April 2015

Spectrum Favoritism Is Bad Economics

[Commentary] Economics has made significant contributions to public policy over the years -- free trade and airline deregulation come to mind -- but none more significant than the reform of the way governments allocate scarce radio spectrum. Spectrum allocations used to be political decisions. By the early 1990s, auctions became the norm in the US and around the world. The problem is that while auctions are inherently economic, not political, exercises, regulators and politicians can still exercise favoritism through the rules that govern how the auctions work. By imposing “set asides,” “bidding credits,” “spectrum caps” and similar provisions, officials can tip the scales in favor of politically popular interest groups. Such favoritism is usually defended by arguing that government should subsidize new entry into mobile wireless markets, which would otherwise be insufficiently competitive.

However well-intended, spectrum favoritism is bad economics, and has proven to be terrible public policy. Spectrum auctions have contributed to the extraordinary success of the mobile wireless business by taking politics largely out of the process and letting consumers, rather than regulators and politicians, pick winners and losers. They can continue to do so in the future, but only if regulators learn to resist the temptation to replace market incentives with regulatory largesse.

[Jeffrey Eisenach is a visiting scholar at American Enterprise Institute]

Exec: Verizon SDN Plans Include Wireless and Landline Networks

Verizon expects its transition to software defined networking (SDN) to begin at the network core and move outward to the network edge, said Verizon Vice President of Network Planning Brian Higgins. The SDN initiative will encompass Verizon’s wireless and landline networks, Higgins said. “We’re working on decomposing monolithic hardware and software bundles and separating functions to work on a software-based model,” said Higgins. The goal is to minimize operational costs and streamline the creation of new services. Verizon referenced five equipment vendors in a press release about its SDN initiative, including Alcatel-Lucent, Cisco, Ericsson, Juniper Networks and Nokia Networks. For vendors such as those, SDN represents a “model with less risk,” Higgins said. Higgins also noted that Verizon is currently working with more than 20 companies on proofs of concept related to the carrier’s SDN plans.

Additional announcements involving those companies will be forthcoming, he said. Verizon’s SDN announcement, coming on top of similar news from the nation’s other dominant carrier AT&T, suggests that the technology will find strong adoption industry-wide. Verizon’s plan to shift to SDN is driven, in part, by the need to support the Internet of Things, Higgins said. With the IoT, he said, will come “many millions of devices that have a higher volume of control plane [traffic] and very little payload.” As a result, he said, “we need to create an environment that allows us to create control plane elasticity independent from the bearer to enable us to handle those new traffic flows.”

Microsoft phones infringe patents -- US International Trade Commission Judge

Microsoft lost a round in a potentially costly patent battle when a US International Trade Commission Judge Theodore Essex found that the software company used InterDigital Inc's technology in its mobile phones without permission. Judge Essex said that Microsoft infringed two wireless cellular patents owned by InterDigital, a patent licensor, and said it would not be against the public interest to ban the Microsoft devices from being imported into the United States. The judge's decision must be reviewed by the full commission before any import ban is enacted. The ITC has the authority to stop the import of products that it determines infringe a US patent.

Companies frequently sue at the ITC to win an import ban and in district court to win damages. Wilmington (DE)-based InterDigital first accused Nokia Corp of infringing its patents in 2007. Microsoft acquired Nokia's handset division in 2014. The InterDigital patents relate to moderating a mobile phone's power to reduce signal interference. The ITC originally cleared Nokia of infringement, but in 2012 the US Court of Appeals for the Federal Circuit, the nation's top patent court, overturned that decision and sent it back to the ITC. Microsoft called the court decision one step in the process. "We have a successful track record challenging patent assertion entities that misuse industry standards," the company said.

US Is Faulted for Risking Edge in R&D

With Asia emerging as the world’s powerhouse of research and development, the US risks losing its position as a magnet for the world’s best academic researchers, according to a report "The Future Postponed" published on April 27 by the Massachusetts Institute of Technology. The MIT authors warned that the US government was spending an ever-smaller percentage of its budget on basic research and development, fundamental exploration in a variety of fields that lays the groundwork for commercial products that may not emerge for years or decades, if ever.

