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HFR on Broadcast Ownership
Harold Furchtgott-Roth not only has the hardest name to spell in regulation, he is also one of the most prescient commentators. His discussion of the Third Circuit's recent media ownership decision catches it all: the arbitrariness, the lawlessness, the astounding breadth of the FCC's legal authority and the scandalous frailty of First Amendment doctrine in this area.
- posted by Ray @ 6/29/2004 04:39:36 PM

Presidential Broadband
President Bush said some smart things today on innovation at the Commerce Department. Along the way, his address hit on electronic medical records, distance medicine and distance learning, and innovations in border security. But for telecom diehards, the juicy stuff was saved for the second half of the speech when he talked about making broadband affordable (no taxes on it) and regulator mandated unbundling (support for the FCC decision). He also hit on BPL and Wi-Fi as promising new technologies.

At a separate venue, Senator Kerry talked about the digital television transition today. While I haven’t seen the text of his speech, the Kerry plan on technology and innovation is here.

My take: It is about time. Major party candidates near-always give lip-service to telecom and technology issues. Al Gore invented it. Bob Dole thought it would make him hip. (He didn’t and it didn’t.) This year concrete policy proposals are being put forward on spectrum, DTV, and wireline broadband. These are not the easiest issues to put on bumper stickers, but they gird much of the economy. A national candidate’s attention to tech issues shows his or her seriousness about the future of America.

- posted by Kent @ 6/24/2004 05:26:59 PM

The Missing Element
This afternoon, an anonymous regulator emailed the following.

AT&T recently announced that it will stop competing for local and long-distance residential customers in 7 states. Z-Tel made the same announcement for 8 states. AT&T's assigns blame solely to "a June 9 decision by the Administration and the FCC not to appeal a recent Federal court decision that overturned FCC wholesale rules put in place to introduce competition in local markets."

Notice that both AT&T and Z-Tel will continue offering services to the business market. Why should that be, given that the FCC's national "no-impairment" finding in enterprise (business) markets means that, at worst, the mass (residential) market will be treated the same as business?

The answer to anyone familiar with telecom regulation is that residential rates (of at least the ILEC) are artificially capped by either state commissions or legislature. Business rates are often twice as high as residential (even though the average cost to serve business is likely lower than that of residential) to subsidize low residential rates. The result, of course, is plenty of competition in the business market, with or without UNE-P, and competition in residential markets only where state actors have created suffiicient margin for the CLECs to enter.

AT&T's real complaint, then, is with state regulators and legislatures - they should end the price squeeze by ending the residential subsidy. But then, that doesn't play as well with the masses, does it?

- posted by Kent @ 6/23/2004 05:16:06 PM

"Completely Wired"
In remarks delivered in Denver on Moday, presumptive Democrat nominee John Kerry proclaimed: "If Bangalore and India can be completely wired, then so should all of Colorado and all of America." For sure.

But at least one consulting group based in India begs to differ. According to a January 2004 report from Nagendra Technology Consulting, the Indian Broadband Era started somewhere in late 1999 when DSL/cable was introduced. "Now in it's 5th year of services things still seem bleak, but the market has been rapidly expanding in numbers even if not in quality." The report goes on to state that: "Although most providers wire you up with modems or connections capable of reaching in excess of 10 mbps, the actual bandwidth that is usuable is still very limited and capped by the provider within 128 kbps, and cost dramatically for 512 kbps if available as an option."

Completely wired? I guess it depends on what the definition of "completely" is and the definition of "wired" is. Isn't that so?

- posted by Randolph May @ 6/23/2004 02:12:58 PM

Tech Political Sophistication
USA Today leads the Money section with the tech sector's increasing political sophistication.

The political sector's response: What took you so long?

- posted by Ray @ 6/23/2004 12:44:56 PM

Unwise Testimony on VoIP
Last week, NARUC President Stan Wise testified at the Senate Commerce Committee hearing on the VoIP Regulatory Freedom Act of 2004. He took the opportunity to trot out the tired argument of regulators everywhere: We regulate telephones; VoIP service looks like telephone service. Ipso facto, we should regulate VoIP too.

