Friday, May 19, 2017

Hidden in Plain Sight: FCC Chairman Pai’s Strategy to Further Concentrate the U.S. Wireless Marketplace

          While couched in noble terms of promoting competition, innovation and freedom, the FCC soon will combine two initiatives that will enhance the likelihood that Sprint and TMobile will stop operating as separate companies within 18 months.  In the same manner at the regulatory approval of airline mergers, the FCC will make all sorts of conclusions sorely lacking empirical evidence and common sense. 
            FCC Chairman Pai’s game plan starts with a report to Congress that the wireless marketplace is robustly competitive.  The Commission can then leverage its marketplace assessment to conclude that even a further concentration in an already massively concentrated industry will not matter. Virtually overnight, the remaining firms will have far less incentives to enhance the value proposition for subscribers as TMobile and Sprint have done much to the chagrin of their larger, innovation-free competitors AT&T and Verizon who control over 67% of the market and serve about 275 million of the nation’s 405 million subscribers.
            Like so many predecessors of both political parties, Chairman Pai will overplay his hand and distort markets by reducing competition and innovation much to the detriment of consumers.  He can get away with this strategy if reviewing courts fail to apply the rule of law and reject results-driven decision making that lacks unimpeachable evidence supporting the harm free consolidation of the wireless marketplace.  Adding to the likely of successful overreach, is the possibility of a muted response in the court of public opinion.
            So how will the Pai strategy play out?  First, the FCC soon will invite interested parties to provide evidence supporting or opposing a stated intent to deem the wireless marketplace sufficiently accessible and affordable throughout the nation.  The FCC has lots of evidence to support its conclusion, but plenty of countervailing and inconvenient facts warrant a conditional conclusion, particularly in light of future market consolidation.  Wireless carriers have invested billions in network infrastructure and spectrum.  Rates have significantly declined as the industry has acquired scale and near full market penetration.  Bear in mind that all of this success has occurred despite, or possibly because of a federal law requiring the FCC to treat wireless carriers as public utility telephone companies.  Congress opted to treat wireless telephone service as common carriage, not because of market dominance, but because it wanted to maintain regulatory parity with wireline telephone service as well as apply essential consumer safeguards. 
            How ironic—perhaps hypocritical—of Chairman Pai and others who surely know better  to characterize this responsibility as the product of overzealous FCC regulation that has severely disrupted and harmed ventures providing wireless services.  Just how has common carrier regulation created investment disincentives for wireless carriers when operating as telephone companies?  Put another way, how would removal of the consumer safeguards built into congressionally-mandated regulatory safeguards unleash more capital investment, innovation and competitive juices?
            U.S. wireless carriers regularly report robust earning and average revenue per user that rival any carrier worldwide.  Of course industry consolidation would further improve margins while relaxation of network neutrality and privacy protection safeguards would create new profit centers.  TMobile shareholders get a big payout, while the remaining carriers breath a sigh of relief that their exhaustively competitive days are over.
            Will the court of public opinion detect and reject the FCC’s bogus conclusion that common carrier regulation has thwarted wireless investment and innovation?  That requires a lot of vigilance and memories of the bad old days when no carrier opted to play the role of maverick innovator and marketplace disrupter.  With TMobile or Sprint merged or acquired, the remaining ventures have ever more incentives not to spend sleepless afternoons competing and devising new ways to stimulate customer interest in changing carriers.  TMobile and Sprint have offered just about every value enhancement in recent years such as carry forward minutes, reduced roaming charges, unlimited service, new bundles and use your own device at much lower monthly rates.  Would these options exist if only three carriers served 95% of the market?
            If you think the recent spate of airline mergers has enhanced competition and the air travel experience, then a wireless marketplace with 3 national carriers will work out just peachy.

Tuesday, May 9, 2017

FCC Chairman Pai's Results-Driven Decision Making

Hello All:

In a contribution to The Hill, I take issue with FCC's Chairman Pai's commitment to sound economics and empirical fact finding even as he engineers results-driven outcomes.  See

Thursday, April 20, 2017

More Doctrinal and Partisan Economic Analysis at the FCC

            According to FCC Chairman Amit Pai and the partially dissenting judge in a key case, the FCC desperately needs more economists and their work product. See; and  If only these disciplined and intellectually honest non-lawyers were on the case, the FCC would better serve the public interest. See, e.g., Gerald R. Faulhaber, Hal J. Singer and Augustus H. Urschel, The Curious Absence of Economic Analysis at the Federal Communications Commission: An Agency in Search of a Mission, 11 INTERNATIONAL JOURNAL OF COMMUNICATION, 1214–1233 (2017); available at:

            I don’t buy it one bit.

            The FCC has far more lawyers than economists, because much of the agency’s job requires statutory interpretation and implementation.  The Commission has an established body of case precedent from which it has a legal obligation to consult and apply absent changed circumstances, particularly in the frequent adjudications it performs.  Of course economists should participate in the FCC’s policy making process to assess whether and how circumstances have changed.  Additionally, laws occasionally do specifically require the FCC to conduct economic analysis such as assessing whether a market operates with “sufficient competition.”

            D.C. Circuit Court Judge Williams endorsed a statement attributed to former Chief Economist Professor Tim Brennan criticizing the FCC for ignoring economic analysis.  See Williams Partial Dissent at 41, citing

            Professor Brennan is no shrinking violet who somehow found himself ignored, if not shunned at the FCC.  What is sought by Chairman Pai, Judge Williams, incumbents and the legions of sponsored economists already participating in FCC proceedings is something quite different from legitimacy and a seat at the table.  They want doctrinal superiority.

            Doctrinal superiority means that the FCC should unconditionally accept the work product of specific economists and their particular views. Chairman Pai does not appear to want more robust and open economic analysis.  He appears to want a specific strain of economic doctrine to apply.  Unsurprisingly that doctrine supports a deregulary wish list of incumbent ventures so they can accrue more market power, profits and insulation from competition. 

            Chair Pai does not appear to embrace peer reviewed, disciplined economic analysis unfettered by specific, desired outcomes.  Instead, he seems to welcome economics that create unimpeachable rules that he endorses.  Lawyers surely can interpret law and parse its meaning, but economists do not even have to start with an underlying predicate. They can make it up as they go along.

