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The Future According to Google

Image via CrunchBase

I just read The New Digital Age: Reshaping the Future of People, Nations and Business by Eric Schmidt of Google and Jared Cohen. I am always intrigued by books that look at the future. I was most fascinated by the book because Eric Schmidt is the executive chairman at Google and one has to imagine that the things in this book are discussed at Google all of the time. When he talks about a new product or technology that will be around you can bet that Google is working on it in some manner.

The book takes a look at upcoming technology and how it might change everyday life. The book predicts a lot of things that are already today in the early stages of development but that will become routine in the future. He predicts, for example, that 3D printing will have a much bigger impact in the third world than in the first world. Poor villages will pool their resources to get a 3D printer which will allow them to make things they would otherwise not be able to afford or get.

One of the most promising uses of technology will be with medicine and the book predicts that we will carry nanotechnology inside of us that will alert us when there is any kind of imbalance or at the very first sign of cancer. If you need a new body part technicians will be able to grow one for you from stem cells using a technology that is related to the 3D printers. Everybody’s DNA will be sampled and drugs will be modified specifically to match your genetic patterns to eliminate side effects.

The book predicts that we will see a huge leap in productivity tools such as robotics, artificial intelligence and voice recognition. Keyboards will be a thing of the past and we will interface with our computers by voice, thoughts or gestures. Translation programs will allow us to carry on a conversation with anybody on the planet.

Of course, there are also the more fun things like cars that drive themselves, and entertainment that starts to look like Star Trek holodecks. Entertainment will be personalized, immersive and ubiquitously available on any device.

A lot of the book is spent looking at technology’s impact on society and how it will affect war, peace, freedom, democracy and terrorism.  Schmidt predicts that virtually everybody on earth will become connected using cell phones and this will be a game changer. Certainly technology is not the panacea and it will not eliminate hunger and lack of resources. But it will give everybody the same basic access to information and will eliminate barriers that stop the third world from any chance of competing. Education may continue to have a classroom component in richer countries, but most of the people in the planet are going to be able to learn the same things if they so choose from on-line resources.

Technology will have a huge impact on the interaction of people and their government. Repressive governments will try to keep information away from their populace. But blocking Internet connectivity is what drove Egyptians to the street last year and caused the overthrow of the government. It is going to be a lot harder for a government to lie to its citizens when everybody is connected and has more powerful tools than today for finding the truth. While the natural tendency for governments is to obscure things, the upcoming digital age will tend to illuminate the facts through the widespread availability of data.

To some degree it will be easier for people on the local level to rebel against bad government. The beginning of this was seen in the various Arab spring uprisings in the last year. But governments will also have new tools also for identifying dissenters and autocratic regimes will have the ability to single out ringleaders of revolts. The book does not predict whether the people or governments will win these battles, but the battle will be different from today when you consider that there will be a more fully informed and totally connected populace armed with facts. Certainly the people will have the power to shine light on corruption and bad government and corrupt politicians.

Some of the technologies that will be coming will make it somewhat easier to be a terrorist. Communications will make it easier of people with like mindsets to find each other, and artificial intelligence will make it easier for bad guys to find or make nefarious tools and identify targets. But on the flip side, it is going to be a lot harder for anybody in the future to remain anonymous. It’s like that if you catch one terrorist you will quickly know their whole circle of associates. We saw the bare inkling of future police capability with the Boston Marathon bombings. Police were able to access data quickly and then used crowdsourcing to quickly identify the suspects. In the future that will be even easier with highly accurate facial recognition software that will be able to identify most people quickly.

This book says that the upcoming decades are going to see change coming faster than at any time in history, and I believe that. There is amazing progress being made in almost every technological field and the number of new technologies and devices that are appearing in our lives is astonishing. As a technology geek I love change and I hope the world is ready for the next couple of very interesting decades.

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Current News Regulation - What is it Good For?

Supreme Court Backs FCC in Cell Tower Dispute

English: Antonin Scalia, Associate Justice of the Supreme Court of the United States (Photo credit: Wikipedia)

On Monday the Supreme Court ruled in favor of the FCC in a dispute about rules concerning permits for new cellular towers. The Supreme Court ruling is here: Arlington vs. the FCC.

