Wednesday, November 3, 2010
Friday, May 21, 2010
From: Gordon Cook <email@example.com>
Date: Thu, 20 May 2010 17:17:26 -0400
To: Economics of IP Networks
Subject: [Arch-econ] new FCC report on the entire mobile wireless ecosystem hat tip erik cecil
Erik Cecil asked me to take him off list about a week ago. BUSY!
But today he sent me this material. This document is a veritable BOOK -250 pages and nearly 1000 footnotes.
FCC dings wireless industry for having no competition - news report here: http://www.fiercewireless.com/story/fcc-dings-wireless-industry-competition/2010-05-20
300 page report here: https://www.fcc.gov/14report.pdf
p.s. some of the key quotes from the FCC's Wireless Competition Report ...
"This Report also goes beyond previous reports in reflecting the transformative importance of mobile wireless broadband, which has resulted in a shift from devices that can place traditional phone calls to pocketable devices that can access the entire Internet. Because each of the interrelated segments of the mobile wireless ecosystem has the potential to affect competition, this Report analyzes competition across the entire mobile wireless ecosystem, including, for the first time, in-depth analyses of "upstream" and "downstream" market segments, such as infrastructure and devices."
"The two largest providers, AT&T, Inc. (AT&T) and Verizon Wireless, have 60 percent of both subscribers and revenue, and continue to gain share (accounting for 12.3 million net additions in 2008 and 14.1 million during 2009). The two next- largest providers, T-Mobile USA (T-Mobile) and Sprint Nextel Corp. (Sprint Nextel), had a combined 1.7 million net loss in subscribers during 2008 and gained 827,000 subscribers during 2009. One widely-used measure of industry concentration indicates that concentration has increased 32 percent since 2003 and 6.5 percent in the most recent year for which data is available."
"Especially as mobile wireless data usage grows, spectrum becomes an increasingly pivotal input. In particular, lower-frequency spectrum possesses superior propagation characteristics that create certain advantages in the provision of mobile wireless broadband service, especially in rural areas. Lower-frequency spectrum potentially allows for a higher quality of coverage with fewer cell sites, when compared to other frequency bands used to provide mobile services. Conversely, higher-frequency spectrum may be effective for increasing capacity, particularly within smaller, more densely-populated geographic areas. Recent auctions reflect that lower frequency bands are more highly valued than higher frequencies. A significant portion of spectrum below 1 GHz is held by the two largest providers: 67 percent of the 700 MHz band, and 91 percent of the Cellular band, based on megahertz-POPs (MHz-POPs).
"While the seven largest mobile wireless service providers all had EBITDA margins over 20 percent during the second quarter of 2009, only four - AT&T, MetroPCS, T-Mobile, and Verizon Wireless - had EBITDA margins greater than 30 percent, and the two largest providers had the highest EBITDA margins. In addition, these two providers had the highest EBITDA minus CAPEX per subscriber of the top four providers in 2007 and 2008." VERIZON WIRELESS HAD 46.3% EBITDA MARGIN IN 2009!
Erik writes: Keep reading the report; it just keeps getting better. I am thrilled; this is the best piece of work I've seen out of the FCC in more than a decade. (my emphasis.... other emphasis is eriks) I don't know how or why the wake up call came, but finally, I think they get it. (And this is good fact-based stuff, not to mention that for once in their existence they see the market as an inter-related whole. The numbers tell the story we've discussed on list forever - the age of selling hand-held minute vending machines and set-top channel vending machines is over.) What this country must do is move from subsidizing infrastructure via these older business model paradigms and shift to one where infrastructure is more directly subsidized while, at the same time, freeing ALL businesses to innovate as they please over the top of that. The first step will be to fund the newest forms of business and technology; the second step will be to fund pure infrastructure. The sooner we get out of minute wars and content wars, however, the better. Even in an over the top world, however, regulation will still be required - mostly in the form of Title II-lite - i.e. real Title II, but zero state involvement in unnecessary details like minutes, local calling areas, and the arcana of bell monopoly-isms, with actual, direct, and meaningful antitrust enforcement where simple rules of the road are not enough to constrain bad behavior. (all telecom, all 100% interstate; voice is interstate telephone exchange service; forbear from the ancient requirements, but apply things like 911, CALEA, etc. even-handedly across networks; eliminate rate arbitrage with a single unitary rate.)