            Free of having to start from case precedent and specific statutes, economists can state unequivocally that mergers and acquisitions “promote competition.”  Other Big Truths from sponsored telecommunications economists include the conclusion that:

●          markets only need 3 competitors to operate efficiently;
●          deregulation should start if a market might become competitive in the future;
●          vertical integration always helps a venture achieve scale and efficiency; and
●          incumbent common carriers should receive the same or greater compensation for having to                 lease capacity to a competitor than what would accrue if the carrier provided service to an end             user.

            Most economists I know have solutions to all of society’s ills.  Many have great confidence bordering on smugness, no doubt enhanced by their command of complex math.  Most have a particular agenda that colors their research converting it into advocacy that would not pass must with peer review.  The allure of easy and lucrative financial sponsorship from stakeholders converts most economic analysis submitted to the FCC into predictable, biased, partisan and doctrinal work product.  The FCC already receives tons of this kind of material in the proceedings for which it solicits public comments.

            I have little confidence that having more unsponsored, but likely partisan and doctrinal economists at the FCC will miraculously enhance the work product of the Commission.

            I’ll conclude with a lame joke about an economist who suddenly finds herself in a pit.  How does she get out of this dilemma?  She assumes a ladder.

Monday, April 10, 2017

Being a Regulated Common Carrier Means You Never Have to Be Truly Sorry: How United Airlines Can Forcefully Evict Paying Passengers to Make Way for Non-Rev Crew

            United Airlines brought in some muscle to execute an “involuntary denied boarding” decision, well within its contractual and regulated tariff rights.  See

            Okay, they may have allowed the use of more force than wise, but that’s a matter of police, or rent-a-cop brutality, hardly a matter under United Airlines’ control.  Perhaps this knowledge explains the rather tone dead, unremorseful response from the CEO of United.  See He characterizes the episode as “upsetting to all of us here at United,” and he’s sorry for having to “reaccomodate” customers. 

            Reaccommodate reminds me of the word re-delivery used by local newspaper when they failed to deliver a paper in the first place.

            Nothing in the CEO Munoz statement comes within a time zone of heartfelt remorse, because United can pretty much do anything it considers necessary—even the involuntary deplaning of 4 revenue producing passengers to make way for 4 non-revenue producing crew needed to fly a future flight.

            The lesson here—and the link to telecommunications/Internet regulation—lies in the legal protections accruing to service providers vis a vis their customers.  United files a public contract, called a tariff, for air service.  This non-negotiable document offers very little consumer protection, because the carrier wrote it with carrier protection in mind and with limited, “job killing” regulatory oversight.

            Airline carriers have no duty to provide service even if they take your money, issue you a boarding pass with seat assignment and make no initial effort to block your ingress to your assigned seat.  Sure, they have to pay you for your inconvenience, but the amount cannot exceed $1350 for domestic travel. 

            $1350 is a small price for never having to say you’re really sorry.

            I have no doubt that staff and management of United consider this episode business as usual.  They will continue to overbook passengers and deny carriage to selected, unlucky passengers.

            Airline executives seem oblivious to public relations and compassion. If someone gets roughed up for tardy deplaning, it’s “outside the airline’s control.”

Tuesday, April 4, 2017

This is the Information Age?

            Infrequently, I take stock of my relationship with technology and marvel at both improvements and declines.  Yes, many transactions are faster, better, smarter, cheaper and more convenient.  Alas, others coarsen society, convert people in to algorithmic decision points and remove joyful human interaction.

            Today I marvel at instances where the status quo has persisted, despite ample opportunities for technological improvements.  Consider these examples:

1)         Much of the medical ecosystem still communicates via facsimile.  In preparation for a total hip replacement, I have to undergo a number of tests.  The exchange of test results from lab to doctor using a 1960s analog technology that combines a scanner with a modem operating at a snail’s pace often at 14,400 bits per second.  Care to estimate the lost productivity in having to send and receive faxes?  This week I had to devote considerable time in confirming a diagnostic code change for a blood test.  Two faxes ordering the change never made it to the appropriate processor.

2)         It still takes 4-6 weeks for a magazine subscription to renew if you opt to use a venture offering a lower price who has no direct affiliation with the publisher.  Perhaps they too communicate by weekly faxes.

3)         The IRS still communicates primarily in person and by mail.  Perhaps this tactic prevent some fraud as many have received fake robocalls and emails from scammers posing as IRS agents.  Ok, I get that, but why can’t I send necessary evidence to the IRS as a pdf file instead of—you guessed it—sending a lengthy and time consuming fax?

4)         My Comcast set top box must remain on 24/7 even though my wife and I watch television for less than 2 hrs a day.  For more than 5 years, I have had recurring set top box issues.  I solved the issue (not a technician or the dozens of clueless customer service reps) by inferring that the box missed some type of polling call from the headend.  Rather than resend the poll, to re-authenticate my box, Comcast treated my box as offline or worse.  My solution uses more electricity, because I no longer can turn the box off—Ever.

            I’ll stop now . . .

Saturday, April 1, 2017

Differences Between Content and Carrier Privacy

            With narrow thin margins, both the U.S. Senate and House of Representatives have passed Resolutions foreclosing the FCC from imposing privacy safeguards on Internet Service Providers (“ISPs”).  See;  Advocates on both sides of the issue have offered insights that distort reality, but eventually the court of public opinion will get this matter right: ISPs can mine and monetize subscriber data without offering a dime in compensation, or any sort of enhanced value proposition.  Content providers have to provide something of value for the privilege.

            I marvel how smart people, who really should know better, spout the party line that ISPs and content providers should face symmetrical privacy obligations, or freedoms.  Why?  Advocates for foreclosing FCC consumer protection, frame the matter as a giveaway to villainous Google and Facebook, if content providers have easier access to consumer data than the firms like Verizon and Comcast that carry the content.

            Here’s my newsflash: content providers provider something of value for the privacy they monetize, while carriers have to offer nothing in return.  For a brief period, AT&T offered its subscribers the opportunity to pay a surcharge for enhanced privacy protection.  Data about subscribers location, wants, needs, desires, habits, frequent web site visits, search terms etc. have significant value.  But so far, content providers understand that they have to provide something of value in return for the privilege.  Carriers do need some of this information, e.g., subscriber location, to provide service, but clearly lots of it is marketable without costing the carrier anything by way of a discount, or savings to subscribers.

