July 2015

The price of progress: Rent seeking in the FCC’s approval of the AT&T/DirecTV merger

[Commentary] Operating under its broad public interest standard, the Federal Communications Commission is largely free to ask firms for an almost unlimited range of concessions in exchange for favorable outcomes in matters before the commission. Such rent-seeking is business as usual. In the merger context, the only practical limit on what the Commission can request is however much the parties are willing to give up before walking away from the deal.

Past examples have included requiring firms to make “voluntary” donations to support public safety initiatives, agreeing to abide by net neutrality requirements that had been rejected by the courts, offering wholesale discounts to competitors, repatriating outsourced jobs, offering discounted accesses to disadvantaged communities, and more. While these conditions often represent laudable goals, they often are unrelated to the matter before the commission. And they frequently impose obligations upon the transaction that are otherwise outside of the commission’s legal authority.

We see another, even more stark, form on display in the regulatory approval of the AT&T/DirecTV deal. FCC Chairman Wheeler is proposing to approve the deal subject to various conditions that will impose various (and costly) requirements on the merged firm. This, in and of itself, is not surprising. It is typical – if often concerning in its specifics – for the commission to approve mergers subject to conditions. What is remarkable in this case is that the Department of Justice is closing its investigation into the merger – that is, it is effectively approving the merger – without any conditions. This is because, as stated clearly in its statement, the DOJ investigation concluded that the deal “does not pose a significant risk to competition.”

[Hurwitz is an assistant professor at the University of Nebraska College of Law]

Op-ed

The Next Generation Network Connectivity Handbook: Top Ten Overall Lessons

On July 21, 2015, Gig. U and the Benton Foundation published a comprehensive guide for communities who want better broadband for their residents and businesses. The Next Generation Connectivity Handbook: a Guide for Community Leaders Seeking Affordable Abundant Bandwidth is an indispensable tool in lowering the initial, daunting information barrier for cities just beginning to navigate critical Internet infrastructure issues.

House Communications Subcommittee Hearing: Promoting Broadband Infrastructure Investment

The House Communications Subcommittee, in a hearing titled, "Promoting Broadband Infrastructure Investment", discussed ways to promote broadband infrastructure investment in an environment with ever-growing demand for fixed and mobile broadband access.

“Broadband Internet access has become the communications and commerce tool of our time…It has literally changed the old rules for how we live our lives. Which begs the question: why are we using old rules to regulate new networks?” said Subcommittee Chairman Greg Walden (R-OR). “We hope that today’s hearing will start a discussion that reinvigorates a national debate on the best policies for continuing the model of private network investment that has made the United States a world leader in broadband.”

In Ranking Member Anna Eshoo's (D-CA) opening statement for the hearing, she said that key ingredients are a "dig once" policy that includes laying broadband pipes during federal highway construction, better access to utility poles that reduce the cost for deployment, freeing up more unlicensed spectrum, and the Federal Communications Commission's preemption of state laws limiting municipal broadband buildouts.

Witnesses included Jonathan Adelstein, President and CEO of PCIA; Craig Moffett, senior research analyst at Moffett Nathanson; Michael Slinger, Director of Google Fiber Cities; Deb Socia, Executive Director of NextCentury Cities; and the Honorable Stephen Roe Lewis, Governor of Gila River Indian Community, Arizona.

House Communications Subcommittee Chairman Walden (R-OR): Chairman Walden emphasized the trillions in public and private dollars that have been invested in broadband infrastructure, suggesting the government should not get in the way. He gave a shout out to municipal broadband buildouts -- "when necessary" -- but suggests the best policies for boosting broadband infrastructure investment don't include "using old rules to regulate new networks," an apparent reference to the FCC's reclassification of Internet access under Title II. "Despite the clear demand for high-speed services, investment in network infrastructure is not for the faint of heart. A staggering amount of capital is required to deploy fiber, antennas, routers, and switches to build a network with useful scale. Those who invest often won’t see returns for years; and the return comes only if the service satisfies enough customers to keep them coming back," he said. "There are real challenges to investing in broadband infrastructure, our laws shouldn’t be among them." Chairman Walden said enough had not been done to expedite access to poles and federal lands and buildings and improving tower siting, hurdles he said need to be overcome to help promote "efficient" investment and deployment.

