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2004 and the Digital Broadband Migration
'04 is almost over. How will it be remembered, for the purposes of this space? We’re gonna need a montage…

We’re #11 in broadband deployment! “Going Phishing” now has a far more sinister connotation than following a certain band from Vermont. Rural ILECs do pretty well with your universal service dollars, thank you. The NextWave saga ends. We’re #13 in broadband deployment! Goodbye UNE-P, hello VoIP. Broadband trumps dial-up. The Intercarrier Compensation forum. Cable a la carte. The pulver.com Order. The Vonage Order. The FCC Kidzone. BPL trials. WiMax trials. Stratellite trials. USTA II. Brand X. Muni Broadband. Triple play. ‘Net Freedom. ‘Net Neutrality. Nipple brooches. NARUC. FTTP. FTTC. Fios. VOD. DVRs. IPods. Skype. Google. Duke loses to UConn. Fade to black.

Of course, what’s a proper end-of-year retrospective without some sort of award. After consideration of several worthy nominees, the Rentseeker of the Year recipient is...

The Parents’ Television Council. Even if they are anywhere close to reportedly backing 99.8% of the indecency complaints filed at the FCC this year, this is an impressive display of rentseeking behavior. A few weeks ago, I wondered what broadcast programming would consistently look like should the PTVC run the table, and then I saw an ad for a holiday music spectacular starring Clay Aiken and Barry Manilow. That seemed about right.

Now, on to 2005. In its Top Ten Trends for 2005, Red Herring anticipates “The Death of Distance.” (David Isenberg properly blasts this header by stating that “distance is so dead its corpse stinks.”) If Red Herring can pass off forward-looking statements like this to paid subscribers, I can pass off ridiculous forward-looking statements to web surfers. Bust out the crystal ball.

1. “Stevens & Inouye” will rival Hall & Oates. Get your “Telecom reform listening tour” shirts before they’re sold out! Public hearings like these always draw the most interesting (and self-interested) people. And speaking of Hall & Oates...

2. Air Supply to headline the Aspen Summit. Maybe not, but I was quite envious to learn that Heart will be participating at an upcoming VON conference, which continues to add verve to the conference template. So, perhaps we can have our own 80's revival. Ice cream break featuring Journey? Happy hour featuring Tears for Fears? I am very serious about this.

3. President Bush will not utter the word “broadband” in public. It was worth a few points for both presidential candidates to throw out some general ideas on broadband deployment, but the Administration hasn’t shown that it is really serious about it. Had Kerry won, his name probably would have been inserted here instead. Just playing the odds.

4. Cell phone use on airplanes will be one of the most important communications issues…for public consumption. It has already begun. The FCC has posted instructions on its home page for the public to comment on the issue – which is unconventional. Leaving no stone unturned, Commissioner Copps seeks “to determine precisely what jurisdiction the FCC has over the annoying-seatmate issue." First off, the no brainer here would be the value added for users of data applications. And while I, too, worry about the annoying-seatmate, to the extent this adds yet one more option for a seatmate to be annoying, I would think that the issue can be worked out in the market.

Happy New Year to you, PFF blog readers, and to all of the folks at PFF.

- posted by Adam @ 12/30/2004 10:48:07 AM

From their Cold Dead Hands....
In a move that would hardly defy the oddsmakers in Vegas, were they to set lines on such things, California has challenged the FCC's Vonage Order in the Ninth Circuit.

- posted by Adam @ 12/28/2004 06:20:55 PM

Mess with Texas
The Texas Public Policy Foundation has released a report by Robert Crandall and Jerry Ellig entitled Texas Telecommunications: Everything's Dynamic but the Pricing. The authors conclude that the maintenance of cross-subsidies in Texas to keep retail rates "affordable" results in an annual consumer welfare loss of at least $200 million dollars and has hampered the development of local competition in the state. The report is as timely as it is compelling, as the state's public utilities act undergoes sunset review.

- posted by Adam @ 12/28/2004 02:14:47 PM

Decent Satire
The New York Times has honed in on Michael Powell and indecency regulation with a (hit) piece today. (Free registration required.) The article notes that Powell declined four invitations to speak about the issue. However, his reluctance to speak does not give license to the reporter. For example, all of the quotes from the Commission are anonymous. The story liberally uses quotes from folks with a clear vested interest in the issue and select quotes from Powell’s public statements. The source(s) and motives for the other quotes are hidden from the reader. The story explains Powell’s views with unflattering quotes from sources like unidentified “commission officials and friends of the Chairman” and “other lawyers and commission officials.”

No doubt Powell’s statements and actions should be analyzed. Likewise the views of people with an interest in broadcast regulation should be heard. But an article headlined “Evolution Atop the FCC” and given prominent space ought to include something attributable in the Chairman’s defense. On the key criticism of the Powell and the FCC – the perceived arbitrariness of this form of regulation – no one is on the record to push back. The criticism may be warranted, but without more information it simply looks like a personal attack.