            Even if we ignore the need for a fair exchange between carrier and consumer, there are major differences between what consumers have to give up to carriers versus what content providers can glean.  Carriers need constant monitoring and managing of factors such as subscriber location and data (bandwidth) requirements to manage networks and maintain high quality of service.  However, these carriers can configure network management into quite intrusive and sellable subscriber surveillance.  For example, content providers have to make do with IP addresses rather than specific location coordinates unless and until subscribers opt into such tracking.  Carriers have that information on an ongoing basis without having to ask for permissible to use and sell it.

            Consumers readily give up privacy expectations and rights in exchange for something of value from content providers.  It’s a voluntary and often mutually beneficial transaction.  On the other hand, carriers do not have to initiate such a transaction, but can incorporate non-negotiable, terms and conditions of carriage.  Acceptance of these “take it, or leave it” provisions constitute a pre-condition for the “right” to become a subscriber. 

            Eventually the court of public opinion will see the unfairness in having to abandon most privacy expectations for the “privilege” of subscribing to something that has become a fundamental—dare I say public utility—aspect of life.  One might have reluctance to give up the information, communications and entertainment (“ICE”) services of Google and Facebook, but who wants to abandon tetherless, lifeline access to the real and virtual world via handsets?

            Lastly, defenders of the privacy takeaway seek to assure the public that adequate safeguards remain in place.  Of course, the FCC can apply telecommunications carrier safeguards, e.g., Section 222 of the Communications Act, but only if it the Commission does not re-reclassify broadband as an information service. Does this imply that the New FCC will not remedy Old FCC overreach?


Wednesday, March 1, 2017

Massive 5G Investment, Despite “Regulatory Uncertainty”

            Riding closely on the heels of substantial investment in Fourth Generation wireless infrastructure investment comes a Fifth Generation.  Wireless carriers in the United States appear to have accelerated the rollout of 5G. See, e.g.,;;

            Hang on. Aren’t we living an acutely painful world of regulatory uncertainty foisted on the marketplace by network neutrality zealots?  How can carriers invest substantially in a wireless broadband technology if regulators are hell-bent to mandate access and openness?
            It strikes me that wireless carriers in the United States and elsewhere can handle regulatory uncertain and make prudent investments in next generation network infrastructure.

            There are legitimate reasons not to support network neutrality, or to advocate reforms.  But make no mistake: removing “regulatory uncertainty” is a bogus rationale having no real impact on carrier investment strategies.

Monday, February 27, 2017

FCC Chairman Pai’s Alternate Facts Part 3, Privacy "Protection" for Broadband Consumers

            FCC Chairman Ajit Pai has opposed broadband consumer privacy protection safeguards largely based on a false dichotomy: that Internet content providers, like evil Google and Facebook could collect, process and exploit consumer usage data, while ISPs could not. See
Dissenting Statement of Commissioner Ajit Pai, Re: Protecting the Privacy of Customers of Broadband and other Telecommunications Services, WC Docket No. 16-106.

            This is a false dichotomy, because consumers willingly opt to barter their usage data in exchange for “free” advertiser supported content access, while broadband subscribers will have to allow such surveillance and sales of usage data as a hidden or obscure cost of service.

            Even though Internet content consumers cannot negotiate with providers and have to accept “take it or leave it terms,” Chairman Pai might perceive a viable marketplace.  Consumers willingly give up privacy protection, because they don’t know what they have to give up, they consider it a fair trade, or they trust Federal Trade Commission safeguards to provide adequate protection. 

            On the matter of FTC protection, Chairman Pai deems an “eviction” the process by which the FCC proposed rules would replace general, FTC privacy safeguards.  He conveniently forgets that the FTC has no jurisdiction to impose rules on common carriers, the regulatory status still applicable to ISPs.  Even if the Pai FCC re-reclassifies Internet access as private carriage, I don’t think it’s a given that the FTC and its apparently acceptable rules to Chairman Pai would seamlessly and quickly come into play.

            More fundamentally Chairman Pai appears to treat conduit function and content as able to operate in nearly identical bartering marketplaces.  I respectfully disagree.  It’s one thing to refrain from using Facebook and even Google’s search function, because one cannot accept the privacy invasions, dossier construction, data mining, and revenue accrual from advertising auctions used by Internet content providers to finance their services.  It’s quite another matter to opt out of wireless telecommunications services, because carriers can do the same things and perhaps even more, based on the location determination, call and IP address recording and other surveillance/network management functions.

            Simply put, wireless voice and data subscribers should not have to abandon any and all privacy protections for the “privilege” of becoming a consumer.  If consumers learn that Chairman Pai is working sleepless afternoon to sanction unlimited trading of wireless consumer data, common carrier safeguards will look increasingly essential.

Thursday, February 9, 2017

FCC Chairman Pai’s Alternative Personalities, Facts, Economics and Law—Part Two

Okay.  Turn off all electronic devices (except one with the screen on which you are reading this       blog!).  Please answer this one question pop quiz.

Who made the following public statement:
What would be best for consumers? My view is pretty simple. Our goal should not be to unlock the box; it should be to eliminate the box. If you are a cable customer and you don’t want to have a set-top box, you shouldn’t be required to have one. This goal is technically feasible, and it reflects most consumers’ preferences—including my own.

            A)        President Donald Trump;

            B)        FCC Chairman Ajit Pai

            C)        Former FCC Chairman Thomas Wheeler; or

            D)        Harold Feld, Senior Vice President, Public Knowledge (an advocacy group)

Perhaps this answer surprises you as the quote would appear to originate from someone with a strong commitment to consumer protection. You might have kicked out answer B) based on Chairman Pai’s removal of the cable set-top box Notice of Proposed Rulemaking without prior notice which he seems to consider necessary in most instances.

Perhaps Chairman Pai will replace the prior set-top box proceeding with one more likely to achieve his stated objectives.  Maybe not.  Chairman Pai appears to send mixed messages.

