June 2010

The High Cost of Loving Your Phone

In a classic bit of economic sleuthing, Minjung Park, an assistant professor of economics at the University of Minnesota, looked at the impact of the Federal Communications Commission's mandate that customers could keep their phone numbers when they switched carriers, starting in late 2003 in large markets and mid-2004 in smaller ones.

She examined more than 100,000 calling plans and found that the prices of wireless plans dropped by as much as 6.8 percent in the seven months after the rule change. After adjusting for the overall trend in wireless prices, she calculated that the savings totaled $845 million during that period. That evidence fits the prevailing thinking about switching costs and market competition: reduce the switching costs and companies will cut prices to acquire new customers. The other half of the economic theory, and the reason that economists are still debating the impact of switching costs, is that companies have every incentive to raise prices on the customers they have already captured. That looks like what AT&T is doing to some of its customers. The perverse lesson from all of this for the consumer? Infidelity often pays off better than blind loyalty.

Rethinking Cell Service in a Remote Flood Region

The absence of a modern communication network made it virtually impossible last week to quickly warn campers of an approaching downpour, which led to flash floods that tore through the Albert Pike campground in Arkansas, killing at least 19. Now, some have begun to rethink the value of being unplugged in this remote area about 75 miles west of Little Rock.

Cablevision Said to Bid $1.3 Billion for Firm

Apparently, Cablevision agreed on Sunday to pay more than $1.36 billion for Bresnan Communications, a cable services operator whose owners include the private equity firm Providence Equity Partners.

Cablevision appears to have beaten about seven bidders for Bresnan, which provides cable TV and Internet services in Colorado, Montana, Utah and Wyoming. If completed, the purchase would expand Cablevision well beyond its base in the Northeast. Bresnan, based in Purchase (NY), is considered an attractive target because of its high-speed Internet services and its presence in low-competition states. Providence led a group of investors, including the Quadrangle Group and Bresnan's founder, William J. Bresnan, that bought control of Bresnan from Comcast for $525 million in 2003.

The all-cash deal could be announced as soon as Monday.

Government Takes On Journalism's Next Chapter

Looking for the federal government to come to the rescue of newspapers? Don't hold your breath.

The Federal Trade Commission has set out on the somewhat quixotic journey of trying to identify ways to save journalism as we know it from possible extinction. Through a series of public forums, the last of which will take place in Washington on Tuesday, the commission has been gathering and analyzing an array of suggestions to help make the business of gathering and reporting news profitable again. A broad range of ideas — loosening antitrust statutes to allow news organizations to start charging for online content all at once; imposing a tax on iPads and other electronic devices to subsidize the cost of reporting; creating a public fund akin to AmeriCorps to pay young journalists — have been suggested. But the commission could easily sidestep making any recommendations to Congress or invoking its regulatory powers, and instead issue something along the lines of an analysis of its findings.

The commission is expected to produce a final study late this year.

Smartphone Trackers Raise Privacy Worries

Marketing and software companies are increasingly using sophisticated technologies for smartphones and other mobile gadgets to track consumers and target ads based on their location.

The new commerce using phone users' location to sell ads is raising privacy concerns among U.S. lawmakers and privacy advocates. Recent studies have found that many of the businesses that use location technology don't clearly inform consumers about the kind of data they track, how it is used or with whom it is shared. Such marketing has spread rapidly in the past year, fueled by the growth of high-speed wireless networks and the popularity of smartphones and other mobile devices containing global positioning chips and other technologies that can pinpoint a user's location. Firms that do location marketing typically learn where a consumer is when he visits certain mobile websites or opens an app, one of the software programs that allow users of devices, like Apple Inc.'s iPhone, to search for local restaurants, check traffic conditions or perform other functions. Marketers can use the information to send the consumer ads for nearby businesses or offer him services.

Computer Experts Face Backlash

When a group of computer experts last week disclosed a flaw in AT&T's website that made iPad owners' email addresses public, some security researchers accused the group of criminal behavior and the Federal Bureau of Investigation opened an investigation into the incident. The backlash surprised the experts, who collectively go by the moniker Goatse Security.

"We tried to be the good guys," said Escher Auernheimer, a member of the group. Drawing attention to the flaw, he said, "was the only way to get public notification." For its part, AT&T reached out to iPad users bv email Sunday, blaming the incident on "computer hackers" who "maliciously exploited" an attempt by the carrier to speed the process of logging in to its website. The comments were the harshest yet by the carrier, which apologized for the security lapse and said it would cooperate with any efforts to investigate or prosecute the breach. Goatse couldn't immediately be reached for comment on AT&T's remarks. The incident -- along with another episode last week where a Google researcher went public with a security flaw in some Microsoft software before the company fixed it -- have revived debate in the technology industry over how exactly people should go about disclosing security problems.

Sarkozy seeks to block bid for Le Monde

The race to recapitalize Le Monde took a new turn on June 11 when it emerged that President Nicolas Sarkozy intervened against three businessmen who are the frontrunners to take over France's newspaper of record.

President Sarkozy summoned Eric Fottorino, editor of the cash-strapped daily, to the Elysée palace to make clear his opposition to a takeover by Mathieu Pigasse, a Lazard banker, Pierre Bergé, the former business partner of Yves Saint Laurent, and Xavier Niel, the telecoms billionaire. Fottorino later told colleagues that the president had threatened to withhold state financing for a restructuring of Le Monde's printworks if the title was sold to the businessmen. The three men have said they are ready to invest up to €100m ($121m) in Le Monde, which could run out of cash by July if it fails to find a new buyer. They are the only ones to table an outline offer so far.

Comcast/NBCU Deal: Diversity Divide

Comcast and NBC Universal tried last week to ford the stream on what some are calling a diversity divide related to their vaunted deal. While some critics applauded their proposed advances in promoting the diversity issue, others found the new promises not quite good enough.

The companies' new and expanded pledges came in advance of a House Judiciary Committee field hearing in Los Angeles that focused on diversity. "It's a step in the right direction," says Samuel Kang, managing attorney for advocacy group The Greenlining Institute, who testified at the hearing in opposition to the deal. But he said Comcast would need to do much more "to approach adequate representation of the diverse demographics in the country." And Rep. Maxine Waters (D-CA), a prominent figure in the hearing who has been pushing the FCC to keep diversity front and center in its review, had more to say about the motivation of the announcement than its substance, while adding she still needed to review the proposals. According to an aide, Waters doubted that the new pledges would have been made save for the big stick of a hearing.

Said Comcast spokeswoman Sena Fitzmaurice, "We've been working with diversity groups, members of Congress and other interested parties since the deal announcement on additional commitments."

Apple Under Growing Government Pressure to Ease Software Limits

Apple, under growing scrutiny from antitrust regulators, may have to loosen restrictions on software developers and music labels to avoid legal wrangling with the government and prevent damage to how its brand is perceived by the public.

Federal Trade Commission officials are preparing to review allegations that Apple is trying to trammel rivalry in mobile advertising, people familiar with the matter said last week. Regulators were already weighing a probe of Apple's treatment of Adobe Systems Inc., and the Justice Department has made preliminary inquiries into Apple's behavior in the music market. The heightened scrutiny may prompt the company to give programmers more leeway in how they build applications for Apple products, said Andrew Gavil, who teaches antitrust law at Howard University in Washington. The inquiries indicate government concern that Chief Executive Officer Steve Jobs may be trying to exert too much control over industries as varied as digital music, software development and mobile advertising.