The Facebook and More

Every week as we consider our round up we weigh delving into the week’s biggest story or shedding light on articles that may have flown below the radar. This week is no different.

The Facebook
The biggest story of the week, by far, is Facebook taking its first step toward becoming a publicly traded company as it filed to sell shares on the stock market. The first stories focused on the eye-popping numbers: 845 million users worldwide, seeking to raise $5 billion, total value $100 billion. Many marvel that the vast online social network, just eight years old, could be valued more than longer-established American companies, including Abbott Labs, Caterpillar, Kraft Foods, Goldman Sachs and Ford Motor.

At Headlines, we tend to be more interested in articles that get at what it means rather than how big is it. To wit, we offer some pointers here to some interesting articles about what Facebook’s initial public offering means:

  • What Is Facebook's Business? Facebook makes money by placing ads next to your status updates and photos. How hard could their business be? As its S-1 filing reflects, that answer is more challenging than you think.
  • Facebook reveals what makes its network tick At $3.71 billion last year, Facebook’s revenues were below the $4 billion -$4.5 billion range anticipated by most analysts. Nevertheless, it represented growth of 88 percent from a year before, with advertising income growing at a slower 69 percent and higher growth from the payments and other revenues that now account for 15 per cent of revenues.
  • Facebook IPO: Are users really worth $125 each? The value of Facebook’s 800 million users has come into question. If Facebook is worth $100 billion, that makes each user worth $125.
  • Soon Facebook Growth Will Be About Users Clocking In More Time The number of new American Facebook users is going down, and eventually the same will happen in every other market. Soon, Facebook's growth is going to depend on each user spending more time logged in, playing games, watching movies, planning trips and so on. If you do the math and divide Facebook's value ($100 billion) by its number of users (845 million), that makes every Facebook account worth about $125 — money the company will get from eyeballs on ads. So the longer you're on Facebook, the more ads you look at and the more money the company makes.
  • Facebook's $100 Billion Question Just how fast can the company continue to grow? And can it extract value from advertising in the way it plans?
  • 3 Things That Will Change After Facebook's IPO, And 2 Things That Won't Three things that will change: 1) More (Innovative) Ads: Are you a marketer who wants more access to Facebook’s 800 million users? Start thinking about information about your product that could be something a user would want to share, 2) Shopping Spree!: Think you’re a potential Facebook acquisition target? Start polishing your pitch, and 3) More Lobbying: Are you an old Washington hand looking for a new and exciting career? Start friending Facebook’s DC team. Two things that wouldn’t change: 1) The Relentless Pace of Innovation: Hoping that going public means Facebook will stop messing with your Wall? Fuhgeddaboudit and 2) Zuckerberg The Product Guy/Sandberg The Suit: If you’re a New Yorker hoping to catch sight of Zuckerberg spending more time wining and dining Wall Street types, better bone up on what Sandberg looks like instead.
  • Zuckerberg Remains the Undisputed Boss at Facebook Since the moment he dropped out of Harvard University, Mark Zuckerberg has stayed remarkably focused on two things: Facebook, and being the boss of Facebook.
  • ‘Social Mission’ Vision Meets Wall Street “Facebook was not originally created to be a company,” Mark Zuckerberg wrote in a letter to potential investors that was part of Facebook’s filing. “It was built to accomplish a social mission — to make the world more open and connected.”
  • Six interesting technology law issues raised in the Facebook IPO Risks include 1) Advertising regulation, 2) Data security, 3) Changing laws in user privacy, rights of publicity, data protection, intellectual property, electronic contracts, competition, protection of minors, consumer protection, taxation, and online payment services. 4) Intellectual property protection, 5) Patent troll lawsuits, and 6) Tort liability for user-generated content.
  • Facebook filing flags privacy risks/Post-IPO, Facebook will have to make privacy investigations public One thing Facebook’s IPO filing documents make clear is that the company is taking privacy risks seriously. Privacy is mentioned 35 times, mainly as a risk factor. Disclosure rules affecting publicly traded companies may force Facebook to reveal privacy-related investigations that it otherwise might have kept secret.

Facebook is far from the only company with privacy concerns. Google had a rough week in this area, too. On Jan 31, Google, in a letter to Congress, pushed back against complaints about its new privacy policy, saying users can still prevent the company from linking all the data it collects about them by turning off their search history, by skipping some of Google’s offerings or by using different Google accounts at different times. Google says users will have plenty of ways to control how their personal data is collected and used — even though they can’t opt out of the privacy changes altogether.