This space has highlighted a few bits here and there on the subject of indecency but none are as humorous as this classic piece of PFF Weblog satire. It too paints a picture of the Chairman’s views on indecency, but no one tried to pass it off as a straight news article.

- posted by Kent @ 12/23/2004 01:48:12 PM

RFID: The Supply Chain Gift of Choice
A new report by AMR Research claims that this year major consumer goods producers have invested more than $250 million in radio frequency identification devices and related equipment. Wal Mart is spurring the investment with a set of goals and deadlines for up to 140 of its suppliers. However, the omnipresent retailer is not alone. The author of the report notes,

that several other major retailers, including Albertsons, Best Buy, Target and Britain's Tesco, are also launching RFID projects with their merchandise suppliers.
News.com has the story and Technology Daily also features the study. The Wall Street Journal also reports on the adoption of RFID by three NFL franchises for concession sales to high-end ticket holders.

Funny thing, just this morning I took the opportunity to read an October 2004 study by Rob Atkinson and Julie Hutto on RFID. Their description of the issues and the false alarm created by self-anointed privacy advocates is similar to work done by PFF adjunct Jim Harper.

Why does this matter? Many analysts see 2004 as the proverbial tip of the iceberg in RFID deployment. It is a digital technology that promises tremendous consumer savings across a wide segment of the economy. In addition, the Defense Department, the FDA and the Homeland Security Department are at the forefront of public sector RFID deployment with an eye toward improved safety. These players – through regulatory edict or buying power – could significantly shape the market. Second, several states – notably California and Utah – toyed with prohibitions, limitations or moratoriums in 2004 and it is an issue sure to spark the interest of state legislators in the coming year.

- posted by Kent @ 12/23/2004 01:13:56 PM

Telephone Taxes in '05
A Wall Street Journal editorial pulls together the threads of three distinct digital tax issues under the heading “A National Telephone Tax?” (Subscription required) As one might expect, the editorial board at the WSJ does not favor a new national telephone tax. In addition to the market distortions it would present, the WSJ presents persuasive data on a rising tide of state revenues. Economic growth tends to increase tax receipts even when the taxman cannot reach new technologies.

However, the distinct issues are serious enough to warrant their own treatment. First there is the issue of state and local taxes on Internet-based calling. According to the WSJ, states are on the offensive on this point and rightly see the traditional tax base in decline insofar as taxes were levied on traditional telephone service. VoIP bedevils state officials on the jurisdictional issues that dominate regulatory policy as well as the pending decline of tax revenues built into the old system. How many firehouses will be shuttered because cities have not figured out how to tax VoIP? (Not many…unless you live exclusively in the land of outlandish rhetoric.)

Second, there are the manifold problems associated with “streamlined use tax” proposals. In effect, it is a cartel for state revenue officers. Finally, there is the recently enacted Internet Tax Non-Discrimination Act. This “Internet tax freedom” act only temporarily extended the prohibition on Internet access taxes and the like. Watch for the intersection of technology and taxation in the New Year; in one way or another we are bound for a collision as these issues gain traction.

- posted by Kent @ 12/22/2004 02:50:01 PM

Conference on the Economy Revisited

The President touted the importance of ownership during this week's Conference on the Economy. The importance of ownership in small businesses and in money were keys to securing the future of the economy. He, and the panelists, failed to mention anything about the ownership of intellectual property, however. Perhaps this subject area did not fit into the agenda, but it seems to me that ownership of intellectual property needs to be an integral part of innovation and productivity. It will be interesting to see if the President's love of people owning something will extend past savings accounts and into intellectual property.

- posted by Mike @ 12/17/2004 09:45:35 AM

Bush League Policy? I Think Not

Today wrapped up the White House Conference on the Economy. In the morning session President Bush led a panel entitled "Financial Challenges for Today and Tomorrow." The main focus of this panel was long term deficits due to unfunded mandates, particularly social security and Medicare. The President began by outlining his own 3 key points to social security reform:

1. No change for those in or near retirement.
2. Do not raise payroll taxes
3. Allow younger generations to use own payroll taxes for personal savings accounts.

The panelists all seemed to agree that the old methods used to fix social security, namely increase payroll taxes or decrease benefits, simply will not do. The system itself is broken. Instead of tweaking the old, a new social security infrastructure must be established. The key to this new architecture should be private accounts, according to the panelists. These private accounts would allow people to invest their own money into savings accounts for their retirement, but give them flexibility to invest what they want and also to do what they see fit with the money, such as pass it on to family.

One of the main themes of the morning session was ownership, as illustrated by the personal account concept. Free markets and entrepreneurial spirit were heralded as the driving forces of a strong economy. Personal accounts demonstrate the concept of using ownership as a means to strengthening the economy and avoiding the pitfalls of long term debt. The President affirmed his belief in the American people and a system of ownership through two statements:

"Citizens can affect policy"

"I love the idea of people being able to own something"

Private ownership and believing in the people of America to spur on change. Ah, the beauty of a capitalist democracy in action.

