Author: Harold

Obama finally Nominates Rosenworcel and Pai: Can They Get Confirmed Before The FCC Drops to 3?

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The White House finally confirmed what everyone in the D.C. telecom world has expected for months. Obama officially nominated Jessica Rosenworcel to replace outgoing FCC Democratic Commissioner Michael Copps, whose term expires when Congress adjourns, and Ajit Pai to replace Republican Commissioner Meredith Baker, who stepped down last March. Both have considerable experience at the FCC, giving them understanding of how the agency functions in a very nuts and bolts kind of way. Both have broad experience with a range of communications issues, and no particular ties for/against any particular industry sector or company.

In short, both are “workhorse wonks,” with a proven track record of digging in on the complex issues that make this sector such a joy for those of us who like wonkiness and tough questions and such an eye-glazing, mind-numbing experience for those who don’t. While no one can say with any certainty what happens in this crazy and poisonous partisan environment, which every day comes more closely to resemble the delightful fable of the turtle and the scorpion crossing the river, their nominations should raise little controversy. Hopefully, the Senate will confirm both before the end of the year, when the FCC will otherwise drop down to 3 Commissioners.

For those unfamiliar with how this works, or with the candidates themselves, I provide a primer below.

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A Personal Reflection on the FCC’s USF/ICC Reform Order

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A Personal Reflection On The FCC’s USF/ICC Reform

Yesterday, the FCC approved an Order addressing about 10 years of accumulated undone work in the telecom world and at least starting work on the more serious issues – such as interconnection for IP-based services – that will govern the next ten years. I have, no surprise, plenty of personal opinion about the substance and I expect that when the Order is published I will have my share of things to say and that some of them will be quite scathing, skeptical and snarky. Nevertheless, it is important to pause first and reflect on why yesterday’s vote represents a real accomplishment for Genachowski and the Commission. Similarly, it is important to appreciate the context of the Order and the limitations on the agency imposed by law.

None of this negates the very real and substantive criticisms that I and others will have – particularly with regard to the self-inflicted wound over the FCC’s legal authority. I have no delusion that hard work and good will somehow transform poor policies into better ones. My appreciation for what the agency did right and its limitations under law do not blind me to the part that political influence plays, nor does it somehow make it more palatable to those who feel that the outcome will make jeopardize their livelihoods or that we missed significant opportunities to do better.

But it is just as poisonous to public policy when we focus only on its flaws and failures as when we excuse them. It is not simply a matter of basic fairness, or that decisionmakers are human beings who do better when praised for what deserves praise. I believe failure to recognize the achievements and limitations of the policy process makes one a less effective advocate and prevents one from seizing opportunities when they arise. This is neither bogus pragmatism that counsels surrender and diminished expectations, nor delusional Pollyannaism that insists we live in the best of all possible worlds. The world is messy and complicated, and policy reflects that.

So, all that said, the accomplishments and context of the Order below . . .

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Comcast Unhappy With Free Market Title I Nirvana. Demands “Access Charges Bailout” But No Reg Oversight.

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It says something about the messed up world of telecom today that the “Connect America Fund” the FCC will vote on tomorrow has become the “what the heck are we going to do about IP-based interconnection” proceeding. In particular, the rather high-profile spat between AT&T and Comcast (andother cable companies) over access charges illustrates exactly the kind of cosmic cluster#@$! we predicted would happen if the FCC failed to classify broadband as a Title II telecom service. AT&T is100% right on the key argument: Comcast has the access charge regime it fought for and deserves. Letting Comcast collect access charges as if it were a traditional telecom provider subject to Title II, while shielding it from any actual oversight or obligations as a Title I information service, is nothing more than an undeserved windfall to the company that tore up the social contract in the first place.  If they don’t like the outcome, then perhaps they should have thought about it before they declared Jihad on Title II.

More below . . . .

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What Is It About Germany That Makes AT&T Allies Speak Truth? The Curious Case of CWA’s Larry Cohen.

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I know, even I am getting bored with blogging about AT&T/T-Mo. It is so bad that I keep hoping I will have time to blog about USF before the FCC votes this Thursday. But the latest slip by Communications Workers of America (CWA) President Larry Cohen that AT&T has only a 20% chance of succeeding in its takeover of T-Mobile, followed by subsequent “clarifications,” is simply too ridiculous and absurd to let slide into obscurity without some passing snark.

More below . . . .

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Will Wall St. Put The Kibosh On The AT&T/T-Mo Takeover Before the DoJ Does?

