Lobbyist-to-English Phrasebook

March 14th, 2009

When I worked at the FCC, I kept a running list of phrases bandied about by lobbyists.  Sometimes, these phrases entered the common parlance of the Commission without really being questioned.  Without being explicitly dishonest, I found these terms tended to distort the policy dialogue, and even permit regulatory capture.  Here are some selections from my Lobbyist-to-English Phrasebook:

Mobile TV – Translation: keep the status quo in the TV bands, which is probably the most inefficiently used public resource.  Any television with a battery is inherently mobile.  These things were all the rage when I was a kid in the 1970s.  People took them to ball games so that they could watch the instant replay from the stands.  If history is a guide, video programming will become one service running over multi-service, IP-based networks.

Spectrum Glut – Translation: keep the entry barriers for wireless networks high.  A spectrum glut is simply not possible.  Think about this carefully.  The contrapositive of a spectrum glut is that there is not enough harmful interference.  You cannot be too rich, too good looking, or have too much spectrum.  An indication of effective radio policy is that revenues from spectrum auctions would be at or near zero marginal cost.FN What the term is really arguing is that if spectrum resources are freely available to all wouldbe network operators, then there would be too many new entrants.  The flood of new entrants would cause compétition sauvage that all operators would go out of business, harming consumer welfare.  If the business process is not patentable, then it probably does not make sense to extend de facto intellectual property protections to it.  The FCC is not the PTO.

The US is a broadband leader – Translation: Some cherry-picked statistic to show that US is not lagging at broadband Internet adoption.  We beat Korea in broadband!!  Okay, okay, it’s North Korea, but they’re part of the Next Generation Access of Evil!

Encourage investment – Translation: corporate welfare.  Promoting investment in network is not an objective of communications policy.  The US tried this.  It was called rate of return regulation and it was a failure.  What is an acceptable objective is promoting innovative services at marginal cost.  Investment might be a necessary element to that, but it is not the objective.

Insight: As an MBA, I find this last one particularly disturbing.  A firm invests when the investment is reasonably expected to generate a super-normal rate of return.  Otherwise, management should return the capital to shareholders in the form of a dividend and let the shareholders invest that cash somewhere else.  Anything else is a breach of their fiduciary duty.

I recently discovered, that the US does not hold a monopoly on this problem.  Recently, ECTA (the European competitive carriers’ association) released a statement arguing that Telefonica in Spain and Deutsche Telekom were threatening their national regulators that they would not invest in their networks unless certain policy restrictions were relaxed.

Implicit in this investment-for-certain-policies argument is that certain policies might increase the amount of capital required for network investment or lower the cashflows associated with the investment, lowering the rate of return to an unprofitable level.  This is a fair argument.  However, in order to properly evaluate that argument, the carrier has to provide regulator with its financial model for its network investment decisions, including all assumptions.  Otherwise, this argument should be rejected out of hand for being unsubstantiated.  It is foolish for the regulator to assume that its actions have no consequences on the profitability of the firms it regulates.  However, it must examine the trade-offs inherent in its actions to obtain the best possible outcome.

In the final analysis, there are better vehicles for stimulating investment in networks such as intellectual property rights, tax policy, grants, loan guarantees, and industrial policy.  In most cases, the telecoms regulator has no authority to pursue these policies.

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Posted in Optimal Regulation | 1 Comment »

T-Mobile’s G1 Android and Apple iPhone: market power or just marketing?

February 13th, 2009

T-Mobile recently introduced its G1 mobile phone in Germany, the first to use the open Android platform. The G1 joins the more proprietary iPhone which T-Mobile has sold in Germany under an exclusive agreement with Apple. The G1 is manufactured for T-Mobile by HTC in Taiwan and the Android platform is an open standards effort of the Open Handset Alliance – a consortium comprised of Google and several mobile phone manufacturers and networks. By contrast, the iPhone is a more closed platform where modifications may result in it being rendered inoperable. Given that T-Mobile is embracing open and proprietary strategies for the operating systems, begs questions on the efficacy a hybrid business strategy and whether this is unfair competition.

