Year: 2007

I Go Delphic, Snort Oak Leaves, And Give Four Reasons Why Google Will Bid To Win in the 700 MHz Auction (despite what the smart money says)

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Analysts who watch Google and watch the wireless world really, really, really don’t want to think of Google as getting into the wireless biz. This spring, I heard an awful lot of “Google won’t bid” or “Google can’t win” or, my personal favorite, “you think Google is going to bid? Are you on crack?”

As regular readers know, while I have occasionally been a shade grumpy about how Google worshipers have attributed all things in the auction to our Great Google Overlords, I have been surprised at the reluctance of most analysts to accept that Google really does want to win licenses. For example, when Verizon announced it would open its network to third party devices, analysts suggested this would take the pressure off Google to win licenses itself. When Google announced it definitely would participate in the auction, a number of analysts again questioned whether Google was really serious about winning or whether it just wanted to insure the $4.6 billion C Block reserve got met. Although as shown in this article here, some analysts expect Google to press hard to win, the conventional wisdom among analysts has jelled into “Google is only bidding to make sure the C Block conditions stay in place.”

These analysts have sound reasons for thinking Google would be mad to bid. Google never wanted to be a network provider. Sure, they’ve dabbled a bit by investing in broadband over power line (BPL) and dipping a toe in muniwireless (neither of which has amounted to very much). But Google never took the potentially ruinous plunge from being an applications provider (its realm of dominance) to becoming a network provider. Worse, the estimated $5-$6 billion price tag for the C Block licenses is only the beginning of the cost to actually build a network. According to one widely reported estimate by Google itself, it would cost another $12 billion to build the network once Google has the licenses.

Nor is the wireless industry considered ripe for expansion. If anything, analysts expect further consolidation as smaller carriers find it tough sledding against the vertically integrated giants AT&T and Verizon (which jointly control the bulk of residential subscribers, can offer a nice set of wireless and wireline bundles, and enjoy other advantages that make them tough to beat). Even with Google’s genius for creating new capital opportunities, the conventional wisdom goes, how on Earth can Google ever recoup this mammoth investment as yet-another-wireless carrier in the highly-commoditized world of wireless telephony. And the one thing that might have worked, creating its own compelling “walled garden” that encourages users to go with Google wireless to enjoy access to features they routinely access in the wireline world, is the one thing Google has sworn up and down it won’t do. To put icing on the cake, the formation of Android and the inclusion of national carriers T-Mobile and Sprint make it impossible for Google to create its own walled garden if it changes its mind after winning.

With all this to consider, small wonder analysts by and large don’t see much chance of Google making a serious run to win. They believe that Google wants someone else to win, but offer an open network Google can ride on. So while bidding to make sure the spectrum gets bought makes sense, actually wanting to win the licenses doesn’t. Hence the convergence of the conventional wisdom that Google will leave it to Verizon or someone else rather than tie a multi-billion dollar albatros around its neck and potentially crash its stock valuation (especially if you hold Google stock).

For the reasons given below, I will play the contrarian. I think Google will bid and fight hard to win licenses. Indeed, while I expect Google to target C Block, it may well go after D Block or some of the other licenses as well, if that’s what it takes to build a national footprint. Google might still get outb id by Verizon and other carriers, but I don’t think that’s Google’s plan. I think they are in to win.

Why? See below . . . . .

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Jabberwocking the Fundies

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Here at Wetmachine we have a tradition of posting what the New Critics called “close readings” of arcane texts. Usually these close readings are done by Harold Feld in Tales of the Sausage Factory or by Greg Rose in Econoklastic, and most often the closely-read documents are obscure legal decrees, rulings, opinions, pronouncements, etc, originating from the Oracle at Federal Communications Commission, or they’re drafts of some lobbyist-written telecommunications bill lurking in the shadows of some state legislature or congressional committee, hoping to become law while nobody’s looking –although occasionally Harold treats us to a scholarly exegesis of a biblical or Talmudic text.

Over at Enter the Jabberwock, my erstwhile OpenLaszlo colleague Josh Crowley has a long-running series of close readings of illustrated tracts by the crackpot so-called “Christian” fundamentalist Jack Chick. Crowley calls these analyses “Chick Dissections”. In them he mercilessly skewers the artwork, logic and theology of individual Chick tracts. He does this in a direct, unironic voice, taking each frame of the comic book under review at face value. In other words, he does not come at them with a knowing, jaded air of sophistication and superiority. He engages them on their own terms.

