Category Archives: Globalization

For AT&T/T-Mobile merger, Sprint throws in regulatory kitchen sink

For CNET this morning, I write about the latest tempest in the AT&T/T-Mobile USA merger teapot: cellular backhaul or “special access” as its known in the industry.

Like a child sitting on Santa’s lap at the mall, Sprint CEO Dan Hesse included backhaul in his wish list of conditions he’d like to see attached to the deal. Yesterday, Public Knowledge duly confirmed that yes, backhaul is a “multiplier” problem for the deal.

(Sprint says they would like the deal blocked, but that is mere posturing. What they really want is to use the FCC’s bloated and unprincipled merger review process to sneak in as many private concessions for themselves as they can get. And who can blame them for trying? More on that in a moment.)

For those who don’t know, backhaul is the process of moving cellular traffic (voice and data) to other high-speed networks (traditionally landline copper but now including cable, fiber, microwave and local Ethernet) to transport them to their ultimate destination. As mobile use increases, of course, the necessity of reliable, high-speed backhaul to keep overall performance up becomes more critical than ever.

Let’s work backwards:

1. The merger has no impact whatsoever on backhaul. PK’s Harold Feld told The Hill that “One measure of just and reasonable is comparing similarly situated customers. So AT&T has to at least be reasonably consistent in pricing. That means T-Mobile benefits to some degree from any pricing concessions that Sprint can negotiate, and vice versa. And if AT&T is too unreasonable to either one, or both, having two similarly situated companies complain to the FCC and produce evidence that AT&T is being unreasonable makes a stronger case than having just one company.”

Except that T-Mobile is not a customer. T-Mobile, like Sprint’s own subsidiary Clearwire, does not buy backhaul from AT&T or Verizon or any other landline infrastructure provider, relying instead on alternate backhaul technologies including microwave and Ethernet. T-Mobile doesn’t sell backhaul, and it doesn’t buy it from landline providers. So whatever part of the backhaul market AT&T holds today will be exactly the same the day after the merger. All Sprint loses is another company who could theoretically join it in complaining about AT&T’s rates to the FCC–except that T-Mobile doesn’t care about AT&T’s rates, because T-Mobile doesn’t buy from AT&T.

2. Sprint has only itself to blame if it’s too reliant on others for backhaul – The backhaul market, like many aspects of the communications industry (e.g., peering arrangements), is notoriously secret. No one really knows who is paying how much to whom for what–and those that do know are prohibited from disclosing.

But we do know that landline and cable companies have been investing billions over the last decade to upgrade, update, and extent their infrastructure. And we know that Sprint has not made a similar investment in landline infrastructure, putting its money in its wireless network. Which means that Sprint has known all along that it would remain reliant on its competitors for backhaul. The company made a strategic choice to lease rather than to build, knowing that while the FCC no longer regulates backhaul rates, the agency is there to keep prices in check. The merger doesn’t change that reality one iota.

Sprint says it pays “very very high” prices for backhaul from AT&T and Verizon, and that the backhaul business is exceptionally profitable. That sounds like a great opportunity, if it’s true, for someone else to enter the market. And indeed, dozens of companies large (Comcast) and small (local Ethernet) have entered the market. (Comcast projects $1 billion in its backhaul revenue in the near future.) Just not Sprint. Why should the FCC bail them out of what may have been a series of bad business decisions?

3. The real problem is merger review – As the two Republican FCC Commissioners said at the time of the Comcast-NBC Universal merger and its 200 pages of largely unrelated conditions, the FCC’s “regulation by merger” habit has grown life-threatening for the industries it regulates. Despite having nothing to do with the merger, and despite pure rent-seeking by Sprint to cut its backhaul costs in the name of antitrust, it seems possible that–sure, why not?–backhaul rate regulation concessions will be added to what will surely be the mother of all condition lists. (For AT&T, not Verizon or anyone else–at least not until their next merger review)

That is, when the FCC finally gets around to approving the deal. (The agency maintains a 180-day review deadline, but also grants itself the power to stop the clock anytime it likes. That’s how XM-Sirius took sixteen months, for example.)

The dangers of regulation by merger condition are obvious and getting worse. The merged entity is often crippled in its ability to operate for years after the merger, with each condition overseen by the FCC (and/or DOJ and/or FTC). Different companies offering similar products and services live by different sets of regulations, some of which exceed what the agencies could have legally done had they simply regulated everyone under their Congressional powers. The net result does nothing to improve competition in the relevant market. Quite the opposite.

