Archive for the 'Broadband Policy' category

Andy Kessler Gets It Wrong. Really Wrong.

Aug 21 2009 Published by under Apple, Broadband Policy, Mobile, Technology

Andrew Kessler recently wrote a lengthy article laying the blame for Apple’s rejection of the Google Voice application squarely at the feet of AT&T. While Kessler’s arguments are mostly about wireless, and posts here have typically focused on wired broadband, the article makes some proposals for broader telecommunications reform that compel us to respond.

There is plenty of evidence that Kessler’s whole premise is wrong. For instance, Google Voice runs on Blackberries on the AT&T network. Apple allows other VoIP applications like Skype to run on the iPhone. There are reports that Apple is developing a product that would compete with Google Voice.

Even if you discount all of that, however, Kessler’s column is full of inaccuracies, faulty assumptions and outright misconceptions of the state of competition in the telecommunications space. These errors fall into four main areas:

  • Misunderstanding and misapplication of technology concepts
  • Business competition on features versus price
  • Network investment and sunk costs
  • Cable deregulation

We’ll break these down one by one.

Technology
Kessler’s suggestion for reform of wireless telecommunications is simple – “any device should work on any network.”

While that truly does sound like technology nirvana, unless we agree to one universal standard for every technology, it’s not likely to happen. Why? It’s due to the very thing Kessler claims to want – competition. As Victor Godinez points out in the Dallas Morning News:

Kessler’s insistence that “any device should work on any network” suggests that he doesn’t understand even the basics of cellphone technologies. T-Mobile’s and AT&T’s GSM networks are simply incompatible with Verizon’s and Sprint’s CDMA systems, no matter how much Kessler might think they are. That’s why, even when you unlock an iPhone, you can’t make it run on Verizon’s network.

Kessler makes a similar error when he suggests that ‚”voice is data.” As The Social Telco blog points out:

While there’s a sense in which that’s true – all communication is ultimately ‘data’ – it’s only true in the technical sense if it’s carried that way. Which it isn’t, on today’s cellular networks and most public telephone networks.

Other than where voice over IP is used, voice is circuit-switched, which means it ties up an entire (virtual) circuit from end to end for the duration of a call, making it unavailable for other purposes. Data, on the other hand, is typically packet-switched, meaning that a data ‘connection’ in fact only uses up network bandwidth when packets are actually being sent back and forth, otherwise freeing up that bandwidth for the use of others. As such, voice networks and voice calls use network capacity in a very different way from data, with different equipment required and different economics associated with them.

Wireless networks today are moving toward a new standard called LTE which will do two things. First, it will make Kessler’s assertion that ‘voice is data’ more or less accurate as it does rely on IP for voice traffic. Second, it breaks down the barrier between CDMA and GSM networks. Verizon has suggested they’ll be using LTE by next year. These advances are being brought about by the very competition Kessler claims is thwarting them.

Kessler also suggests that connection speeds to our homes and phones should double every year, and suggests they have not. Here again, Kessler gets it wrong.

We explored exactly this topic on Cable’s blog after Robb Topolski made a similar assertion about broadband speeds and Moore’s Law. The fact is, since the inception of the 300 baud modem in 1978, broadband speed to the home has more than doubled every two years. We have not done a similar comparison for cellular technology since people have used wireless for data for a very short period of time.

Competing on Price or Features
While Kessler spends most of his space clamoring for competition in price, he ignores robust competition on features. It is a glaring omission given the economics of telecommunications.

Telecommunications is an expensive game. Cable companies have spent billions, as have the telephone companies, building out their networks. We have seen estimates that the per-home connection and acquisition cost for one FiOS customer is between $3,000 and $5,000. The same holds true for wireless when you factor in spectrum costs, towers, etc. It will take those companies a very long time to recuperate the sunk costs.

So, how do you compete to get that back if you focus only on competition on price? The answer is that you don’t. You compete on price, if at all, only to gain market share. Once you have a healthy share of the market, you stop competing on price and compete on features.