The day before, House Commerce, Manufacturing, and Trade Subcommittee Chairman Mary Bono Mack (R-CA) and Ranking Member G.K. Butterfield (D-NC) sent a letter to Google requesting a briefing on the company’s recently announced privacy changes. Members have concerns over how the changes will impact Google’s users, specifically users’ ability to opt out of information sharing and data collection.

That meeting took place behind closed doors on Feb 2. Chairman Bono Mack emerged saying she wasn't satisfied with their answers. Pablo Chavez, Google's director of public policy, and Michael Yang, a Google senior counsel, answered questions from House Commerce Committee lawmakers, including Reps. Henry Waxman (D-CA), Joe Barton (R-TX), G.K. Butterfield (D-NC) and Marsha Blackburn (R-TN). "At the end of the day, I don't think their answers to us were very forthcoming necessarily in what this really means for the safety of our families and our children," Rep Bono Mack told reporters. "By being more simple, [the privacy policy] is actually more complicated," Rep Bono Mack said.

Also this week, in response to the controversy over Carrier IQ and its eponymous tracking software, Rep Ed Markey (D-MA) released a discussion draft of a bill that would require companies to disclose when they’ve installed monitoring software on a mobile phone, what that software collects and who can read that data. The Mobile Device Privacy Act would require that companies obtain customer consent before the software can begin collecting or transmitting data. Carriers, manufacturers and operating system makers such as Apple and Google would be required to disclose this software when the customer buys the phone, when software is pushed to the phone, or if a customer downloads an app that contains monitoring software. Any third-party companies that gather the information would also have policies in place to protect the data.

Modernizing Lifeline
We’d be remiss not to mention a key development to ensuring low income Americans have affordable access to telecommunication, a longstanding priority of the Benton Foundation. At its Jan 31 open meeting, the Federal Communications Commission approved a comprehensive overhaul of its Lifeline program. Lifeline for the past 25 years has helped tens of millions of low-income Americans afford basic phone service -- and the percentage of low-income households with phone service has increased from 80% in 1985, when Lifeline began, to nearly 92% last year.

The FCC’s Lifeline reforms address these and other challenges:

I. Changes to eliminate waste, fraud, and abuse, saving up to $2 billion over 3 years

  • Setting a savings target of $200 million for 2012, and putting the Commission in a position to adopt an appropriate budget for the program in early 2013 after review of a six-month report and one-year report on the effects of the Order.
  • Creation of a National Lifeline Accountability Database to prevent multiple carriers from receiving support for the same subscriber. The database will build on FCC efforts in 2011 that eliminated nearly 270,000 duplicate subscriptions in 12 states following review of over 3.6 million subscriber records, saving $33 million.
  • Creation of eligibility databases from governmental data sources, enabling fully automated verification of consumers’ initial and ongoing Lifeline eligibility. This would reduce the potential for fraud while cutting red tape for consumers and providers. A database based on the three most common federal benefit programs through which consumers qualify for Lifeline will be created no later than the end of 2013.
  • Establishing a one-per-household rule applicable to all providers in the program, defining household as an “economic unit” so that separate low-income families living at the same address can get connected.
  • Establishing clear goals and metrics to measure program performance and effectiveness.
  • Phasing out support for services such as Toll Limitation – subsidies to carriers for blocking or restricting long-distance service—and ending Link Up – subsidies to carriers for initial connection charges. Link Up will continue in Tribal lands.
  • Reducing burdens on carriers by establishing a uniform, interim flat rate of reimbursement, allowing carriers to obtain a subscriber’s signature electronically, and streamlining enrollment through uniform, nationwide eligibility criteria.

II. Modernizing Lifeline

  • Adopting an express goal for the program of ensuring availability of broadband for all low-income Americans.
  • Establish a Broadband Adoption Pilot Program using up to $25 million in savings from other reforms to test and determine how Lifeline can best be used to increase broadband adoption among Lifeline-eligible consumers. Starting this year, the program will solicit applications from broadband providers and will select a number of projects to fund. Lifeline will help reduce the monthly cost of broadband service, but applicants will be expected to help address other challenges to broadband adoption, including the cost of devices and digital literacy.
  • Proposes increasing digital literacy training at libraries and schools. A Further Notice of Proposed Rulemaking seeks comment on using savings from other Universal Service Fund reforms to increase digital literacy training at libraries and schools, a key step in increasing broadband adoption.
  • Build on FCC efforts to close the broadband adoption gap and address digital literacy, including the Connect-to-Compete initiative, which enlists government, non-profit, and private sector leaders to address broadband adoption barriers through digital literacy training and low-cost broadband availability.
  • Allow Lifeline support for bundled services plans combining voice and broadband or packages including optional calling features.