The dispute arose over the FCC’s interpretation of their powers. The Telecommunications Act of 1996 had granted some local rights for zoning and placement of cellular towers. But the Act also said that local jurisdictions had to act “within a reasonable amount of time” in acting on requests for new tower sites. The FCC got a number of complaints from cellular providers over the years that local jurisdictions were dragging their feet and not responding to requests for new towers. The FCC responded by issuing a ruling that local jurisdictions had to act within 90 days to process a collocation application to add to an existing tower and within 150 days for a request for placing a new cellular tower.

The City of Arlington, TX, joined by San Antonio, San Diego, Los Angeles and other cities then sued to block this regulation, making the argument that the FCC was overstepping its authority in making the ruling.

The Supreme Court ruled 6 – 3 in favor of the FCC with an opinion written by Justice Antonin Scalia. This leaves in place the Fifth Circuit’s ruling that the FCC was within its jurisdiction to issue these rules. The FCC original ruling had said that a local jurisdiction could not reject a cell tower application due to the presence of another carrier, and that it also had to act within the above-mentioned time frames.

There have been a number of disputes about the location of cell towers. People all want good cell service, but nobody seems to want a tower in their back yard (or within sight of their back yard). The original cell tower systems were designed for a very different world than what we live in today. The originally sited towers in many places are far apart and were designed to handle a far smaller volume of voice traffic. And the original siting of towers is not at all adequate for data coverage since the strength of the data signal from a tower decreases quickly as you get further from a tower. To make the cellular networks do what customers want today, cell phone companies have to build additional towers within the boundaries of the older towers to create smaller ‘cells’ around each tower site. Each ‘cell’ can serve the same number of voice and data customers, so with more ‘cells’ a cellular company can accommodate more customers and provide better coverage and faster data. This problem is just going to get worse as more and more people rely on data for their mobile devices and we need more and more cell sites.

Eventually in the future the large ‘big stick’ towers will probably go away and be replaced by numerous small cellular transmitters dispersed throughout a neighborhood. But a full transition to that kind of technology is at least several decades away. And even after that is introduced the existing tall towers will probably be kept in service for an additional decade or two simply because they work well.

The ruling will have only a minor impact on the cell phone industry. Cities will no longer be able to use administrative delays as a passive-aggressive tool to say no to a new cell tower. Cities will still have the power to say no to a request for a new tower as long as they do it within the FCC timeline.

The real impact of the ruling is that the Court has backed the FCC and other federal agencies in the way that the agencies make their rulings. Most of the Court’s discussion centered around a doctrine known as the Chevron doctrine. That has meant that whenever a Court has been asked whether a federal agency has interpreted a ruling from a federal agency the Court has first asked if the underlying law was clear, generally being some law passed by Congress. If the law was not clear, under the Chevron doctrine the Courts have then generally deferred to agency’s interpretations of the law and have found in the past that federal agencies had the authority to interpret ambiguity in the law.

The Cities in this case had argued that the deference that Courts had granted to federal agencies could not constitutionally apply if the agency had no authority to act at all. They argued that this interpretation of the law effectively gives federal agencies the ability to define their own powers. This ruling addresses that question and says that Chevron does not apply to jurisdictional questions about the authority of an agency to make rulings. The Court did concede that their ruling does not give an agency the right to regulate as it pleases and that Courts interpreting Chevron in the future must do so by “taking seriously, and applying rigorously, in all cases, statutory limits on agency authority.”

Justice Roberts, joined by Justices Alito and Kennedy, wrote a dissent and he argued that the jurisdictional test that the cities had proposed was correct and that federal agencies are widely overstepping their authority.

While the ruling doesn’t do much for the cell phone companies it is a victory for the FCC and other federal agencies. I don’t follow what goes on at too many other agencies, but it seems like almost every major decision made by the FCC in the last decade has been challenged in terms of the agency even having the authority to issue rules. This Court ruling bolsters the FCC’s ability to interpret their own authority within the bounds of the specific laws they are implementing. But it does not give them unlimited authority and they still must act reasonably. Courts will still be able to review complaints against the FCC and other agencies, but they will have to do so by applying the Chevron test.

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Current News Regulation - What is it Good For?

Should the FBI Be Able to Wiretap the Internet?

