Posts by Harold Feld:

Barring a last minute delay to work out messy details, the FCC will hold its regularly scheduled monthly open meeting tomorrow, July 13. Two items are likely of interest to readers here.

First, the FCC will decide whether to approve the proposed acquisition of Adelphia cable by Time Warner and Comcast and accompanying system swaps between Time Warner and Comcast. Approval will give Comcast and Time Warner control of the majority of cable lines in the country, and will create regionally concentrated blocks of cable companies on par with the regional control traditionally exercised by the baby bells.

That the FCC will approve the merger appears certain. That it will impose some conditions (no mean feat after the Federal Trade Commission refused to take action last January) also seems certain. Exactly what conditions it will impose remains unclear. The press has reported that the draft version of the order circulated by FCC Chairman Kevin Martin contained only a limited condition requiring Comcast and Time Warner to make some of its regional sports network (RSN) programing available. Commissioners Copps and Adelstien, the two Democrats, continue to press for network neutrality conditions greater to, or at least equal to, what the FCC imposed in the Bell mergers last year. Other issues up for grabs include the long-standing complaint by MASN, which owns the TV rights to the Washington Nationals, that Comcast has refused to carry Nationals games because it wants an ownership stake, complants by RCN that Comcast has used its market power to deprive it of PBS Kids/Sprout video on demand programming (see my previous entry on the subject), complaints by the America Channel (a would-be network) that Comcast and TW killed its deal with Adelphia for carriage because Comcast and TW only want to run affiliated programming networks, and general complants by independent programmers.

How this comes out has huge implications for how Americans watch TV and get residential broadband. This is the first major merger with a full Commission since Kevin Martin took over as chair. Will they continue to deregulatory approach of Michael Powell? Or will they be more willing to impose conditions to protect competition? You can bet folks will read the tea leaves from this meeting pretty thoroughly to guess what is likely to happen with the proposed AT&T/BellSouth merger. Strong conditions seem likely to discourage future major deals as an indicator that the FCC has reached a limit on the levels of concentration it will easily approve, while weak conditions will likely invite further consolidation.

The other issue of relevance to folks here is the Digital Audio Broadcast (DAB) Radio item. For those new to this, the FCC has begun a process of transitioning AM and FM radio to digital, similar to the TV trasition — but under its own authority rather than Congressional authority and giving an even bigger windfall to terrestrial broadcasters.

Jim Snider of New America Foundation has a pretty good summary of what is going on and how it constitutes a huge giveaway of spectrum to full power terrestrial broadcasters here.

Some folks may remember DAB from two years ago, when the FCC proposed adding a radio broadcast flag to complement the television broadcast flag. Happily, in light of the DC Cir. decision last year, that won't happen. But we can still expect to see a lot of happy radio broadcasters at the end of the day.

Folks interested in listening to the Commission's meeting can go to the FCC's video/audio events page at 9:30 a.m. on Thursday, July 13 and stream the meeting. Because the FCC has pathetic capacity, you may wish to view the archive afterwards (or even attend in person, if you are in the DC metro area; the FCC is at 445 12th St., SW, and you will need a drivers license or some other government i.d. to get inside).

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Last week, Clearwire dropped its plans for an initial public offering and got $900 Million in funding from Intel ($600M) and Motorola ($300M). This may have a significant impact on spectrum policy in DC.

Clearwire holds licenses and leases for spectrum in the 2.5-2.69 GHz band, what we now call Broadband Radio Service (BRS). The BRS band (and its non-commercial set aside lesser cousin, Educational Broadband Radio Service, from whom the commercial folks lease spectrum) have never amounted to much, despite a nice chunk of spectrum and continued high hopes of the FCC and licensees. The band was poorly allocated in the 1970s and 1980s, and FCC policy has continued to "fix" the band just a little too late to get used for its intended purpose.

Most recently, the FCC agreed to a transition plan for the band geared toward the current nirvana of licensed spectrum: fixed point-to-point and mobile broadband. Also by this time, the once crowded field of commercial operators in the band has basically winnowed down to Sprint-Nextel, AT&T/BellSouth (assuming merger approval), and Clearwire. The remaining handful of operators have stayed pretty marginal.

Intel's huge bet on Clearwire, and its accompanying huge bet on WiMax, will have a significant effect on DC spectrum politics. Intel had initialy come out heavily in favor of unlicensed. Over the last few years, however, as Intel has chased the WiMax rainbow in search of a pot of gold at the end, Intel's advocacy has moved away from favoring unlicensed uses. To the extent Intel still backs unlicensed uses, such as the TV white spaces, it does so with an eye toward increasing spectrum for consumer devices rather than with an eye toward broadband services.

