Tales of the Sausage Factory:
Will AT&T Try To Crash the Sprint/SoftBank Party?

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Yesterday, Sprint moved to acquire a majority stake in Clearwire (CLWR) in advance of SoftBank acquiring a majority stake in Sprint. Despite some earlier speculation that SoftBank might have strategies that don’t include CLWR,  and despite disappointment from investors that Sprint won’t spend the extra bucks to acquire CLWR in its entirety, the move was pretty much expected. One of the main obstacles to Sprint in recent years has been its occasionally testy relationship with CLWR, and difficulties the two companies have had negotiating terms for Sprint’s use of CLWR’s spectrum and network.

What was odd, however, was the reaction from AT&T. Whereas the wireless world has generally been quiet, AT&T went out of its way to suggest the deal might night not be good for America. Brad Burns, an AT&T V.P., said in a statement:

“Softbank’s acquisition of Sprint and the control it gains over Clearwire will give one of Japan’s largest wireless companies control of significantly more U.S. wireless spectrum than any other company. We expect that fact and others will be fully explored in the regulatory review process. This is one more example of a very dynamic and competitive U.S. wireless marketplace, which is an important fact for U.S. regulators to recognize.”

So what’s up with that? Is AT&T simply sore because Sprint was the leading industry opponent to AT&T/T-Mo? Or, (as suggested by the last sentence), does AT&T have something more strategic in mind. And, given that Sprint is already “credited” with CLWR spectrum for spectrum screen purposes under the 2008 Order approving the current Sprint/CLWR deal, it is not clear what trouble AT&T (either directly or via proxy) could make.

I don’t think AT&T could get the deal blocked. But (as AT&T indicates) there are issues of foreign ownership that give a determined opponent with money and resources (and a grudge) a chance to make trouble. And there are some things AT&T could hope to extract that potentially make such a play worthwhile. Notably, if AT&T pushes regulators to view Sprint/CLWR’s combined 2.5 GHz spectrum as equal to AT&T’s much better spectrum,  AT&T could hold off any hard spectrum cap limit in the pending FCC spectrum aggregation proceeding or in the upcoming incentive auctions. Perhaps more significantly, AT&T could sideline Sprint — the largest industry advocate of spectrum aggregation limits  – from taking an aggressive position in these proceedings.

I explore this a bit below . . . .

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Tales of the Sausage Factory:
How Antitrust Enforcement And Pro-Competitive Regulation Encourage Investment, Encourage Innovation, Enhance Spectrum Efficiency And All That Other Good Stuff Despite CW To Contrary.

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In the past month, to the complete surprise of just about every analyst and industry watcher, foreign investors spent the equivalent of $25 billion to invest in competing carriers T-Mobile and to acquire control of  Sprint and ClearWire. AT&T has announced a whole bunch of network upgrades such as repurposing its 2G spectrum, clearing up the interference in the WCS band, and a seemingly endless stream of license acquisitions. While the last is perhaps not so unusual, U.S. Cellular has likewise been spending money to coble together a broader footprint using the less—than—stellar—but—better—than–nothing 700 MHz A block.

Quite a turnaround from the start of 2011, when the industry appeared on a glide-path for a duopoly. Last year, T-Mo parent Deutsche Telekom (DT) was looking for a U.S. exit, AT&T and Verizon seemed more focused on buying out competitors than on developing the spectrum they already held, cable operators were giving up whatever plans they had to enter the market, and competing carriers couldn’t find financing to build out networks or pick up licenses in the secondary market. So what happened?

The Department of Justice (DOJ) and the Federal Communications Commission (FCC) have made clear over the last two years that (a) we will have 4 national carriers, and (b) the FCC cares about ensuring enough spectrum access to keep Sprint and T-Mobile (and hopefully other competitors) viable. Contrary to all conventional wisdom, two years of FCC regulation like data roaming and special access reform, combined with antitrust enforcement around AT&T/T-Mo and Verizon/SpectrumCo, stimulates investment in the wireless industry and forces companies like AT&T and Verizon to get serious about developing the spectrum they need and ditching the spectrum they don’t need on the secondary market.

Does that blow your mind? Is that just all freaky and too much for you to handle in a neo-con policy world that worships The Gods of the Marketplace and can’t tell the difference between a “competitive market” and a “deregulated market?” If you think you can handle the wisdom, pilgrim, then see my explanation below. . . .

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Tales of the Sausage Factory:
Book Review: Year Zero By Rob Reid

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Every now and then, a book becomes the catalyst for a social movement. Off all the books on the same theme, the author somehow manages to bring together the threads of compelling narrative and graphic imagery that captures the growing tide of moral outrage and gives it shape and voice. Rachel Carson’s Silent Spring. Ralph Ellison’s The Invisible Man. Upton Sinclair’s the Jungle. Could Rob Reid’s Year Zero join this mighty literary pantheon, rousing the American people against the forces of copyright maximalism that keep trying to choke our freedom of expression?