Wednesday, February 8, 2017

FCC Chairman Pai’s Alternative Personalities, Facts, Economics and Law—Part One

            FCC Chairman Pai has launched a charm offensive showcasing his commitment to transparency and regulatory restraint.  However, behind the scenes, he ignores due process, the rule of law, FCC tradition, bipartisanship and fair play to shut down previous FCC initiatives of which he disapproves. 

            For example, this bi-polar personality makes it possible for the Chairman to claim how much he cares about curbing extraordinarily gouging long distance telephone rates borne by the “captive” 2.2 million inmates in the U.S. even as he instructs his General Counsel to abandon any participation in an ongoing judicial review of prior FCC decision which resulted in rules.  See New Chairman Orders FCC To Abandon Court Defense Of Rule Limiting Prison Phone Rates; By ordering his counsel’s no show,—akin to the Democratic Senators’ boycotts of Trump Cabinet nominee confirmation hearings—Chairman Pai facilitates maintenance of the status quo.
            Ironically, the Chairman has acknowledged the inmate calling marketplace fails to support his heartfelt belief that markets usually are infallible and efficient:

I believe that the government should usually stay its hand in economic matters and allow the price of goods and services to respond to consumer choice and competition. But sometimes the market fails, and government intervention carefully tailored to address that market failure is appropriate. Dissenting Statement of Commissioner Ajit Pai as Delivered at the August 9, 2013 Open Agenda Meeting, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at:

            On the other hand, Chairman Pai willingly works to prevent the consequences of market failure and the need for remedies, if the FCC errs in any way that he believes might establish a precedent for jurisdiction and overreach where market self-regulation suffices.  Better to eliminate in its entirety a ruling containing Pai-identified flaws than subject it to a court test, and refinements under his administration.

            The Pai-identified flaws are based on alternative facts, economics, accounting and law.
The Chairman has determined that the FCC’s prescribed per minute caps would prevent inmate calling companies from recouping costs.  He has interpreted Sec. 276 of the Communications Act as foreclosing any FCC jurisdiction over intrastate calling by inmates.  Additionally, the Chairman reads Sec. 276 as authorizing the FCC to remedy the unlikely instances of below cost rates, but prohibiting the Commission from remedying the far more likely scenario of rate gouging.

            To reach these conclusions, Chairman Pai accepts an alternative reality.  For example, he appears to believe that interested parties report the actual costs of doing business to the last dollar.  The Chairman takes as a fact the calculation made by the National Sheriffs’ Association that annual administration costs for jail-based calling amounted to $244,253,292 around 2012-13, but the FCC’s price cap/safe harbor rate would yield only $136,704,062 in revenue. See Dissenting Statement of Commissioner Ajit Pai, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at:  He can conclude that the FCC would impose “confiscatory” rates on long suffering inmate calling companies should they have to reduce rates.

             Let’s take a look at the U.S. inmate calling industry and its financial viability.  Two privately owned companies, Global Tel*Link and Securus Technologies control 70% of the market.  These companies pay massive commissions—some would say kickbacks—to jails and prisons. That surely contributed significantly to the Sheriffs’ $244.2 million calculation.  Let’s call them franchise fees.  No stakeholder, no one at the FCC, no one period has provided credible evidence that these inmate carrier costs plus franchise fees are compensatory vis a vis the cost of providing telephone service. Inmate calling companies operate as telecommunications service providers, subject to Title II common carrier regulation.  Their rates have to be cost-compensatory, plus a reasonable profit.  Fees of any sort have to relate to the cost of providing service and not doughnuts, boondoggle trips to conferences and kickbacks.

             Chairman Pai has railed against voodoo economics and the absence of economics.  Yet when it comes to inmate calling, he accepts the accounting of a stakeholder having every incentive to pad the cost calculation.

             The Sheriffs’ calculation and Chairman Pai’s endorsement of it do not pass the smell test.  Outside the penal environment, long distance telephone calls cost retail subscribers about 2-5 cents for interstate calls and about 10-15 cents for intrastate calls.  For example, see  Outside jail, telecommunications costs are so cheap that it makes financial sense to use cheap overseas labor to provide operator assistance.  Operator assistance is also computerized.

            I don’t believe the Sheriffs have made a credible calculation, nor do I believe their threat to yank out phones if the FCC’s 13 cent rate cap were implemented.  If a jail’s phones accrue $2 million in phone commissions annually, which would management choose: $0, or $1.5 million?  Similarly, I have seen no evidence that jailors are spending millions policing, monitoring, and safeguarding the payphones.

            I readily accept that jails house a lot of “bad dudes,” foreign and domestic.  They have to pay a debt to society, but it does not have to include $15 for a 10 minute telephone call.        

            In this time of alternative realities, apparently the Chairman can be all things to all people.  It simply depends on your selective perception.

Monday, January 23, 2017

An Open Letter to FCC Chairman-Nominee Ajit Pai

Dear Commissioner Pai:

Congratulations on your likely nomination to become Chairman of the Federal Communications Commission.  For the good of everyone in the country, I hope you will lead the Commission with decorum, pragmatism and collegiality, no matter how real your prior grievances.  You owe everyone a renewed commitment toward humility, grace and an open mind, despite real or perceived justifications for snarkiness, sanctimony and hubris.

I am greatly disappointed that the FCC has become so partisan and fractious.  Far too many years ago, Commissioners of both Parties sought compromise rather than self-aggrandizement and accommodation of a few key stakeholders.  The public interest served as a goal worth identifying and serving.

As recently as 2005, all Commissioners could reach closure on basic principles of the role of the FCC in helping shape the Internet.  Every Commissioner agreed that the FCC could achieve a greater good with well-calibrated oversight and a limited regulatory regime, neither interventionist nor libertarian.  This agreement did not take a lot of pages, did not originate in the word processor of an outside law firm, or consultant and did not require endorsement by sponsored researchers, political parties and the most vocal and deep pocketed stakeholders.

Going further back in time, the Republican Party’s public interest mandate included rigorous antitrust enforcement and a commitment to a level competitive playing field.  You might not know that in true Teddy Roosevelt fashion, President Nixon’s Justice Department started the litigation that eventually resulted in the divestiture of AT&T and the unleashing of competitive energies.

I hope you will take every effort to achieve consensus which used to be the usual outcome of matters before the FCC.  Issues did not have a Republican position and an opposite Democratic one.  Most votes were unanimous, because fair minded Commissioners—led by a fair-minded Chairman—could achieve a just and proper outcome, even if it disappointed a major incumbent.