That competition on features is exactly what the iPhone represents. Ringtones, app stores, and other features are the core of competition when costs are roughly equivalent. Working in cable, we often hear arguments about price. They typically go like this:

Complaint: My cable (and/or broadband) bill is too high.

Reply: Well, then switch to Satelite/DSL

Customer: But they don’t offer (VOD, speed like cable, etc)

Reply: So what you’re really saying is you want all the features that cable offers, but you don’t want to pay for them?

In other words, the choice of which offering to choose comes down to features. There are, people will acknowledge, cheaper options. However, people don’t make decisions solely on price. They make them on perceived value and that includes features. I can get a phone that makes calls, and plays MP3s, and does other things, for less than I’d pay for an iPhone. But I want the perceived value of the iPhone. That’s the value of exclusivity. Do I have to use your network to get the phone I want, yes you do.

If you argue competition solely on price, though, Kessler suggests that AT&T Wireless margins are an ‘embarrassingly high’ 25%. Does that point to a flaw in my argument? Not really. As Hance Haney at Tech Liberation Front points out:

Before we get to that, Kessler complains that margins in AT&T’s cellphone unit are an ‘embarrassingly’ high 25%. He doesn’t point out that AT&T’s combined profit margin – taking into account all products and services – is only 9.66%.

AT&T is actually earning less now than it was legally entitled to earn when fully regulated – 9.66% versus 11.75%.

Haney also points out that those margins are required by government mandate, to subsidize landline service.

In a normal business, an unprofitable product or service would disappear. But telecom providers are still required by law to provide plain old telephone service to anyone who requests it. It’s called the ‘carrier of last resort’ obligation. Believe it or not, providers are still required to provide copper-based, circuit switched phone service in many places, even though they could cut costs by deploying fixed wireless and VoIP to deliver basic phone service.

This service obligation imposes a tax on those of us who have canceled our landline service in favor of our cellphones in the form of artificially high prices for wireless service.

Network Investment and Sunk Costs
Let us pretend for a moment that Kessler’s notions of reform made any kind of sense. He suggests the root evil lies in ‚’own[ing] a pipe between you and your customers,’ and thus we should take pipe ownership away. Except, those pipes are already built and paid for.

The mobile carriers already paid handsomely for the spectrum they use. If the government were to take ownership, then those companies would have to be compensated for the billions they spent. You may recall the ‘open access’ argument from a decade ago that proposed that it would be bad to let companies own their pipes because they could have exclusivity over the data that flows through them. Since the cable industry has invested more than $145 billion over the past 13 years, how should they be compensated? What of AT&T and Verizon’s investment in their networks because they want to compete with cable? Should that all be taken away with no compensation? And if it’s taken away, who can do a better job?

Companies are investing in networks to compete with each other. Is the competition and investment happening fast enough? Arguably not. But it is happening, and that competition is being spurred by exactly the concerns Kessler raises – demand for services, demand for speed, and demand for features.

Cable Deregulation
As we said, most of Kessler’s piece concerns itself with wireless. We have our issues with his facts and arguments there. However, given our employment with the cable industry, where we truly take umbrage at his comments is Kessler’s claim that one of the key elements of a new national data policy would be to “End municipal exclusivity deals for cable companies.”

Fortunately for Kessler, his work has already been done, since this was covered in the 1992 Communications Act. To quote from the section on “Franchising and Regulation”:

“a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to grant an additional competitive franchise.”

Over the last few years, many states have taken that federal mandate a step further and passed laws that took franchise authority away from the cities and placed it at the state level. The FCC went a step further and made sweeping changes to section 621 of the Cable Act and granted a federal franchise authority to further streamline the process.

Conclusion
There’s plenty of irony in Kessler’s piece. He argues for competition, which already exists. He argues against exclusivity and pipe ownership and in favor of “new, feature-rich and productive applications.” But if you can’t own the pipe, who will pay for upgrades? If you can’t have an exclusive offering of a product or service, why invest the money to develop such offerings? How will we get the “faster and faster data connections” that Kessler wants? If you can take away the ownership of infrastructure that is already built, why should investors have any faith in supporting a business affected by such radically sweeping changes?