House Commerce Committee Chairman Fred Upton (R-MI): “There is an incredible infrastructure that makes tasks that once took hours and even days as simple and as instant as a click or a swipe. In Michigan and across the country, we all are reaping the benefits. But if we, as a country, are to continue our leadership in the global technology industry, we must have policies that promote investment in the infrastructure to support it...My hope is that the discussion today will shed light on challenges to the economics of broadband networks and ideas that will help us replicate conditions that have already led to successful broadband deployment.”

House Communications Subcommittee Ranking Member Anna Eshoo (D-CA): Ranking Member Eshoo had a prescription for promoting infrastructure investment in broadband. As mentioned, according to Ranking Member Eshoo's opening statement for the hearing, key ingredients are a "dig once" policy that includes laying broadband pipes during federal highway construction, something President Barack Obama has advocated; better access to utility poles that reduce the cost for deployment, something the FCC and cable operators have advocated; freeing up more unlicensed spectrum, something Silicon Valley players in her district (and cable ops) have advocated; and the FCC's preemption of state laws limiting municipal broadband buildouts, something cable operators have opposed. She argued those are necessary because "55 million Americans lack access to the broadband speeds needed to unlock everything the Internet has to offer." "Equally alarming," she said, "is the fact that more than half of US households have just one choice for high-speed broadband service." She called 2014's $46 billion investment in broadband by the top cable and telecommunication companies impressive, but said that still put the country 17th on a list of global Internet speeds. Ranking Member Eshoo says those are not a cure-all, but said they are steps she thinks both Democrats and Republicans can support, though that is an optimistic view on preemption since Republican leaders have not been reticent on their dislike of preemption of state laws by the FCC. In reference to expanding broadband access on reservations, Ranking Member Eshoo added, “I think if there’s something that moves up to the top of the list here in a bipartisan way, it’s to see that we bring to parts of the country where there are reservations that you get first class service for first class citizenship.”

Witnesses shared their thoughts on how Congress can help resolve issues involved in broadband infrastructure and create a better environment where broadband can thrive:

Jonathan Adelstein, President and CEO of PCIA: Adelstein said infrastructure investment could have a powerful effect on the network. “One suggestion for Congress to consider that would alleviate roadblocks to wireless siting at the local level would be removing requirements that a provider demonstrate ‘proof-of-need’ or show a ‘gap- in-service’ when siting a wireless facility.” “Wireless infrastructure investment by private capital addresses the wireless data crunch as soon as it’s deployed,” he said.

Craig Moffett, Senior Research Analyst at Moffett Nathanson: “It is simply the case that broadband is an infrastructure that is very difficult to support two of, and in some case, even one of. And I would submit that a clear-eyed acknowledgement of the microeconomics of the broadband business deserves, or even demands, a seat at the policy table.” Moffett said federal regulators should look at controlling "soaring" program costs in order to spur investment in broadband. "Absent reforms to restrain the runaway growth in programming costs, video will become unprofitable," Conversely, the analyst added, "new builds of broadband will become increasingly economically challenged and therefore will become less and less likely." In his speech, Moffett outlined the enormous infrastructural investments made by cable and wireless companies to build broadband infrastructure. Investments in current infrastructure were made, Moffett explained, with the expectation that resulting pay-TV services would be profitable. Exacerbating the situation, Moffett said broadcast retransmission fees are rising so fast that SNL Kagan recently revised a projection released in October stating that total retrans fees would hit $9.4 billion by 2020. The new projection is now $9.8 billion. "As everyone understands, the cable video business is facing unprecedented pressure," Moffett told lawmakers. "Cord cutting has been talked about for years but is finally starting to show up in a meaningful way in the numbers. And soaring programming costs are eating away at video profit margins. From a cable operator's perspective, the video business and the broadband business are opposite sides of the same coin. It is, after all, all one infrastructure. Pressure on the video profit pool will therefore naturally trigger a pricing response in broadband, where cable operators will have greater pricing leverage."