- posted by Mike @ 12/16/2004 03:24:50 PM

TRO: Temporary Restraint in Order
At the risk of underscoring our fearless leader's purported disinterest in today's Triennial Review Order (TRO) from the FCC, I have to concede that the agency's most important task is to maximize its chances of being upheld on appeal, so that it can go back to focusing on more innovative services, such as Internet voice, wireless and broadband. The safest approach would have been for the agency to craft a concrete standard based on evidence of both actual and potential competition from multiple technologies, and from existing services such as "special access." Based on what we've heard, the Court will probably agree that the FCC has moved the ball forward, but the Devil's in the (forthcoming) details -- the full text of the order may not be out for days or weeks.

The FCC moved the ball forward in several ways. First, it signaled that competitors could no longer provide service, in essence, by leasing established phone companies' entire networks at steeply-discounted rates set by the government. Second, the agency stated it would consider the future prospects of competition in deciding whether companies entering the market are "impaired" and thereby entitled to lease those parts of the network the agency's rules still cover. Third, the agency established numeric thresholds so that incumbent phone companies will not be required to lease parts of their networks to competitors throughout geographic areas, rather than in specific locations.

Yet there are some potential risks in the agency's approach that cannot be fully evaluated until the order is released. Although the agency will be able to assure the Court that companies will need to invest in their own equipment to get the full economic benefit of owning a network, those assurances won't become effective until the end of long transitions lasting over a year or more. So the Court will need to decide whether those transitions are reasonable steps to prevent disruption of service to customers, or whether the agency has unduly prolonged obligations it had no authority to adopt in the first place. Similarly, although the FCC apparently has heeded the Court's warning not to disregard the prospects for future competition based on a variety of technologies and services, the Court may be skeptical that the agency afforded reasonable weight to such evidence. The numeric thresholds set by the agency, after all, do not appear to rely expressly on such evidence. And it's hard to shake the feeling that a Court that has criticized the FCC harshly for failing to comply with the law in this area three times previously may not be satisfied by a fourth attempt under which the FCC still would require incumbents to lease certain equipment in the vast majority of cases.

Only time (and the Court itself) will tell whether the pluses of today's decision outweigh its minuses. Thus, restraint is in order even with respect to my cautious optimism. Again, the consumer benefits of the competition covered in this decision already have been eclipsed by the benefits of wireless, Internet telephony and broadband. With any luck, the FCC may be able to put this proceeding to bed soon so it can devote more of its energies to finishing the framework to promote investment in these more innovative services.

- posted by K Dixon @ 12/15/2004 02:55:24 PM

Conference on the Economy

After spending the morning at the White House Conference on the Economy, several things have been brought to my attention. According to the economic and business experts present, the economy is in good shape, taxes and regulation are bad, and consumer saving and investment in technology are good. Also, small business is an important cog in the mechanism of the national economy.

Aside from the gratuitous flattery of the Administration and its economic and tax policies, the two panels expounded on the virtues of entrepreneurial growth and investment, the importance of small business and the need for the federal government to clean up the regulatory framework effecting all businesses.

Stay tuned for more breaking news following tomorrow’s sessions.

- posted by Mike @ 12/15/2004 01:54:12 PM

Choice Words
Surely a great number of lawyers, analysts and assorted "experts" are crafting reactions to today's FCC decision on unbundling. Not a few of these people are my colleauges at PFF. Many smart people will say smart things about what it all means.

But before we get way into the weeds, as it were, I cannot help but notice an extremely poor choice of words in Commissioner Adelstein's statement. It appears that he compares ILECs to a python. Fair enough. Maybe that accurately reflects his view or maybe it is simply a poorly selected simile. But it is unfortunate for everyone that the "proverbial rat in a python" in Mr. Adelstein's statement likens consumers to a dead rat. That cannot be right.

Okay...now back to regular programming. Stay tuned for analysis, commentary and assorted blogs on what it all really means.

- posted by Kent @ 12/15/2004 01:37:02 PM

Ho, ho, ho...hum
I await today's FCC Triennial Review decision with all the anticipation and excitement of a Loverboy reunion concert at a local mall.

The decision is strikingly irrelevant to the marketplace today. It is as if the federal buggywhip administration came out with regulations just after the introduction of the Model-T. Of course, the buggywhip regulations would have some effect on the buggywhip manufacturers and consumers who did not yet have a Model-T, but the action has shifted to the automobile industry. Here, the action is not in compelled sharing of the legacy copper network, but in VoIP, fiber-to-the-home and -to the curb and wireless broadband.

To be sure, today's decision will have real reverberations. It will determine the allocations of regulatory rents between ILEC's and CLEC's. It will increase (or reduce) the risk premium for capital investment in the sector based on the signal its sends about the possibility of confiscation-by-regulation. It will set the tone on how long we will continue to rely on regulatory lobbying determine the success of business models. By all accounts, the answers to these questions will be depressingly familiar. The agony of the unbundling and pricing regime will be with us for some good time longer...at least until the D.C. Circuit gets the next whack at it. But, other than for the signals it sends, it is tough to care.