Both the Apple and Android approaches have had to grapple with the optimal level of openness. No pure strategy is viable: too restrictive, and the phone is of minimal value; too open, and it becomes unprofitable. Originally, the iPhone’s operating system was derided as being overly restrictive. Apple tried to harness the energy of individuals trying to improve the iPhone by launching the App Store in July 2008. It now boasts 15,000 third party applications for sale. At the same time, the Android platform is an open standard, not full open source. The source code carries an Apache license, so some extensions to the code may be proprietary. Further, Android’s Software Development Kit might allow Google to control an Android Market in a way which resembles the App Store.

Insight: It is not necessarily unfair competition for T-Mobile to be the exclusive source for both the G1 and the iPhone in Germany. Despite the 200 patents filed for the iPhone, it is not inherently irreproducible – save its cachet as a technocrati status symbol. Both Samsung’s Instinct and the RIM’s Blackberry Storm have already been launched to compete with the iPhone. Similarly, any other network could market a phone employing the Android platform. Whether these devices are better or worse is a matter of consumer preference. The fact that T-Mobile is now marketing phones based on both open and proprietary software suggests that neither approach is the Holy Grail of business models. T-Mobile initially launched the G1 in the US in order to compete with AT&T which is the exclusive sources for the iPhone there. The decision to sell the G1 in Germany probably embraces economies of scope and scale, more then the question of openness.

A German language version of this note, authored with Christian Wernick, will be published in Wirtschaftsdienst, available at: www.wirtschaftsdienst.eu.

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Posted in Cool Stuff, Wireless Communications | No Comments »

Some Thumbnail Economics on the DTV Transition

February 1st, 2009

Source: New York Times, Robert LeSieur/Reuters

Source: New York Times, Robert LeSieur/Reuters

Last week the Senate unanimously voted to delay the up coming US transition to digital television by 4 months. Two days later, the House blocked the measure.

The debate over whether to delay the transition stems from the fact that a certain number of households are not able yet to receive digital broadcast television.  According to a report in the New York Times, the Nielsen Company estimates that more than 6.5 million homes are not able to receive digital broadcasts, down from 8 million, the previous month.

Let’s consider that number in light of some others.  To speed the transition, Congress authorized the National Telecommunications Infrastructure Administration to give out $40 coupons to purchase, or defray the cost of, digital converter boxes which would let analogue TVs receive digital signals.  To date, this TV Converter Box Coupon Program has already reached its $1.34 billion ceiling.  At $40 a pop, the NTIA has given out some 33.5 million coupons.  (Granted, not all of the coupons have been used).  According the FCC’s most recent data, there are 109.6 million TV households in the US (in June 2005, I said most recent).  Then as many as 30.6% of TV households have gotten coupons (as little as 15.3% if each household took the two coupons they are entitled to).  However, the FCC statistics show that 85.98% were MVPD households (those that subscribe to cable or satellite).  That means that only 14.02% of households get their TV over the air.

So how can there be 6.5 million households not ready?  Well, I am using two different data sets, one of which is 4 years out of date and some MVPD households must have taken a coupon for the old TV in the guestroom.  So, the two numbers are not likely line up.  I can accept that there are a significant number of households which are not ready for the transition, but I find the 6.5 million figure to be high.  The FCC did not do a great job of informing the public of the transition.  The previous FCC Chairman spent $350,000 to sponsor a NASCAR to promote awareness of the digital TV transition.  The car crashed twice. FN1

Consequently, the poor and the elderly are not ready for the transition.  The New York Times also has a lovely piece about Ms. Vesta Clemmons, 77, of Houston, TX who is not ready for DTV.  (I am sure Ms. Clemmons has never seen NASCAR).  Ms. Clemmons has been unable to get a coupon from the NTIA’s program.

Insight:  Delaying this transition which has already dragged out for years will have a significant cost.  It would be cold and heartless to want to deprive the elderly and lower income families of over the air television.  But we have to consider just what the cost of “free TV” is.  As I have said in a previous Cool Stuff, the cost of delaying the digital TV transition is opportunity cost which the minority impose on the rest of us.  These opportunity costs include the majority of us not being able to use the spectrum for higher value uses.  There’s no question that the transition to digital television is going to be messy.  But, that is all the more reason to go and get it over with.

FN1 To the seasoned Washington insider, the choice of NASCAR makes perfect sense because just like an FCC proceeding.  In both events, everyone goes around and around at high speed until someone hits the wall.