There is currently a government task force that is working on proposed legislation that would give the FBI the ability to ‘wiretap’ data. This is very different from what is available today. Today, ISPs are required to comply with the ability to turn over electronic records by a series of laws referred to as CALEA, which is from the Communications Assistance for Law Enforcement Act. Under a CALEA an ISP might turn over emails or a list of the web sites that a given customer has visited. ISPs generally retain such data for 60 – 90 days for all customers and it is then automatically deleted unless law enforcement requests it. But CALEA requests generally are for historical data and are not ‘wiretaps’ when it comes to data usage. This new proposal would give law enforcement live access to a customer’s data in the same way that phones have been historically wiretapped. And this is a law with teeth. The proposal includes a $25,000 per day fine for companies who aren’t wiretap capable, with those fines doubling after 90 days for non-compliance.  There are a number of issues with this idea.

It Goes Against the Direction of the Industry

The business world is rapidly heading to the cloud with data. There is a long list of benefits of using the cloud and businesses get it. But before a business will send sensitive data out of their control into the cloud they generally encrypt it (or they should). Companies are not going to put sensitive financial data, trade secrets and things like legal correspondence into the cloud if there is any chance that other parties can somehow crack and read the data. The whole point of encryption is that only the parties involved can unencrypt it.

It seems like the FBI law would forbid this kind of encryption. This would have a ton of ramifications on the industry. Businesses are going to refuse to put sensitive information into the cloud if it can’t be encrypted. This means that they will probably continue to use company-specific LAN storage rather than the more efficient cloud. Further, company lawyers are going to advise companies to not use the cloud if everything there can be wiretapped. Today a subpoena is required to get information that a company keeps on their own servers. But a wiretap at an ISP could be done without the knowledge of the person or company being investigated. No corporate attorney is going to agree to let a company expose themselves to being investigated through the back door just to gain the advantages of using a cloud service.

The FBI’s idea will also put all of the companies that supply encryption out of business. There are a number of businesses that sell encryption to cell phones such as Cryptocat, Silent Circle, Red Phone and Wickr. There are many software packages that can be used to encrypt data files such as Folder Lock, SensiGuard, Safehouse, SecureIT, Cryptoforge and many others. And almost every maker of carrier class transmission equipment, servers and related software has an encryption product.

It’s Costly

One of the biggest issues with the proposed bill is that it casts a far wider net of companies who must comply with a wiretap than who must comply today with CALEA. Today CALEA applies to the companies that supply a basic data pipe to a customer, to whoever is the physical ISP. This may be a telephone company, cable company, wireless ISP or cellular provider. But every firm who must meet CALEA today is a carrier of some sort. They have a physical hub where they perform ISP functions. These hubs are the sort of places where CALEA makes sense.

But the proposed law would impose a more complex obligation on other web-based platforms like Facebook, Google, Yahoo and AOL. Those are all big companies and one might assume that they can all afford to do this, and you might be right. But the same requirements would apply to much smaller firms and start-ups who store and or process customer data. It’s going to be technically challenging for a web-based platform to give live access to data. They just are not configured that way. And the cost to design a system to enable that is going to be costly and inefficient.

The cost of compliance will deter future small start-ups. And if you don’t think that is true, let me give you a real life example of when CALEA costs became an issue for a small carrier. It is very difficult for a small ISP to comply with CALEA on their own, so there are companies who sell CALEA compliance. If you get a CALEA request they overnight you a black box that rides next to your core servers and captures the data that law enforcement wants. This kind of service costs about $600 per month. I have a small City client who wanted to become an ISP just to serve themselves, some other local government agencies and some non-profits. Since they were facility-based using their own servers then CALEA applied to them. They almost decided against doing this since the CALEA fees ate up most of the monthly savings they were trying to bring to their town. I know that is a very tiny dollar example, but I foresee the new requirement to be much more costly than CALEA. Small firms will have a very difficult time creating the ability of live data wiretaps and this is going to stifle small web firms.

It Goes Against the Basic Premise of the Internet

The main premise of the Internet is that it is a decentralized network. The wiretap proposal relies on some of centralized hub in order to implement a wiretap. There has to be a place where you can guarantee that the data the government wants to see will flow. That is a whole lot harder than it sounds and it would end up resulting in some fundamental changes in the way that Internet traffic flows. And that could be the costliest impact of all.

The traffic on the Internet keeps growing at nearly exponential rates. Carriers have been able to keep up with the bandwidth demands because they have upgraded the networks to be more and more efficient over time. This change would go in the opposite direction and would make the network more inefficient.