Inviting competitors like Sprint to add to the list of unrelated conditions its Christmas list of kickbacks, sweetheart deals, tribute and plenary indulgences only makes a bad problem worse. Looking beyond the AT&T/T-Mobile merger, Sprint of all companies should know that…and know better.

What the Protect IP Act says about the current state of the Internet content wars

I’ve written two articles on the Protect IP Act of 2011, introduced last week by Sen. Leahy (D-Vt.).

For CNET, I look at some of the key differences, better and worse, between Protect IP and its predecessor last year, known as COICA.

On Forbes this morning, I have a long meditation on what Protect IP says about the current state of the Internet content wars.  Copyright, patent, and trademark are under siege from digital technology, and for now at least are clearly losing the arms race.

The new bill isn’t exactly the nuclear option in the fight between the media industries and everyone else, but it does signal increased desperation.

I’m not exactly a non-combatant here.  Increasingly, everyone is being dragged into this fight, including search engines, ISPs, advertisers, financial transaction processors, and, in Protect IP is passed, anyone who uses a hyperlink.

But as someone who earns his living from information exchanges–what the law anachronistically calls “intellectual property”–I’m not exactly an anarchist either (or as one recent commenter on CNET called me, a complete anarchist!).

The development of an information economy will stabilize and mature at some point, and, I believe, the new supply chain will be richer, more profitable, and give a greater share of the value than the current one does to those who actually create new content.  (Most of the cost of information products and services today is eaten up by middlemen, media, and distribution.)

But it’s not an especially smooth or predictable trajectory.  Joseph Schumpeter didn’t call it creative destruction for nothing.

 

Why no one will join the Global Network Initiative

I’ve posted a long article on Forbes.com this morning on the Global Network Initiative. A non-profit group aimed at improving human rights though the agency of information technology companies, GNI has never really gotten off the ground.

Since its formal launch in 2008, following two years of negotiations among tech companies, human rights groups and academics, not a single company has agreed to join beyond the original members–Google, Yahoo and Microsoft.

This despite considerable pressure from supporters of GNI, including Senator Richard Durbin (D-IL), Chair of the Senate Judiciary’s Subcommittee on Human Rights. Indeed, in the wake of uprisings in Tunisia, Egypt, Libya and elsewhere and the seminal role played by social media and other IT, a full-court press has been launched against Facebook and Twitter in particular for failing to sign up. Continue reading

AT&T and T-Mobile: The Antitrust Terrorists

In the rush of ink that flowed yesterday over AT&T’s announced merger with T-Mobile USA, I posted a long piece on CNET calling for calm, reasoned analysis of the deal by regulators, chiefly the Department of Justice and the FCC.

Since the details of the deal have yet to be fleshed out, it’s hard to say much about the specifics of how customers will be affected in the short or long term.  My CNET colleague Maggie Reardon, however, does an excellent job laying out both the technical and likely regulatory issues in a piece posted today from the CTIA conference.

My point was simpler.  Within hours of the deal’s announcement, and without any relevant facts, public interest groups including the Media Access Project, Public Knowledge and Free Press had already issued press releases condemning it–Public Knowledge, in fact, called the merger “unthinkable.”

That, I’m sure, was just rhetorical excess, but it does underscore a modern tendency among some advocates to react emotionally rather than rationally to any kind of asset combination.  They assume any change in the competitive landscape that reduces competition in the literal sense (fewer competitors) is by definition an antitrust violation, and conflate that with what is in fact much more complex antitrust analysis that regulators undertake.

What will be significant in this deal, I suspect, is who takes the lead.  The Department of Justice has repeatedly indicated it believes there is robust competition in mobile services, and that an accelerated push to 4G (the point of this merger) could improve competition overall by creating a viable alternative to wireline broadband.

(See the DoJ’s letter to the FCC as part of the National Broadband Plan–which also, by the way, found robust competition in wireless, though the FCC has since back-tracked in an unconvincing manner.)

The FCC, on the other hand, has gone off the rails recently in its antitrust analyses, as evidenced by the painful, drawn-out review of Comcast’s takeover of NBC Universal and the crazy quilt of largely-unrelated conditions imposed on the deal in a nearly 300-page Order.

Worse, there’s still that nagging Paragraph 78 of the Open Internet order, where a majority of Commissioners explicitly rejected the idea that traditional antitrust measures of harm to consumers would guide their application of the net neutrality rules.   (They offered no alternative criteria, even worse.)