No one had to overreach, or grandstand.  No one had to write 50 page dissents.  No one dared resort to smugness, righteous indignation and arrogance.

I share your excitement about the promise of telecommunications and information technology to enhance national welfare and make life better for all.  Such potential makes it that much more important that you strive to lead by example and refrain from using your considerable power to settle all the grudges you bear.

Best wishes for a successful Chairmanship.


Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law
Pennsylvania State University

Wednesday, January 18, 2017

TMobile’s 480p Video Delivery Gambit: Tiering, or Throttling?

Predictably, and perhaps appropriately, broadband carriers are spending sleepless afternoons crafting new ways to diversify service without violating the FCC’s Open Internet Order restrictions on traffic blocking, throttling and paid prioritization.

TMobile has opted to give with one hand and somewhat furtively take with the other.  The carrier will offer “unlimited” data, subject to quality of service limitations, including delivery of video at 480 p regardless of what format it received from an upstream content provider or distributor. See, e.g.,  TMobile will retain a higher screen resolution provided a subscriber pays a $25 upcharge.

Is TMobile throttling service by deliberately downgrading quality, or is the carrier simply using screen resolution as a tiering option and proxy for bit transmission speed? 

Bear in mind that many wireless carriers have offered “unlimited” data, subject to throttling to 2G or 3G speeds after a subscriber exceeds a stated allowance.  Perhaps a carrier does not throttle if it does so on a nondiscriminatory basis.  The carrier does not single out traffic from a specific content provider or carrier.  Every content source faces service degradation if the subscriber exceeds a still enforceable cap.

So one person’s tiering may be another’s throttling and the FCC places itself in the middle as an awkward judge, jury executioner. 

Monday, January 16, 2017

Who Pays What to Whom in the Internet Ecosystem?

Internet interconnections and compensation arrangements have been based on voluntary terms and conditions after government underwriting stopped. In a commercial context, funds flow on the basis of traffic volume, but also bargaining power (individually, or collectively held).

Last mile ISPs have significant bargaining power in light of their control of access to end users ("eyeballs" to advertisers and content providers alike).  While we could debate about the robustness of competition and last mile broadband options (functional equivalency), few would disagree that most consumers select one and only one last mile wireline provider (where available) for traffic requirements exceeding 10 Gigabytes.  The FCC termed last mile ISPs as "terminating monopolists," appropriate insofar as most consumers are willing to pay for and rely on a single wireline last mile ISP.  Consumers might also subscriber to a wireless broadband carrier, but data caps force conservation and create incentive to retain a wireline option offering unlimited data, or very high caps like Comcast's 1 terabyte monthly cap, plus Wi-Fi tethering.

In the context of platform/double-sided markets model, last mile ISPs have 2 compensation/revenue streams available: 1) last mile broadband subscriptions and 2) payments from upstream CDN and content providers.  While I can see how a credit card company might need to offer free cards, or even pay car users with airline miles and rebates, last mile ISPs have not given up imposing tiered service rates, primarily based on transmission speed (and not data volume like wireless carriers).  Last mile ISPs now want to increase the compensation received from upstream players.

Netflix, Google and other large volume generators of content have been free riders only if one considers content providers/distributors as solely responsible for compensating downstream carriers handling more traffic than generating upstream.  But Netflix is not the sole revenue source: last mile ISPs used to rely primarily (if not exclusively) on their retail subscribers' monthly payments.  The last mile ISPs want to maximize revenues on BOTH sides of their platform and I don't see the same financial constraints like that incurred by credit card companies.

Netflix blinked first, had payer's remorse, but the commercial negotiation process generates winners and losers.  For my part, I don't see how commercially negotiated compensation arrangements trigger network neutrality concerns, unless and until the FCC has jurisdiction to apply Title II, which it now has, plus evidence that the arrangement is discriminatory and/or unreasonable as defined by the FCC.  Bear in mind that the FCC has eschewed requiring tariffs and doesn't apply the prohibition of paid prioritization upstream from the last mile ISP.

So in large part, it seems to me that a maturing Internet ecosystem has diversified from the traditional peering/transiting dichotomy into a variety of hybrid arrangements.  Has such diversification harmed competition and/or consumers?  I'm not sure that it has, even when zero rating has the potential to influence consumers' content choices by injecting a possible cost avoidance factor.

Thursday, December 22, 2016

Insights on Future FCC Decision-making Gleaned From a Judicial Dissent

            As unorthodox as it might seem, Senior Circuit Judge Stephen F. Williams dissenting opinion in a major FCC case offers a likely roadmap on how the FCC will operate with Trump appointees and a Republican majority.  Judge Williams’ extensive opinion in U.S. Telecom v. FCC, available at:, has a flavor remarkably unlike a legal dissent.  At its best, his work identifies real defects in the logic used by the FCC to reclassify broadband Internet access as a telecommunications service.  Additionally, the Judge raises legitimate questions about the FCC’s rationales supporting a near total prohibition on paid prioritization of traffic. 

            I am not keen on ex ante regulation and can identify significant consumer benefits in having the option to receive “better than best efforts” traffic routing.  Judge Williams offers considerable evidence that consumers do not benefit and may be harmed by a prohibition on price and quality of service discrimination.

            At its worst, the Williams dissent misreads case precedent, misinterprets the statutory duty of the FCC to apply Title II common carriage regulation and shows a penchant for economic analysis regardless whether it is appropriate, helpful or sponsored by a stakeholder.   Additionally, the opinion offers copious sanctimony and snark at a high level even for dissenting jurists.

            Judge Williams believes the FCC failed to provide stakeholders adequate notice that the Commission had opted to use a new standard for assessing whether and how to apply Title II regulation.  He chides the FCC for not conducting a thorough assessment of market power to determine whether the broadband access marketplace operate competitively.  From his perspective, Judge Williams considers the Title II classification as lawful if and only if the broadband marketplace lacks competition. 

            There should be no dispute that common carriage regulation, established in Title II of the Communications Act, can apply even if a telecommunications market segment operates competitively.  For example, Congress ordered the FCC to treat Commercial Mobile Radio Service operators as common carriers (47 U.S.C. §322) regardless whether the wireless marketplace is, or will become competitive. 