Michael Slinger, Director of Google Fiber Cities: “Policymakers can do more to help reduce delays associated with obtaining adequate information and make-ready work, and increasing access to existing conduit and rights of way.” “While the FCC has taken important steps to improve rules related to infrastructure access, our own experience in building new broadband networks demonstrates that more work needs to be done to reduce delays and barriers.” “Policymakers’ top broadband goal should be achieving broadband abundance -- which requires reducing the cost of network buildout and removing barriers that limit providers’ ability to reach consumers. The key is to focus on competition, investment, and adoption.”

Deb Socia, Executive Director of NextCentury Cities: “The federal government can play a central role in helping to empower local communities across the country. Our policy agenda outlines a number of concrete actions that Congress, including Members of the Subcommittee can undertake: Provide a National Platform… Mandate National Data Collection… Encourage Competitive Local Markets…”

Stephen Roe Lewis, Governor of the Gila River Indian Community, Arizona: “The challenges are big but we do have tools that can help us overcome them. One of the key tools that we know can help is tribal consultation and engagement. Having a government-to-government commitment to engage with one another on important policy decisions is critical to ensuring that policies do not have unintended consequences.”

Responses to AT&T/DirecTV Merger Conditions

The Federal Communications Commission is poised to grant AT&T's $49 billion proposed acquisition of DirecTV. FCC Chairman Tom Wheeler subsequently issued a statement confirming that he would circulate for a full Commission vote an order proposing approval of the deal. Chairman Wheeler outlined a series of conditions he would impose on the merger to "build on" newly implemented network neutrality rules. One condition would prevent AT&T from exempting its own video programming from data caps on fixed broadband. Another would allow the FCC to review all deals AT&T strikes on interconnection -- the process of transferring traffic from the backbone of the Internet to the last mile, where providers like AT&T route the traffic to customers. Chairman Wheeler's terms would also require an independent officer to make sure AT&T adheres to the conditions. AT&T has agreed to provide high-speed fiber connection access to 12.5 million customers as well.

John Bergmayer, Senior Staff Attorney at Public Knowledge: "We recognize Chairman Wheeler and the Department of Justice operate within the specific scope of their merger authority under existing statutes. We applaud any conditions that will help shed light on the opaque world of interconnection. We are gratified that the Commission appears to have addressed the merger specific issues related to AT&T's ability -- through discriminatory application of data caps and through other means -- to disadvantage rival over-the-top video competitors. Nevertheless, as reflected in our filings, we believe additional steps would be helpful to fully protect competition and consumers. While acknowledging the effort made by Chairman Wheeler to protect existing competition, encourage fiber deployment, and address affordability, no one should imagine that this has solved the underlying problem of our lack of competition. While we hope the proposed merger conditions are effective and enforced, they appear to show the limits of what certain types of merger conditions can do. We therefore call on the FCC to move expeditiously on industry proceedings that will do what merger conditions cannot -- promote competition nationally and open the video marketplace to more low-cost, innovative and diverse broadband opportunities. We look forward to working with the FCC to establish industry-wide rules that fully promote competition for all."

Free Press Policy Director Matt Wood: "AT&T and DirecTV asked the FCC to approve a wasteful merger between the nation’s third- and fifth-largest pay-TV providers. The deal will reduce the number of pay-TV competitors from four to three for nearly a quarter of the country. AT&T is also the nation's second-largest home Internet access provider, and it now has new power and incentives to thwart online video competition. The merger conditions announced thus far won't do enough to offset this deal's many harms. We need to see the final order to pass final judgment, but what's been revealed at this point doesn’t go nearly far enough -- and doesn't appear to address the problems from pay-TV consolidation at all. Under Chairman Wheeler, the FCC has done many things to help consumers, but it needs to do much more to promote actual competition. Prior commissioners and chairmen long ago turned their backs on Congress’ plans to promote real competition in last-mile networks. This FCC must take steps to back up Wheeler’s mantra about competition as millions of people continue to see never-ending price hikes and reduced choices. This deal will send yet another signal to Wall Street that harmful mergers are a better business model than actual and substantial infrastructure investment. We don't see enough checks on AT&T’s power in the broadband and pay-TV markets, or enough protections for true over-the-top video competition against incumbents like this newly combined company. AT&T sold this merger the same way it's tried to sell deals in the past: with a series of commitments that are no more than what it planned to do without a merger. The fiber buildout and broadband speed commitments aren’t new at all, considering AT&T's 100-city gigabit-deployment plans announced long ago, and no matter how they’re packaged today they are not the result of this merger approval. We have seen the same games from AT&T before, with the company claiming that it needed to buy T-Mobile to upgrade its wireless services by 2018. Yet AT&T made those upgrades by 2014, four years earlier than promised -- and all without the T-Mobile takeover. It’s a shame to think that AT&T can get away with such empty promises in a merger this time around."