I fully understand and appreciate the needs of law enforcement. But this could be one of the biggest unfunded mandates ever if it ends up impeding the efficiency of the Internet. The Internet is now a fundamental part of everyday life and is a lifeline for most businesses.

It just seems like a colossally bad idea to me to impose a costly change on everybody that is intended to only catch a few bad guys. Particularly when the smart criminals will avoid these wiretaps. They will find a black market way to self-encrypt their data or they will avoid the web altogether. So this is really just a proposal to catch the dumb criminals. It seems like too great a cost for such a paltry goal.

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Current News

Finally a la Carte Programming?

English: Signature of US Senator John McCain. (Photo credit: Wikipedia)

 

John McCain recently introduced a bill to the Senate that would allow for a la carte programming. The bill will be known as the Television Consumer Freedom Act of 2013  and is attached by clicking the link. Also here are the comments made by McCain when he introduced the bill.

Here are the things the bill does:

  • It makes it voluntary for cable operators to offer a la carte programming.
  • It mandates broadcast networks (ABC, CBS, NBC, FOX, etc) offer their channels to cable providers on an a la carte or face the possible loss of their broadcast license.
  • Programmers like Discovery and Disney can only sell their programs as a bundle if they also offer them a la carte. So cable operators can buy only the programming that they want.
  • It threatens that any broadcast network that pulls its programming off the airwaves would lose the spectrum and also any rights that go with being a broadcaster. This is a threat for local networks to not mimic Aereo.
  • Current sports blackout rules won’t apply in cases where the stadium being used was publicly financed.

Here are the practical consequences if this bill becomes law:

  • Cable companies could save money by eliminating channels they don’t want to buy. I helped one client get into the cable business a few years ago who ended up taking almost twenty more channels than they wanted due the bundling requirements from the programmers. And so I see cable providers shedding channels. This may not necessarily result in any price cuts and might just increase the profits of the cable company. But over time this ought to help hold down costs and rates.
  • This bill does not mean that any customer will get a la carte programming. In McCain’s announcement he said that ESPN costs $4.69 per month. That is the price that a cable provider pays for the ESPN suite of channels if they agree to make them available to, and charge every customer for them. But if ESPN is forced to sell this on an a la carte basis, they understand that a lot of households are going to opt out of paying for it since many households have no interest in sports. I would expect that ESPN’s a la carte price is going to be a lot higher than the $4.69 bundled price. If that occurs (and there is nothing in this law that would prohibit it) then the math for ESPN and customers changes drastically overnight. Rather than everybody paying $4.69, if only one-third of households would want ESPN the price would have to go to nearly $15. And this same kind of math is true for every cable network. So my prediction is that none of the large cable companies will move their programming to a la carte. But there might be small ones who try it.
  • This benefits companies who want to deliver programming in a non-traditional way. This might open the door for Aereo or web-based companies to buy programming. I can see sports fans willing to pay $30 a month for a suite of sports channels and nothing else. But the first cable company that tries this is going to see the wheels come off. It could end up costing consumers as much to buy the channels they want a la carte as it is to buy the big bundles of today, due to the way the current pricing averages the cost across millions of homes instead of just those who want to watch it.
  • I can see cable operators who will put the broadcast networks on a la carte. There is a huge battle between local stations and cable companies over retransmission fees and I can envision cable companies who will price each channel according to what they must pay and letting the public deciding what they want to watch.
  • Marginal cable networks will fold. Some of the large programmers have made cable providers buy channels they didn’t want, and if enough of them elect to shed some of these networks they will fold.
  • It would be interesting to know if this law would override existing multi-year contracts for programming or if it would force new contracts immediately.

The primary benefit of this law is that it breaks the bundling being done by the large programmers who own many channels. The cable business is not profitable for cable operators and I have some clients who lose money on cable. They make almost all of their profits on data and voice. If cable companies have the ability to set any line-up they want they might be able to return some sanity to what they pay for programming. Over time this might be the change that breaks some of the power of the programmers and stops the insane price increases. McCain cites a 6.1% average increase in programming costs since 1995, but where I have been tracking it in the 2000’s it has been more than 7%. These kinds of rate increases are heading the whole industry towards a consumer revolt. If the 6.1% increase that McCain cited continues unabated, a $75 cable bill today would be over $136 within ten years.