Wise calls for regulation based on the “functional nature” of a service. By this standard, any service that includes voice is fair game for state officials. Look out wireless. Look out cable. Look out BPL. More useful would be an examination of the underlying networks and economic forces at work in a given market. Compare this with the following from Wise’s testimony: “If the physical structure of a particular service makes its carrier unable to exert market power, for example, that may impact whether the full panoply of economic regulation should apply.”

Wise gives voice to the opinion of state officials who advocate a default position of “the full panoply of economic regulation.” Such was the case in New York where a recent VoIP decision of the NY PSC lumped Vonage in with traditional telecom providers. At the time I predicted, “the decision will become a rhetorical feather to the cap of the pro-regulation folks.” Sadly, Wise has made an honest man of me.

- posted by Kent @ 6/23/2004 12:22:27 PM

Not Bayou Bystanders
Chairman Billy Tauzin once explained to me that politics is something that we all know about; and then there is something called Louisiana Politics. The implication is that very few people really know much about politics and how they work down in the bayou.

I’ll take him at his word. In spite of my travels to state capitals around the country, All the King’s Men would not be enough to help me follow the legislative process in Baton Rouge. Thus I was pleasantly surprised to see that SB 877 has been sent on to Governor Kathleen Blanco for consideration. As introduced, the legislation closely matched model legislation developed by the ALEC task force on information technology and telecommunications. While PFF was not an active participant in the debate, through research and publication we were not simply bystanders either. Various parties to the legislative debate have made use of our research on municipal telecommunications providers throughout the last month.

According to Communications Daily, the compromises inherent to the process of lawmaking did not dilute the essence of the bill. CommDaily reports that the bill would require PSC obligations on the private sector to apply to local governments that enter the telecommunications marketplace. It seems only fitting. If anyone has made a careful analysis of the legislation, I invite you to email me your thoughts.

- posted by Kent @ 6/23/2004 09:37:47 AM

If It's Broke, Fix It
"If it ain't broke, then don't fix it," they say.

But if it is, then do. My piece in today's CNET, "How to Reform the FCC," argues it is time to fix the FCC, which if not broke, is ailing. I'm talking some serious instituional reform.

Scalpel please! And transplant tools too. Let's get this patient to the operating table.

- posted by Randolph May @ 6/22/2004 10:29:14 PM

Speaking of a la carte
The local newspaper has a story today on the movement to mandate cable "a la carte pricing." The mandate, championed by Senator McCain and various "consumer" groups, would have government require cable be turned into a tapas bar -- small, expensive portions -- instead of its current, all-American "all-you-can eat" packaging. The story is slightly sympathetic to the a la carte side of the story. Still, no one has better addressed the underlying economic issue than Stuart Buck, who eloquently explains bundling as a means to effectuate price discrimination, a necessary move in a high fixed, low marginal cost industry.
- posted by Ray @ 6/22/2004 02:07:02 AM

Free Phones -- And Not a Regulator in Sight!
Cablevision plans to offer free phone service along with its broadband and television package. Remind me, what was all that unbundling hubbub about?

But I eagerly await the first consumer advocate to demand Cablevision offer this free phone "a la carte" instead of in a package.

- posted by Ray @ 6/22/2004 02:03:11 AM

The Ornery Contrarian
Well, maybe I'm just a bit down to be back in town after being away at the DC Circuit Judicial Conference for a few days listening to the likes of Douglas North, Francis Fukuyama, Tyler Cowan, David Landes, and others discuss the great issues of the day, not to mention Dana Gioia, the chair of the National Endowment for the Arts, read from his poetry. But it is a bit discouraging to come back to the slew of press stories reporting how all the Bells--with the "encouragement" of the Administration--have duly submitted letters to the FCC pledging not to raise rates for UNEs until the end of the year, and how the FCC has duly publicized these letters that all of the Bells just happened to submit en masse . (Verizon pledged to hold the line for five months.)

In his post below, Ray takes another good hard shot at the UNE regime. He explains why, in his view, the UNE regime, as currently implemented and managed, has been so detrimental. "UNE-P competition was all about manipulating wholesale rates to induce entry under already distorted retail rate price points," he says. And he keeps referring to those "low wholesale rates" as a deterrent to new investment and inter-platform competition.