When I first saw these Chick Dissections I wondered what the point was, since the comics themselves are so ineptly drawn and poorly reasoned that they basically are self-refuting; they are their own parody.

But, you know, Jack Chick is not some lone nut promulgating his paranoid ravings in photocopied pamphlets on a streetcorner to an indifferent audience of dozens. He’s a lone nut promulgating his paranoid ravings to an audience of millions, some of them quite credulous, through his website and publishing empire. The fundamentalist meme, in Christian, Islamic, Hindu, or whatever form, is a present danger to civilization. Therefore Jabberwock/Crowley is right to resist it. The Chick Dissections are not to everybody’s taste, but Jabberwock is providing a valuable service. And he’s often quite funny.

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Cable Ownership Limits: This Is The Jonathan Adelstein I know

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OK, first, as our Great Hero and the real Favorite Son of South Carolina, Stephen Colbert would say: Martin as a true set of huevos grande. On Tuesday, when it looked like he was going down in flames, I opined that Martin wouldn’t risk touching cable again with a ten foot pole and wondered whether he would be relegated to the status of a “lame duck” Chairman. Boy was I wrong. Not only did fight his way back from a total loss to a partial win against the massed might of the cable lobby, but he has emerged determined to go on for another round in bringing cable market power to heel, and this time with no distractions about a la carte.

This time, it’s a vote on the proposed cable ownership limit. Under Martin’s proposal, a cable company may control no more than 30% of the total number of cable, satellite, or other “multichannel video programming distributor” (MVPD) subscribers. As usual, we in the media reform/diversity community have been pushing this for years and, as usual, the cable industry insists it is totally unnecessary, ilegal, fattening, and will mean that the terrorsts win.

So I take a moment to appluad Kevin Martin for his continued courage and willingness to do the right thing on cable, even while making a huge mistake on broadcast ownership. But perhaps more importantly, Jonathan Adelstein has jumped on this puppy and run with it. After the bitter disappointment of this past week’s cable vote, it is a much needed shot in the arm to see Adelstein back in his usual form as a defender of diversity and an opponent of market power. Not to take anything away from Michael Copps, mind, who as usual has a track record of opposing consolidation in cable and has worked with Martin on a host of issues limiting cable market power. I’m just saying that seeing Adelstein act decisively on this one restores my faith that while we may have disagreed on 70/70 (and as usual when these things happen, I’m the one whose right), it was an honest disagreement and not something more nefarious. So while I remain disappointed, I am no longer dismaly disillusioned or dismayed.

More below . . . .

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eShrek

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eShrek – n. software that is big-business in and of itself. For entertainment purposes only, not business or personal enrichment. (From Old Internet eMail and New Hollywood Shrek, after Yiddish “shrek” (monster), sometimes with connotations of shlock, shmaltz, shmata, or other short throw-away Yiddish words denoting things not highly regarded.) Compare “crapware.”

Quick On Cable: Martin and Copps Pull Out A Partial Win By Persuading Adelstein To Meet Them Halfway

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Well, I’ll have a lot more to say over the next few days. And there were a bunch of very good Orders that came out on other subjects, like Low Power FM and mandatory disclosure requirements for broadcasters. But here’s the summary:

1) The Commission acknowledges that data about the 70/70 threshold remains unclear, and will therefore require that all cable operators must report real subscriber numbers, including all MDU subscribers, for 2006 and 2007.

OK, as regular readers will know by now, I think it was clear that cable penetration passed this threshold long ago. But since we at MAP have been asking the FCC to collect real data on this stuff from the cable operators since 2000, I am pleased with the ultimate outcome. Hell, I was telling Steve Effross of NCTA last night that I’d wait on the result to get real data from all cable operators so that we could do this right.

If I’m wrong on penetration, so be it. This is an empirical question and we should solve it through the obvious expedient of telling cable operators to actually report their subscriber numbers. Three cheers for Kevin Martin for having the courage to stand up to the wholly bought cable subsidiaries in the GOP, and three cheers for Michael Copps for pushing for collecting actual data from cable companies for years now.