What would be interesting on a going-forward basis is to see what comes out on the wireline side, then examine this, the wireline piece, and your work, and others like it, including the stuff that Tim, Paul and others have come up with to see if from all of that we cannot craft a single, sensible, integrated picture of how this Internet machine should work for the next 20 years or so. If that were possible, I think that seeing whether your list - . . . . - could come up with some consensus policy recommendations would be very powerful indeed.
There are, b/t/w, more surprises coming. Cycles of consolidation will roll on for another year or so before private equity (as well as last century's subsidized cash-rich behemoths) have little left to consume but themselves. Nevertheless there is still a zeitgeist out there that says companies can acquire their way to profitability, which, if we were to continue the deregulatory course may be true - VZW did hit nearly 50% margin in 2009 - after swallowing up every wireless network AT&T didn't gobble up - still, that kind of money is a strong incentive.
Provided this is truly a sea change, provided we have new thinking and not old thinking warmed over, provided the administration is seeing just how pissed off every day Americans are about politicians being too close to corporations (something I wrote about more than a year ago), then we're headed in a better direction. Meanwhile, keep your eyes open; we're navigating some very difficult national and global waters, but at least, finally, it appears that the FCC has found its rudder and is actually steering the ship.
Well, back to work; I'm swamped.
Thursday, April 15, 2010
Well, finally, the telecom name game hits the big time. Having cross examined no end of Bell company witnesses, I'll examine George Ou's apparently pro-ILEC spin by juxtaposing his apparent "analysis" against the whole of the Internet. (I say "pro-ILEC" (aka pro-Bellco) because it appears Digital Society is a half-way house for Progress and Freedom Foundation (who routinely supports "deregulation" of the AT&T and Verizon variety) judging by their personnel: http://www.digitalsociety.org/about/)
Ou takes issue with the proposition the FCC should regulate the transport components of the Internet in a short article entitled "The Myth of Title II `reclassification'". He refers to some FCC orders without naming them and then sets up and proves a straw man argument. Setting aside a certain lack of legal depth, his analysis also fails to account for industry history, evolution of the networks, interconnection arrangements (uh, across every platform - cable, wireless, wireline, satellite, and so on), tariffs, facilities, towers, or money behind them, much less the practicalities of actually running these business or litigating the cases he seems to cite with such confidence. Rather than dive into briefing this - b/c thorough treatment would require briefing, why don't we just examine the facts. Secondly, he was a network engineer, now reporter, not a lawyer. So to keep this fair, I'll take off my lawyer hat - and go right into the deep end of the network stuff to illustrate how, on the facts alone, this kind of reasoning is ludicrous.
First, let's not get lost in the name game:
If we run it to the lowest common denominator – the signals travelling across coaxial cable, hybrid coax, copper, fiber optic, TDM, mobile wireless, fixed wireless, handsets of every stripe, CDMA, GSM, LTE, 4G, satellite, class V switches, class VI switches, cable head ends, CDNs, etc. – we know that electronic communications networks – however labeled (Internet, Public Switched Network, cable, broadcast, etc.) involve people using computers to communicate with each other. Computers process "information". Information, to a computer, exists in one of two states: on or off. Your 2 gigahertz computer processor, for example, is a switch that essentially turns on or off 2 billion times per second. So it all boils down to 010010001010100101010101010s (and programming and money, but hey, let's see what's really going on underneath the name game).
Setting aside gaping holes in the applicable legal history, which, again, we don't need to address here as the facts, I think, are delicious, let's just see how that plays out against all of the "transport" and "information" distinctions the article asserts are so utterly clear.
- Some of the 010101010110110101s are "transport" and some of the 010101011101010101101s are "information" because some of the 010111010010101s ride "on top of" some of the other 101010101011011s.
- Some of the 010101011010101s are "out of band" but part of "telecommunications" (SS7 is an IP network), but not exempted from Title II, but not quite Title II either (some tariffed SS7, others didn't tariff SS7; no one could decide).
- Others 0101010101s through the air and are "local" (and no subject to state regulation) more often than ones that go through copper or coax, which are also "local" but subject to state regulation (and pricing inputs that on average are 20x higher than those that apply when they go through the air). This only happens, however, when those 01010101011s are "voice"; if not, then other rules may (or may not) apply, as demonstrated with pellucid clarity below.