The American Cable Association wanted conditions geared toward protecting rivals. It called on other commissioners to demand that AT&T not charge rivals higher prices for regional sports networks in some regions.

Eight companies and other groups -- including Netflix, Dish and Cogent -- sent a letter to the commission hours before details about Chairman Wheeler's decision were made public, urging the commission to bar AT&T from imposing interconnection access fees.

Comptel, a trade group for competitive carriers, applauded Chairman Wheeler for having interconnection take "center stage" in the merger talks. "The transparency condition gained in this merger will give the Commission the tool it needs to review AT&T’s interconnection practices to determine whether it is living up to the industry’s standard of no access fees," the group said.

Senators Want to Give DHS New CYBERCOM-Like Powers to Thwart Civilian Agency Hacks

Senators from both parties are pushing to position the Department of Homeland Security as the US Cyber Command of the civilian government, after many agencies refused to fall into line on information security in 2014. Following the largest known hack of US federal employee information, a bipartisan group of six lawmakers believes there is now enough momentum to grant DHS power over government networks.

Just as CYBERCOM monitors and blocks threats to the military network, DHS, under proposed legislation, would scan for and repel attacks against the dot-gov domain. In the event of a suspected threat, the new 2015 Federal Information Security Management Reform Act lets DHS direct agencies "to take any lawful action with respect to the operation of the information system" at risk. IT systems subject to partial override, during emergencies, would include private-sector networks that handle government information. The bill also would task DHS with "conducting targeted risk assessments and operational evaluations" of agency and contractor systems, including vulnerability scans."

Why aren’t there more minority journalists?

[Commentary] According to the 2014 American Society of News Editors (ASNE) census, the number of black newsroom employees has increased from “fewer than 5 percent” in 1968 to … 4.78 percent. So why aren’t there more minority journalists? A common sentiment is that there are not enough qualified candidates. In 2013, graduating minorities that specialized in print were 17 percent less likely to find a full-time job than non-minorities; minorities specializing in broadcasting were 17 percent less likely to find a full-time job; and minorities specializing in public relations were 25 percent less likely to find a full-time job. In contrast, minorities specializing in advertising were only 2 percent less likely to find a full-time job than their white counterparts. Overall, only 49 percent of minority graduates that specialized in print or broadcasting found a full-time job, compared to 66 percent of white graduates. These staggering job placement figures help explain the low number of minority journalists. The number of minorities graduating from journalism programs and applying for jobs doesn’t seem to be the problem after all. The problem is that these candidates are not being hired. There are likely three key factors that help explain this hiring discrepancy:

First, Nieman Reports has noted that minority students are less likely to serve on campus newspapers because they are more likely to attend colleges without the resources to support a newspaper or to feel ostracized by a mostly white newsroom.
Second, minority students are less likely to complete unpaid internships. As The Atlantic wrote in 2013: “Unpaid internships compound diversity concerns by reserving entry-level journalism positions to financially advantaged youth who can afford to work for free.”
Lastly, minority students often aren’t in the hiring networks that editors rely on to find job candidates.

Rather than approaching hiring with a one-size-fits-all mentality, newsrooms should try to interview a variety of candidates. If a job candidate is a solid, curious writer with drive and a good work ethic, they deserve consideration. By making this small adjustment, more minority candidates will get their foot in the door -- literally -- which could help address the decades-long criticism that newsrooms need more diversity.