Spectrum and Wireless Issues – The Next big Fight at the FCC?
For a couple of weeks, AT&T and the FCC have been in a public spat over spectrum policy. On Jan 16, AT&T released a statement saying, “We are troubled… that [FCC Chairman Julius Genachowski] and some of his staff are now saying that the FCC, and not the United States Congress, should have full power to impose conditions, and to decide which companies are allowed to participate in spectrum auctions and which should not. In our experience, anytime a regulatory agency seeks unfettered discretion, that is the best reason Congress should not give it to them.” AT&T followed up with another statement the next day saying, “The Federal Communications Commission has done some creative tinkering with auctions in the past, with dubious results… we fear that this time around, some of its tinkering may be aimed at specific auction participants, like us.”

Stacey Higginbotham wrote an interesting piece for GigaOm explaining what’s going on. House Republicans are trying to stop the FCC from being able to make the rules for the eventual auction of the digital TV airwaves that President Obama and the FCC want to take from broadcasters and repurpose for mobile broadband. If AT&T can get Congress to fight the FCC on this particular spectrum auction with this bill, it will have won by making sure new airwaves don’t come burdened by FCC provisions that AT&T doesn’t like. And since Congress seems dead set on making these airwaves no good for mobile broadband, AT&T hasn’t lost much.

We’ll keep an eye on this legislation as it continues to move through Congress.

This month, Verizon Wireless stores in Seattle and Portland (OR) began offering home Internet, cable and telephone service from Comcast as part of a new joint marketing deal between the cellphone provider and several cable companies. Verizon doesn't offer its competing FiOS broadband and TV service in those markets, but the marketing deal may eventually encroach into FiOS territory. So, in essence, as Verizon Communications pushes for more cable-television and high-speed Internet subscribers, a new competitor is emerging: its own subsidiary, Verizon Wireless.

The joint effort with cable companies was unveiled by Verizon Wireless last month as part of a $3.6 billion deal to buy spectrum licenses from Comcast, Time Warner Cable, and Bright House Networks. The Justice Department is investigating whether the deal will hurt competition and raise prices for cable customers, people familiar with the matter said. The deal surprised the telecom industry because it appeared to signal a truce between longtime rivals. Verizon is spending more than $20 billion rolling out FiOS to compete with cable, and cable companies -- already competing in the telephone market with their own landline products -- had amassed spectrum to potentially get into the wireless business. It also raised questions among union leaders and consumer advocates about Verizon's commitment to FiOS.

On February 1, Sen Herb Kohl (D-WI) -- chairman of the Senate’s Antitrust, Competition Policy and Consumer Rights subcommittee -- said he is planning a hearing on Verizon’s spectrum purchase deal with cable companies and the controversial marketing arrangement. “Plans are well underway for a hearing to examine the impact of Verizon’s spectrum purchase from a number of cable companies and a separate marketing agreement to cross-sell each other’s products,” Chairman Kohl said. “The subcommittee carefully examines questions about competition in the wireless and video markets, with the ultimate goal of protecting consumers and reducing their cable and cell phone bills, and these deals are no exception.”

Finally, on Feb 3 we highlighted a Bloomberg article that examined the FCC’s coming competition agenda in the wireless realm. The FCC is expected to begin a formal rulemaking process by midyear that could result in manufacturers of handsets, chipsets, and network equipment being required to make their products compatible with all frequencies across the entire 700 megahertz band of radio spectrum—not just particular slices under the control of Verizon and AT&T. Until the FCC intervenes, some smaller players believe they will be disadvantaged. Not only will they not have 700 MHz – 4G – band handsets to sell to their customers, they argue, but in addition, their customers will not be able to roam onto Verizon's and AT&T's 4G LTE networks.

Sometimes it is hard to choose, but sometimes you don’t have to choose – especially if you use digital ink. Thanks for sticking with us through all these “can’t miss” stories. Next week we’ll have an eye on all of these plus Global Internet and the Free Flow of Information, Cybersecurity, FCC reform, Mobile Solutions and Poverty, and so much more We’ll see you in the Headlines.