Left to the FCC, the AT&T/T-Mobile deal will take forever to complete, and will be left shouldering regulatory pet projects for years.  Left to the Department of Justice, something more reasonable and timely might happen.

But that’s just more thinking about the “unthinkable.”  Pardon my logic.

 

Updates to the Media Page

2011 has already been filled with important developments in the technology world, and I continue to be a regular source for journalists as well as publishing frequent editorials and analyses of my own.

I’ve just posted several new items to the Media Page of my website, including articles I’ve written for CNET News.com and for Forbes, as well as video from this week’s appearance on PBS’s “Ideas in Action.”

Some highlights:

.  Coverage of policy events at this year’s Consumer Electronics Show for both CNET News.com and the Wall Street Journal’s All Things Digital focused on coming battles in the new Congress over the FCC’s net neutrality rules, and previewed the rest of the likely tech agenda.

. Video from Larry’s appearance at the Congressional Internet Caucus’s “State of the Net 2011.”

. A controversial essay for Slate Magazine, “Doing Nothing to Save the Internet“.

. Extensive coverage of Larry’s testimony before the House Judiciary Committee on the FCC’s Open Internet order.

.Stories for both CNET News.com and Forbes analyzing the FCC’s failure to complete a crucial inventory of spectrum licenses ahead of requirements to find 300-500 Mhz. of new spectrum for mobile broadband in the next five to ten years.

Doing Nothing to Save the Internet

My essay last week for Slate.com (the title I proposed is above, but it must have been too “punny” for the editors) generated a lot of feedback, for which I’m always grateful, even when it’s hostile and ad hominem.  Which much of it was.

The piece argues generally that when it comes to the Internet, a disruptive technology if ever there was one, the best course of action for traditional, terrestrial governments intent on “saving” or otherwise regulating digital life is to try as much as possible to restrain themselves.  Or as they say to new interns in the operating room, “Don’t just do something.  Stand there.”

This is not an argument in favor of anarchy, or even more generally for social Darwinism.  I have something much more practical in mind.  Disruptive technologies, by definition, do not operate within the “normal science” of those areas of life they impact. Its problems can’t be solved by reference to existing systems and institutions. In the case of the Internet, that’s pretty much all aspects of life, including regulation.

By design, modern democratic government is deliberative, incremental, and slow to change.  That is an appropriate model for regulating traditional areas including property, torts, criminal procedure, civil rights and business law.    But when applied to a new ecosystem—to a new frontier, as I suggest in the piece—that model doesn’t work.

Digital life is changing much faster than traditional regulators can hope to keep up with.  It isn’t just an interesting business use of information anymore, it’s a social phenomenon, one that has gone far beyond companies finding more effective ways to share data.  It’s also, increasingly, a global phenomenon, a poor match for local and even national lawmaking.

Digital life moves at the speed of Moore’s Law, and that is the source of its true regulation.  The Internet—acting through its engineers, its users, and its enterprises–governs itself and, while far from perfect, certainly seems to be doing a better job than traditional governments in their traditional venues, let alone online.

The piece gives a short quote from Frederick Jackson Turner, the groundbreaking historian of the American West.  The full quote gives additional context to my frontier analogy:

The policy of the United States in dealing with its land is in sharp contrast with the European system of scientific administration.  Efforts to make this domain a source of revenue, and to withhold it from emigrants in order that settlement might be compact, were in vain.  The jealousy and fears of the East were powerless in the face of the demands of the frontiersman.  John Quincy Adams was obliged to confess:  “My own system of administration, which was to make the national domain the inexhaustible fund for progressive and unceasing internal improvement, has failed.”  The reason is obvious:  a system of administration was not what the West demanded:  it wanted land.

A few key points from this passage are worth highlighting:

1.      Parochialism – Traditional governments attempting to regulate new and disruptive technologies rarely have the best interests of the users in mind.  Instead, they try to exploit the new ecosystem, at best, as a stalking horse for regulation they could get away with in traditional contexts but hope to foist off on the more poorly-organized inhabitants of the frontier.  At worst, governments captured by the vested interests most threatened by the disruption of the new technology attempt to slow down the pace of change, to preserve the interests of those in the process of being upended.

That’s in part why, despite increasingly desperate efforts by the East to impose its regulatory will on the West, those efforts failed.  The East was interested in exploiting western lands for their own benefit, not optimizing the West’s potential to create a new kind of society and economic system.  The East was working against the momentum of transformation.  It understood little of how frontier life was evolving, and its laws couldn’t keep up with the pace of change even if they were enforceable, which they weren’t.  Nor should they have been.