Okay, you know I agree with Ray's analysis. And, I agree, as I have already said, that the Bush Administration deserves a big pat on the back for not seeking review of the DC Circuit's decision. And I guess, at one level, I understand what might politely be referred to as the "politics of the situation" or the "this year is an election year" syndrome. But, at another level, if the Bells have pledged no rate UN increases for the remainder of the year, it almost makes you wonder what all the fuss and frenzy was about.

Well, I really do understand what all the fuss was about. Some progress has been made in moving down the road to a less regulatory environment that will ultimately benefit consumers, and perhaps I shouldn't be too ornery about the nicities of the dance done to get there. But let's be honest here. Won't it be nice if we ever get to a world--certainly a few years away at best--in which the government doesn't have enough leverage to orchestrate a show of "voluntary" price freeze pledges for newly deregulated services that ought to be the object of truly voluntary commercial negotiations?

- posted by Randolph May @ 6/18/2004 09:41:24 PM

Crocodile Tears for the TRO
The negative response to the Administration's decision not to appeal the DC Circuit's USTA II decision has been the normal sky-is-falling, sun-won't-come-up tomorrow, repeat the word 'monopoly' countless times stuff. I shed no tears for the TRO's demise for its legal incoherence alone.

In letting the DC Circuit flush the unbundling rules for the third time, the administration is exchanging a static form of competition for a dynamic one. This is to be celebrated.

UNE-P competition was all about manipulating wholesale rates to induce entry under already-distorted retail rate price points. Hence, the goal was to create margin attractive enough to get competitors to enter and take market share from the incumbent. So far, so good. But there was no consumer welfare enhancement from this. The retail prices stayed intact and there were enormous dis-integration and regulatory costs associated with this regulator-created, intra-platform competition. Further, the wholesale rate manipulation game induced reliance interests -- witness AT&T's tantrums, MCI's desperation and certain (but not all) state PUCs' apoplexy -- that could not ever abide any changes to the regulator-ordered property rights given to non-facilities owning CLECs.

The end game here was only market share apportionment. The reliance interests that low wholesale rates created lead up a cul-de-sac where no one has the incentive to innovate or invest, and where the regulator has no exit strategy. UNE-P competition silently went from a transitional measure to a permanent fixture. Further, UNE-P became a disincentive to the very inter-platform competition that was desirable because low wholesale rates reduced the value of existing facilities and made it unattractive for any firm to invest in new facilities when riding on the old ones was so cheap because of low wholesale rates. Thus, UNE-P competition became a self-justifying way for regulation to perpetuate itself. By making facilities-investment relatively unattractive, low wholesale rates meant inter-platform competition wouldn't emerge. Consequently, the low wholesale rates needed to be maintained to make sure competition existed. It all has a cat-chasing-its-tail quality.

By contrast, the administration has now embraced Chairman Powell's view of dynamic competition between platforms. In this view, competition does not happen because the regulators "manage" it into existence, but rather because a true and free system of prices gives private actors the signal to invest. And further, that investment is backed by the certainty that, if they succeed, the fruits of success will not be expropriated by the regulatory apparatus. That said, this does not mean that regulators do not have a role to play. Because it is a network industry, it is necessary that would-be rivals cooperate on interconnection, customer hand-off and the like. And of course, not all players incentives are properly aligned to do this, ahem, well and seamlessly. Perhaps if the current regulatory regime was not so preoccupied with price regulation and manipulation, there would be time and resources to focus on policing disputes over legitimate interconnection concerns.

Dynamic competition is not an easy choice, though, and that is another reason why last week's decision is to be applauded. Embracing dynamic competition requires a predictive judgment that other platforms will emerge to compete with incumbent platforms. Of course, in this case, this was not blind judgment. Multiple platforms like cable and wireless already exist to compete with the legacy phone system. And new platforms like VoIP are emerging with great vigor. What's more, the very definition of the relevant market is changing before our eyes. While it used to be voice telephony, where there was legacy market power; it is now broadband, a market where there are no incumbents. Furthermore, our experience with deregulation of other industries teaches that the welfare gains from a free-entry, free-exit, uncontrolled price system are greater than predicted; e.g.,see trucking, airlines, natural gas.

A final salutary effect of the (partial) interment of the pervasive unbundling regime is that it brings much more relevant and interesting issues to the regulatory fore. The continued unregulation of VoIP -- its potential mis-regulation -- are huge issues for the coming year. Likewise, the rickety premises and structure of universal service policy are in dire need of repair. Maybe, to borrow a phrase, we can just "move on" now.