- posted by Ray @ 12/15/2004 10:17:23 AM

“A Wave of Abject Fear…”
California PUC Commissioner Susan P. Kennedy recently noted that VoIP scares people. To wit: regulators fear the loss of jurisdiction; legislators fear the loss of funding for Universal Service; incumbents fear the loss of access charges; and, “rural carriers fear everything – but they especially fear loss of subsidies.”

As is said in the blogosphere, read the speech. Kennedy provides clear examples of the consumer harming distortions created by the current regulatory system. She also uses a turn of phrase like a rapier. For example, after describing VoIP’s relationship to the line between telecom and information services, the line between local and long-distance and the line between inter and intrastate, she slices through the fog with a sentence like, “the only lines that exist today are those that are drawn by and for regulators to facilitate the status quo." (Emphasis in original.)

Kennedy rightly calls attention to the most important communications debate of the decade: VoIP. She says the “regulatory treatment of VoIP and IP-enabled services is the line separating the past from the future. It’s the line between fear of change and faith in innovation.”

It reminds me of another speech by a Kennedy. He said, “Let us begin anew—remembering on both sides that civility is not a sign of weakness, and sincerity is always subject to proof. Let us never negotiate out of fear. But let us never fear to negotiate.” These words are worth remembering when Commissioner Kennedy is attacked for recommendations to address “some of these issues on the federal level.”

- posted by Kent @ 12/13/2004 04:17:12 PM

Phishing update
In the last 3 days, I have "account information requests" from 'Bank of America,' 'Suntrust,' and 'Citizens' Bank.' These are prototypical phishing solicitations that look legitimate and official, but are really a means for thieves to get people to voluntarily hand over account information. I, and millions of others, ignore them, and with the better junk e-mail filters don't even need to see them at all.

That said, this is the type of stuff that gives folks like my 70 year old in-laws the willies. My mother-in-law gets these things and thinks she does have to respond or her account will be closed (fortunately, the phishers haven't gotten lucky and made the request from her bank). Further, she then becomes more suspicious about making any online purchases for fear her information will be stolen. Amazon should pay me as commission for talking her through the fact that it's all right to order something from them.

The political response to this scourge: "there oughta' be a law....!" is empty posturing. There is a law. It prohibits fraud. All states have them. The problem here is enforceablility, which is near-impossible. I tend to think the ultimate solution is structural -- better authentication, active policing by the broadband providers limiting access the bad guys' access. This second solution, you will note, violates the vaunted end-to-end principle. And the answer to that should be: so what? It is a valauble principle so long as it is useful, not a foundational article of faith. When "'Net Freedom" becomes the bad guys' invitation to harassment at best and fraud at worst, then the principle needs to be rethought.

Our sometimes Red Lodge, Montana office headed and staffed solely by Jim DeLong is fond of making analogies between the property and contract rights foment and change in the American West and the current "wild, west" phase of the Internet. There is explanatory force to this analogy, and insight to be gained from how settlers to the west worked out the rules of property (western "prior appopriation" water law and its complete difference from eastern riparian property regimes is one glaring example).

The Internet still has a ways to go toward working out these laws. In the case of phishing, perhaps we need to revive the Greek and Roman practice of banishment.

- posted by Ray @ 12/10/2004 03:11:01 PM

Word of the Year, and a Rant
So “blog” is Merriam-Webster’s word of the year (a personal favorite, peloton, placed #7). While this may be a year too late, I would still like to submit my vote for the #1 most abused word of the year, “embed” or any variant thereof.

Take this article on the journalist, or so-called “embed” (it’s a verb, people), who reportedly coached soldiers’ questions during Rummy’s appearance in Iraq earlier this week. According to the editor of the Chattanooga Times Free Press, “I think he was doing what he felt he was embedded to do.” If I ever claim that I am doing something because that is what I have been “embedded” to do, I grant my colleagues the authority to have me committed. You know, somewhere “upstate,” preferably with a park bench next to a pond, so I can feed the pigeons.

Please do your part in putting a stop to this journalistic ego trip before it infects the entire profession. Otherwise, you might soon see this on a PFF press release: “If you would like to be embedded at our next conference, please contact Patrick Ross.”

- posted by Adam @ 12/10/2004 11:38:13 AM

Competition Rings in the Heartland
Thanksgiving came a couple days early to select Iowa communications consumers. On November 23rd, the Iowa Utilities Board voted to end rate regulation in 20 local exchanges. Prices will be set by the market as soon as the IUB releases a written order and the relevant firms file an accounting plan.