Focusing on a strong broadband infrastructure is a good thing. Focusing on a national data plan, especially as voice actually does become data, makes sense. However, Kessler’s arguments, based as they are on faulty technical, policy, and business assumptions simply don’t add up to much.

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The GOP, Online Politics, and Internet Regulation

Jul 15 2008 Published by under Broadband Policy, Congress, Craziness, Legislation, Net Neutrality, Pandering, Republicans, Technology, The Internet

(cross-posted at Red State and The Next Right)

The Politico today has a column penned by David All, a young GOP internet consultant, and Saul Anuzis, Chairman of the Michigan GOP. The column looks at the premise that the GOP is behind its Democratic counterparts online, and suggests one possible reason why – we don’t support the idea of big government intervention in regulating the Internet.

As Republicans, we must not only adopt the new techniques and structure of Internet democracy, but also understand the importance of preserving the open nature of the Net as a policy issue.The tools that are available at low cost to Republicans are only there because of an Internet ecosystem that has managed to remain open, despite the efforts of phone and cable companies.

Republicans need to adopt a lighter approach that will preserve the values of decentralization and freedom — essential conservative values — on the Internet. If we fail to engage in this effort, the Internet service providers, who control the last mile of the tubes into a customer’s house or small business, will choke off the affordable tools available to conservative activists.They have already started exercising their market power to block applications that enable Internet users to distribute information across the Net.

They will make the Internet look a lot more like cable TV, where citizens lack access to every legal channel available and where, consequently, conservative activists get shut out. Taking away these free tools will come at the major expense of the activists and small-businesspeople who are the core of our party’s strength.

Given the attacks on cable and telephone companies in this diatribe, it would be easy enough to discount any response from me as shilling on behalf of cable. Look at my bio, however, and you’ll see that I may be the one person uniquely qualified to address every inaccuracy and outrageous claim in his post. Prior to coming to work in the cable industry, I was the eCampaign Director for Bush-Cheney ’04, and the Republican National Committee. I’ve been involved in Republican politics – and online politics – since I launched one of the first state party websites (EVER) at the New Mexico GOP in 1995. At that time, there were only about 5 state parties online.

Since I have been active in GOP politics, and specifically online politics, since Andreesson released the browser in 1994, I have a bit to say about the reasons the GOP is behind (which virtually nobody argues). As an employee of the cable industry, I have a bit to say about what , if anything, that has to do with net neutrality.

The Cyclical Nature of Politics

To begin with, I, and many others, believe the GOP is behind online for the simple reason that it has never had to be ahead. When the GOP was previously in the minority it turned to talk radio to communicate and organize. In the early 1990s, talk radio was the most interactive medium and the party out of power generally gravitates to the best available method of message disbursement and organization.

In 2000, when the Democrats were out of power, they did the same and gravitated toward the Internet. The Republican Party still dominates talk radio, though the Democrats have been making inroads. Unfortunately, you can‚Äôt give money through your radio, so the media focused on the Internet and long ago stopped writing the “Why aren’t Democrats on talk radio?” stories.

Just as there is nothing preventing Democrats from building an audience on talk radio, there is nothing preventing Republicans from achieving online. Now that we are in the minority in Congress and, if Obama wins, may be completely out of power, Republicans will look to rebuild using the tools that offer the most capability to interact and spread a message. They will eventually catch up to and surpass what the Democrats are doing. That’s the cyclical nature of politics.

But What Does Net Neutrality Have to Do With This?

The short answer is absolutely nothing. But David is part of a group called Internet For Everyone whose founders have suggested nationalization of the Internet. The list of his coalition partners reads like a who’s who of the left. ACLU, ACORN, Care2, NOW and SEIU are just a few of the far left groups signed on to the project. David and his two web properties – SlateCard and Techrepublican – appear to be the only GOP organizations onboard with the project.