The real shame of the bill is that the public will interpret this bill to mean they are going to get to pick just the channels they want to watch and that is still unlikely to happen. The bill is a good idea, but it’s really a la carte for the cable companies, not a la carte for consumers.

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Current News Regulation - What is it Good For?

Diminished Clout for Rural Telcos

There were two recent announcements in the industry that has to have the rural telephone industry shaking their heads a little. The announcements are not specifically negative, but they are indicative of the fact that the industry has lost a lot of influence in Washington.

First, the president has announced the nomination of Tom Wheeler as the new head of the FCC. His background is as a high-powered lobbyist, and he was the head of both the National Cable Television Association (NCTA) from 1979 to 1984 and CTIA – the Wireless Association from 1992 to 2004.

His nomination has come with mixed reviews from the industry with many fearing that he will favor issues that promote the wireless industry. But there have been others who know him who think he will be a fair arbiter and will step up to the position. As someone in the industry I obviously share the trepidation that he would prefer one industry over another, and I would have the same concern regardless of which industry he formerly lobbied for. I’m not a big fan of putting lobbyists into powerful government positions overseeing the industry they once represented. That just seems to be asking for trouble and at the very best adds complication to every decision they make in their new role. I can certainly see how small telcos in particular could feel uneasy about this nomination.

The other news I saw was that Representatives Peter Welch (D-Vermont) and Bob Latta (R-Ohio) announced the formation of a bipartisan working group as part of the Energy and Commerce Committee that was going to focus on rural telecommunications issues. The group will be known as the Rural Telecommunications Working Group.

This new group is going to focus on a range of issues including call completion (meaning making sure that everybody can call everybody), broadband access and speeds, and wireless spectrum.

Other members of the Rural Telecommunications Working Group include: John Barrow (D-GA), Bruce Braley (D-IA), G.K. Butterfield (D-NC), Lois Capps (D-CA), Bill Cassidy (R-LA), Renee Ellmers (R-NC), Corey Gardner (R-CO), H. Morgan Griffith (R-VA), Brett Guthrie (R-KY), Adam Kinzinger (R-IL), Billy Long (R-MO), Ben Ray Lujan (D-NM), Doris Matsui (D-CA), Jerry McNerney (D-CA), Lee Terry (R-NE), and Paul Tonko (D-NY).

It is certainly good that Congress started this working group, because having anybody look at rural issues is a positive. But I did notice that there are more representatives in the group from large urban states than there are from truly rural areas. Any old-timer (like me) with a rural telco background will remember that there used to be a strong coalition in Congress who fostered rural telephony issues. But in recent years the rural telecom support in Congress largely faded away, due in part to retirements of Congressmen who supported rural telephony and due to other factors like the growth of the wireless industry. I appreciate that this new group has been formed, but it makes me remember a day when rural companies could depend on the support of Congress.

These two announcements made me realize that the political world has changed as much as the technological world for the rural telco industry. When I got into the telecom world there was no such thing as a cell phone, and now somebody who was the head lobbyist for that industry might be the next head of the FCC. Who woulda thunk it?

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Current News

What is Behind the Aereo Controversy?

The Aereo ruling on April 1 certainly has the cable industry in an uproar. In that ruling a federal appeals court upheld a lower court ruling that Aereo’s wireless streams to customers are not a ‘public performance’ and thus do not constitute copyright infringement. On Friday Glenn Britt, the CEO of Time Warner, said that his company was considering pulling the broadcast networks off of his cable TV systems and sending them to customers over a radio in the same way that is being done by Aereo. And recently, in response to the Aereo ruling the broadcast networks threatened to pull all of their content off the air and move their programming to cable TV. So what is up with Aereo, and can these companies do what they have threatened?

Aereo has an interesting product that seems to have found a market niche, at least in New York City where it is now operating. Aereo sets up a radio link to each customer and sends them a 28 channel packagethat includes the major networks, some other low-cost networks and some spanish and asian-language channels. Aereo can be installed on any Windows or Mac computer and can then be streamed to iOS devices like the iPhone, iPad or Apple TV. It can also be made to work with a Roku box. And one would imagine it will soon be made to work with other pads and tablets. The service also lets a consumer record some programming for later playback. The pricing is cheap compared to cable TV with a $1 per day plan, monthly or annual plans, including a monthly plan for $8 that lets a customer watch everything live plus record and play back 20 hours of programming per month.