Details: The IUB will continue to regulate service quality and reserves the right to re-regulate prices. In 19 of the exchanges, local competition was measured by at least a 50 percent, non-ILEC market-share in business and residential lines over self-provisioned facilities. In the largest exchange, Council Bluffs, the IUB found effective competition noting multiple providers of local service and that some providers utilize their own facilities.

My take: This is a positive, if incremental, move toward consumer empowerment. Close observers may see Qwest and other incumbents turn to these Iowa exchanges as new, innovative products and services are put into the field for testing. The innovation and improved choice will augment consumers’ newfound ability to bargain with local providers. It is a particularly positive development because of the rural nature of the findings. I daresay that non-Iowans who don’t run for President have never heard of Coon Rapids, Oxford Junction or Tiffin. Yet, competition has found each of these places.

On the downside, it is entirely undesirable to see the idea of a market-share threshold take hold in the state regulatory community. Three talented individuals serve on the IUB and are often looked to as leaders by their peers. Let’s hope that other regulators note the deregulatory move, and pay less attention to the market-share test. The key to competition is not market-share but rather the ease of entry (and exit) of any provider or potential provider to the market.

- posted by Kent @ 12/9/2004 10:49:18 PM

Sprint & Nextel...
to merge?

Who will survive? That deadpan guy in the black trenchcoat, or the giant antenna in the middle of the country? Will NASCAR have to repaint its cars? These are questions regulators will want to ask.

- posted by Ray @ 12/9/2004 05:49:50 PM

Stuart Buck -- A Search Engine for Economic Analysis of Digital Markets
The plentitude of the Internet makes good search engines indispensable. For instance, someone needs to sort the Lindsay Lohan fan sites from the Hillary Duff fan sites.

My searcher to indulge my niche interest in law and economics academic papers is Stuart Buck, who today notes two interesting articles about cellular pricing with more competitive entry and airline pricing under conditions of potential entry.

Like I said, it is a niche market, so I don't expect his stock if he goes public to reach Google heights. Nevertheless, he consistently brings to my attention interesting articles that I then download and forget in PDF files on my hard drive -- and then sometimes even read! And as for why I have this niche interest, I ask myself that same question every time I am reading an academic article and the footnotes hit the triple digits.

- posted by Ray @ 12/9/2004 04:30:15 PM

Schumpeter back to Europe
House Schumpterian and antitrust skeptic Jim DeLong has a nice post over at IPCentral.info linking to a new paper out from the Center for a New Europe on competition policy. The paper discusses the key challenge to digital age economic analysis: how to understand dynamic processes with static analytic tools.
- posted by Ray @ 12/9/2004 03:29:52 PM

Powell Reprise on "'Net Freedom"
The second of a seven-part series of a discussion between Chairman Powell, Larry Lessig and others last summer has been posted over at AlwaysOn. (Part one, loosely described, discussed why the government shouldn't build out a fat pipe for all Americans just because we are not currently in what equates to the BCS rankings for broadband deployment.) In this part, Powell discusses the rationale behind his four principles for 'Net Freedom. In answering Lessig's question on whether there is full FCC support to keep the Internet how it "really was," Powell states:

Well, it's an interesting question. As best as I can read it now, the Commission has pretty much bought into that subscription. The real test is going to come the day that somebody gets caught doing something nasty. That's going to be a real test of the policy.

In a recent article in Regulation magazine, Lessig writes that those "network owners who interfere with 'net neutrality' or compromise 'Internet Freedom' face a significant threat of subsequent regulation." I would agree that the threat of regulation is the middle course that the Chairman seems to be steering here through a policy statement. Lessig goes farther, however, in asserting that Powell has "clearly signaled to broadband providers that violating the four freedoms would lead the FCC to regulate broadband provision. Neutrality is thus the rule, at least so long as Powell gets to direct the rules."

The question boils down to what constitutes "nasty" behavior. One can imagine a host of activities that would render the orthodox wing of the end-to-end constituency apoplectic. Nevertheless, some actions that might facially violate "'Net' Freedom" - say a broadband provider limiting 'net accessibility for children or access preferences through some sort of affinity marketing program - might be beneficial to consumers and broadband penetration as a whole. The problem with 'Net Freedom, or net neutrality, or whatever you call it, is that it is an abstract policy in the name of an abstract goal. The proper answer to such calls is: "Maybe."

- posted by Adam @ 12/8/2004 07:43:09 PM

The Path of Least Resistance
Business Week is reporting that the National Governors Association will be sponsoring a meeting in DC next week to discuss ways to simplify and make the taxation of all communications services equally painful....er, more equitable.

The article then discusses a Virginia proposal that would create a "model" for other states to follow. It states:

The Virginia agreement would replace those levies with a flat 5% tax on all telecom services -- including VoIP.

I'm going to assume this is a scrivener's error in the article, since VoIP is NOT a telecom service. But then again, as Jeff Pulver discussed yesterday, the City of Santa Monica is trying to figure out how to tax Free World Dialup.