One need only look to one of the first U.S. efforts to regulate the Internet for an example of the first kind of lawmaking.  The Communications Decency Act, passed in 1996 and signed by President Clinton, banned classes of content on the Internet that were perfectly legal in the U.S. in any other media.  (Similar bans have been enacted, often with more bite or more focused morality, in other counties, including Thailand, Pakistan, China, the E.U., and others.)

That law, and subsequent efforts to impose an antediluvian morality on U.S. Internet users, was summarily tossed out by the U.S. Supreme Court as a facial violation of the First Amendment.  Its passage inspired John Perry Barlow to issue his famous “Declaration of the Independence of Cyberspace,” which pointed out correctly that traditional governments have anything but the best interests of this new environment in mind when they put pen to paper.

As an example of regulation to protect vested (and obsoleting) interests, consider the 1998 Digital Millennium Copyright Act, in which content owners unwilling or unable to adapt to the new physics of digital distribution, convinced their lawmakers to impose brutally restrictive new limits on digital technologies.  They bought themselves far greater protection from reverse engineering, fair use, and the First Sale doctrine than they had achieved in the real world.

Whether those protections are enforceable, or whether they used the time it bought them to get ready for a more orderly transition to digital life, remain to be seen.  But the prospects are predictably poor.  Just ask Pope Urban VIII, who banned Galileo’s insistence that the Earth revolved around the Sun.  No matter how long Galileo stayed in prison, the orbits didn’t change.

Indeed, it’s hard without doing an exhaustive survey to think of a single piece of traditional law aimed at helping or saving the Internet that wasn’t at best naïve and at worse intentionally harmful–including laws that grant law enforcement more powers online than they have in their native territory.  That’s why I’m surprised when some of my fellow frontiersman short-sightedly rush back to Washington at the first sign of trouble with Native populations, or with saloon-keepers, or with the railroads, or with any other participant in the ecosystem who isn’t living up to their standards.  They should know that it’s both dangerous, and pointless, to do so.

2.      Impotence – In some sense, in other words, it doesn’t matter whether terrestrial governments regulate or not.  We have ample evidence – file-sharing, spam, political dissent, porn, gambling–that even those activities that have been banned go on without much regard for the legal consequences.  The government of Egypt (and Burma, and Pakistan, and China) can shut down Internet access for a short or for a long period of time.  But the disruption in service is a mere blink in the eye in Internet time.  Let’s see who wins the stand-off that ensues, and how quickly the Law of Disruption takes hold.  Bets gladly accepted here.

As Barlow wrote in his Declaration, “You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear.”  Put another way, in nearly every conflict between Moore’s Law and traditional law, Moore’s Law wins.  Digital life will make its own “social contract” whether traditional governments give it permission to or not.

3.      Reverse engineering government – To repeat, the absence or ineffectiveness of traditional regulators in digital life does not translate to anarchy and chaos.  There is a social contract to online life, and it will be followed by more organized and organic forms of governance.  As I wrote in the piece, “the posse and the hanging tree gave way to local sheriffs and circuit-riding judges.”

That does not mean, however, that over time the old forms of government and regulation will finally win the battle and establish their norms on digital life.  Quite the opposite.  What has been and will continue to develop are forms of online governance that are suited to the unique environmental properties of digital life.

For now, we can already see that the new institutions will be more democratic–more directly democratic—for better and for worse.  (As Madison said, “If every Athenian had been a Solon, every Greek Assembly would still have been a mob.”)  Watch how the users of Facebook, Twitter, YouTube, World of Warcraft, iTunes, and Android respond to efforts by the sovereigns of these domains to dictate the terms of the social contract, and you’ll see how the new social contract is being worked out.

There’s more.  Turner points out that the organic forms of governance that emerged from the American West didn’t simply create a new form of frontier law.  It created American law.  Once the global inhabitants of digital life work out their rules and enforcement mechanisms, in other words, they are unlikely to settle for a system any less efficient back on terra firma.  Turner writes, “Steadily, the frontier of settlement advanced and carried with it individualism, democracy, and nationalism, and powerfully affected the East and the Old World.”

Who will impose their collective will on whom, and which form of government will become obsolete?  Again, anyone care to place a wager?

This is starting to sound like the outline of something much longer.  So I’ll stop there.