The cutbacks might appear to be economical, but the report says they come at a high cost to both national prestige and long-term economic opportunity. “We are undercutting ourselves by not supporting basic science,” said Andrew Lo, a finance professor at MIT’s Sloan School of Management who helped write the report. The report lays out the funding challenges for research in 15 areas as diverse as plant sciences and robotics. It comes as lawmakers are completing the next federal budget and is, to a certain extent, directed at policy makers, Lo said.

In 1968, the US spent 9.1 percent of the federal government’s annual budget on R&D, or $16.2 billion out of $178 billion, according to the American Association for the Advancement of Science. Today the percentage has shrunk to 3.6 percent, or $134.2 billion of the $3.8 trillion 2015 budget. Though the US leads the world in total R&D outlays, Europe and Asia have been raising their government investment. The Battelle Memorial Institute, a basic-research lab, and R&D Magazine estimated in 2013 that China would spend more than $600 billion annually on R&D by the early 2020s, making it the world’s biggest such investor. The same report estimated that US R&D spending would total $465 billion, or 2.8 percent of gross domestic product, in 2014. For China, spending was pegged at $284 billion, or 2 percent of GDP.

New original content from top YouTube creators

YouTube is announcing partnerships with four top creators to help bring their next big original series to life on YouTube:

Since launching their first YouTube channel in 2007, the Fine Brothers’ channels have amassed over 17 million subscribers and over 3 billion views as well as earning a Daytime Emmy. They’ll continue the hot streak with their new scripted comedy series that takes a satirical look at the world of singing competition shows, produced in partnership with Mandeville Films.

For six years, Prank vs. Prank have waged an epic prank war on each other in front of an audience of nearly 14 million subscribers and generated nearly 3 billion views on their two channels. In their forthcoming series, celebrity guests join Jesse and Jeana to pull off their most ambitious pranks yet.

Joey Graceffa has built a devoted fan following of over 5 million subscribers, cumed over 600 million views and earned two Teen Choice nominations through his channels’ daily vlogs, scripted series and short films. Now Joey will lead an all-star cast of YouTubers in his all-new murder mystery reality series.

For a decade, Smosh has entertained a YouTube fanbase of over 35 million subscribers across their channels with comedy sketches that have generated over 7 billion views. In their new comedy series, we’ll see Ian and Anthony working at a theme restaurant where out-of-control kids and crazy parents are all in a day’s work.

YouTube is also announcing a new collaboration between YouTube and AwesomenessTV. Together, they'll release several feature length films over the next two years, all driven by YouTube stars and developed and produced by AwesomenessTV’s Brian Robbins. The films will all premiere globally on YouTube before they become available elsewhere, setting what we believe will become a new distribution paradigm for years to come.

Kantar, ComScore Offer Cross-Media Data

ComScore Inc and Kantar Media introduced their first joint offering for cross-media audience measurement to key clients. This is the first outcome of the Kantar and comScore strategic alliance announced earlier in 2015 to provide cross-media audience and campaign measurement capabilities to markets around the world. Both companies have defined a TV and Internet audience measurement roadmap that addresses a range of reporting scopes and the options of available measurement assets and techniques, including panels, meters, tagging, home routers, return path data and census profiles.

The companies said there has been significant interest in the partnership from clients and industry committees around the world. Based on this feedback, Spain has been identified as the pilot market with initial findings expected later in 2015, and other markets to follow. In response to the needs of broadcasters, content owners and publishers to reduce the operational overhead of measurement, comScore and Kantar Media said they have developed an integrated tagging approach for Web, video and application measurement, “allowing seamless data sharing with explicit client permission but without requiring duplication of implementations.” Both companies will continue to support any tagging deployments under existing contracts. The option to move to an integrated approach would be a decision for the relevant joint industry committee or user group, the companies added.

Digital is reshaping the world of advertising

Thanks to the proliferation of providers from Netflix and the BBC’s iPlayer to Facebook and Snapchat, consumers have greater access to more media on more devices than ever before. That is allowing advertisers to tap user data to target their messages precisely to the right people at the right time in their digital campaigns and, increasingly, through traditional media such as TV. The way advertising is bought, sold and created is being reshaped by the enormous volume of data from set-top TV boxes, credit card purchases, online profiles and retailer loyalty card programmes -- and by the technology that allows marketers to access, analyse and implement that data. While the rise of targeted advertising has been enabled by data and technology, its proliferation reflects marketers’ demand for evidence that the money they spend is really influencing customer behaviour. Targeting is also valued by marketers as they are under great pressure to show efficiency and make sure they are not wasting valuable ad dollars on people who are unlikely to be customers.