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Posted in DTV Transition, Wireless Communications | No Comments »

Network Neutrality in Europe and the Ski Lift Line

January 27th, 2009
Source: WIK-Consult, photo courtesy of alexindigo, Flickr.com

Source: WIK-Consult, photo courtesy of alexindigo, Flickr.com

My study for the BNetzA (German telecoms regulator) on Network Neutrality in Europe has finally published.  (Don’t worry, it’s available in English).  In this study, we look at Network Neutrality – the catch-all phrase that emerged in the United States over the past decade to reflect a number of potential behaviors that some consider to be anticompetitive – and what the implications for European regulators might be.

The report reviews the economics that underlies the Network Neutrality debate, including price discrimination, network externalities, transaction costs, switching costs, two-sided markets, and the economics of vertical foreclosure. It also briefly reviews the technical aspects of quality differentiation for IP traffic (including packet delay, jitter and loss). It provides background on a number of alleged deviations in the U.S. (including Madison River and Comcast), and assesses the Network Neutrality concerns that have been raised in Europe (for example, by the BBC’s iPlayer). In the end, we conclude that Network Neutrality manifests itself very differently, and much less problematically, in Europe than it does in the United States.  The report also considers the ways in which the changes proposed to the European regulatory framework as part of the ongoing “2006 review” might strengthen the hand of European regulators, and at what cost.

Insight: Putting aside the regulatory analysis, I think that the two most important and far-reaching aspects of our analysis are the taxonomy of network relationships we created and the way we describe end-to-end latency in IP networks.  In order to describe the nature of relationships in an interconnected-multilateral-all-IP network world, we characterize relationships among network participants and service providers as being one three dimensions: vertical, horizontal, or diagonal. (See Section 2.3 in the report).  I am also very pleased with how we use ski lifts to explain of queuing and link delays in end-to-end latency. (See Figure 1 in the report).  It is my hope that these two approaches will make the debate more objective and approachable, and help to reduce the ever-present hyperbole.

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Posted in Broadband, Network Neutrality | No Comments »

Obama’s Inaugural Address and the Optimal Government

January 24th, 2009

This past week, I watched, with great excitement the Inauguration of Barack Obama as the 44th President.  In the following days, a read and listened to many blogs and news accounts of his Inaugural Address, some touting it as an exemplary piece of oration and others calling it flat, especially in light of Mr. Obama’s skill.

There was, however, one passage which to my mind received too little attention:

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

And those of us who manage the public’s dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched. (Source: NYT)

Insight: If Mr. Obama truly adopts this approach to government, then it represents a major step forward for the United States and the welfare of its people.  This efficiency frontier for government is something I have written about before in Cool Stuff (The Transition and Irish Broadband Forum).  Defining the contours of this efficiency frontier is the next generation of policy research and debate.  I commend Mr. Obama for taking a truly bipartisan approach to government (“I won” comments aside).

I wonder if this explains the hit I got on my blog from a Starbucks in Washington, DC.

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Posted in Cool Stuff | No Comments »

One Year of Cool Stuff

January 13th, 2009

Today marks the first anniversary of Cool Stuff (in this incarnation).  In the past year, I have made 30 posts in 10 categories and 54 tags. There are a total of 41 comments.  Cool Stuff has garnered more than 1,600 hits, with the post on John McCain and Wi-Fi being far and away the most popular post.

Insight:  I have greatly enjoyed writing Cool Stuff and will try to devote a bit more time to it.  I get jazzed when I find that people are reading my blog and that it is helping to generate thinking about the next generation of issues in communications strategy, business, and policy.  I also think it is really cool when I get a Google search hit – especially when someone hits my blog when they were might not have exactly been looking for it.  To this end, I have created the Top Ten Google Hits on Cool Stuff (all of these are real search terms reported by the WordPress blog stats plug-in).  The Top Ten Google Hits on Cool Stuff are:

10.       “pusher prop airplane”

9.         ken carter aircraft

8.         hackintosh illegal

7.         ken carter’s wife

6.         unlicensed to kill: a brief history of t

5.         irish directions advice i wouldn’t start

4.         always be sincere, whether you mean it o

3.         cool shit for browning hi power

2.         fcc working paper science fiction

And the number one Google Hit on Cool Stuff is:

recommend stuff white people like.