            Even as I do not think the FCC should have imposed the common carrier classification, I have no doubt the FCC can lawfully make the call.  Judge Williams would prevent the FCC from applying Title II unless the Commission can prove market failure, an extraordinarily high  standard of proof no law requires.  Additionally, the Judge would deny the Commission any deference based on its expertise to interpret and apply ambiguous statutory language as the Supreme Court established in its Chevron Doctrine.

            Judge Williams appears so enamored with economic analysis, that a failure to showcase it constitutes reversible error.  Nothing in the Communications Act mandates economic analysis as the primary, “make or break” analytical tool the FCC must use.  The FCC has to assemble a complete evidentiary record based on facts, an empirical record, the advocacy documents of stakeholders and the Commission’s assessment of what would best serve the public interest.  Of course economic analysis can help the FCC meet its statutory duties, but it does not constitute a sine qua non. 

            Economic analysis, perhaps even more so than legal analysis, is rife with pitfalls.  Economists do not have to operate with the discipline and rigor of legal advocates, despite the strategic use of mathematics.  Economists can construct a theory, convert it into an unimpeachable rule and offer this rule in advocacy documents for adoption by the FCC. 

            Much of the so-called economics used in FCC proceedings by stakeholders is sponsored advocacy.  The vast majority of this advocacy attempts to legitimize and make scientific policy prescriptions that do not pass the smell test.  For example, any and all mergers promote competition and enhance consumer welfare, but set top box competition would harm competition and consumers.  Economic analysis has a legitimate role at the FCC, but Judge Williams would elevate its importance at the risk of bolstering the potential for sponsored research to provide scientific support for results-driven decision making.  In the words of a former Republican President, the FCC may be headed for a full embrace of Voodoo Economics if it provides the foundation for a desired policy outcome.  Judge Williams appears keen on replacing an “economics-free” FCC to one obsessed with anything masquerading as economics.

            In the snark and sanctimoniousness department, I sense Judge Williams takes great pride in analogizing the FCC’s Open Internet Order to a bicyclist shifting from sidewalk to roadway travel routes.  He chides the FCC for applying common carriage regulation and then abandoning most of the burdensome elements.  From my perspective the FCC evidences flexibility and a keen interest in calibrating the reach and scope of regulation to what tools are needed.

            I fear Judge Williams dissent foreshadows an FCC willing to misinterpret case law and statutory mandates to achieve a desired outcome.  I worry that an infatuation with economics will legitimize bogus rationales that the FCC will embrace hook, line and sinker.  Who needs a maverick wireless carrier like TMobile when economists prove that any and all markets work just fine with 3 competitors? 

            Lastly, I have concerns that FCC decision makers will overplay their hand.  I have seen ample and unjustified arrogance, hubris and political intrigue at the FCC.  It looks like the new management will continue—if not expand—the trend.

Wednesday, December 21, 2016

In Praise of Domestic Engineering

     My dear wife, Katie, broke two ankle bones while walking two dogs only a few hours after arriving at her elderly parents’ home in Medina, Ohio.  Katie reluctantly has ceded home management duties to me.

     While I did not need any reminder to feel and express gratitude, I do have a better sense of the physical, time consuming and expansive work in domestic engineering.  As well, I recognize what a luxury I have had in pursing intellectual curiosity and reading everything in the telecommunications/Internet sphere. 

     For some indeterminate time, I won’t have the chance to read every blog entry, law review article, white paper, sponsored research, FCC decision, web page, etc. out there.  Might this be a blessing, or just an apt reminder?

Wednesday, November 30, 2016

Likely and Behind the Scenes Changes at the FCC

            It should come as no surprise that the Federal Communications Commission will substantially change its regulatory approach, wingspan and philosophy under a Trump appointed Chairman.  One can readily predict that the new FCC will largely undo what has transpired in previous years.  However, that conclusion warrants greater calibration.

            As a threshold matter, the new senior managers at the FCC will have to establish new broad themes and missions.  They have several options, some of which will limit how deregulatory and libertarian the Commission can proceed.

            Several ways forward come to mind:

            1)         Channeling Trump Populism—the FCC can execute President Trump’s mission of standing up to cronyism and rent seeking, even when it harms traditional constituencies and stakeholders.

            2)         What’s Good for Incumbents is Good for America—the FCC can revert to the comfortable and typical bias in favor of incumbents like Comcast, Verizon, AT&T and the major broadcast networks.

            3)         A Libertarian Credo—the FCC can reduce its regulatory wingspan, budget and economic impact by concentrating on limited core statutory mandates, such as spectrum management.

            4)         Humility—without having the goal of draining the FCC’s pond, senior managers can temper their partisanship and snarkiness by refraining from mission creep.

            Each of the above scenarios hints at major and equally significant, but unpublicized changes at the agency.  A populist FCC equates the public interest with what the court of public opinion supports.  For example, most consumers like subsidies that make products and services appear free.  A populist FCC responds to consumers by interpreting network neutrality rules as allowing zero rating and sponsored data plans.

            However, a populist FCC risks overemphasis on public opinion that stakeholders can energize as occurred when companies like Netflix and Google used their web sites for 24/7 opposition to the Stop Online Piracy Act and when Jon Oliver motivated 4 million viewers to file informal comments favoring network neutrality on the overburdened FCC web site.

            On the other hand, a populist FCC can remind rural residents of how much they count in this new political environment.  The FCC can validate rural constituencies by refraining from modifying—if not eliminating--inefficient and poorly calibrated universal service cross-subsidies.  Most telephone subscribers in the U.S. do not realize that they are paying a 10%+ surcharge on their bills to support universal service funding, most of which flows to incumbent telephone companies.  Consumers would quickly contract compassion fatigue if knew about this sweetheart arrangement.