- posted by Adam @ 12/8/2004 03:59:49 PM

Broadband Penetration being Driven by....Broadband Penetration?
Drudge has linked to a survey conducted in London which indicates that 25% of respondents in a face-to-face survey, no less, subscribe to broadband so they can view porn. Broadband Reports follows up with a story from Japan that, due to broadband, sales of condoms are...hardy har har..."sagging."

- posted by Adam @ 12/8/2004 03:32:36 PM

More Pressure on Universal Service
Nope, it's not from VoIP or wireless or email, but it's a similar theme. This from the U.S. Postal Service's CFO yesterday:

For the first time in history, in 2005 First-Class Mail is projected to fall below Standard Mail as the largest volume product. This shift in mail mix to lower revenue-per-piece mail classes will result in shrinking margins which are used to maintain universal service.

- posted by Adam @ 12/8/2004 03:24:19 PM

Lifetime Linkup
Talk about dropping phone rates, get this from the Boston Globe's online version: "RNK Telecom Inc. is promising subscribers that for a one-time payment of $999 they can make an unlimited number of phone calls for their remaining days on earth." Read all about the "Phone for Life" VoIP service here.

Oh, the $999 price includes the VoIP phone too.

- posted by Randolph May @ 12/7/2004 01:32:59 PM

Options narrowed, for now
The Supreme Court dealt another good hand to promoters of investment in competing broadband networks. Yesterday, the Court declined to review a decision in which the 9th Circuit U.S. Court of Appeals rejected cities' attempts to regulate cable modem service by treating cable modem service like cable companies' core video service. Regulation as a "cable service" would have subjected companies' broadband service to inconsistent, potentially onerous and possibly nonsensical obligations. For example, does the frequency range over which cable operators transmit cable modem signals over their networks constitute one or more "cable channels" for regulatory purposes and, if so, does that mean operators could be required, as with cable service, to feature "public access" or broadcast TV programming? Would operators have to scramble or block cable modem service to those using it primarily to view sexually explicit material, as is true for some cable channels?

But cities' most likely aims are to impose so-called "open access" or "net neutrality" mandates in favor of Internet service providers and content companies that have not bothered to build their own broadband networks. Oh, and, treating broadband like cable service would give cities more leverage under the Communications Act to squeeze higher fees from operators for the same use of public rights-of-way. Any of these scenarios would result in litigation or other costs that would either be passed on to consumers or would ultimately slow operators' investment in new services and capabilities. Although local governments have a few more legal arrows in their quiver, for now the battle to classify cable modem service under the Act will focus primarily on whether it should be treated as a heavily-regulated phone service or a largely unregulated "information service," as I discussed previously.

- posted by K Dixon @ 12/7/2004 11:37:30 AM

VoIP Goes Mobile
Visually it's not as striking as Kyle's fleet of dirigibles, but imagine a bank of devices working like mobile phones, connected to various wireless networks. Now imagine those devices also connected to the Internet. If I read the company's literature correctly, that's what you have with Xcelis. For a flat monthly fee, you can get unlimited wireless phone service. How? It seems you call Xcelis on your mobile phone, that call is treated like a mobile-to-mobile call (which increasingly is free) and then Xcelis uses VoIP to complete your call. Can't imagine the wireless providers will be too happy with that -- this could be an arbitrage business model that won't last -- but it sure is an example of someone building a better mouse trap.

- posted by Patrick Ross @ 12/7/2004 10:10:06 AM

Look -- up in the sky! It's a bird! It's a . . .
Dirigible? Last Thursday's Economist [subscription required] reports on plans to launch the first in a fleet of these lighter-than-aircrafts next month. A pathetic attempt to plug the short-lived "SkyCaptain and the World of Tomorrow" before its DVD release? No, this is an effort to float yet another method for ubiquitous deployment of wireless broadband service, courtesy of Atlanta-based Sanswire (get it -- without wires?) Networks. The company hopes to lift wi-fi-like equipment up, up and away in their beautiful balloons, which will hover in the stratosphere (like really low geostationary satellites) to provide web-surfers in large areas below broadband Internet access. It remains unclear whether the "strattelites" will, as some speculate, create additional "last mile" alternatives to cable modem and DSL providers or offer a cheaper way to get broadband to poor countries with few wires in the ground. But it does suggest that competitive pressures to invest in additional broadband networks persist. No word yet whether future launches will keep the birds aloft using hot air recycled from Washington, DC, rather than helium.

- posted by K Dixon @ 12/6/2004 02:57:13 PM

Supremes to Consider Brand X
Good news today out of the Supreme Court. The Court has announced it will consider the appeal from the Ninth Circuit's decision holding that cable modem service is a "telecommunications" service subject to public utility-style regulation rather than, as the FCC determined, an "information service" remaining relatively free from regulation.