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The more I see AT&T frantically spend money like water and call in every political chip it has to try to pressure the Department of Justice to settle its case, the more I become convinced that it will ultimately be the Wall St. financial community that will finally persuade Randal  Stephenson to give up before AT&T gets to trial. Oh, I expect to see more wild gyrations. There’s perpetual whispers that AT&T will find a dance partner in the form of MetroPCS (the current favorite of the rumor mongers) or Leap or U.S. Cellular (one even occasionally hears Sprint, but that doesn’t even pass the laugh test) and they will publicly announce some big proposed settlement so that AT&T’s political friends and its cadre of honest politicians can howl some more for DoJ to settle. Who knows? We have five months until trial, and AT&T seems infinitely capable of making all sorts of political noise.

But the more I look at it, the more convinced I become that the upper management at AT&T and that of T-Mobile’s parent, Deutsche Telekom (DT), have not really thought through just what kind of a settlement they would now have to offer and how radically different it is from what AT&T expected to offer before DoJ brought suit. A settlement now is far, far more expensive than anything AT&T envisioned and quietly vetted with Wall St. analysts back in March. Back then, AT&T expected to divest from 30-50 midsized markets via a divestiture trust (allowing them to sell licenses at profit-maximizing prices over time), some wussy roaming and deployment conditions that could be easily evaded or ignored. Now, AT&T will need to divest enough to create a “T-Mo Lite,” something that can at least pretend to replace the loss of a national carrier. As I explain below, that becomes so expensive and complicated that even if AT&T can find the financing to make it happen, its stock is likely to tank on the mere announcement of such a deal.

Mind you, I am not saying a settlement is desirable or good policy. I continue to believe that AT&T’s take over of T-Mobile is so thoroughly awful as a mater of both antitrust and telecom policy that no conditions or divestitures can save it. But even discounting my opinion on the matter, there are certain practical realities that make a settlement at this point not merely bad policy, but so expensive and complicated to manage that it is effectively impossible.

If I’m right, the only question is how much shareholder money and political capital AT&T spends lobbying for a settlement that can’t be done for financial reasons before enough officers on the AT&T and DT Boards sit down AT&T CEO Randal Stephenson and DT CEO Rene Obermann and explain to them that the time has come to face reality, renegotiate the break up fee to let DT out early, and cut their loses before AT&T stock starts to tank big time.

I demonstrate why below. Warning, as this is a “show your work” thing, it’s kinda long . . .

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Deutsche Telekom Keeps Messing Up “T-Mo Is Doomed Unless AT&T Buys It” Song By Explaining Who Else Could Buy T-Mo

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 Two weeks ago, Deutsche Telekom (DT) Chief Technology Officer Olivier Baujard accidentally spoke truth about T-Mobile to an audience of German investment analysts. After running through the usual company talking points about the effort to sell T-Mobile to AT&T (e.g., it will happen, DoJ is just playing hardball with negotiations, etc.), Baujard said at a public presentation at a Paris broadband conference that: “any rational company had a Plan B and that Deutsche Telekom had other opportunities for its U.S. operations should the U.S. Department of Justice succeed in terminating the deal.”

This is vitally important because, after accidentally shooting the “this is the only way to bring 4G to rural America” argument in the foot by accidentally leaking documents proving AT&T could bring 4G to rural America whenever it wants, and T-Mobile killed the ‘this will create jobs’ argument by confirming that it was preparing pink slips for more than 20,000 employees after the acquisition gets approved, the “T-Mobile is a sickly gazelle” argument is about all AT&T and it supporters have left. Unfortunately for AT&T, this is not the first time Deutsche Telekom has screwed up the “sickly gazelle” storyline by revealing inconvenient truths about its other options. And while there is usually a rule in Washington that “we totally ignore what you say to investors when it contradicts your chosen story,” this deal is sufficiently high profile and has sufficient problems that eventually someone may notice if AT&T’s “Sickly Gazelle Chorus” keeps getting thrown off key by Deutsche Telekom’s “We Have Lots of Other Options Counterpoint.”

More below . . . .

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A Pocket Guide To What Happens Now That Network Neutrality Rules Are Officially Published.

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Hey everyone, remember back at the end of last year when the Federal Communications Commission (FCC) adopted the better-than-nothing-but-still-painfully-disappointing Network Neutrality rules? Well, after a long and winding road, which included bouncing back and forth between the FCC and the Office of Management and Budget a few times and a premature challenge by Verizon, the rules were finally published in the Federal Register today. So without getting into the merits, here is what to expect procedurally.