- posted by Ray @ 6/16/2004 07:00:34 PM

On NPR's On Point Tonight
I will be discussing the TRO tonight with Mark Cooper from the Consumer Federation of America on On Point, an NPR public affairs program. I just hope Mark doesn't yell at me, but he usually does. The show is live in Boston and airs at different times around the country.
- posted by Ray @ 6/16/2004 05:50:17 PM

H.R. 107 & the Bells: What the Devil is Going On Here?
A recent article in TechDaily (subscription required) says that H.R. 107, the Digital Media Consumers' Rights Act, is supported by companies in tech (Gateway, Sun, Philips) and telecom (Verizon, Qwest, BellSouth).

This support, especially from these particular telecoms, is baffling.

HR 107 has two parts.

The first would provide for labeling of copy-protected CDs so that consumers would be alerted to the possibility that a CD might not play on all media. This provision is over-reaction; everyone agrees that consumers should be properly informed, but such problems can be better worked out in the market and by voluntary standards. But the bill is not a killer.

The second part of HR 107 is the killer. It would legalize the distribution of any tool that cracks Digital Rights Management technological protection of intellectual property as long as the tool could be used to enable "significant non-infringing use" of the property. Since many non-infringing uses exist, the result would be the unlimited distribution of code cracking tools, and the utter destruction of the very promising efforts to create markets in creative products based on technological protection of content. All the peddler would have to do is attach a note to its website saying: "Be sure you use this tool only for legitimate purposes (Wink, Wink)."

I know why the academicians support this. They want to destroy the market-based system for creating IP and replace it with a system of government funding.

But I do not understand why the Bells support it. Legalizing cracking tools is a content industry destroyer, and why would the Bells want that? And why would it benefit them?

The position is also inconsistent philosophically. The gist of the Bells' complaint against the regulatory system since the Telecom Act of 1996 has been its disregard of property rights. The system of UNE-P and TELRIC has commandeered their investment in facilities to allow all comers to free ride, to the detriment of the companies, the telecom network, and consumers. (If you don't know what UNE-P and TELRIC are, count yourself lucky, and take my word for it. Or scroll through earlier entries in this blog and get enlightened.)

So come on you tech and telecom guys -- email me your talking points on why you support this bill and we will put them up on this Website, together with our reactions.

And be sure to explain how you will respond when the same forces that invented H.R. 107 come back for more bites at the apple of property rights and ask Congress to reverse the recent decision of the D.C. Circuit and reinstate UNE-P, or to mandate the doctrine called Net Neutrality, which is another scheme for socializing telecom facilities, or to undermine patents on consumer electronics

- posted by James DeLong @ 6/15/2004 01:11:00 PM


Ronald W. Reagan, RIP Posted by Hello

- posted by Ray @ 6/11/2004 11:46:02 AM

More on Patents
Part IV of IPcentral.Info's new original miniseries, "Patents & Nonobviousness," is here. It won't make up for a lack of new Sopranos episodes, but there are those who find the topic enthralling.
- posted by James DeLong @ 6/11/2004 10:10:12 AM

Patent Controversies
PFF's blog on intellectual property, IPcentral.Info, is running a miniseries on the controversy over patents and "nonobviousness." See here, here, and here.
- posted by James DeLong @ 6/10/2004 01:11:52 PM

TRO's Demise Good for Competition
Steve Rosenbush in Business Week writes, "Finally, A Free Market for Telecom" in reaction to the D.C. Circuit's decision standing. The conclusion:
[C]ompetition won't be diminished whatsoever by the end of the FCC's rules. Wireless, cable telephony, and Internet phone upstarts like Vonage don't need to lease lines from the Bells, because they have independent networks or rely on the Internet to carry their traffic. Even AT&T, which has been a big beneficiary of the wholesale rules, is moving into wireless and VoIP. It should be able to survive on its own. And if it can't, that's a sign that long-distance companies no longer make sense as separate entities in an era of bundled services and digital convergence.

After years of trying to micromanage telecom, the government finally is stepping aside and letting technology drive the market. And the telecom revolution, which got bogged down in years of court battles, financial disaster, and scandal, is moving ahead once again.