Why does this controversy even exist? Can’t people just receive the broadcast networks over the air? On June 12, 2009 all full-power analog television transmissions ended and starting with that date the full-power television stations, which include all of the major networks like ABC, CBS, NBC and Fox could only broadcast in digital. Customer now need a Digital Television Adapter (DTA) to receive the signals and any home that is near to a station can receive it for free. But it is not easy for the average consumer to get these signals from the TV to mobile devices, and Aereo’s real marketing niche is providing signals to computers, iPhones and iPads.

Why are Time Warner and the cable companies so stirred up over Aereo? Aereo seems to have found the niche of people who want to watch mainstream programming without being tethered to their TV. If Aereo was limited to New York City this probably wouldn’t be a huge deal, but they have announced that the service is coming to 22 other major markets in 2013.

As is the case with all big business controversies it all comes down to money. In the 1992 Cable Television Consumer Protection and Competition Act, Congress required that all cable operators obtain the permission from broadcasters before carrying their signals on their cable systems. For a while this permission was granted for free, but in recent years the broadcasters have asked for significant fees and it is not unusual to see each local broadcast network charging $1 or more per customer per month for retransmission consent. So a cable system now has to pay that much each for ABC, CBS, NBC and Fox, and in some markets multiple stations of some of these. This has driven large increases in cable rates and is now a point of huge contention between broadcasters and the cable companies.

The broadcasters are angry that Aereo is able to bypass their fees since retransmission fees currently make up as much as 10% of their revenue. And the cable companies are angry that Aereo has gotten out of paying the same fees that they must pay. And they are worried that Aereo will accelerate the trend of customers who are ditching traditional cable TV in favor of programming from the web and elsewhere, the trend referred to as the cord-cutters.

Can Time Warner really do the same thing that Aereo is doing? Certainly Time Warner or anybody could form a company that does the same thing as Aereo and compete with them. Such a company could sell the same sort of line-up and do it using radios like Aereo has done. But they first must recognize that it’s important that Aereo is using radios because this is what allows them to not be a cable TV company, which is defined as somebody who delivers cable content using cables. So Time Warner would have to use radios also. And Time Warner is still hoping that the Supreme Court will look at the issue so it’s not entirely certain that Aereo, or anybody, has the legal last word that this is okay.

So Time Warner could establish an Aereo-clone company and do exactly what Aereo is doing. But they could not do this as an alternative to putting the network channels onto their cable system. In the aforementioned 1992 Cable Act, Congress set forth the rules for cable systems to carry broadcast channels, referred to as the must-carry rules. Congress said that a cable system with 12 or fewer channels must carry at least three local broadcast channels. Larger cable systems must carry all local broadcast channels, up to a maximum of 1/3 of their system. This means that Time Warner could not pull the local broadcast networks off of their cable and deliver it in a different way. But Time Warner could probably sell an Aereo-like product to somebody if that is the only product they sell to that customer.

Finally, can the broadcast networks pull their signals off the air and move them to be cable only? I can’t think of any reason why not. At that point they would no longer be a broadcaster and they would avoid all of the FCC rules applicable to over-the-air broadcasters. But if they do this they would become like any other cable network, and so ABC would be treated the same as HBO or TBS or any other cable network. It is likely that such a change would infuriate Congress since around 15% of the people in cities still receive free TV over the air. There would certainly be political repercussions from a broadcast network deciding to become just another cable network. For instance, might they lose their ability to carry professional football?

At the bottom of this controversy are huge dollars and also the underlying fear of the cable industry that Aereo is one more factor that is accelerating the bypass of their systems. It seems like Aereo might be in a similar position to MCI back when they broke the long distance monopoly. Aereo has stuck a sharp stick in the eyes of both the cable companies and the broadcasters and there is one hell of an interesting fight yet to come.

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Current News The Industry

Will Poor People Get Google Fiber?

FiOS installed in Montclair, New Jersey (Photo credit: Wikipedia)

This was a great question that was posed by a recent article in Forbes Magazine. In this country we have a long history of having telecom provided by monopoly telephone companies and more recently by cable companies. Both incumbent providers have been mandated to serve almost everybody in their footprint. In the case of telephone companies this has been done by regulatory fiat by the various state Commissions that regulate telephone service in each state. Every state has rules for incumbent telephone companies that include a requirement for universal service using a concept known as carrier-of-last-resort. When a telephone company got the right to serve an area they were expected to provide service to everybody in that area, within reason, and then the costs of the more expensive-to-reach customers was averaged with everybody else. I say within reason, because even the telephone companies were allowed an out for really expensive-to-reach customers. For instance, if a farmer lived back a seven-mile long lane, the phone company might only provide a mile or two of the service line and expect the customer to pay for the rest.