Last week's investment seems likely to complete this transition of Intel from a general supporter of unlicensed to a supporter of licensed services for any newly opened or available spectrum. Worse, Intel appears to be heading a block of manufacturers like itself and Alvarion that have one foot in the unlicensed camp and one foot in licensed (read WiMax) spectrum. Intel and Alvarion are part of a broader "WiMax posse" seeking to roll back the rules for non-exclusive use of the 3650-3700 MHz band adopted last year, on the grounds that the FCC's requirement for non-exclusive use and adoption of a contention-based protocol make the band unsuitable for WiMax.

Intel's gradual defection does not leave unlicensed spectrum without corporate allies. In addition to companies such as Tropos, that manufacture broadband equipment using unlicensed spectrum, Microsoft and Dell have become increasingly supportive of unlicensed spectrum as a potential "third pipe" into the home not controlled by a regional monopoly. But Intel's likely departure as as strong advocate for unlicensed spectrum outside the TV white spaces will certainly shape spectrum politics. With Michael Powell of the FCC and Michael Gallagher of NTIA gone, no strong champion of unlicensed spectrum remains within the current administration. Other than the TV white spaces, which remains open as a consequence of Congressional interest, not much is happening in unlicensed spectrum at the moment.

Nor is it likely too happen, without a strong push from the outside. While I have never advocated having corporations speak for us, I have certainly appreciated the extra muscle when they speak with us — particularly in a Republican administration. Intel's growing silence as an advocate for unlicensed, and gradual shift to the side of licensed, will certainly have repercussions for the future of spectrum policy.

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Antitrust has emerged as the great savior of the internet in the absence of Network Neutrality. Opponents of NN argue that antitrust remedies provide sufficient protection (just ask Netscape!). Recently, however, Google has engaged in a bit of preemptive sabre rattling. In a visit to Bulgaria, Vint Cerf remarked that if they don't get NN from Congress, Google will be vigilant to protect itself using the tools of antitrust.

Anyone taking a serious look at the track record on antitrust in network environments understands why antitrust doesn't cut it. As I have observed before, Netscape won its antitrust action against MS. While no doubt providing some moral satisfaction, it did little to restore Netscape's fortunes or restore the benefits of browser competition to consumers.

More troubling, however, is the Supreme Court's decision to review whether the complete failure of telephone companies to compete with each other constitutes grounds for an antitrust trial. This case invovles "conscious parallelism," a term economists use in markets with limited competition. In such cases, firms don't need to sit in a room and actively conspire to avoid competing with each other. Instead, because these actors (here, the telcos) understand how the market works, and rationally recognize that competition would hurt them, they consciously avoid it.

Note that the question is not whether the telcos actually violated the antitrust laws through such conduct. At the moment, the question is whether you can even state a case for an antitrust violation on the basis of such an economic theory.

Given that the same conditions apply in the broadband duopoly that serves most of the United States residential market, whether antitrust will do ANY good absent the proverbial "smoking gun" remains in serious doubt. But even if the Supreme Court decides that conscious parallelism provides grounds for an antitrust complaint, it will still take years and massive resources to litigate such claims succesfully.

It is also worth noting that the Administration's Office if the Solicitor General has sided with the phone companies. This does not exactly fill me with confidence for future enforcement.

So why does Google (or at least, Vint) suggest that while NN is important, they can fall back on antitrust? Well, for one thing, they may disagree with me in my analysis. Silicon Valley companies, by their very nature, remain unbridled optimists that whatever happens they can adapt and thrive. (This is one of the reasons they keep getting spanked in Washington, unfortunately, since they continue to think that, at the end of the day, what happens in Washington amounts to a temporary inconvenience.)

But there is another possible reason. No company can admit it is in a life-or-death struggle, particularly a company that trades at a price-to-earnings ratio (P/E) of 60 or more. For your average "old economy" stock, a P/E of 15 is considered appropriate, with a P/E of 30 being amazingly high. Google (and other Silicon Valley companies) trade at very high P/Es by old economy standards because investors believe that these companies will keep growing and finding new revenue streams at an astounding rate. Losing NN raises a big question mark on that.

I have no doubt in my mind that, if NN goes away, the tech companies will take a serious hit on their stock values. How much I cannot predict. But if the telcos and cable cos have an ability to block the expansion of services companies like Google can offer — or can demand a cut of any revenue — investors will react. It doesn't matter that the current Google business model remains intact. The high stock price is based on the faith that today's great performance is a predictor for a fantastic tomorrow. If today's revenue is only a predictor of tomorrow's revenue, the stock price must adjust for this reality.