As for Jonathan Adelstein. _sigh_ Yes, I’m still disappointed. I get that Adelstein doesn’t like being in the hot seat, that he thinks Martin is a — if you’ll excuse me — martinet who cooks the books, etc. etc. But he is just plain wrong on this one. As noted with copious citations in the MAP filings (see links in comments in previous post) the FCC has always relied on Warrens data and exclusively on Warrens data, which showed cable penetration hovering at pretty damn close to 70%.

And as for the much vaunted Cable 325 Reports that Adelstein and McDowell went on at great length about, I shall refer interested parties to the GAO’s analysis, with the lengthy but descriptive title “Data Gathering Weaknesses in FCC’s Survey of Information On Factors Underlying Cable Rate Changes.” And, as also mentioned in MAP filings, the FCC’s regulatory fees NPRM determined that cable gained 1.5 million subscribers in 2006. If we’re going to include all the FCC data, the fact that everyone (including McDowell and Tate) already voted to find that cable gained 1.5 million subscribers in 2006 should be included in the discussion as well.

But, at the end of the day, Adelstein voted to demand the cable companies provide the data and end this debate once and for all. That counts for a lot. Nevertheless, for me on this, Adelstein comes out of this a lot less like Han Solo and a lot more like Hamlet, spending five acts waffling and causing havoc before finally managing to stab the right villain.

As for Tate and McDowell — hardly a surprise. Given how thoroughly the cable guys appear to own the Republicans, the surprise is not that McDowell and Tate went with the cable boys but that Martin actually went ahead and defied them.

2) Leased Access: The Commission adopts a pretty good Order that will lower the rate, require cable operators to be more responsive, and generally force staff to get complaints processed quickly. Surprisingly, it took some convincing to get Adelstein to go along with this one, as the cable operator’s last minute complaint that they didn’t get enough due process struck a chord. (I love it that industry always discovers due process when they are about to get their comeuppance, but when it’s about shafting us the due process concerns go out the window.) Fortunately, Copps and Martin were able to broker a compromise that the FCC will stay operation of the new rate formula until after they process Petitions for Reconsideration. And surprise! Tate and McDowell dissented. McDowell’s comments about how leased access doesn’t work as an economic model run afoul of the fact that the record contains several examples of programmers that do make a go of it even under the existing abominable rules (such as CaribeVision). But when your “Mr. DeReg Guy” a little thing like facts will not figure into your theorizing.

A minor tweak. The Commission will not apply the new rate to home shopping channels, but rolled that over into a separate rulemaking. Given my general feeling on home shopping channels and the public interest, I can’t complain too loudly about this one. I don’t think it’s terribly needful, but I can live with it.

3) Section 616 Carriage Complaint: The process for independent programmers to file complaints with the Commission was up for major reform. It didn’t happen. Score a kill for the cable guys.

That’s the quick and dirty. I’ll try to have more over the next couple of days. But first I gotta take a little nap. It’s been a Hell of a month.

Stay tuned . . . .

Verizon Open Platform: Looks Like A Big Bid For C Block and A Shout Out To Tim Wu

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Tearing myself away for a moment from the drama and bitter disappointment of today’s cable vote, we have an announcement from Verizon that it will offer an “open platform” option for its wireless services. According to the news reports, starting in 2008, VZ will publish a standard for connecting to their network, host a conference for developers, work with developers, set up a testing lab to ensure that devices meet the standard and won’t harm the network, and allow devices to connect to the network. They also promise not to interfere with any application running on the device.

They pledge to make this available on the whole network. Not “just on a portion of the network, or a piece of spectrum that may become available after 2009.” For tech support, if you are a “bring your own device,” you can call VZ to make sure your device is connected but you are otherwise on your own.

Verizon says they are doing this in response to market demand. Rumors that this is an effort to head off regulation or declares an interest in C Block are baseless speculations of undisciplined internet bloggers like yr hmbl obdn’t. But they do stress several times on this press call that this is all about the market working, just as terminating early termination fees had nothing to do with regulatory pressure, so there is obviously no need to regulate.