To his specific claim, it is simply absurd to make the suggestion that Republicans are behind because there is no national broadband solution. David might as well argue that the GOP is behind because the government hasn’t bought everyone a car. The two are just as closely related.

David, like most people arguing for Net Neutrality likes to throw out numbers that seem to support his point.

America’s rural voters are largely Republican. Yet they face major challenges in gaining access to a broadband Internet connection. The latest U.S. Census data show that only 39 percent of rural households subscribe to broadband — and nearly 10 million rural households are in areas not served by any broadband provider.

These figures come from an Internet for Everyone document, which cites a 2007 Current Population Survey (CPS) of the U.S. Census Bureau. There is a document available on the NTIA website that provides statistics from the CPS. According to the CPS, 39% of rural households did respond that they have broadband service, but 19% also said they have dial-up, and another 10% responded that they access the Internet outside of their home. Thus 68% of rural households access the Internet according to the CPS survey. The figures for urban households, the only other category, were 54% broadband, 9% dial-up, and 9% outside of the home, for a total of 72%. The spread between rural and urban households is only 4%, hardly qualifying as a great divide, or leaving the poor rural folks behind.

Neither the NTIA site nor the CPS study address the 10 million households claim. The 10 million figure may be arrived at by referring to the number of housing units not passed by cable broadband service, according to estimates provided by SNL Kagan – a media research firm. Kagan found that 10 million households, not rural households, don’t have access to cable broadband – not broadband at all, which is what David claims . Simply put, not all of these people live in rural areas. For instance, some areas in Montgomery County, Maryland – a suburb of Washington DC, are unserved by cable, but that is hardly a “rural” area. Moreover, some of those are served by telephone company broadband service – as in Montgomery County. There are suburban or exurban communities that cable doesn’t serve, for one reason or another.

David also fails to note that the cable broadband he denigrates was a) built with $130 billion in private capital, not government subsidies, and b) was built without the burden of government regulation that hampered development of DSL. It was the lack of regulation and the investment of private funds that created the platform we rely on for high bandwidth applications. The cable system that serves 92% of Americans with broadband was built under a system identical to the current regulatory regime, not under the ‘good old days’ of common carrier and forced access.

It’s worth noting, by comparison, that the telephone companies sat on DSL technology for more than a decade while under the exact regulatory regime the IFE folks are now promoting. There was simply no incentive to invest in a network technology they could not monetize and see returns on the initial outlay. Now that they have been freed of such regulations, the telephone companies are aggressively building a $100+ billion Fiber to the Home networkto compete with cable.

Since David’s whole argument hinges on getting rural, Republican voters connected, it’s important to note that he got his central supporting facts wrong with regard to the current status of rural broadband. David made the same arguments in a Washington Times video interview posted yesterday (in which he conveniently rounds the number of Americans without a broadband connection down to 50%, despite many current estimates which place the figure at between 42% and 45% and likely to drop to 40% when numbers are compiled for the second quarter of 2008).

Since he has a habit of misstating facts and figures, one must ask if he is uninformed or intentionally misquoting numbers to justify his thesis. My belief is the former, but I still have some suspicion it may be the latter.

Further Pandering

Part of the reason I believe David may simply be desperate to make his case and willing to clutch at straws is the way he characterized the AP “research” into the Comcast/BitTorrent issue.

For example, Comcast was caught red-handed by The Associated Press blocking the distribution of the King James Bible. Martin launched an investigation and convened public hearings that put Comcast in the hot seat.

That is an absolutely false characterization of what happened. The Comcast/BitTorrent flap was a matter of Comcast trying to guarantee the best possible experience for the vast majority of its users, and trying to restrict the impact that heavy users of P2P applications have on broadband networks.

David implies that a) Comcast was aware the content the AP used in its test was the King James Bible and b) specifically targeted that traffic. Why would he make such outrageous claims to make his case? Because David is trying to convince Republicans to support his cause, and Republicans identify strongly with issues of faith. By claiming “the big bad cable company tried to stop you from seeing the bible” he’s pandering in the worst possible way.