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Quick Thoughts on Today’s Status Hearing in United States v. AT&T

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By all accounts, the main event on the status hearing was — as expected by lawyers — fairly boring. I am not sure why some folks think that splitting the difference between AT&T and the DoJ on timing was a win for AT&T (AT&T wanted January 16, DoJ wanted March 19, Judge picked Feb. 13).  It is, I suppose, consistent with those who thought picking the later date would be a sign the judge wanted a settlement. i.e., there are those who just can’t believe AT&T is going to win this and therefore everything is somehow an advantage to AT&T no matter how it turns out.

The more interesting note was the decision not to join Sprint and Cell South’s complaints to the DoJ case and setting a date for AT&T to file a motion to dismiss. That was a modest victory for AT&T, but not terribly indicative of where the DoJ case is going. It is rare for private litigants to file to enjoin a merger, and antitrust commentators have noted the trend in the last 10 years to make private antitrust cases more difficult to bring as a matter of standing. I suspect if Sprint and Cell South survive the motion to dismiss on standing grounds the cases get joined, as they are related cases. But it also would not surprise me if Sprint and Cell South get dismissed on standing. As will no doubt be lost on everyone if that happens, it won’t really tell us one way or another about the merits.

All in all, pretty much what one expects in such a case — although I feel bad for the DoJ lawyers who just lost their Christmas and New Year holidays. Be interesting from a legal perspective to see how the motion to dismiss goes. Meanwhile, we await the FCC.

Stay tuned . . .

Why AT&T Can’t Just Cut A Deal With Leap or MetroPCS and Call It A Day

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The latest AT&T ploy to convince the gullible that it’s planned acquisition of T-Mobile remains TOTALLY AND COMPLETELY ON TRACK and that everyone should just ignore the minor little tiff it has with the Department of Justice (and 7 State Attorneys General) involves pretending to pick potential rivals as recipients of any divestiture agreement. I say “pretending” because AT&T has either conveniently forgotten that such transfers need FCC approval or has reassured everyone involved that the FCC will rubberrstamp any settment AT&T negotiates. My personal theory is that AT&T’s “outreach” to supposed potential buyers is solely for theatrical effect so it can claim to be in “negotiations” with “interested parties” at the upcoming status conference.

In any case, AT&T’s claims to be negotiating such settlements should be greeted with a healthy dose of skepticism, and not merely because the sources for this story are “two people with direct knowledge of the situation” who refuse to be identified. The sheer regulatory mechanics of such a settlement make it highly improbable, if not outright impossible for AT&T to negotiate and get approval for such a settlement before T-Mobile can claim its break up fee.

I explain in greater detail below . . . .

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What’s At Stake in United Stated v. AT&T, Inc.? The Future of Antitrust. (Part I)

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The Department of Justice (DoJ) Antitrust Division challenge to the AT&T/T-Mo deal, United States v. AT&T, Inc., in addition to being a huge deal for us in the telecom world, is probably the single most important merger review case for the next ten years. In two ways, this has become a battle about the future of antitrust enforcement and the soul of the Antitrust Division.

Yes, that sounds melodramatic, but I make no apologies. As I explain below, this case has become a test case for the nature of antitrust and whether traditional metrics of concentration and market share, notably the Herfendahl-Hirschman Index (“HHI”), coupled with the concerns that such concentration predicts both the ability of the largest company to raise process and for all surviving companies to raise process (the “coordinated effects” test), will still have validity going forward.  If the court accepts the arguments from AT&T and its defenders that the traditional measures of concentration are irrelevant, then antitrust review of mergers will essentially end for the next 5-10 years while economists and antitrust enforcers struggle to develop a new set of metrics for predicting the likely impact of mergers.

More importantly, however, this case represents a clear decision of the Antitrust Division to move ahead with enforcement despite the possible political consequences. Yes, politics has always mattered, and anyone who rises to the position of Assistant Attorney General for Antitrust has a well-developed political sense. The back channels for unofficial influence remain strong, and only a brave head of the Antitrust Division, whether or Acting or confirmed Appointee, seeks to challenge the most powerful and well connected companies in Washington.

But we have not yet reached the point where the head of the Antitrust Division decides to enforce the Antitrust law and the White House tries to pull it back. This may seem a small thing, but it is what separates us as a country that can still aspire to say it follows the rule of law and a country like Russia where  law enforcement is simply the extension of the policy of the ruling oligarchy. And I assure you, oh cynical reader, that when we cross that threshold you will know the difference between a society where influence matters and a society that has abandoned any pretense of the rule of law.

I shall reserve this second point for a separate post. I address the legal significance of the case below . . .

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