Playing this out, I personally predict that if Congress doesn't create strong NN rules, we will see a significant decline in the NASDAQ over time. The Dow will probably also drag some, given the number of tech companies now included in the indicies.

One might dispute this prediction, arguing that any loss in value by the tech companies gets transferred to the cable cos and telcos. But it doesn't work that way. While investors can predict that revenue growth for the tech companies has become uncertain, it also remains uncertain how much of that the telcos and cable cos get to pick up. Remember, P/E is based on predictions about the future. Uncertainty makes prediction harder, and thus drives down stock price. Since no one can predict (at least at the early stages) how much revenue the telcos and cable cos will capture, they are unlikely to appreciate in value (at least, not enough to offset the loss to the tech companies).

So Google (and, I presume, the rest of the tech community eventually) needs to send assurances to investors that the end of a neutral, stable internet is not the end of future rapid expansion for Google. At the same time, they need to persuade Congress that NN is critical to maintaining a healthy tech sector.

Happily, we in the public interest community don't have to manage such a balancing act. I have no problem warning the Senate that if they don't protect the internet with rigorous network neutrality rules, the NASDAQ (and tech companies in the Dow) will take a hit and drag down the indicies. Not all at once (investment has momentum of its own), but over time. While not a particularly strong reason for me to support NN from my perspective, I can hope it will resonate with some Republicans who prefer to put their trust in antitrust.

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Today's (July 5) Washington Post carries this story about how customers use the Internet to shame large, often indifferent providers on customer service issues. Of note, the first two examples involve Comcast and Time Warner.

One has to ask, absent NN, how well these kinds of customer criticism sites will download? Again, it won't take anything as crude as blocking. Just make it download slower or drop every few times. After all, it's not as if these individual customers can afford to pay for "premium" tier carriage of their material.

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RCN, a broadband and cable overbuilder, has filed very disturbing documents in the FCC review of the Adelphia transaction. RCN recounts how PBS has apparently signed an exclusive deal with Comcast for video on demand distribution of its PBS Kids Network and Sprout Network (oriented toward younger children). Comcast has wassted no time leveraging this exclusive distribution deal to disadvantage RCN — which competes with Comcast in Boston, Philadelphia, and Washington DC.

Last year, PBS Kids pulled access to its programming from RCN. The effect on RCN's video on demand (VoD) service was immediate and dramatic. According to RCN, use of VoD dropped by 85%.

While stunning, it seems obvious in retrospect. Parents will use VoD to keep the kids entertained, and PBS Kids has trusted programming. Folks who dislike the crass commercialism of Nickelodeon or Disney, or who want to provide educational programming rather than just entertainment, will want PBS programming.

Ultimately, RCN agreed to terms that provided it access to PBS' VoD programming. But it has now hit a new wrinkle. PBS has signed an exclusive distribution deal for PBS Kids and Sprout with Comcast's VoD distribution platform, Comcast Media Center. Unsurprisingly, Comcast wants RCN to pay through the nose, including for content it already gets through its chosen VoD provider, TVN. Anyone familiar with the history of Microsoft and how it leveraged its desktop dominance by requiring distributors to pay licensing fees even when they didn't take the product — or risk exclusion from all MS products — understands how this kind of deal kills competition. No one wants to pay twice. Heck, if they want to stay in business and offer products to customers at competitive prices, they can't afford to pay twice.

What makes this particularly outrageous, in my opinion at least, is that the PBS Kids and Sprout programming at issue is developed in no small part with public money and donations from viewers and businesses that had no intention of giving Comcast a club to beat competitors over the head.

In the short term, the FCC should address this issue as part of any program access conditions it imposes. PBS Kids programming for VoD appears, at least on the basis of RCN's experience, as much "must have" programming as regional sports. In addition to fighting the "last war" by making sports programming available, the FCC should also stop anticompetitive practices in the merging VoD services — particularly when the "must have" programming got financed by tax dollars and donations.

But the PBS situation highlights a broader problem. We have disserved our public institutions and centers of knowledge terribly, with the result that they remain vulnerable to this kind of exploitation. The PBS-Comcast deal flows from the same problems and attitudes that created the Smithsonian-Showtime deal (under which Showtime acquires exclusive rights to an as yet undisclosed amount of Smithsonian material) and the numerous examples of drug companies using public grants and grants to universities to develop medications they market for billions.