As a Republican

As a Republican, I would be skeptical of Internet regulation on the best day, and downright hostile on any other. I do not believe the imposition of a new regulatroy regime is the cure to the perceived ills of either the state of broadband or the state of my party. As someone who has been thinking of ways for Republicans to use the Internet for almost fifteen years, I disagree completely with David’s ridiculous claim that the only way to save the party is to create a new bureaucracy to regulate the Internet.

While I respect David’s opinion and right to speak out on whatever topic he chooses, I firmly believe he could not be further off track on this issue. I also hope he will take the time to address my deconstruction of his argument and answer my challenge to the factual basis of his column. He may perhaps become informed about the subject matter rather than irresponsibly disseminating mistruths.

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A New Endeavor

Jan 08 2008 Published by under Bloggers, Broadband Policy, Cable, Debates, Gadgets, Legislation, Self-Promotion, Technology, Television, The FCC, The Internet

Between work, travel, the holidays, the caucuses and primaries, and another project I’ve been trying to launch, I just haven’t had a lot of time to write, but I wanted to share a new endeavor I’ve undertaken. NCTA (the day job) has launched a new telecom policy blog at CableTechTalk.com.

CableTechTalk will give the industry a voice in the ongoing discussion and debate over telecom policy discussions. Debate over the direction of our nation’s telecom laws increasingly takes place online. This blog seeks to be an active player in that conversation, but it won’t be one-sided. Far from a typical press release and talking points blog, CableTechTalk will invite people with whom we disagree to engage in cross posted debates on the issues – sharing both sides of the argument and letting readers draw their own conclusion.

The blog also gives us the opportunity to share developments in the gadgets that attach to and leverage our voice, video and data platform. This week we’re in Las Vegas looking at the new tech toys on display at CES. We’re looking at the new TVs and set-top boxes, personal entertainment devices, gaming and broadband applications, and all the other things that make life fun.

If you get a chance, I hope you’ll take a look.

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FCC Commissioner Weighs In On Broadband Deployment

Jul 24 2007 Published by under Broadband Policy, Congress, Government, Legislation, Technology, The Economy, The Internet, The Law

Commissioner Robert McDowell has jumped into the broadband access debate neck deep today with a brilliant piece in the Wall Street Journal (subscription required, but I’ll post the highlights). McDowell’s op-ed challenges the entire basis for the “sky is falling” crowds constant hand wringing – the OECD numbers on broadband penetration.

The OECD’s methodology is seriously flawed, however. According to an analysis by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100% broadband penetration — with all homes and businesses being connected — our rank would fall to 20th. The U.S. would be deemed a relative failure because the OECD methodology measures broadband connections per capita, putting countries with larger household sizes at a statistical disadvantage.

What’s that? If every man woman and child on the planet had broadband, we’d still be ranked 20th? How can that be? We’re currently 12th, and a segment of our population are constantly stressed out about it. What if we dropped to 20th? My god, the hospitals would overflow with heart attack patients.

The OECD also overlooks that the U.S. is the largest broadband market in the world, with over 65 million subscribers — more than twice the number of America’s closest competitor. We got there because of our superior household adoption rates. According to several recent surveys, the average percentage of U.S. households taking broadband is about 42%; the EU average is 23%.

Furthermore, the OECD does not weigh a country’s geographic size relative to its population density, which matters because more consumers may live farther from the pipes. Only one country above the U.S. on the OECD list (Canada) stretches from one end of a continent to another like we do. Only one country above us on this list is at least 75% rural, like the U.S. In fact, 13 of the 14 countries that the OECD ranks higher are significantly smaller than the U.S.

Well, that reflects something I have been pointing out for two years now – it costs much less to wire a population that lives in a very small area than to wire, oh… I don’t know, let’s say Montana.