This will be an important case for two reasons. From the perspective of sound policy, in today's increasingly competitive broadband marketplace, we don't want to have the FCC's hands tied as it tries to keep broadband services, whether provided by cable, telephone, or whatever, from becoming embroiled in the "morass" (Bill Kennard's word) of telephone regulation. Second, as a matter of law, the case may well turn on what the Supremes say about how much deference is due the agency's interpretation of ambiguous statutory provisions. This involves the reach of the famous 1984 Chevon case implicating judicial deference to agency decisions.

No doubt that the classification of cable broadband service (or DSL, for that matter) is not crystal-clear under the definitions in the existing Communications Act. As I have pointed out before, in today's digital environment, the distinction between "telecommunications" and "information" service as it relates to broadband services is quite metaphysical. Since the Communications Act is what it is, when there is true ambiguity such as that presented by Brand X, the Court will do better, as matter of law, if it defers to the metaphysicians over at the Portals concerning the definitional issue, rather than practicing the metaphysician's art themselves.

- posted by Randolph May @ 12/3/2004 03:24:14 PM

Commissars at Bay
President Bush today signed into law an extension of the Internet tax moratorium, a victory for anyone desiring continued growth of cyberspace. Is it everything we could have hoped for? Little that comes out of Congress is, but it's better than the alternative -- no moratorium at all.

We've actually been without a moratorium for more than a year now, but every state and local tax administrator -- the folks Senator George Allen (R-Virginia) calls "tax commissars" -- knew to hold their powder. One new tax on Internet access likely would have spurred Congress into approving the House version of the legislation, which would have made the moratorium permanent. Allen's bill also would have permanently ensured the legacy telecom tax system didn't burden new technologies and services, but it was modified in the Senate to last only until 2007, and to keep some grandfathered taxes in place.

We fought this fight in 1998. We fought it again in 2001 (that was the first moratorium Bush signed). Then we fought it once again in 2004. It seems we'll be back in the ring one more time in the 109th Congress, and likely the 110th. Legacy rent systems, like Freddy Krueger, aren't easy to kill. Otherwise rational senators such as Kay Bailey Hutchison of Texas can't help but listen to a county tax official who comes to Washington arguing that eliminating grandfathering and banning Internet access taxes will cause the county to lose its only fire engine. But somebody needs to ask how we came to be in a world where local first responders rely on Internet taxes for their existence?

As I mentioned here before, there's a much larger fight going on here. The landline phone service market is in decline, faced with a multitude of alternatives, and the taxes on those services thus are declining as well. As consumers turn to VoIP and other Internet-based services for their communications needs (how many times do you send an e-mail now when you used to make a phone call?), the telecom tax pie will shrink even more. The new law prohibits states from taxing DSL, which some had started doing by calling it a telecom service. But taxing VoIP will be too great a temptation for many of Allen's commissars, and Allen himself says the new law doesn't prohibit such taxation. I want my local firehouse to be funded as much as anyone, but I question the wisdom in preserving -- and growing -- an antiquated tax system applied to unrelated services to ensure my safety.

- posted by Patrick Ross @ 12/3/2004 03:08:55 PM

Free Speech, Inquiry and Association
The Rocky Mountain News defends state regulators' rights to free speech, free association and free inquiry -- which is sadly controversial to the pro-regulation reactionaries of the world.
- posted by Ray @ 12/3/2004 11:40:44 AM

Universal common denominators in telecom reform
Today's reports in both TR Daily [subscription required] and Comm Daily [Lexis subscription required] highlight common denominators in anticipated Congressional debates over telecom reform: "universal service" and related issues regarding how telecom carriers compensate each other when they exchange voice and data traffic over their networks. Although staff from both sides of the aisle differed on how extensive telecom reform should be, all essentially agreed that these "real money" issues must be addressed. A universal service study to be previewed tomorrow (but released subsequently) may provide much-needed evidence on these issues. The study, authored by PFF's own Randy May with Joseph Kraemer and Richard Levine, will provide useful data on how various populations, including low income and rural customers, use communications services. The study should shed light on what, at base, these constituencies may need to satisfy the universal service goal of preventing Americans from falling off the network. In so doing, the study also may signal whether telecom reform workably can be limited to minor tweaks of the existing Communications Act, or whether Congress must draft a new Act "from the ground up" to relieve the strain on compensation mechanisms and other regulations caused by technological developments like Internet voice service.

- posted by K Dixon @ 12/2/2004 02:57:11 PM

The Self-Regulation of Emergency Services
In a thought-provoking blog on 911 services, David Isenberg concludes that:

To me, an outsider, it looks like the 911 system, while it is based on a reasonable idea, has the wrong architecture, the wrong assumptions, and a set of entrenched users and interests that might ignore alternative ways to solve the emergency services problem better.

One such possible alternative is proposed in a recent article by Doug Sicker and Tom Lookabaugh. They argue that a phased approach to certification and labeling, properly tailored, will be able to address the diverse array of VoIP services. This effort would follow coordination between state and federal authorities and the threat of regulation by government agencies "unless credible self-regulation emerges" with participation by government, consumer group and industry actors. If successful, such an approach may be used to meet other social policy goals. The full article is available through SSRN here.