And cable companies had similar requirement that came through the franchise agreements that they signed with local governments. If a cable company wanted to serve a town, then they were required to serve everybody in town in order to get the franchise.

Today fiber is being built by both regulated monopoly carriers like Verizon, but also by competitive providers like Google. But none of the fiber builders has the same carrier-of-last-resort or cable-like franchises requirements that the incumbents faced when they built their copper networks.

So to answer the opening question, will everybody get Google fiber?  The answer is no, for the following reasons:

  • Copper is still in place.  As long as the copper is still in place for the telephone and cable company, they can satisfy their service obligations by connecting customers on copper. They are thus relieved of building fiber everywhere as long as copper still exists.
  • Exclusive contracts with MDUs.  Anybody that builds with fiber needs to get the approval of the owner of multi-tenant buildings, be that apartments or multi-tenant business buildings. And some of those building owners are not going to give permission. Some building owners will have signed exclusive access contracts with the incumbent cable company. The FCC invalidated some types of exclusivity a few years ago, but there are still contractual ways for the cable company to keep out competition. Further, some building owners just don’t want to let a provider into their complex.
  • Places too expensive to serve.  Fiber overbuilders can pick and choose where to serve. It is often very expensive to bring fiber into apartment buildings, particularly older apartments, and many fiber builders choose to not build or selectively build to apartments. Verizon is famous for avoiding high-cost places. If you look at a suburban map of Verizon FiOS you would find a real patchwork of served areas. They will build to one pocket of houses but then skip over ones right next door, certainly due to cost. For the most part Verizon has elected to not dig up streets to build fiber, and so FiOS is more commonly placed in neighborhoods with existing Verizon aerial wires, or in neighborhoods where there is existing conduit in the ground. Verizon also often skips past apartment complexes. But I don’t want to single out Verizon since this is true of just about every fiber overbuilder.
  • Redlining, or the nearest thing to it.  As the article suggests, the build-out patterns of Verizon, Google and just about any other fiber overbuilder have a significant taste of redlining about them. It is easy for the fiber builders to say they are building where the cost is the lowest and the returns are expected to be the highest, but this means that they generally end up avoiding large apartment complexes and poorer neighborhoods. If they had set out to deliberately redline they would end up with basically the same networks that actually get built.

And so we are entering a future where there will be definite fiber haves and have-nots. There has been a lot of this for the last few decades since the introduction of DSL and cable modems. Rural areas for the large part have received very little broadband compared to urban and suburban areas. But the future digital divide is going to be starker, with the divide being everywhere, including the cities and suburbs, with some homes having fiber and others not.

For the last decade there has been conventional wisdom that having fiber connected to your home will add to the value of your house. I guess we are going to get to see this tested on a very large-scale.

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Current News Regulatory Alerts

Regulatory Alert: FCC Acts on Numbering Issues

Seal of the United States Federal Communications Commission. (Photo credit: Wikipedia)

At today’s FCC Open Meeting the FCC approved the release of a Notice of Proposed Rulemaking (NPRM) and Notice of Inquiry (NOI) on expanding direct access to telephone numbers for wholly VoIP providers like Vonage.  Vonage was also granted a waiver to conduct a limited 6 month trial involving 145,000 numbers.  The Wireline Competition Bureau is responsible for reporting back to the Commission at the conclusion of the trial.

Disassociating telephone numbers from geographic locations will also be part of this NPRM and NOI.

Check back as CCG will monitor this proceeding. We will be posting the NPRM and NOI when they are released.

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Current News The Industry

Two Fiber Networks?

Image of Austin, Texas (Photo credit: Wikipedia)

The conventional wisdom in the industry is that two companies would never invest in side-by-side fiber networks to serve residential customers. I have had this conversation many times with clients who were planning to build a fiber network and who were worried about the response of the incumbent providers. Everyone has always believed that the first fiber builder wins because there is not enough margin in the residential market to support two fiber networks. AT&T has shown that conventional wisdom to be wrong by announcing that they will build a second fiber network in Austin as a counter to Google’s announcement to do the same.