- Yet other 01010101001010s are on copper or coax but are not telecommunications (because not only to they ride over, but are "combined with" some 1010101010101110101s beneath them that results in the copper being not regulated). But, if you happen to be a 10101010101010 that is associated with "voice", you are subject to regulation (under Title I), including but not limited to USF and 911, when your 101010101010s ride "over" other 101010101s that were already combined with the lower layer 1010000010101s that resulted in the deregulated copper in the first place. This is entirely different than the problem mentioned above where certain 0101010101s were subject or not subject to state regulation when they carried voice. In this case the 1010101s were in "IP" format. Above, they were in CDMA or GSM (or LTE or 4G) or TDM or DOCSIS, but not necessarily in IP, though they might have been IP at some point, however, so long as it was something other than IP at the endpoints, the rules cited above would apply, not the rules referenced in the 10010101s mentioned in this paragraph.
- The preceding paragraph was probably confusing; I'll clarify: 00101010110011s that originate in a form of 01010101011s known as time division multiplexing, are converted to other 0101010s that are known as IP, then back to 10110101011s known as time division multiplexing are regulated. This would also more or less be true if CDMA or GSM were on both ends, but no one has really fought that legal battle because the financial rules that apply to 0101010101s carrying voice to your CDMA, GSM, 4G or LTE handset are subject to financial rules (known as "intercarrier compensation") that make it silly to fight over whether or not the 1010101s really actually truly "originated" and "terminated" in something other than IP. The real battle over 101010101110s that ride inside of 1010101010 formatting known as CDMA, GSM, 4G or LTE comes not for rating reasons, but because either the handset vendor (e.g. Apple) or the entity that provides the CDMA, GSM, 4G or LTE signal (wireless "carrier") wants to prevent you, consumer, from using the Internet to carry some of your 1010100101 voice signals via cheaper providers available on the Internet.
We're not done yet; it gets better:
- Certain 1010100101s ride inside waves, but only in one direction. They are neither telecom nor information service because they carry video and go only in one direction.
- Other 10101010101s ride inside waves, generally in one direction (subject to error checking). They are not broadcast, could be telecom but are information service as they are inside of fiber optic glass, carry video, but come from web servers not broadcast studios.
Secondly, let's just take one real world example:
Somehow the incumbents, and apparently Mr. Ou say Title II never applied to the "Internet". Well maybe ... they are hyper-technically correct. But, again, to avoid confusion, recall that certain special rules apply to certain 1010101s that carry voice information. Sometimes people use the Internet to communicate by voice. Sometimes they talk to other people who use computers to connect to the Internet. Sometimes, however, their friends are away from their computers. So they call the telephones. In that case 1010010101s go from a computer to other computers that "convert" the 10101010s from IP to other formats - whether TDM, CDMA, GSM, etc. In some cases the 101010101s from your computer will have other numbers associated with them - a telephone number - let's say you buy Vonage in Washington, DC (202 area code). You move to San Francisco (415 area code). You take your vonage phone with you. You call your grandmother, across the street. Your grandmother buys old fashioned telephone service from AT&T. You buy DSL service from AT&T. AT&T will charge the carrier who takes your 101010101s from the "Internet" (IP format) and converts those to 101010101s that can talk to it's old fashioned telephone switches (TDM format - this is old copper landline) "long distance" fees. But you can only charge "long distance" if you apply a tariff (tariffs are creatures of Title II) to that call.
The money in these charges is several tens of billions of dollars per year. AT&T, Qwest, Verizon, Windstream, Embarq now CenturyLink, etc. has sued all kinds of carriers who convert 1010101s from IP format to 01010101s in TDM format to connect with their old fashioned switches and won hundreds of millions of dollars. At the same time these carriers use IP in their backbones, deploy all sorts of IP-enabled gear, but use their old TDM operations as cash registers to clean out everyone but themselves. Go figure.
So of course Title II has never been applied to the Internet. "Reclassification is a myth." OK. Sure. Clear as day.
Fortunately for us, AT&T, Verizon, Qwest, Windstream, CenturyLink, and apparently the good people at Digital Society, want to keep the system just the way it is right now. Mmmmm. Glad the "free market" guys are completely in alignment with all of the "free market" incumbents who want to make sure that selective deregulation stays in place.
Thursday, April 8, 2010
Monday, April 5, 2010
Were the FCC to deem "broadband" to be a telecommunications service, however, they'd end these battles and free up all sorts of resources going into more legal battles to actually put money in the ground.
If only Nero could have Tweeted while Rome burned.