And if we compare many of our states individually with some countries that are allegedly beating us in the broadband race, we are actually winning. Forty-three American states have a higher household broadband adoption rate than all but five EU countries. Even large rural western states such as Montana, Wyoming, Colorado and both Dakotas exhibit much stronger household broadband adoption rates than France or Britain. Even if we use the OECD’s flawed methodology, New Jersey has a higher penetration rate than fourth-ranked Korea. Alaska is more broadband-saturated than France.

So even Montana is better off? Hmm…

The OECD conclusions really unravel when we look at wireless services, especially Wi-Fi. One-third of the world’s Wi-Fi hot spots are in the U.S., but Wi-Fi is not included in the OECD study unless it is used in a so-called “fixed wireless” setting. I can’t recall ever seeing any fixed wireless users cemented into a coffee shop, airport or college campus. Most American Wi-Fi users do so with personal portable devices. It is difficult to determine how many wireless broadband users are online at any given moment, since they may not qualify as “subscribers” to anyone’s service.

In short, the OECD data do not include all of the ways Americans can make high-speed connections to the Internet, therefore omitting millions of American broadband users. Europe, with its more regulatory approach, may actually end up being the laggard because of latent weaknesses in its broadband market. It lacks adequate competition among alternative broadband platforms to spur the faster speeds that consumers and an ever-expanding Internet will require.

So we’re not even counting Wi-Fi when every street corner has a Starbuck’s and every Starbuck’s has a Wi-Fi hot spot? I can hook up via wi-fi for $30 a month throug Starbuck’s. Surely the problem must be the cable/telco duopoly, right? They’re holding us back, right? Hardly.

In the U.S., cable is available to 94% of all households. Also, the U.S. is home to the world’s fastest fiber-to-home market, with a 99% annual growth rate in subscribers compared with a relatively anemic 13% growth rate in Europe.

In fact, the European Competitive Telecommunications Association reported last fall that Europe is experiencing a significant slowdown in the annual growth rate of broadband subscriptions, falling to 14% from 23% annual growth. Growth stalled in a number of countries, including Denmark and Belgium (4% in each country). And France — a relative star — exhibited just 10% growth. Yet all of these nations are “ahead” of us on the much-talked-about OECD chart.

Here in the U.S., the country that is allegedly “falling behind,”

broadband adoption is accelerating. Government studies confirm that America’s broadband growth rate has jumped from 32% per year to 52%.

With new numbers expected shortly, we anticipate a continued positive trend. Criticisms of our definition of “broadband” being too lax are already irrelevant as over 50 million subscribers are in the 1.5 to 3.0 megabits-per-second “fast lane.”

So cable covers 94% of American households. Tack on the telephone companies and you’re covering 98%. With FTTH installs growing at 99% per year, and cable dramatically increasing speeds on their existing infrastructure, our problem isn’t deployment. It’s also not speed. Our problem is, simply put, one of adoption.

As hard as this is for the “enlightened” technologists to understand, some people just don’t see the advantage to having a high speed connection. For many, a night out at a movie with a family of four ($51 – $36 for tickets, and let’s say $15 for popcorn and cokes) is worth more than that high-speed connection ($40).

You can argue the relative value of the Internet in people’s lives, but unless the buyer sees the value, you’ll never make the sale.

I imagine when electricity was new – and a lot of people were wiring up their homes, and touting the great things you could do with lights on-demand – there were still some who didn’t get it. “Why spend the money on electricity?” they asked. “I have candles, why would I need to pay someone for electric lights?”

That mentality still exists. There will always be late adopters. There will always be hold-outs. However, empowering the federal government to solve yet another problem (Immigration reform? Hurricane Katrina? Waco? Ruby Ridge?) is never a good idea. Having them pick winners and losers in technology is a sure-fire way to be sure you end up with nothing but losers.

If government must get involved in trying to spur broadband adoption, they should give tax credits for broadband, or incentivize companies who provide broadband services to expand their offering or engage in R&D to find new, faster methods of connection.

Address the problem, not the hysteria.

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