew Research Center examining the landscape of American journalism. The study includes special reports about the revenue picture for news, the growth in digital reporting, the role of acquisitions and content sharing in local news and how digital video affects the news landscape. In addition, it provides the latest data on audience, economic, news investment and ownership trends for key sectors of news media. In an overview of the report Amy Mitchell, Pew’s Director of Journalism Research, writes “the level of new activity this past year is creating a perception that something important, perhaps even game-changing, is going on. If the developments in 2013 are at this point only a drop in the bucket, it feels like a heavier drop than most. The momentum behind them is real, if the full impact on citizens and our news system remains unclear.” Here’s a look at six major trends in the industry.

Charter Urges Time Warner Cable Shareholders to Reject Comcast Deal

Charter Communications, which was rebuffed when it proposed a merger with Time Warner Cable, then lost out to Comcast in a bidding competition for the cable company, is urging the Time Warner Cable shareholders to reject the $45 billion deal with Comcast.

In a proxy statement filed with the Securities and Exchange Commission, Charter said the risk of regulatory rejection of the merger, combined with probable delays and their associated costs to Time Warner Cable shareholders of the Comcast merger, made it in their interest to turn down the deal, which was announced on Feb 13. The board of directors of Time Warner Cable also failed to adequately consider a competing offer and willingness to negotiate from Charter, the company said. “From the regulatory perspective, it is difficult to imagine a transaction that could concentrate the industry more than the proposed Comcast merger,” Charter said in its SEC filing. “Notwithstanding the likelihood of a regulatory opposition to the deal, the merger agreement contains no regulatory breakup fee, giving Comcast no incentive to seek solutions” beyond the limited commitments it made to divest three million Time Warner customers and to extend to Time Warner assets the conditions it agreed to when it acquired NBC Universal in 2011.

A Vision for Comcast in a Post-Merger World

Comcast’s chief executive, Brian Roberts, was stung four years ago when Reed Hastings, chief executive of the then-fledgling Netflix, dismissed Comcast with a rhetorical question: “Why would we want to do a deal with a regional cable company?” If Roberts has his way, Comcast will soon be neither regional nor cable.

With its aggressive push into broadband Internet and its bold acquisition of NBC Universal, Comcast already is no longer just a cable company. If its proposed $45 billion acquisition of Time Warner Cable is approved by regulators, it won’t be regional, either. And Hastings is making deals with Comcast now. Roberts sees the new Comcast as a global technology company and its major competitors the media companies of the future: Google, Amazon, Facebook and even Apple, with which Comcast has been engaging in tentative negotiations. “The alternative was to sit around and let cable die a slow death,” said Roberts. “Cable is a relic of an antiquated model,” when municipalities doled out local monopolies to cable operators. “The result is we’re not in New York or Los Angeles. How great can that be?”

CTIA and Los Angeles Television Stations KLCS and KJLA Issue Spectrum Channel Sharing Pilot Project Report Showing Successful Results

TIA–The Wireless Association and Los Angeles television stations KLCS and KJLA released their channel sharing pilot project report, which clearly proved channel sharing is feasible, and is a technically viable option for broadcasters with minimal impact for viewers. For stations interested in sharing a single six MHz radiofrequency channel, the results show how to successfully navigate numerous technical situations that may arise as well as real-world implications for successful channel sharing. The report reflects the findings of the two participating stations and to the extent that similar combinations of stations arise elsewhere, this testing may serve as a baseline assessment of channel sharing.

Findings include:

Physical and virtual level channel sharing is feasible.
It is technically possible to combine two high definition (HD) television streams onto a single channel.
Two HD streams may be combined with additional standard definition (SD) program streams. Up to two additional SD streams are possible without major impact to the quality of experience of the overall material. Additional SD streams may be possible with additional testing and analysis.
It may be feasible for three HD streams to be combined onto a single channel. Testing found that this combination may be technically feasible and of value for broadcasters, but each entity needs to examine the digital complexity of its material and decide if this combination is acceptable for its viewers.
One HD stream may be combined with a variety of SD programs. The parties tested one HD and up to seven SD streams in a single Advanced Television System Committee (ATSC) channel with good results.
In order to ensure a positive viewer experience, the FCC and broadcasters must carefully plan a transition to a repacked television band that includes consumer guidance on rescanning.

FCC Chairman Tom Wheeler on Channel Sharing Pilot Project Report

Los Angeles stations KLCS and KJLA have provided real world evidence that channel sharing presents a significant opportunity for broadcasters to continue their existing business on shared spectrum and take home a check for spectrum they voluntarily relinquish in the incentive auction. By demonstrating the feasibility of combining multiple HD streams onto a single channel or combining one or two HD streams with several SD programs, the pilot project has made a compelling case for channel sharing. In business, it is very rare to be able to have your cake and eat it too. It is my hope that broadcasters closely study the channel sharing pilot project report as they consider the once-in-a-lifetime opportunity offered by the upcoming incentive auction.

Here is How to Get Open Internet Rules Right

[Commentary] Public Knowledge and Common Cause submitted comments in the Federal Communications Commission’s Open Internet proceeding. In the comments we made clear that the FCC must move quickly to establish strong, enforceable open internet rules that can withstand the inevitable court challenge.

Here are some of the high-level points:

The Open Internet is Important.
Title II is the Best Way to Protect an Open Internet.
Open Internet is Broader Than Net Neutrality.
Phone Principles (Service to all Americans, Competition & Interconnection, Consumer Protection, Network Reliability, Public Safety) Can Help Guide Internet Access Principles.
The FCC Should Promote Rural and Municipal Broadband.

Why Net Neutrality Matters So Much to Indie Filmmakers

Consumer groups and tech advocates have been voicing concern about the growing threats to net neutrality, but Hollywood -- especially independent filmmakers and distributors -- have plenty of reason to worry about the walls and toll booths being erected to discriminate between Internet content.

“If we want to directly sell movies off our site, like Louis CK does, the challenges that I then have is, what price do I have to pay to make sure that my information is delivered at the speed and is as high quality as it can be?” said Ted Hope, a veteran indie film producer (“21 Grams,” “Adventureland”) who now runs the independent distributor Fandor. “To get information faster, big pocketed entities like Netflix go and make deals with Comcast, but small companies don't have that option.”

FCC Report: Small Telco Broadband Subscribers Doubled in Two Years

The number of residential customers taking broadband service from the nation’s smaller rate of return carriers more than doubled between December 2010 and December 2012 -- increasing 114%, according to a report released from the Federal Communications Commission.

In comparison, the number of residential customers taking broadband service from the nation’s largest price cap carriers increased 61% over the same period. The report from the Wireline Competition Bureau, titled “Universal Service Implementation Progress Report,” was based on data collected from carriers. Broadband was defined as any landline connection providing data rates of 3 Mbps downstream and 768 kbps upstream. Data collected about business customers showed a similar trend. Rate of return carriers saw a 97% increase in broadband customers, while price cap carriers saw an increase of 65%. The difference between what rate of return and price cap carriers experienced may reflect the higher level of competition that price cap carriers face. Although higher-speed services from the large telcos are seeing gains, telco DSL offerings have been hit hard by broadband services from cable companies, which tend to support higher data rates.

Benton

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