- posted by Ray @ 6/10/2004 12:41:06 PM

Kudos for Kevin
Yesterday, after the Solicitor General's announcement, I said in a post below: "Now, wouldn't it be nice if Kevin Martin would join Michael Powell and Kathleen Abernathy to put the nail in the coffin of talk about continuing the unbundling litigation fight?"

Well, it is. And Commissioner Martin deserves credit for doing the right thing.

Maybe I'm too infected this week with Reagan's spirit of optimism, but, as I also said yesterday, perhaps we've reached a key turning point on the road to a much less regulatory communications environment. Inevitably, there will be some existing provider at some time that will exit the business and some provider at some time will increase a rate--and those opposed to any loosening of the regulatory grip will say "I told you so". Notwithstanding any such cries by those in favor of the regulatory status quo, I'm confident that consumers, overall, will benefit from the lower prices and innovative services that a freer marketplace will bring.

- posted by Randolph May @ 6/10/2004 09:35:47 AM

The SG's decision not to seek an appeal of the DC Circuit's USTA II decision reduced the possibility of Supreme Court cert. But Commissioner Martin's reversal later in the day (which is nice, Randy) was the death blow. So be it. Aspects of the TRO were suspect from the moment they were compromised....uhh...voted upon.

AT&T has predictably launched a missive against the Bush Administration for the SG's decision. But, as Judge Starr eloquently laid out last week, this was a decision grounded in the law, (most likely) resting primarily on the delegation issue and (most likely) made with no influence by the White House, despite all of the rent-seeking behavior by the parties.

The losers? AT&T and MCI to a lesser extent, obviously. Commissioner Martin. NARUC. But companies such as Covad also lost out through the process because they were not large enough to press their arguments for appeal (i.e., on line sharing) due to procedural constraints before the DC Circuit.

So, back to the drawing board at the FCC. Which is unfortunate, with arguably more pressing issues such as the VoIP, broadcast spectrum and intercarrier compensation dockets also demanding time and resources from the Commission. And who knows how much longer Chairman Powell will be able to endure this. What will happen first? Legally bulletproof local competition rules or a brand new Telecom Act?

Finally, it will be interesting to see whether MCI can reach agreements with other incumbents now that the TRO is interred. MCI has strong incentives to get some certainty, if price can be agreed upon. The MCI-Qwest agreement was a good start. Now, there might be an opening for further regional agreements with the remaining BOCs.

- posted by Adam @ 6/10/2004 12:15:33 AM

The Ball's in Kevin's Court
The SG's decision not to seek Supreme Court review of the USTA decision is likely to prove a key marker on the road to a telecom marketplace characterized by facilities-based competition. A real turning point.

Congrats to the Bush Administration's SG on this one!

Now, wouldn't it be nice if Kevin Martin would join Michael Powell and Kathleen Abernathy to put the nail in the coffin of talk about continuing the unbundling litigation fight? Wouldn't it be nice if the entire Commission came together to say: "Today, we've decided to chart a new course, one that is consistent with today's competitive realities."

- posted by Randolph May @ 6/9/2004 04:06:35 PM

Declan: Tear Down the FCC and Lime the Soil
Declan McCullagh says the FCC should go away ... for good, and be replaced by common law trespass and antitrust.
- posted by Ray @ 6/7/2004 03:13:03 PM

What Would Reagan Do?
In remembering President Reagan, there are rightly big, history-changing ideas--and battles for those ideas--that come to the fore. Certainly contributing mightily to the end of the Cold War and to a resurgence of the entrepreneurial spirit come to mind foremost.

But I can't help but wondering what the Gipper would think about today's telephone wars. After all, one of the underpinnings of his economic program was less regulation.

Yes, I understand that he would not have known--and would not have wanted to know-- what a UNE is, not for all the jelly beans in all the movie theatres in California. But, we can be pretty sure, knowing his views on regulation, that, at this point in time--eight years after the passage of the Telecom Act of 1996--he would have favored more freedom to negotiate voluntary commericial contracts for telecom marketplace players and less reliance on never-ending litigation.