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Posted in Cool Stuff | 1 Comment »

One Word Oxymorons

January 11th, 2009

We’re all familiar with the term oxymoron.  Oxymorons are a subset of the expressions called contradictions in terms. The definition of an oxymoron is a figure of speech that combines two normally contradictory terms. Oxymoron is a loanword from Greek oxy (’sharp’) and moros (‘dull’); itself an oxymoron. In popular usage, the term oxymoron is sometimes used more loosely, in the sense of a simple contradiction in terms.

One of the most famous examples of colloquial oxymorons is jumbo shrimp.  The term Jumbo, coming from the name of P.T. Barnum’s enormous African Elephant, now synonymous with ‘large’ and shrimp has taken on the meaning of ‘small’.

Insight:  The other day I got to thinking whether is there a word so confused, so self-contradictory that it is its own oxymoron.  Well, I came up with two: naturalize and favorites.  Naturalize means literally, “to put into the state of nature;” however, to be in the state of nature means to be unaffected by human intervention.  The word favorite is itself a superlative, meaning something that one likes the best.  The word favorites is then a plural superlative, itself an oxymoron.

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Posted in Cool Stuff, Proper English | 1 Comment »

Network Neutrality is Dead. Long live Network Neutrality.

December 30th, 2008

In the past few weeks the Wall Street Journal has posted two opinion pieces online (here and here) basically claiming that Net Neutrality was dead. The blogs exploded, claiming that reports of Net Neutrality’s demise were greatly exaggerated: David Isenberg, Tim Karr, Harold Feld, Gigi Sohn, Google’s Rick Whitt, DSL Reports, and Rob Frieden to name a few. These really smart telecom policy wonks picked apart the numerous errors in the WSJ pieces errors. (I do have to correct one glaring error in the Gordon Crovitz piece. The specter of Net Neutrality regulation has not caused a low level investment in broadband access and the US’s low rankings in the international adoption statistics. I hope that would strike you as obvious.)

The basic thrust of their arguments was a content-cashing-versus-content-transmission distinction. What Google is doing is moving and distributing its content closer to the end recipients in an effort to improve delivery speed and quality. It was not seeking preferential treatment in terms of the transmission of its traffic. From a service perspective, I am not sure there is much of a difference.

What is truly at the core of the debate is common carriage versus private carriage. These are not new ideas. Common Carriage traces its origins to the Roman Empire. As such common and private carriage express competing notions of fairness and economic efficiency. We think it is unfair to give preferential treatment to certain (read wealthy) customers. At the same time, we also think it is economically inefficient to mandate a single (or limited set of) Internet access options for everyone, including those who are willing to pay more for premium services. So, how do I determine which means of achieving differentiated services is economically permissible and socially desirable?

Insight: To my mind this is not so much a question of network practices (i.e., routing versus caching), but of market power and market failure. Don’t get me wrong. I am a proponent of Net Neutrality. However, the most effective way to promote welfare-enhancing differentiation from anti-competitive discrimination is the presence of effective, sustainable competition. This is, by no means, a guarantee. As David Isenberg correctly points out, the US has four major wireless carriers, but no truly open mobile networks. (As I have argued in a previous Cool Stuff that wireless devices are not a perfect analogy to wireline Internet). Nonetheless, in the absence of competition to constrain the behavior network providers, some form of regulation will be required. Once the regulator is required to dictate allowable and unallowable network practices, all of the options are unattractive. In the light of the incoming administration, we should be considering how best to (re)introduce effective, sustainable competition.

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Posted in Broadband, Network Neutrality | 1 Comment »

Marketing FFTH

November 26th, 2008

In my last Cool Stuff post, I wrote about FFTH (or fiber from the house).  In the past week, I have had the chance to refine my idea, and I even had a chance to read the very good paper by Slater and Wu, Homes with Tails.  The more I think about the subject, the more I come to the conclusion that main issue is syndication of the risk of stranded investment.  The strategies which deal directly with spreading this risk have the greatest chance of succeeding.

