Updated on April 26th, 2011
It’s ironic that the FCC is planning on giving the industry a failing grade again this year on broadband rollout (see Electronista article here). While the FCC points its finger at industry, the FCC has been busy adopting policies that discourage broadband deployment. Let’s take a look.
Net Neutrality: Last December, the FCC adopted net neutrality regulations (see order available here). These rules shift potential Internet revenue from service providers – the companies that actually deploy broadband infrastructure – to software companies and device manufacturers. The obvious result is to discourage investment in costly broadband infrastructure.
Incentive Auction Authority: Making more spectrum available through incentive auctions would promote significant broadband deployment. The FCC is now working toward this goal, but in 2010, the FCC made net neutrality its top priority rather than incentive auctions. Had the FCC focused on the need for more spectrum in 2010, the FCC might have obtained incentive auction authority already by striking a deal with Congressional Republicans opposed to net neutrality. Instead, the FCC is fighting with broadcasters over incentive auctions in 2011, with the election cycle looming ahead.
Universal Service: Universal service reform is one of the most important regulatory actions the FCC could take to promote broadband deployment. But, while the FCC was busy working on net neutrality regulations last year, universal service reform languished, and another opportunity to promote broadband deployment now was lost.
Roaming: The FCC found in 2007 (see order here), that mobile wireless roaming regulation discourages infrastructure-based broadband deployment if roaming is required in markets in which the requesting service provider holds spectrum licenses. In 2010, however, the FCC changed its mind (see order here), and in 2011 (see order here), it imposed new roaming requirements on broadband service providers. It’s difficult to see how allowing one provider to use another provider’s infrastructure rather than build its own network will promote more infrastructure deployment.
If broadband deployment is lagging, the FCC should point the finger at itself. The FCC needs to get back to the task of implementing policies that promote broadband deployment rather than imposing heavy handed regulation. For starters, the FCC can focus on making more spectrum available and reforming the Universal Service Fund. That would go a long way toward reversing the FCC’s troubling trend of discouraging broadband deployment.
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Updated on April 20th, 2011
I’ve previously written about the FCC’s intent to use (or misuse) its mobile wireless competition report to impose additional regulation on the mobile wireless industry. I’ve noted that the FCC’s 14th mobile wireless competition report lacked the necessary technical data to support its hypothesis that access to low frequency spectrum provides a competitive advantage. And I’ve written about the FCC’s refusal to define “effective competition” in accordance with the guidance Congress has already provided in the cable television context. I haven’t addressed in detail the deficiencies in the FCC’s economic analysis in the 14th report. But, in a blog post published by the Harvard Business Review, professors Gerald R. Faulhaber and Hal J. Singer have.
They note that the FCC’s analysis eschews direct evidence of the state of competition based on consumer behavior in favor of reliance on indirect evidence. The FCC ignored the direct evidence it collected in favor of market share measures, even though the FCC itself admitted that measures of market share are not synonymous with market power. Messrs. Faulhaber and Singer generally reached the same conclusion I did in my previous posts: the FCC intends to rely its mobile wireless competition reports to further regulate the wireless industry.
They take particular issue with the FCC’s implied intent to limit the ability of larger mobile wireless service providers to acquire spectrum via auction. They then note that, in this circumstance, the only viable solution for larger service providers is to acquire additional spectrum in the secondary markets. If the FCC wants to have a competitive mobile wireless industry, it can’t have its cake and eat it too. The FCC needs to release more spectrum immediately and allow larger mobile service providers to access it, or the FCC needs to speed its review of secondary markets transactions. If the FCC instead does neither, the mobile wireless industry and consumers both will suffer.
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Updated on February 10th, 2011
President Obama revealed the details of his National Wireless Initiative today. The plan he outlined is refreshingly bold and comprehensive and addresses many needs.
- Nearly everyone agrees that more spectrum is needed for mobile wireless. The President’s plan proposes to free up 500 MHz of spectrum through incentive auctions and more efficient government use.
- Nearly everyone agrees we need to do more to provide broadband to unserved consumers, and that wireless is the most cost-effective way to do it. The President’s plan proposes to invest $5 billion and reform the Universal Service Fund to provide at least 98% of Americans with access to 4G wireless service.
- Nearly everyone agrees we need to deploy a nationwide wireless broadband network for public safety. The President’s plan proposes that $10.7 billion be dedicated to building that network and reallocation of the D Block to public safety use.
- Nearly everyone agrees we need to continue to innovate in wireless technologies. The President’s plan proposes to devote $3 billion to a Wireless Innovation (“WIN”) fund supporting research and development of emerging wireless technologies and applications.