Or, put another way, if he had to choose between the New York Times' continue-to-litigate view or the Wall Street Journal's market-oriented view, I'll bet, with characteristic confidence, he would agree with the Journal's editors that:

"Like any other market, telecom responds to incentives. Nearly a decade of micro-management and endless litigation have depressed capital spending and left the U.S. trailing Asia and Europe in broadband deployment. Removing those barriers is an essential first step in reversing these trends."

- posted by Randolph May @ 6/7/2004 01:56:49 PM

D-Day and Reagan
So, there are some days on which the telephone wars rightfully fade into the background, at least for a while. It is probably fitting that President Reagan passed away on the eve of the 60th anniversary of D-Day, a day on which thousands of Americans charged onto beaches knowing full well they faced certain death in a fight for freedom's sake. And it was nearly 17 ago to the day that Reagan proclaimed: "Mr. Gorbachev, tear down this wall!"

Without the American freedom-loving spirit, D-Day would not have succeeded, and perhaps there never would have been an opportunity for Ronald Reagan to imbue America with his special brand of optimism. To my mind, President Reagan really did have a deep and abiding faith in progress and freedom, and their inextricable relationship.

- posted by Randolph May @ 6/5/2004 07:41:59 PM

The Grey Lady Gets It Wrong, Again
It must be true; or not. An editorial in today’s New York Times supports a Supreme Court review for the FCC’s beleaguered telecom rules. (Free registration required.) The piece rests on shoddy analysis and I’ll refrain from fisking the whole piece. However, one point stands out for special attention: “Some 20 million American households no longer rely on the local phone company for local service, thanks to competition inducing rules, which can be traced to the 1996 Telecommunications Act.”

Where did the Grey Lady get this number? Perhaps the editorialists referred to the FCC’s most recent competition report that shows 20.6 million CLEC lines provided by UNEs or as resale. Funny, when they found this number they must have seen in the same table that more than six million CLEC lines are self-provisioned. Nearly a quarter of CLEC lines no longer rely on the incumbent while the remaining 20 million lines are entirely reliant on the incumbents’ facilities.

Perhaps evidence of facilities based CLECs are inconvenient if you believe that competition cannot emerge without the helping hand of regulated prices. That’s too bad and another mar on the reputation of the Times.

- posted by Kent @ 6/4/2004 03:04:47 PM

Property Rights on the (Internet) Frontier
Amazon just delivered The Not So Wild, Wild West: Property Rights on the Frontier, by Terry Anderson & Peter Hill (Stanford Univ. Press, 2004).

The authors' topic is the evolution of institutions of property rights in the West during the 19th Century, and how this evolution created the conditions for trade, cooperation, and prosperity -- and enabled people to avoid the "tragedy of the commons," over-use and destruction of unowned resources. (They also discuss the tragedies that ensued when appropriate institutions failed to develop, as in dealing with the Native Americans.)

The authors note: "The lessons from the American West transcend the era by providing insights into the causes of efficient and inefficient institutional evolution," such as the failures that caused the collapse of the communist states. Further, "Property rights that evolve from the bottom up -- as opposed to the top down -- are much more likely to conserve resources and promote investment. When property rights are dictated from central authorities with less stake in the outcome, time and effort are often wasted . . . and productive investment suffers."

The subject is crucial to the world of the Internet and telecommunications, where new technologies require the development of new institutions of property rights. Get these right and we flourish. Get them wrong, and we wallow in stagnation.

Two examples:

1) Telecom. As PFF discusses endlessly, the FCC's long effort to impose its vision of appropriate property rights on the telecom network (viz., to make it into a commons) has been a continuing disaster. One benchmark: According to the research firm Barra, telecom's share of the S&P 500 is now about 3%, a historic low. From January 1977 (when the data begin) to July 2000, it rarely dipped below 6%, and in 1993 it reached 10%.

2) H.R. 107, The Digital Media Consumers' Rights Act, is an attempt to freeze property rights into a pre-Internet model, in the name of academic abstractions about what they "should" be. (The idea is akin to the Medieval notion of the "just price.") The goal of the proposed law is to foreclose the development of bottom-up definitions of property rights through the interaction of producers and consumers in the economic and cultural marketplace.

Instead of holding yet more rounds of dreary and repetitive hearings on these topics, Congress and the FCC should take a day off and read Anderson & Hill.