Just to review FFTH, is where the homeowner buys his own Internet connection.  Under the simple scenario, Joe the Fiber Layer comes to Joe the Homeowner and offers to build him his own fiber optic Internet connection.  The cost of this construction is highly sensitive to the number of homes which take the offer in a given area.  Using Slater and Wu’s numbers regarding the Verzion FiOS roll out, the capital cost for a fiber to the home connection is about $7,000 if 20% of homes passed take the service and on the order of $3,000 to $4,000 at a 40% take-up rate.

Insight:  There is a marketing strategy which plays perfectly to this problem.  Suppose Joe the Fiber Layer comes to Joe the homeowner and makes the following offer, “I will build you your own fiber Internet connection for $5,500.  However, if 5 other homes on your line buy FFTH, I will send you a check for $500; if 10 more take it, I will send you a check for $800; 20, $1,500; etc.” I can imagine that in everywhere in America there would be neighbors leaning across the hedges saying, “Dude, we just got our FFTH connection.  It is AAAAAWSOME! You totally have to get one of these!”  Word-of-mouth is the best marketing, but peer pressure is better.

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Posted in Broadband, Cool Stuff | 4 Comments »

FFTH: Fiber From the House

November 19th, 2008

A while back, I was asked by a client how to stimulate the deployment of a fiber to the home infrastructure given the enormous risk of stranded investment and given a potentially capital-constrained incumbent. I suggested FFTH – fiber from the home. I was not being facetious, at least not totally.

When I gave my answer, I was thinking about the Netherlands. One of the major investors in fiber to the home projects in the Netherlands is a real estate developer. The reasoning is simple. Houses with access to broadband Internet services sell for a premium over comparable house without. (Lehr, Osorio, Gillett and Sirbu did an excellent TPRC paper measuring the magnitude of that premium, which I cannot find). In addition to making money as a fiber access provider, the real estate developer could capture the benefit of increased property values created by the availability of broadband Internet access.

I mentioned my FFTH idea to David Isenberg at the recent CITI 25th Anniversary Gala, and to his credit, David mentioned me in his blog posting (thanks, David). In addition, Sascha Meinrath and Michael Calabrese at the New America Foundation have organized an event for this Friday to examine the idea of FFTH. Calling it “Home with Tails”, Tim Wu and Derek Slater examine in a forthcoming paper whether this is a “customer centric” means for driving broadband adoption. Further, FFTH might possess other benefits. Eli Noam has suggested that private ownership of the access potion of the broadband network would help to solve the network neutrality problem.

Insight: When I suggested FFTH, I was not thinking about Network Neutrality and other consumer issues. I was merely thinking about distributing the risk of potentially stranded investment. However, since the idea of FFTH seems to have some merit I wanted to put a finer point on it, examine some of the potential downsides, and the policies which might be necessary to make FFTH possible.

Think about this. Instead of getting a cable modem or FiOS from Comcast or Verizon, Joe the Fiber Layer knocks on your door and offers to build you a fiber loop to the nearest Internet access node. And for less than it would cost to have Joe the Plumber remodel a bathroom (somewhere between $2,000 and $7,000), you would have your own fiber connection which greatly increase the value of the whole house at resale time.

The first thing necessary for the policies which to enable a FFTH business model is full and open interconnection to the nearest feasible Internet access point. This might be a remote terminal, street cabinet, or cable node. Creating effective access at this level is not necessarily an easy task. This may be small engineering spaces with powering and other serious engineering concerns. Thus, it might be able to accommodate every Joe or Jane the Fiber Layer who wants to put their customers’ equipment in those access points. Further, it would be simply impossible for each homeowner to have someone dig up the streets or hang fiber everywhere.

Here in Germany, we have some experience with policies for privately owned access networks. Back about 20 years ago, or so, a political decision was made to separate cable delivery from in-building plant. An artificial classification of access Level 3 and Level 4 was created. Level 4 network providers owned the cable wires inside individual buildings and there are some 700 of these companies still in existence. Level 3 providers were restricted for offering in-building wiring. This arrangement has lead to certain economic inefficiencies and may have some effect in hampering cable deployment in Germany. Thus, any policy designed to enable FFTH should not create artificial classifications and unreasonably prohibit network from providing services further up or down in the network. And who knows, you might someday find a major incumbent seeking unbundled access to your private fiber loop.

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Posted in Broadband, Cool Stuff | 3 Comments »

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