For too long, we have moved from treating the non-commercial community, folks like PBS, the Smithsonian, etc. with contempt. Gone are the Progressive and Great Society ideals that all citizens should have access to a common treasury of culture, education, and innovation. For years, Congress and society at large have scorned these publicly supported endeavors while praising the private sector. We have repeatedly cut funding for these institutions, required them to find funding on their own, and chastised them for living as "permanent dependencies" rather than supporting them.

Small wonder that these institutions increasingly drift away from their missions and ideals. Worse, the non-stop denigration of their contributions to our art and culture causes them to undervalue the resources they have. If we keep saying that Nickelodeon and Disney can do a better job than PBS, that Kim Possible is just as good as Cyberspace and that Rugrats is interchangeable with Between the Lions, we should not be surprised to find that these financially strapped institutions not only sell themselves, but sell themselves cheaply.

I call this the "Magic Bean" problem. Cash strapped non-profits, with no appreciation for the value of what they hold, trade their milk cow to a big corporation for a handful of "magic beans" that supposedly grow into a giant beanstalk leading to the pot of gold of self-sufficiency. Unfortunately, this isn't a fairy tale. At the end of the day, the public and the public institutions get a bunch of scawny bean plants while the private sector companies milk the public.

In the short term, the FCC should put a stop to Comcast's ability to leverage its exclusive deal with PBS Kids and Sprout by imposing a suitable condition on the Adelphia transaction. In the longer term, however, we must deal with the "magic bean" problem before all our non-commercial cultural institutions have made similar bad deals.

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About a year ago, Comcast, the largest cable company, and Time Warner, the second largest cable company, entered into an agreement to buy the bankrupt Adelphia Cable. The companies have proposed a combination of dividing the Adelphia carcass and swapping systems between themselves to achieve a level of regional dominance unheard of in the cable world.

The deal cleared the Federal Trade Commission on 3-2 party line vote. But the Federal Communications Commission (FCC) must approve the deal as well. Although analysts initially predicted smooth sailing, the FCC has in fact conducted a rigorous investigation (far more so than FTC).

As the biggest cable operators, Comcast and Time Warner are also the biggest broadbnad providers. A number of public interest groups (including PK and my employer, Media Access Project have asked the FCC to impose a network neutrality condition on the merger. Last fall, the FCC imposed its "four Broadband freedoms" and a requirement to sell "naked dsl" (i.e., dsl as a stand alone service) on the mergers of Verizon-MCI and SBC-AT&T. We've argued that, at a minimum, the FCC should impose the same conditions on Comcast and Time Warner.

Why? Because these two companies control more than 50% combined of all cable lines in the United states (post merger). Not only are they the largest broadband providers, but they are also the largest providers of voice-over-IP competition to the telcos. Both Comcast and Time Warner have emphasized the importance of expanding broadband subscription, voice services, and other new IP-based services to continue to increase revenue per subscriber.

In any rational world, you'd expect the FCC to look at that and say "do you think Comcast or Time Warner might be just a little tempted to use their control over the networks to interfere with rival products and services? Maybe we ought to do something about that." Sadly, we do not live in a rational world. We have come to view the very idea of regulatory safeguards as abhorrent and an oxymoron. We need incontrovertible proof that a harm exists before we take action — by which time it is usually too late. For example, please note that Netscape ultimately won its antitrust suit against Microsoft. As you can see, this has both completely undid the harm Microsoft's anticompetitive conduct caused and has prevented Microsoft from ever using its dominance of the desktop in an anticompetitive way again. Or, if you prefer a more straightforward analogy, we have food handling rules to prevent food poisoning in advance, rather than leave it to consumers to force resteraunts to stay clean by filing negligence lawsuits.

So it comes as no surprise that now that FCC Chairman Kevin Martin has started to circulate a proposed Order approving the transfer, it does not contain an network neutrality provision. Martin has said before he thinks we don't need network neutrality rules, and only went along with the network neutrality condition in the Bell mergers because the FCC was split 2 Republicans to 2 Democrats at the time and Martin needed to compromise to get the votes from the Dems.

On the other hand, we have not lost yet. Martin still needs three votes. The newest Republican Commissioner, Robert McDowell, has shown his willingness to stand up to Martin by refusing to vote with Martin to approve multicast must carry. McDowell used to represent Comptel, the association for competing telephone companies, and therefore may take a more sympathetic view to network neutrality than Martin. Martin has shown his willingness to compromise on this issue in the past, and may well do so here.