- posted by James DeLong @ 6/4/2004 09:37:25 AM

Tech Central's Catch Me If You Can
Maybe the folks who run the Tech Central website really don't even think about what they write anymore, at least with respect to telecom. In the interest of honesty, they ought to at least attach a footnote to their tag line "Where Free Markets Meet Technology". The footnote: "Except with regard to telecom where we favor regulated markets over free ones."

Responding to Tech Central's constant stream of increasingly harsh rhetoric would be a full time job, and a boring one at that, that only a masochist would undertake. Take the piece "Telecom's Catch 22" that was published today by Duane Freese. The only catch is that it is inaccurate.

Take just a couple of examples of mischaracterization that apear in the short piece purportedly setting up the legal "Catch 22". Freese says that the Supreme Court in Trinko "said that the antitrust laws don't apply to telecom because of the 1996 act." Wrong. What the court said is this: "But just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not go beyond existing antitrust standards...." Precisely contrary to Freese's claim.

Take the characterization of the USTA I decision. Freese asserts that the court held that UNE rates must be set "locality by locality". Of course, it did no such thing. It held that the FCC had not explained adequately why it used a national list of UNEs and should look to a more "granular" approach. The court certainly did not say that the FCC should delegate the ultimate decisionmaking authority regarding the scope of available UNEs to state commissions.

Oh yes. Freese's piece contains the obligatory incantation, referring to the "raw monopoly power" of the Bells.

Do these guys that claim to hang out "where free markets meet technology" have any idea of what's going on in the real world with wireless competition, VoIP competition, cable telephony competition, and the like? I think they really do--but choose to close their eyes.

Here's what last quarter's No. 1 Wall Street Journal telecom analyst, Vik Grover of Needham & Co., said as reported in the May 17 edition: "Large regional phone companies are suffering from so much competition and change in technology that their business model is no longer viable." WSJ, May 17, subscription required.

Raw monopoly power? Who are do these Tech Central folks think they are kidding?

The TC communications commentators may suppose they are constructing elaborate Catch 22s. But I think they are playing a game of "Catch me if you can"!

- posted by Randolph May @ 6/3/2004 05:41:53 PM

From One SG to Another: No Mere Squabble Over Unbundling
The webcast of our program yesterday featuring former Solicitor General and DC Circuit Judge Kenneth Starr, former White House Counsel Boyden Gray, and former FCC General Counsel Christopher Wright is now available. For those who could not be there in person, I heartily recommend you take some time to listen to these three extraordinarily accomplished lawyers and public servants debate the question of "The Supreme Court and the Future of the Telecom Act of 1996." You'll hear very high level intellectual debate on the pros and cons concerning whether the SG should seek review of the USTA II decision.

Ken Starr's message: "The right answer is that the SG should not accede to the FCC's request." According to Judge Starr, the FCC majority which was reversed by the DC Circuit "over very vigorous dissents, has embarked on an entirely new venture, with no basis in law, but with enormous implications for both the administrative state and Presidential power."

I happen to agree with Judge Starr. But you be the judge. Listen to the debate.

- posted by Randolph May @ 6/3/2004 02:46:55 PM

ALTS is Right
ALTS is outraged by the FCC's sponsoring interconnection negotiations this weekend, but shutting out the facilities-based CLECs that ALTS represents. I agree.

First of all, the facilities-based CLECs -- though lacking the brand name pedigree and hence political juice -- are precisely the types of companies you want negotiating interconnection and sharing arrangements with ILECs. These are the companies that bring true competitive dynamics to the market. Second, this weekend's follies betray how far away from principle and how completely into political appearances the TRO has (again) strayed. "Negotiate not litigate" is a correct course, but not if it just becomes a political decision-ducking and face-saving maneuver.

- posted by Ray @ 6/3/2004 12:41:35 AM

When did the States Deregulate Retail Rates?
No state has fully deregulated retail rates, of course. Heck, most states haven't even partially deregulated retail rates. But reading the latest post-TRO editorial at Tech Central Station might lead one to think otherwise:

The key to local competition is use of unbundled network elements. Deny new competitors access to these elements and a retail rate increase is certain - a fact that even The Wall Street Journal editorial page now admits. Rates will rise, not only for customers who now get their services from Bell competitors, but also for nearly everyone else - because, without the pressure of competition, the Bells, like any monopolist, will be free to boost prices.