This is not without precedent, although on a much smaller scale. The City of Monticello, Minnesota built a fiber network to pass every home and business in the City. The municipal fiber build was prompted by the fact that the City had some of the highest telecom rates in the country. Soon after the City built their network, TDS Telecom, the incumbent telephone company built a competing fiber network.

And as expected, both fiber providers are not faring well. After building fiber TDS decided to win back customers with an aggressive price war. Charter, the incumbent cable company also got into the price war fray. And so customers in Monticello are benefitting from a price war while all of the companies are underperforming.

It is fairly easy to understand TDS’s motivation for building the fiber network and for the price war. The company serves numerous other towns like Monticello and I see their response there as a clear warning to anybody else who is planning on overbuilding their serving territory. It is also clear that they are hoping that the City will give up and leave the fiber business.

And now we are going to see this scenario play out in the much bigger market of Austin. Google already overbuilt one AT&T market in Kansas City and one can easily envision Google overbuilding many other large cities. AT&T’s response in Austin is the same as TDS’s response in Monticello. AT&T has made it clear to Google and others that they are not going to side idly by and watch their major markets go to somebody else.

So it will be interesting to see the impact of AT&T’s announcement. It’s possible that the announcement will cause Google to pause and not build in Austin. Certainly they will not do as well as expected if there are two fiber networks. It’s also possible that both companies will build fiber and we will see side-by-side competition with two fiber networks and the cable company – the kind of competition we have never seen in a major city in the US.

But the real impact of AT&T’s announcement is going to be felt everywhere else. One has to wonder what kind of impact AT&T’s announcement will have on any company, Google included, who is contemplating building a fiber network in a large city. Google has very deep pockets and might proceed anyway, but almost any other company would not be able to afford the much lower returns that come with hard competition.

While this announcement might result in real competition for the citizens of Austin, it also might have the effect of stifling anybody else from trying to build fiber in a large City. This announcement could result in killing anybody from building fiber in large cities due to the fear of a similar reaction. While hearing about two companies wanting to provide gigabit fiber sounds like a good thing, the long-term consequence of this might mean less overbuilding, less fiber and less competition.

And I don’t know that AT&T had any choice. Their only other option was to watch their large markets go to an aggressive competitor. Nobody knows what Google plans to do, but some have speculated that they might build in most of the major cities. Now we’ll just have to watch this one play out, so pull up a chair. This should be interesting.

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Current News Regulation - What is it Good For?

Kansas Deregulation

On March 27 a bill passed (HB 2201) the Kansas Senate that largely deregulated telephone companies in Kansas from being the carrier of last resort. The bill passed the Senate by 36 – 4 and passed in the House by 118 – 1. In the past telephone companies were required to provide telephone service to most customers who wanted service, with some limitations that applied to extremely rural customers. But the new bill provides a host of ways that can excuse a phone company from providing service.

The bill applies to all regulated telephone companies, but also to a lot of other companies that provide telephone service like cable companies and CLECs.

“I think we’re at the point where we can take one of our largest carriers (AT&T) and treat them as if they’re a wireless carrier or cable carrier,” said Sen. Pat Apple, the chairman of the Senate Utilities Committee.

House Bill No. 2201 (click to open .pdf) is the Senate-approved version of the bill. Since the Senate made changes it will have to return to the House for final approval or else go to a House-Senate conference committee if the House doesn’t accept the Senate’s changes.

It’s unclear how the bill might have changed the role of the Kansas Corporation Commission (KCC) who currently regulates telephone companies. Currently the KCC has the authority to ‘prevent fraud’ but the bill changes that authority to ‘investigate fraud’. It’s not clear if the KCC will have any authority to affect the behavior of a badly performing telecom provider, as is already the case with cellular companies today.

The bill also shrinks the Kansas Universal Fund, which is a pool of money collected from telephone customers in the state and that is used to support rural telephony.

The bill was originally authored by AT&T but was presented to the legislation with a united front by most of the carriers in the state. AT&T has lobbied for similar legislation in many other states. While Kansas is now the first state to effectively remove carrier-of-last-resort obligations, one would expect this to happen in other states. Telephone subscribers have been steadily dropping everywhere as consumers have shifted to cell phones and to VoIP carriers for their telephone usage.