 

Almost certainly not. But even if Year Zero won’t motivate you to join the U.S. Pirate Party, it will entertain you while educating you about how messed up our system of copyright law (and patent) have become, and introduce you to the stable of music labels, lawyers and lobbyists who work so hard to make it that way. Reid provides a satire in the science fiction/fantasy tradition of Gulliver’s Travels and Idiocracy that will make you laugh and wince at the same time. Those already all too familiar with the current sorry state of affairs will have the additional fun of guessing the real identities of Reid’s thinly disguised characters.

 

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Tales of the Sausage Factory:
Some Common Misperceptions About Incentive Auctions, and Why They Matter.

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I rarely gush enthusiastically over a Notice of Proposed Rulemaking (NPRM) from the Federal Communications Commission (FCC), but I will make an exception for the recently released Incentive Auction NPRM and associated Appendix on auction design. As Republican Commissioner Ajit Pai observed in his separate statement, it has become almost cliché to observe that this is “the most complicated set of spectrum auctions ever held by any country.” What the NPRM explains, if you are willing to plough through it, is why it is so insanely complicated.

 

Unfortunately, the complication has given rise to a number of misunderstandings about what is actually going on here. In this case, a failure to understand why this is so complicated, rather than simply knowing that it’s complicated, can result in bad policy.  The most critical misconception I have encountered to date is that the incentive auction involves wireless companies bidding for broadcast licenses, with the FCC acting as a sort of spectrum Christie’s. That is, after all, how this got sold and broadcasters and wireless companies seem to be the main players.

 

Below, I explain why this is not merely wrong, but why visualizing the auction in this way leads to policy choices that almost guarantee failure. It also bears directly on one of Commissioner Pai’s questions: why has the FCC proposed ending the auction as soon as the “victory conditions” set by Congress are met, rather than keeping the auction open as long as there appears to be the possibility of more willing bidders. . . .

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Tales of the Sausage Factory:
Apparently, Program Access Rules Are Toast — Another Kill for the DC Circuit.

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Last week I posted that if the FCC were going to extend the Program Access Rules, or was still thinking about what to do, then it ought to buy itself some time to proceed in an orderly fashion. That same day, according to this article in Broadcasting and Cable, Chairman Genachowski circulated a draft Order allowing the rules to sunset. According to the article, the FCC will still address outright discrimination on a case-by-case basis under the Section 628(b) general prohibition on “unfair or deceptive acts or practices.” Hopefully, the Order will spell out what this means.

To be honest, I am having a hard time feeling worked up about this given that the competing MVPDs did not put a heck of a lot of effort into protecting the rules. Given that the D.C. Circuit made it clear that it was unlikely to bless a further renewal, the folks in the industry that rely on the Program Access rules should have known they were going to have to make a strong case to preserve the rules in some way shape or form. But lobbying around this issue has been fairly anemic, despite the fact that the October 5, 2012 date has been circled in red for the last five years.

Mind you, I am still sympathetic to a lot of the little guys, like American Cable Association, who don’t have a lot of lobbying resources and are really in a position to feel a squeeze. The NPRM had proposed some targeted relief for them, which could still get considered under the FCC’s general authority even if the main rules expire. But it is frankly very hard to predict with certainty how this impacts he market. I absolutely expect the vertically integrated players to start pushing the boundaries on pricing and exclusions — particularly with regard to things like internet-based distribution rights. It will probably also be even harder for any new entrant with even a slightly different business model to get programming, so if someone wanted to try a mix of traditional and online delivery, they are screwed. But since it wasn’t clear that such a competitor would emerge anytime soon anyway, it is kind of hard for the FCC to use that as a justification for maintaining the existing rule.

What really bugs me is that this is a classic example of how the DC Circuit goes all activist and conceives its role as being overall manager of agencies like the FCC, rather than as a court deciding actual cases. The DC Circuit dropped a pretty large hint to the FCC that it better not try to renew the rule, so the FCC tremblingly obeys whatever the merits. Because lets face it, no one wants to waste time creating rules that are going to get reversed on appeal. Congress never intended the D.C. Circuit to act as some sort of Uber-Agency enforcing an anti-regulatory agenda while mouthing the language of deference. But so it has become. The result is a great deal of regulatory uncertainty as agencies and practitioners spend the time wondering what will appeal to the prejudices of particular D.C. Circuit judicial panels rather than focusing on the actual law or facts.

Stay tuned . . . .

Tales of the Sausage Factory:
Will The Program Access Rules Expire On October 5?

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Back in March, the FCC released a Notice of Proposed Rulemaking on whether to extend the “program access rules” for another five years, either as they exist now or in some modified form.  For those unfamiliar with the program access rules, they require a cable or satellite provider that also owns programming to make that programming available to rivals on commercially reasonable terms. For example, Cablevision has to sell AMC to Verizon for at least a facially reasonable price, even if it would rather not sell AMC to Verizon at all.