            The favoring incumbents scenario has a long and tawdry history at the FCC.  If the new FCC reverts to this model, the Commission will largely give up fining companies for regulatory violations.  Additionally, it might purport to reintroduce economic analysis to its decision making by adopting incumbent-advocated, but highly controversial templates.  For example, incumbents have touted the “Rule of 3” to support further industry consolidation.  This rule is nothing more than an advocacy viewpoint that markets with 3 competitors generate most of the consumer benefits accruing from markets with more than 3 competitors. Having only 3 competitors may work if 1 of them does not collude and match the terms, conditions and prices offered by the other 2.  But in many markets—think commercial aviation—having only 3 operators risks markets organized to extract maximum revenues from consumers with little incentive to innovate and compete.
            An incumbent friendly FCC likely will approve mergers and acquisitions with limited, if any, conditions and negotiated conditions.  This kind of FCC will approve AT&T’s acquisition of Time Warner despite President Trump’s disapproval.  The FCC probably also would have no problem with a wireless marketplace duopoly of AT&T and Verizon controlling 90+% of the national market, because the Commission will have largely abandoned the use of a specific market penetration caps and other indices (such as the Herfindahl-Hirschman index) to identify dangerously concentrated markets.

            Many press analysts assume the FCC will embark on a libertarian bent, possibly leading to the elimination of the agency.  I believe the press has misread advocacy items written by Trump Transition Team members who couldn’t easily pitch a short term gig at the FCC and who readily acknowledge the perennial need for core functions performed by the agency.  A libertarian FCC strictly limits its statutory interpretations and does not seek to expand its regulatory wingspan.  However, the national interest—surely including the corporate interests of incumbents—requires the FCC to participate in global standard setting, radio frequency allocation and Internet governance.  The national interests suffers if the FCC does not attend intergovernmental forums and does not forge alliances with other governments keen on reigning in the motivation of global forums to favor specific governments and expand its reach and significance.

            Last, but not least, the new FCC could emphasize humility and bipartisanship using its independence and expertise to determine what best serves the public interest.  This requires abandonment of results-driven decision making and creative statutory interpretation.  I really like this option.

Sunday, November 27, 2016

Reform the FCC!

In this volatile and contentious time, it has become even more likely that any advocacy position may trigger misperception, intentional or not.  Recently, one of the two FCC transition managers for the incoming Trump administration, has been characterized as calling for the agency’s closure.  See

I do not read Dr. Mark A. Jamison as advocating a torch to the very agency he will help staff with senior managers.  Instead, I get a strong message with which I agree: the FCC has become far too partisan and political on matters that do not typically cleave on a Democrat/Republican fulcrum.  For decades, FCC Commissioners did not split on party lines.

Why now?

I attribute the polarization of the agency as directly resulting from Commissioner appointments of congressional staffers who in turn hire the same type of professional to serve as their senior staff.  Rather than consider major regulatory issues in terms of the national interest, it appears that baser, political motivations predominate.  We really, really, really need an independent, expert regulatory agency that does not allow its work product to be molded by politics.

This is a two-party problem: if Democratic FCC senior management allowed President Obama to lobby for a preferred network neutrality policy to rousing Republican indignation, then these very same folks should resist efforts by President Trump to direct a preferred agency decision on, for example, the proposed merger of Time Warner and AT&T.  Science, or as close to dispassionate scientific analysis, should apply, regardless of what that analysis generates.  Economic analysis does matter, and for the Commission’s part, it must be free of results-driven assumptions and strategies.

Making the FCC apolitical, requires fortitude and the commitment to empirical analysis, rather than the lazy and convenient reliance on sponsored research used in advocacy documents by stakeholders.

We do need to replace the current partisan FCC with an honest broker ready, willing and able to apply science and empiricism.


A Curious Blend of Millennial Indignation and Glitchy Bar Code Pricing

            A grocery store cashier called me a liar and shot me the bird yesterday as I insisted a 2 for 1 promotion applied to my pretzel purchase.  Wow! I didn’t think Millennials knew about obscene gestures, nor did I think a representative of this “snowflake” generation could muster the indignation about something having nothing to do with her.

            What a bizarre story I have to tell that combines defective bar code pricing with a Millennial’s reminder that I have no reason to live, much less demand application of a promotional price.  The Weis grocery chain currently offers buy one get one free for their store-branded pretzels.  However, at the same time as the promotion, the company has changed the trade dress, reduced the portion size and changed the bar code for the product.  At purchase, the scanned bar code did not trigger the savings, despite on the shelf price tags touting the 2 for 1 offer.

            As this pricing glitch had sucked 20 minutes out of my day on the previous day, I expedited the display of my lawyer tone which offspring and student alike consider “yelling.”  For the record, I cannot yell, having had vocal cord surgery that substantially reduces the volume I can generate.

          The 60-something cashier handling my order gladly offered to check the price, but her granddaughter cashier in the next line reported the price without a doubt.  This Millennial refused to accept my report of the discount and quickly escalated the conflict.  How could an old person like myself possibly know the price of an item, or maybe she tagged me as a petit scam artist?

            Do Millennial service workers reverse the traditional business premise that the customer is always right?  For my part, I accept that customers are not always right, but surely they cannot always be wrong.

            I had a pleasant, but inconclusive chat with the store manager and suggested that customers do not deserve vilification as liars when challenging a price.  His perception of the situation was influenced by another, more regular customer, who attested to the wonderfulness of the cashier who shot me the bird.

            My university has forced me to reframe the student-teacher relationship into one with high touch customer service in light of Millennial expectations and the cost of post-secondary instruction.  I suspect that lesson has not reached many Millennials when the shoe is on the other foot.

Monday, November 14, 2016

Oh Joy: Another Group of Email Addressees Who Ignore My Correspondence

            As a parent, college instructor and occasional job applicant, I am used to non-responses.  I regularly eat humble pie and I recommend it.  Lately, to maintain my weight and reduce the pain of two arthritic hips, I equate hunger with humility.

            As a former presidential candidate, regularly remarked: I get it.

            I understand email torrents, and confidential email addresses that get you to the person and not his or her agent.  I appreciate how busy people can be, or think they are.  Still, I cannot predict just who will, or will not respond to me.  Bear in mind that in most instances, I seek nothing from the correspondent other than an answer to a question, or the possibility that she might read a recent work in progress, or increase my readership of published works above the average of 10.

            My high average of ignoring respondents crosses party lines, but I suspect my right of center friends will increasingly fail to respond.  Why bother for someone who maintains his independence and offers no certain allegiance?