[Alex T. Williams is a PhD student at the University of Pennsylvania]

When the Doctor's Appointment Comes to Your Desk

People are using a new app to coordinate doctor's visits at their desks. The app is called Pager, a sort of Uber for doctors, or Seamless for sick workers, or pick your startup analogy. Pager, based in New York, launched a little over a year ago as a modern twist on the old-fashioned house call. Instead of sitting in the emergency room or scheduling a far-off visit to the doctor, busy ailing people can tap their phone and get doctors and nurses affiliated with major New York City health systems to their door in two hours or less. Most people use the app for in-home care, but Pager says it has seen thousands of workplace users. Similar services, such as Heal and Go2Nurse, are available in Los Angeles and Chicago, respectively. "You have a condition, infection, a minor injury, you’re in pain, you’re in stress -- you push a button and a doctor comes to you within an hour," said Gaspard de Dreuzy, Pager's 39-year-old CEO. Prices range from $50 for a phone consultation to $200 for an urgent-care in-person visit. The app doesn't accept insurance yet, although Pager says that's coming soon. For now, the service can be billed as an out-of-network provider.

Access to health care at work isn't entirely novel. Some bigger employers have on-site health clinics staffed with nurses. Benefits packages can include access to telemedicine services, like MDLive, Doctor on Demand, and American Well, which provide consultations over the phone or by video chat. "Over video you can treat 17 out of the top 20 things seen in urgent-care centers," said Doctor on Demand CEO Adam Jackson. Most Doctor on Demand consultations happen at home over video chat, but a quarter of organizations using the platform set up dedicated rooms with iPads for work. Like many perks of the modern office, telemedicine and doctors on demand are a productivity booster masquerading as a convenience. "You keep your employees healthy, and at the same time, if they’re sick, you make it so fast and convenient and efficient to access care that they spend less time going to the doctor's office," said Pager's Dreuzy.

US States Urge Phone Carriers to Put an End to Robocalls

State law enforcement officials are urging US phone carriers to end one of the most complained-about consumer annoyances: the automated telemarketing call. A coalition of 45 state attorneys general sent a letter to AT&T, Sprint, Verizon, T-Mobile and CenturyLink asking them to put in place technology that would allow consumers to block so-called robocalls, New York Attorney General Eric Schneiderman said.

Companies earlier hesitated to implement a fix over concerns it may violate federal law, but the Federal Communications Commission in June made it clear there are “no legal barriers” to such a move. “Every year, our offices are flooded with consumer complaints pleading for a solution to stop intrusive robocalls,” attorneys general including Schneiderman, Tom Miller of Iowa and Connecticut’s George Jepsen said in the letter. “Your organizations are now poised to offer your customers the help they need.”

Sen Franken to Top Federal Agencies: Look into Potential Anticompetitive Practices by Apple in Music Streaming Market

US Sen Al Franken (D-MN) asked two of the nation's top federal agencies to look into whether Apple is engaging in anticompetitive behavior in the music streaming market. In a letter to the heads of the Department of Justice (DOJ) and Federal Trade Commission (FTC), Sen Franken expressed concern that some of Apple's business practices in the digital music market have the potential to limit choices and raise prices for American consumers. He said that the recent launch of Apple Music, a new music steaming service, has brought to light a number of restrictions that competitors face when operating on Apple devices like iPhones or iPads.

"Increased competition in the music streaming market should mean that consumers will ultimately benefit through more choices of better products and at lower prices," wrote Sen. Franken. "I am concerned, however, that Apple's position as a dominant platform operator may actually undermine many of the potential consumer benefits of its entry into the market. To protect consumer choice and promote greater transparency of pricing, I ask that you review Apple's business practices with respect to its competitors in the music streaming market."

How policymakers can support broadband abundance

Michael Slinger, Director of Google Fiber Cities, will testify before the House Energy and Commerce Subcommittee on Communications and Technology to urge policymakers to play a more active role in expanding nationwide broadband abundance. July 22nd’s hearing will highlight the expansion of broadband deployment, recent infrastructure developments, and policies that will encourage investment in broadband expansion. Michael will share our experience building out Google Fiber to present ideas for how policymakers can support greater broadband abundance: “Policymakers’ top broadband goal should be achieving broadband abundance -- which requires reducing the cost of network buildout and removing barriers that limit providers’ ability to reach consumers. The key is to focus on competition, investment, and adoption.” When lawmakers successfully support broadband infrastructure and development, Americans will have more choices at higher speeds, small businesses will have the opportunity to expand, and local economies will grow.

Benton

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