Congress required the FCC to create the program access rules as part of the 1992 Cable Act. Because Congress did not particularly trust the FCC to do a good job fighting cable market power, it gave the FCC very explicit instructions in Section 628(c) (codified at 47 U.S.C. 548(c)). But it also said the rules would expire after 10 years, unless the FCC extended them. The FCC extended the rules for 5 years in 2002, and again in 2007. Without another extension, the Program Access Rules will expire on October 5, 20122.

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Tales of the Sausage Factory:
FCC Authority In VZ/SpectrumCo, or “Real Lawyers Read The Footnotes.”

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Many years ago, I taught a semester of law school as an adjunct. I assigned the students to read the FCC’s 2005 Internet Policy Statement. I was dismayed to discover that, after doing the reading, none of them had even heard of the concept of “reasonable network management.” How was that possible? Reasonable network management is not mentioned in the main text, but in footnote 15 which says that the principles are “subject to reasonable network management.” Given the centrality of the “reasonable network management” concept to the net neutrality debate, I was rather irritated. “Understand this before you graduate,” I warned them. “Real lawyers read the footnotes!”

I thought of that after reading Geoffery Manne’s and Berin Szoka’s piece about VZ/SpectrumCo over on CNET.

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Tales of the Sausage Factory:
Could Verizon/SpectrumCo Create Gaping New Loophole In Media Ownership Rules?

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Few people would imagine that the Verizon/SpectrumCo deal, now heading rapidly for conclusion, could potentially have huge impact on traditional broadcast ownership rules. Unfortunately, unless the FCC takes action, the deal is likely to create a new and powerful loophole in traditional media ownership rules involving something called the “attribution rules.”  While I do not think the participants themselves are aware of this problem, or intend this outcome, allowing the major cable companies and Verizon to participate in a Joint Operating Entity (JOE) without certain precautions creates a means by which these parties, if they wished, could coordinate their video offerings in a way that Congress and the FCC have traditionally found antithetical to our media policy of viewpoint diversity.

 

As the attribution rules apply to broadcast media, the mechanism for circumventing the attribution rules set in this case would extend to radio and television broadcast ownership as well. In other words, it’s not just about Comcast and VZ, or even Comcast and TWC, sharing programming info such as what they are paying for ESPN or what tier they plan to place Tennis Channel or EPIX. Approval of the deal in its current form also creates a mechanism whereby broadcasters such as News Corp and CBS could get together to coordinate news coverage on things of mutual interest, such as whether Congress should adopt SOPA.

 

Fortunately, the DOJ proposed final judgment lays the groundwork for addressing these concerns. But the FCC has to actually focus on this and act. It doesn’t make a difference for the current deal, but it makes a huge difference for the future of media ownership.

 

I explain below . . .

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My Thoughts Exactly:
Laying Claim to Sundman’s Law

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It was a longstanding premise, or assumption, or rule of thumb that I had carried around with me for a decade or two before I formulated it concisely while employed at the late, great, Laszlo Systems, progenitor of the ahead-of-its-time-and-now-sadly-forgotten OpenLaszlo platform.

If I’m not mistaken, my friend Benji Shine was with me when I boiled it down to its essence, viz:

Never upgrade any tool in the build chain, ever.

This rule can be extended to email clients.

You can put this on my tombstone if you like, if I have one, and if Dear Wife says it’s OK to do so. But in any event I want credit for it. Whenever you’re in a situation when some wet-behind-the-ears kid is insisting that you upgrade to Python 19.34.2.1 or PHP 212.3.2 or COBOL 23004040.293949.22, just say “no” and cite Sundman’s Law. Somewhere, Sundman will be smiling.

Tales of the Sausage Factory:
USTR “Limitations and Exceptions” Proposal Laughably Weak; Time To Get Biblical (Prov 22:15) On Their Ass.

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Back in the beginning of July, the USTR made a major policy and rhetorical shift by actually acknowledging the importance of “limitations and exceptions” in copyright. As I noted at the time, this represented a major victory for opponents of copyright maximalism given the USTR’s previous refusal to even acknowledge the validity of limitations and exceptions. While applauding USTR’s positive change in direction (always make it easy for people to agree with you!), I also noted that this change was the direct result of ACTA crashing and burning and the recognition by USTR that any trade agreement must “at least pay lip service to the vital role of limitations and exceptions in the copyright ecosystem” if it expects ratification. So while this concession created opportunity to start turning back the endless erosion of personal rights by the incoming tide of copyright maximalism, I warned that “the actual language of the treaty might still undermine limitations and exceptions in practice while pretending to acknowledge their importance on the surface.” Accordingly, it would still fall to civil society to “help USTR move down the path of wisdom by refining the text” and prevent it from backsliding into its previous position that “limitations and exceptions” is just a fancy way to say piracy.

Last week, the USTR proposal got leaked. Unsurprisingly, it turns out USTR still needs some hand-holding and education on what it genuinely means to embrace the value of limitations and exceptions. Rather than get angry, however, we must approach USTR with the kind of “tough love” advised by Proverbs 22:15. Or, in other words, we just need to get Biblical on their ass — again.

I explain below . . . .

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