- Nearly everyone agrees we need to reduce the deficit. The President’s plan proposes to reduce the deficit using $9.6 billion in auction proceeds.
Perhaps everyone won’t agree with every detail of the President’s plan. But everyone should agree that this bold, comprehensive plan is a real leap forward.
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Updated on February 3rd, 2011
“Go on take the money and run.” Steve Miller Band.
The National Association of Broadcasters (“NAB”) last Friday sent to the Chairmen and ranking members of the Senate and House Commerce Committees a letter attacking Time Warner for warehousing spectrum in the AWS-1 band. The letter implies that, because Time Warner is warehousing spectrum, broadcasters shouldn’t be subject to an incentive auction. Those who live in glass houses (in this case its more like cellophane) shouldn’t throw stones: The broadcasters have been warehousing their spectrum since Congress passed “must carry” laws.
Without the implied government subsidy of must carry laws, broadcasters would have been out of business years ago and television spectrum would have already transitioned to more valuable uses. As a result of the success of cable television, it had become clear by 1992 that broadcasters lacked a viable business plan. Because fewer and fewer people were watching broadcast television over the air, broadcasters were having a more difficult time selling advertisements. To prop up the dying broadcast industry, Congress decided to force cable providers to carry broadcast channels on their cable systems. Forced cable carriage ensures that broadcasters reach enough “eyeballs” to satisfy advertisers, which is how broadcasters make money. Because only about 10% of the population actually watches television transmitted over-the-air, broadcasters couldn’t sell enough advertisements to survive without “must carry” subsidies – which means that broadcasters are now using their spectrum solely to reap the benefits of “must carry” laws rather than serve consumers.
In other words, an industry that uses spectrum so it can use cable networks – indeed, an industry that owes its continued existence to cable – is now lobbing stones at Time Warner for warehousing spectrum. That’s counterintuitive. Of course, broadcasters have been enjoying the use of free spectrum and “must carry” rights so long they’ve probably forgotten that their spectrum doesn’t serve an actual market. I bet they’d remember if Congress eliminated their “must carry” rights. There would then be no need for incentive auctions because there would be no broadcasters to “compensate,” and the billions that would otherwise be funneled to the broadcasters through such auctions could be used for a more worthy subsidy, like providing broadband to unserved areas.
NAB would better serve broadcasters by advising them to support incentive auctions. Starting a debate about the efficient use of spectrum can only spell trouble. Broadcasters use large swaths of extremely valuable spectrum to serve 10% of the population using decades-old technology (development of the ATSC standard began in 1987) and rely on government subsidies to survive. In contrast, wireless providers are spending billions upon billions to deploy the latest technologies to hundreds of millions of consumers who are clamoring for more and more bandwidth. Broadcasters should take the money and run.
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Updated on January 4th, 2011
It’s the New Year – a time when we take stock of last year’s events. Below is my list of the top ten communications decisions of 2010. Like last year, these aren’t presented in order of significance.
1. Net Neutrality (a/k/a “Open Internet”)
This was the big one in 2010. The FCC delivered a late December Christmas present to broadband providers by imposing net neutrality obligations. Among other things, the order signaled that this FCC does not believe market analysis is necessary to impose significant regulation – regulation that will affect the very markets the FCC declined to analyze. This is a major departure from Congressional direction and FCC practice for nearly two decades. The FCC’s willingness to regulate without evidence of market failure represents a major triumph for public interest groups, who have long argued that market failure is not a prerequisite to regulation.
2. “Bill Shock”
Another NPRM makes the list. The FCC is proposing rules that would require mobile service providers to provide usage alerts and information intended to assist consumers in avoiding unexpected charges on their bills. Like the net neutrality order, the FCC doesn’t do any market analysis here, because this FCC doesn’t believe competition is sufficient to protect consumers. (If the FCC keeps this up, there are going to be a lot of economists out of work.)
3. SkyTerra (a/k/a LightSquared)
A trio of Bureaus granted the transfer of SkyTerra’s MSS license, including its ancillary terrestrial component authority, to Harbinger Capital. As I noted in a previous post addressing this order at length, the Bureau trio decided to accept ostensibly voluntary conditions related to Harbinger’s plans to implement a terrestrial LTE network without assessing the state of terrestrial competition. As noted above, this is part of a trend at this FCC of ignoring market analysis. Perhaps more importantly, this order paved the way for Harbinger to deploy a massive terrestrial network using un-auctioned (i.e., free) satellite spectrum. It turns out that cellular providers were right back in 2003 when they argued that ancillary terrestrial component would ultimately become ancillary satellite component. Read the rest of this entry »
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