An attractive feature of pre-emptive self-regulation is that it eliminates the public choice temptation to hamper the growth of VoIP services (that said, there may be public choice pressures within a self-regulation regime - Sicker and Lookabaugh propose ways to address this concern). And for now, it appears that the preconditions for a model of self-regulation are in place, as the VON Coalition released a survey today which indicates that VoIP providers are making progress in rolling out 911 in the absence of a government mandate.

- posted by Adam @ 12/1/2004 09:03:58 PM

Minnesota Pulls Back on Vonage...For Now
Yesterday the Minnesota Public Utilities Commission pulled back from its effort to regulate Vonage. CNET has the story of the two-page MPUC stay issued yesterday. (The original complaint alleged that Vonage offered telephone services. Egads! The nerve of those people offering unregulated telephony. Some things must not stand.)

The stay keeps the door open for the MPUC to jump back in the game if circumstances change due to judicial action or new federal legislation that would reverse the FCC's recent claim of authority. The article quotes our regulatory friend, and sometimes sparring partner, NARUC's Brad Ramsay suggesting that at least one state will challenge the FCC decision. Ramsay didn't give additional details about which of the "dozens of states" that have tried to regulate VoIP would be the potential litigants. Stay tuned. The next procedural step is at the 8th Circuit where the issue went after a District Court judge ruled that the MPUC did not have authority to regulate Vonage. Oral arguments were held on November 17 and tomorrow supplemental submissions to the Court are to be filed.

- posted by Kent @ 12/1/2004 05:01:21 PM

Cheesesteaks with a side of Wi-Fi
Yesterday, Governor Rendell of PA signed into law a bill that, among other things, requires cities to offer the incumbent telephone company the right of first refusal to provide the proposed service. If the ILEC waves its right to provide the service, the municipality may proceed with its proposed network. While the bill is a victory for telecoms, helping to prevent the intrusion of government into competitive private services, the extent of victory seems questionable. The right of first refusal allows for a private veto of a municipal project. The question remains, however, as to how much this helps the incumbent. If a municipality is contemplating entry into a market, it is usually because there are no viable private alternatives. This generally would indicate that private investment in infrastructure and services in that area would not make economic sense, or else an incumbent would already provide service there. To this end, it does not seem unreasonable that incumbents would not exercise their veto power, because they would not want to invest in a losing venture.

The Philadelphia Wi-Fi case is a perfect example of an incumbent allowing a muni to provide service rather than provide the service itself. Verizon chose to allow Philadelphia to go ahead with its municipal Wi-Fi plan, because, as can be assumed, Verizon did not see it as a profitable endeavor and thus had no interest in deploying a city-wide hotspot.

This leads to another question: what is the value added by creating a city-wide hotspot in a city such as Philadelphia? While not a very costly venture, it also does not seem terribly practical. There are currently over 50 hotspots in Philadelphia, at locations such as Starbucks, Cosi, and several hotels. With a city already so well-endowed with hotspots, the need for city-wide Wi-Fi makes little sense. Further, cities generally are very well wired for broadband access. Since the incumbents in cities already provide several viable means to access broadband either at home, work or public access points, there is little need for municipal intrusion into the broadband markets of cities. If the services were profitable, an incumbent would already be offering it.

- posted by Mike @ 12/1/2004 01:56:34 PM

As visions of cable modems dance in their heads
Court-watchers at the FCC and among cable operators and other broadband providers are hoping the Supreme Court has gotten into the holiday spirit early. Today's Communications Daily [Lexis subscription required] predicts that the Court may decide within days whether to hear an important case, Brand X v. FCC, that may determine how well the FCC can protect cable modem service and, by implication, other broadband services from intrusive and costly regulation. If the Court accepts the case, it would open the possibility of overturning a 9th Circuit Court of Appeals ruling that rejected the FCC's decision to spare cable modem service the heavy regulation generally afforded traditional phone service.

The story of how the Communications Act can be interpreted in this area will not end whether or not the Court takes the case. If the 9th Circuit decision is allowed to stand, the FCC could still consider "forbearing" from regulating cable modem service though, as I have noted, such forbearance authority may be limited. If the Court takes the case and ultimately takes the FCC's position, the agency would still need to work through a host of additional issues. Most important among these are whether local franchise authorities will be allowed to regulate aspects of cable modem service and whether the FCC should reject formally calls to impose "net neutrality" requirements. (FCC Chairman Powell has emphasized publicly that there is no need to impose the latter, given that cable modem and DSL providers allow consumers to use the content, applications and devices of their choice freely.)

Nevertheless, the Brand X case is critical to the FCC's overall policy of enhancing incentives for companies to invest in building high-speed networks. The outcome of Brand X also may afford more or less urgency to efforts to reform the Communications Act to accommodate cable modem and other digital technologies.

- posted by K Dixon @ 12/1/2004 11:23:31 AM

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