May 2014

Power in online music, movies shifting to Internet providers

[Commentary] AT&T's $67 billion debt-and-equity offer for DirectTV, along with Comcast's pending $45 billion deal for TimeWarner Cable, make clear that the market for digital entertainment delivered over the Web has moved from a high growth to a growth-and-consolidation phase.

With telecomunications networks in Dallas and New York squaring off against cable companies in Philadelphia and the Big Apple for control of the pipes that deliver Web video and music, the pricing power in digital entertainment is shifting decidedly east. That unfortunately may introduce a broader swath of online subscribers to the concept of service bundling, which has been no friend to consumers in the past. The ranks of network operators -- and consumer choices -- will be winnowed again, now that AT&T has loaded up with satellite services for its battle against Comcast, Verizon and other large network owners.

The companies in control of the delivery of digital music, shows, movies, sports and news delivery are now in a consolidation phase. Those tend to lead to more pricing power for industry survivors. As consumers face fewer choices, Google, Facebook and Amazon have been variously buying or building their own Internet server farms, attempting to get around the problem. Their need to do so looks likely to increase.

A good first step: US charges Chinese officials with cyber-espionage

[Commentary] The United States is beginning to fight back against China’s relentless cyberattacks. For the first time, the US Department of Justice charged Chinese military officials with cyber-espionage against US companies.

The alleged victims of the cyberspying are Alcoa World Alumina, Westinghouse Electric, Allegheny Technologies, US Steel, United Steelworkers Union, and SolarWorld. The accused are Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu and Gu Chunhui, all officers of Unit 61398 of the 3rd Department of the People’s Liberation Army.

According to the FBI, after gaining illegal access to the networks of the targeted companies, Sun Kailiang and his co-conspirators “then used their illegal access to allegedly steal proprietary information including, for instance, e-mail exchanges among company employees and trade secrets related to technical specifications for nuclear plant designs.” Sun, who held the rank of captain during the early stages of the investigation, was observed both sending malicious e-mails and controlling victim computers.

The FBI and department of Justice should be lauded for their investigative and legal work that fingered these members of the PLA. The PLA Unit involved is, among other activities, apparently mandated to steal US trade secrets for the benefit of primarily Chinese state-owned companies a competitive advantage. This is a good first step in the cyber dimension of Sino-American competition.

Options for Rivals in Wake of AT&T’s Bid for DirecTV

[Commentary] Few industries have been as deeply embroiled in merger mania as the telecommunications industry, particularly after AT&T’s $48.5 billion bid for DirecTV. Now, with another mega-deal in the works, how will others respond?

Perhaps with even more consolidation. AT&T‘s acquisition most clearly affects the country’s other major satellite television provider, Dish. Dish Chairman Charles Ergen has made no secret that deals were an important part of his strategy, whether they be a foiled attempt at buying Sprint or a withdrawn bid to acquire the bankrupt broadband wireless provider LightSquared. And in recent months, news reports contended that Ergen was interested in pursuing deals either for T-Mobile USA or DirecTV.

At the same time, analysts had long speculated that Dish might make an attractive acquisition target for AT&T. A bigger and more emboldened AT&T may also have repercussions for Sprint, whose majority owner, the Japanese telecom Softbank, has long coveted a deal with T-Mobile to gain much-needed scale.

Yet a tie-up of the two has already drawn hints of vocal opposition from several officials at the Federal Communications Commission, who have worried that a merger of the two would constitute an unacceptable level of consolidation.

Sprint and SoftBank have argued not so subtly that acquiring T-Mobile would create more competition in the wireless industry, blunting the power of Verizon and AT&T.

Sen Rockefeller Statement on Proposed AT&T, DirecTV Merger

The potential merger of AT&T and DirecTV is part of an accelerating trend of consolidation in the video marketplace. It deserves careful examination. In particular, I want to understand the impact this transaction will have on rural America. I welcome the commitments made by the two companies to enhance service to rural America, but those commitments must be real and quantifiable, and the companies have to live up to their promises.

More broadly, consumers throughout the country are clamoring for more programming choice and lower-cost video options. Both companies must prove that the creation of yet another video and broadband conglomerate can be responsive to those demands and the broader public interest. And as consumers increasingly turn online for their programming, this continued upheaval in the video market means that Congress needs to look closely at how to foster more video competition, particularly through online video distribution platforms.

Sen Klobuchar Will Hold Hearing on AT&T/DirecTV

Senate Antitrust Subcommittee Chairman Amy Klobuchar (D-MN) says she will hold a hearing on AT&T's proposal to buy DirecTV. She said the deal has the potential to "dramatically change" the TV marketplace.

The concern over the deal was bipartisan. “The announcement of an additional merger in the telecommunications and media industry raises concerns about the level of consolidation in these markets,” said Subcommittee Ranking Member Mike Lee (R-UT). “At the same time, consolidation can benefit consumers in some circumstances. I look forward to carefully reviewing the evidence and examining the effect this transaction may have on consumer welfare.”

Also adding his concern was Sen Ed Markey (D-MA). “I am deeply concerned consumer choice may be undermined by the proposed AT&T -- DirecTV deal," he said. "The proposed AT&T -- DirecTV deal represents yet two more communications colossi combining into one even larger company, narrowing competition in the telecommunications marketplace. With the proposed Comcast -- Time Warner Cable deal occurring at the same time as this new AT&T -- DirecTV proposal, I fear the only competition consumers will have in their living rooms will be who handles the remote control."