It is also noteworthy that Martin has even proposed one condition, that Comcast and Time Warner make exclusive sports programming available to competing video providers (like satellite providers or the telcos, if they start competing in video). One can safely conclude that Martin is not averse to conditions in principle, even if he doesn't like network neutrality specifically.

When the Commission will vote out a final order remains unclear. While definitely after July 4, it could come as early as the following week. In the past, Martin has shown a preference for issuing major merger orders at open meetings (although the Commissioners can vote "on circulation" at any time). The next FCC open meeting is scheduled for Thursday July 13. I expect we have until then to get 3 votes for net neutrality.

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There's a reason I never get asked to testify on the Hill, and why I'm glad we have folks like Gigi Sohn (of PK) and Ben Scott (of Free Press) to do it instead. I have a very low tolerance for the hypocrisy one encounters when testifying.

Case in point, this past week's Senate Commerce Committee hearing on network neutrality. Ben Scott provides an eloquent defense of the principle. This prompts the usual from folks like DeMint, Sunnunu and Stevens on "The heavy hand of regulation destroys investment and innovation, the internet has never been regulated" blah blah.

At this point, if I were in Ben's chair, I would say "Than why do you have a broadcast flag in this bill, you flaming hypocrites?"

Consider the broadcast flag. It is harder to find a more intrusive or less desired piece of regulation (from the standpoint of the user and the equipment manufacturer at least). It requires equipment manufacturers to build in controls that allow third parties to override user preferences and control legal uses of recorded video and audio. Excuse me? I thought you just said you hated big government and intrusive regulation? Shouldn't "the market" fix whatever problem actually exists?

Also, unlike net neutrality, broadcast flag actively discourages innovation and investment. Indeed, the entire point of broadcast flag is to make innovations that upset established business models and promote competition impossible, or at least incredibly difficult, without the express permission of the dominant incumbents.

To make the hypocrisy worse, broadcast flag constitutes an outrageous extension of government regulation to products and businesses that have never been regulated like this before. To the contrary, the D.C. Circuit found last year that the FCC could not impose a broadcast flag because the law had never intended to give the FCC power to regulate consumer devices in this fashion. By contrast, network neutrality has been the law for more than 30 years, and remains the law until August 2006 (when the old rules phase out).

So who wants to expand federal power, to the detriment of inventors, innovators, investors, and — oh yeah — us regular folks? The supporters of broadcast flag. But, at the very same hearing Senators give Ben a hard time about "wanting to impose stifling heavy handed regulation," these same defenders of the free market and stalwart champions against "big government" on net neutrality turn around to sing the praises of broadcast flag.

Worse, broadcast flag basically constitutes a new national sales tax on consumer devices for the benefit of Hollywood and the record industry. Broadcast flag drives up the cost of design and production of devices while crippling their utility. Guess who pays the extra cost necessary to keep us safe from 'piracy?' People who buy the devices. So, according to Senator Stevens at least, while an estate tax on the wealthiest Americans is bad a sales tax on the average consumer is good — provided the added tax revenues only benefit big companies.

Had I been there and said this, I expect I would have gotten an earful about how this is a special case because we need broadcast flag to protect Hollywood and the record industry from theft, encourage them to put new content out on the market, and don't I care about protecting people's rights? "Absolutely," I reply. "Lets start by mandating network neutrality to protect my right as a content creator and encourage me to put new content and services out on the internet." I want all the "content creators" on YouTube or the bloggers or anyone else to enjoy the right to access my material and for me to get the value I deserve of people seeing it. Lord knows "the market" (in the form of the cable/telco duopoly) won't protect that right on its own. So why won't Stevens, et al. do for me what they do for the MPAA and RIAA, i.e., protect me by regulation because the "free market" won't.

Not that I support broadcast flag "in exchange for" network neutrality mind. I think broadcast flag is wretched in its own right. Unlike net neutrality, broadcast flag stomps free speech and promotes monopoly control of content at the expense of users and innovators (the current internet demonstrates that the same charges against network neutrality are, to use a technical legal term from Judge Edwards' recent dissent in the CALEA case, "gobbledygook") But when someone can tell me in the same breath they hate big government but love broadcast flag, I sniff for the tell-tale signs of hashish. If I don't smell it, I know I'm dealing with the ripe stench of hypocrisy, usually leavened with a bit of PAC money.

Happily for us all, Ben Scott didn't say any of that. Instead, he gave an eloquent defense of the principles of network neutrality without calling the Senators in question miserable hypocrites. But that's why they invite him up there instead of me.

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