However, research suggests there are limitations to how far marketers should take targeting. Lisa Barnard, of Ithaca College, has found that online ads tailored to specific consumers do increase their intent to purchase items. But she also found a negative effect from what she calls “the creepiness factor” of targeted ads that reduces the likelihood to buy by 5 percent. “Even digital natives were bothered by this. They know they’re being marketed to. And they don’t like it,” she says. “Marketers have made blanket assumptions that the more data we have, the more we should use,” she adds. “But just because we have that information, it doesn’t mean you should just go ahead and use it all the time in all cases.”

Comcast, Cox Among Diversity Inc.'s Top 50

Comcast and Cox made the 2015 Diversity Inc. list of top 50 companies measured by four key diversity metrics: talent, development, leadership commitment and supplier diversity. AT&T, which is still trying to get its DirecTV deal through the regulatory gauntlet, came away with a handful of top performances. Cox took 17th place on that annual list (now in its 16th year), while Comcast/NBCU was in the 30th spot. For Cox, that was an improvement of one spot (it was 18th in last year's top 50), while Comcast made a big move, up from 44 in 2014.

Other communications companies on the list included AT&T (7), Disney (34),Time Warner (41), Nielsen (42) and Verizon just made it at 50. There were also a series of breakout "top" lists and communications companies made some of those. AT&T dominated on the communications side, which was number one in supplier diversity, number two for people with disabilities and LGBT employees, number six in best companies for veterans, number seven for people with disabilities, and number eight in mentoring.

Franchising a Student Digital Privacy Law

I was skeptical when James P. Steyer, the chief executive of Common Sense Media, a children’s advocacy and media ratings group in San Francisco (CA), called me in the fall of 2013 to announce that he was going to have a law passed in California to restrict how education technology companies use student data. Steyer was not just worried about possible commercial exploitation of student data, he said. He also foresaw that parents’ mounting privacy concerns could scuttle the adoption of education technology in schools -- a cause he and his group have championed.

“I said, ‘Holy Toledo, this is a mess waiting to happen,’ ” Steyer recalled during a conversation in Washington. “I said, ‘There’s a huge issue around student data and student privacy. We’ll draft a law.’ ” And so it came to pass. Last September, Gov. Jerry Brown (D-CA) signed the bill -- titled the Student Online Personal Information Protection Act -- that Steyer originally envisioned. Common Sense Media is planning a more ambitious national effort that includes promulgating student privacy laws this year in about a dozen states, among them New Hampshire. The strategy his group used in California provides a window into its coming campaign. During the week of April 27, Reps Jared Polis (D-CO) and Luke Messer (R-IN) are expected to introduce a federal student digital privacy bill, modeled in part on the California statute.

Using consumer health data: Some considerations for companies

As the Federal Trade Commission staff discussed at a seminar about consumer generated and controlled health data, people are turning to apps, devices, and websites to manage their own health information. We talked about the contours of the compliance landscape. Especially when it comes to the sensitive subject of health data, one key takeaway is the importance that sound privacy and security practices can play in developing consumer confidence. Here are some more considerations if you or your clients are entering this burgeoning marketplace.

Think through what you collect and how you use it. Companies in this industry have said they need to collect personal data for functionality purposes. But it’s also important to put sensible policies in place regarding the collection and retention of consumer data.

Is “de-identification” an option? Another way to reduce risk is to de-identify the data you collect.

Consider consent. Of course, if those options don’t meet your business goals, you can always ask consumers for their consent to collect health information.

Give customers the straight story. However you choose to tell consumers about what you do with their information, don’t use legalese, bury it in a multi-screen privacy policy or terms of service, or use deception to get consent.

Build security in from the get-go. In this arena, security vulnerabilities can jeopardize not only consumers’ data, but also their health.

Benton

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