I think most observers such as Mr. Glassman and those of us at PFF would agree that negotiation is a far superior approach than protracted litigation, but could we dispense with the scare tactics already? Retail rates can rise only if the states allow them to.

- posted by Adam @ 6/2/2004 05:12:24 PM

Signs of the Apocalypse
There are 150+ initial comments electronically posted in the FCC's VoIP docket (04-36). Two worth noting thus far: state regulators arguing for a national regulatory framework due to the interstate nature of VoIP and 12 rural ILECs seeking full deregulation due to intermodal competition.
- posted by Adam @ 6/1/2004 05:28:01 PM

Buck on Cable a la Carte
Why is ordering HBO on top of a basic cable package more expensive than just getting the channel included in the next highest pricing tier? Stuart Buck draws a nice analogy between cable TV and newspapers:

Interestingly, newspapers have chosen essentially the same approach as well. They have high fixed costs (i.e., the costs of hiring reporters and editors, paying the bills, etc.), but very low marginal costs (i.e., the cost of printing an extra copy of the paper). So they bundle together an entire package of every type of news story that someone might want to read in a given day -- politics, human interest, local stories, sports, comics, TV schedules, classifieds, etc. Anyone who wants some piece of that package enough will pay the newspaper's subscription price.

But you can't expect the newspaper to satisfy each individual reader's idiosyncracies. Take the fact that I never read the sports section, and that I would be happy to have a newspaper without it. If I demanded that the newspaper carrier actually remove the sports section from the paper every day, I would be causing an extra cost to the newspaper. Thus, I should have to pay more, not less.

The rest of Stuart's post is available here. In addition to the links therein, the NCTA has recently released a white paper on the subject and the NY Times ran an article yesterday. Perhaps I’m missing something, but I wonder why some consumer advocates who opposed the media ownership rules support cable unbundling, which could eliminate a number of the "smaller voices" out there.

- posted by Adam @ 6/1/2004 04:21:52 PM

The Problem with Pick-and-Choose
The tension between the pick-and-choose rule and the commercial negotiation process is succintly described by Anna-Maria Kovacs in her note on the wholesale deal between Qwest and MCI (reprinted with permission):

As we have indicated in several recent notes, states are likely to take the position that such agreements are subject to state review and approval and to pick-and-choose opt-in by other carriers. At some point, a court will decide whether that position is correct, but for now, the participants have to act on the assumption that they will have to live with that position. Thus, the talks are asymmetrical. The RBOCs negotiate with each CLEC (competitive telco) knowing that other CLECs may opt into all or parts of the deal, and will ultimately combine the most favored pieces of each agreement into an entirely new deal. Thus, the RBOCs negotiate knowing that multiple different deals increase the potential for arbitrage by the CLECs. That, of course, is to the CLECs' advantage. Each one can rely on the agreement cut by another CLEC to improve its own position. Thus, AT&T (T-$17) and other CLECs can use the MCI deal to try and leverage better terms, knowing that this deal is likely to act as a net under them in the Qwest Region. That, in turn, makes it easier for AT&T to walk away from the talks, knowing that it will benefit from their results anyway.

Telephony Online has posted an article which fleshes out some further details on the Qwest/MCI deal. It will not go into effect until 30 days after the DC Circuit's mandate is put into effect, which could turn on whether there is Supreme Court cert and/or another stay. Another interesting aspect of the deal is whether (I invite any thoughts by email), and how, the pick-and-choose rule might apply to certain portions of the agreement. According to the article:

[Qwest Senior VP Steve] Davis said the accord, which has not been finalized in contractual form, consists of two deals. The first addresses the costs and procedures related to batch "hot cuts" needed for MCI to make the transition from UNE-P to a facilities-based framework, or UNE-L. That deal would be filed with state commissions for their approval, he said.

Portions of the deal regarding Qwest Platform Plus will not be filed with the states for approval and would not be subject to pick-and-choose requirements, according to Davis. However, Qwest will make the deal available on its Web site and will allow any CLEC to sign the same deal, if the competitive carrier is willing to agree to all terms of the MCI agreement, he said.

- posted by Adam @ 6/1/2004 01:26:59 PM

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