Maybe. But while I’m certainly glad to see Verizon come around to my way of thinking that openness is the ultimate “killer app,” I think credit is due to three other events that helped Verizon see the light on openness: Tim Wu’s incredibly important paper on wireless Carterfone last February; Kevin Martin’s decision to put an “open devices” condition on the 22-MHz “C Block” licenses in the upcoming 700 MHz auction; and the iPhone hearing last July, where Congress made it clear they didn’t like the idea of locking desirable devices to a single provider.

Why? See below . . . .

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Hot Bi-Partisan Action On Cable Part II — All Eyes On Adelstein As Cable Vote Nears

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So I spent a good deal of time in Part I explaining why 70/70, leased access, and the rest of it are necessary steps to curb cable market power. You can also see the back and forth between MAP and the cable guys on whether the 70/70 threshold is met (for those of us that actually care about the substance) either by going to the FCC’s Electronic Comment search page and pluging in the docket number 06-189. Or you can check out what my friend Greg Rose has written on his blog. Because regardless of what you think the policy is, there is an actual empirical question here that — if we required cable companies to submit real subscriber numbers to the FCC rather than letting them file whatever the heck they want without any kind of verification or standard system of reporting — we would be able to answer.

And, as we head to a vote on Tuesday, Democratic Commissioner Jonathan Adelstein remains the swing vote. As regular readers know, I defended Commissioner Adelstein during the 700 MHz Auction fights when some of my friends in the movement wondered whether Adelstein was taking up the cause of the wireless companies against the consumer. Then, my faith was rewarded when Adelstein came out in favor of wholesale. Even though we ultimately lost that fight, there was no doubt that Jonathon Adelstein was on the side of the people not the special interests.

But now we come to cable. Where Commissioner Copps has always been a clear and unambiguous foe of cable market power, Adelstein has always been more … nuanced. For example, when Comcast and Time Warner divided up bankrupt Adelphia cable, Copps voted against the merger while Adelstein concurred in part and dissented in part. Adelstein used his concurrence to extract a promise from Chairman Martin to reform the cable leased access process. So was this going along with big cable or shrewd realpolitik? At the time, and still, I argued the later, trusting that Commissioner Adelstein’s longstanding support for diversity and strong stand against media consolidation belied the rumors that he was “soft” on cable consolidation.

More troubling was Adelstein’s recent concurring statement with Republican Commissioner Robert McDowell on denying Comcast’s request for a waiver of the 1996 law requiring cable operators to create an open, standard interface for cable set-top boxes. But OK, Adelstein did vote to deny the waiver and was apparently chiefly honked off that Martin was cutting Verizon a break but not Comcast. While I might disagree (giving Verizon two years to develop compliance for a non-cable system when Comcast and the rest of the cable industry got ten years on the same excuse doesn’t seem that outrageous to me — given that there are real honest-to-God technical differences between FIOS and cable systems and CableLabs, which developed the cable card standard, is a cable industry operation), I can at least understand where folks might get peeved at Martin’s apparent favoritism between the telcos and the cable cos (more on that in Part III). And, after all, Adelstein did vote to actually enforce the law against the cable industry.

But still the same ugly rumors persist — Adelstein is soft on cable. Adelstein is looking for an excuse to avoid the vote. Adelstein wouldn’t vote against cable on Comcast’s fight with The America Channel except that Copps voted with Martin and ADelstein didn’t want to look bad. etc., etc., etc.

Washington is a cynical town. It’s always easier to believe that people are acting because they are owned by this special interest or owe favors to that industry than to believe that people are trying to do their best in a complicated world. I am an oddball in starting from a position that I give those on the same side as me and those on the opposite side the benefit of the doubt until I see something that puts it beyond doubt that a person is favoring a private interest or industry over the public interest no matter what.

So we come down to the wire on cable. I’ve fought the cable industry on these issues for the last 8 years, and I am a newbie compared to some of the folks in the movement that lived to see the vote on Tuesday. I believe that, as an objective matter, the 70/70 cable penetration benchmark has been met — and was met at least as early as 2005. I continue to believe that cable exercises market power over programming and subscription rates and that the FCC needs to address these problems.

And I believe that Commissioner Adelstein, like Commissioner Copps, cares about diversity of programming and protecting consumers from cable market power. At least, I believe it now. And I hope I’ll still believe it after Tuesday.

Stay tuned . . . .