            For my part, I try to respond to anyone, including high school students who want me to do their homework on network neutrality.  I do not calibrate whether and how to respond based on the person’s celebrity status, or lack thereof. I do not calculate a cost/benefit.

            I try to be a good citizen, academic colleague and seeker of the truth.  I am rewarded when some luminaries readily and regularly respond.  However, I cannot understand why, for example, one Stanford Law School rock star responds and shares his research with me, while another one can’t be bothered ever.  I cannot explain why one Penn State University President responded to an occasional email, but two subsequent ones have used intermediaries that reply with scripts and corporate gobbledygook.

            I know I need to buck up, but it grieves me when my right of center colleagues apparently have become the latest non-responders.  For my part, I have always sought to listen and learn rather than engage in one-upmanship and snark.

            As a trite, but on point bumper sticker states: Let’s try more wag and less bark.  Do respond to your emails.



Friday, November 4, 2016

A Nuanced Analysis of Zero Rating

            Zero rating has become the next network neutrality issue in light of two simultaneously occurring marketplace developments: 1) wireless and now wireline carriers impose data caps as a part of their revenue maximization strategy and 2) these very same carriers want to create deal enhancers to improve the value proposition of more expensive service tiers by offering zero rating to specific data streams.  Can carriers get away with a strategy of creating scarcity, rationing broadband capacity, despite its low incremental cost, and upselling subscribers to more generous data plans at higher rates?

            The zero rating issue generates the most controversy when carriers ration and tier broadband access. While they may frame the matter in terms of congestion and network management, in application, zero rating provides a convenient way to tier service at different price points.  Broadband carriers largely have eliminated the prospect of actual congestion and they have every right to recoup substantial infrastructure investment.  However, broadband capacity does not closely match the cost characteristics of other metered, public utility services, such as electricity and water.  Broadband carriers incur insignificant extra costs when increasing a monthly data allotment.  How else can they profitably offer truly unlimited voice and text, particularly a few years ago when subscribers primarily relied on their handsets for these services?

            Unfortunately carriers have resorted to zero rating as a solution to problems they have created for consumers: “unlimited data plans” that punish high volume users with throttling at 2G bit transmission rates; disabling subscriber commands not to auto play commercials; and miserly data rate plans with high financial penalties for overages. 

            Also in the mix is the possibility for artificial congestion manufactured by carriers to justify data caps.  Consider the on again/off again congestion subscribers of both Netflix and Comcast experienced. A remarkable thing happened virtually overnight after Netflix agreed to a preferred co-location/paid peering arrangement.  Congestion evaporated without any new facilities construction and Netflix traffic returned to normal.

            Network neutrality advocates fairly point out that zero rating prioritizes specific traffic streams, by making them more attractive to consumers in light of their lower out of pocket cost.  However, I believe they overstate their case, particularly with the premise that zero rating condemns people with low incomes to perpetual hardship resulting from subsidized access to an inferior, curated sliver of Internet content.

            Zero rating offers access opportunities to individuals who want broadband access, but lack sufficient discretionary income.  A subsidy provides an opportunity to test the waters and to decide whether to change spending priorities.  In developing countries, penetration rates continue to rise to near that of developed countries, because even poor people want and will pay for access.

            Zero rating also provides a new incentive for people with sufficient funds who do not see the value proposition in ascending a steep learning curve toward digital literacy, plus making even a small financial commitment in buying a smartphone and subscribing to a monthly data plan.  Surely these people are not condemned to a lifetime of inferior access, because they might opt to pay for access to the entire Internet cloud.

            Lastly, we should consider the consequences if the FCC—or any regulatory agency—rules against a subsidy arrangement that consumers like.  Does the FCC really want to invoke fairness when doing so prevents consumers from “free” access to certain video streams?

            I provide a deep dive on zero rating in a paper available at:




Tuesday, November 1, 2016

Direct and Indirect Ways the FCC Will Weigh in on the AT&T-Time Warner Merger

            Depending on your economic and political alliance, I have good, or bad news.  I fully expect the FCC to lend its regulatory “good offices” and provide binding or advisory opinion on AT&T acquisition of Time Warner.  In any event, we have a real time case study in the political economy of regulatory agencies and the incentive to expand reach, budget and significance.

The Direct Link

            The FCC has direct statutory authority to oversee a merger when one or more licenses require approval for a transfer of ownership and control.  Time Warner owns one television station and holds several satellite uplink licenses for remote news gathering.  Section 214 of the Communications Act requires FCC approval of a transfer, albeit on a pro forma, expedited basis. 

Several Indirect Links

            The FCC has available a number of creative and quite possibly lawful ways to assert ancillary authority.  Soon after the market debut of cable television, the FCC asserted jurisdiction, despite the lack of direct statutory authority.  The Commission created a regulatory hook based on the transitive principle in math: A is to B as B is to C.  Therefore A is to C.

            In application, the FCC reasoned that because it has direct statutory authority to regulate broadcasting, and because cable television has the potential to adversely affect broadcasting (e.g., thorough audience fragmentation), therefore the FCC can regulate cable television.  The Commission’s strategy passed muster with a reviewing court in the United States v. Sw. Cable Co., 392 U.S. 157, 178 (1968), but the strategy did not work for network neutrality

            The FCC also has exercised jurisdiction over media cross-ownership, with an explicit concern about content diversity and market concentration, including matters for which it does not have direct jurisdiction over one category of media outlet, e.g., newspapers.  The Commission established rules prohibiting cross ownership of a broadcast television station and a general circulation newspaper in the same market.

            Additionally, on several occasions, the FCC deftly leverages congressional mandate to investigate and report on marketplace conditions as the foundation for establishing rules, regulations and safeguards ostensibly to achieve a legislatively created goal.  For example, Section 706 of the Telecommunications Act of 1996 requires the FCC to assess marketplace conditions in advanced telecommunications capability.  That mandate has morphed into secondary legislative support for network neutrality.

            Lastly, I believe that formally or informally, the Justice Department will collaborate with the FCC--if only to spread the heat/blame if the ultimate decision is no, or conditioned in ways that are politically unpalatable.  The Justice Department has collaborated with the FCC before, even as each agency has a different oversight template: DOJ uses quantitative measures, such as Herfindahl-Hirschman Index of market concentration and the FCC uses qualitative, "public interest" measures.