Bandwidth-sipping IoT steers clear of net neutrality debate -- for now

If you're worried about an Internet "fast lane" squeezing out all the futuristic connected devices you're hoping to use around your home, fear not.

The vaunted Internet of Things, which already includes a variety of industrial sensors and machines and a growing number of consumer devices, is likely to make itself more at home in the coming years. Some such devices, like the connected refrigerator, are still more curiosity than useful tool. But others are playing important roles in health care and home security, taking advantage of always-on broadband connections to keep people and machines elsewhere informed in real time.

The question of IoT and net neutrality is likely to revolve mostly around connected devices that use home broadband connections. However, people involved in the IoT device and services business said they don't see a need for priority traffic handling now, and it hasn't been a hot topic in the industry. Even if consumers' broadband speeds were affected by a paid-priority scheme, it probably wouldn't get bad enough to hurt IoT, said Tom Lee, co-founder of IoT cloud provider Ayla Networks.

"If it's good enough to satisfy most Netflix consumers, it almost automatically satisfies the needs of the IoT things," Lee said. But if providers of connected-health services are allowed to pay for priority, they probably will, Steve Hilton of IoT consultancy Machnation said. And though there may be objections to it, prioritizing those narrow streams of traffic probably wouldn't affect anything else consumers are trying to do, he said.

Marc Andreessen: Tech companies are still fuming over the NSA

Almost a year after he released a flurry of documents showing the National Security Agency was collecting data on everyone from foreign leaders to US citizens, Edward Snowden is still the predominant Washington story in the minds of tech executives who believe the controversy has caused damage to their businesses.

That's according to the venture capitalist Marc Andreessen, who said in a wide-ranging interview that Silicon Valley's repeated meetings with the Obama administration were mostly for show and have produced "not even a little" progress on privacy and surveillance issues. Chief executives from leading companies including Netflix, Google and Facebook met with senior White House officials in December, and again in March. While the Obama Administration said at the time that the meetings helped clear the air on intelligence reforms, Andreessen argued that the White House has not done enough to mitigate the NSA's impact on tech companies' reputations, particularly overseas.

"The level of trust in US companies has been seriously damaged, especially but not exclusively outside the US," said Andreessen. "Every time a new shoe drops -- and there are 10,000 of them -- it serves a blow to the US." Some estimates suggest the news about the NSA's surveillance practices may have cost tech companies tens of billions of dollars in lost revenue.

What to Expect From Charges Against Chinese Hackers: Nothing

[Commentary] The US Department of Justice has secured criminal indictments against five active-duty members of the cyberwar unit of China’s People’s Liberation Army. Here’s what you should expect to happen as a result: Nothing meaningful.

The charges announced by Attorney General Eric Holder amount to the diplomatic equivalent of the pot criticizing the kettle’s wardrobe. The chance that anyone sees the inside of a US courtroom as a result of the charges is virtually nil. While the particulars are interesting -- and hopefully we’ll get to read more nitty-gritty details when the official indictment documents are unsealed -- the fundamental problem is one of credibility.

Essentially, when it comes to cyberattacks, the US has none. The revelations concerning the aggressive collection efforts of the US National Security Agency by its former contractor Edward Snowden have demonstrated there is very little in the global communications infrastructure that agency won’t touch in an attempt to compromise. And while Attorney General Holder and other US officials are quick to say that the US government doesn’t hack non-US companies in order to help US companies, there have been hints from Snowden that there are disclosures yet to be made that tell a different story.

Incumbents Closing Ranks and the Urge to Merge

[Commentary] So what does AT&T get for its 50+ billion acquisition? It secures marketing access to 20+ million additional customers, who make sizeable recurring monthly payments.

AT&T also has the privilege of selling rather than reselling direct broadcast satellite video content which presumably already competes with the company’s U-Verse wired bundle. AT&T also gets the privilege of buying into a technology that has significant, and, arguably, increasing risks.

First on average one out of every three satellite launches fail to place the bird in proper orbit. A single DBS satellite costs more than $100 million, but in this age of scale and deep pockets that looks like chump change. Once activated satellites last for about 10 years and the risk for collisions with space junk increases.

The acquisition comes across as the opposite of “if it you can’t beat ’em join ’em.” AT&T is not acquiring a maverick, start up with leading edge technology and a new business plan -- just the opposite. If you can’t beat ‘em, join ranks and hope that your combination -- like others out there -- will continue to lock content access to incumbent technologies.

It’s not a “fast lane” but Comcast built a CDN to charge for video delivery

Comcast is now competing against content delivery networks (CDNs) such as Akamai with a new service that can improve delivery of video to Comcast subscribers in exchange for payment.

"This new offering allows content owners to go directly to the ISP and have their content stored and delivered via the last mile, thereby displacing some traffic currently delivered by third-party CDNs like Akamai and Limelight Networks," well-connected industry analyst Dan Rayburn reported. "While this is the same type of CDN service that other commercial CDNs like Akamai already offer, Comcast can offer a very good SLA since they are a last mile provider."

The service will let Web content companies "bypass network middlemen and deliver their services directly to Comcast Internet customers," The Information article said. Despite making an argument that it would be allowed to offer “paid prioritization,” Comcast has said it doesn't intend to offer fast lanes. And the new CDN service is not a fast lane, Rayburn told Ars.

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