Title II: Regulated Dumb Pipe is the Polcy: Consumer Welfare is the Issue

Since the greatest service provider fear is that of being reduced to a "dumb pipe" provider of commodity access service, it is drop dead simple to see why most facilities-based providers will oppose the Federal Communications Commission attempt to regulate broadband access as a common carrier access service with no permissible traffic shaping.

Application providers are right to fear unfair business advantage, which would be the case if ISPs decided to block lawful applications or apply differentiated quality measures to their own Internet traffic, while denying such prioritization and quality measures to business partners or competing applications.

Any number of issues present themselves, ranging from the legal (whether the FCC has authority to proceed as it intends) to the likely impact on investment in new and upgraded access facilities (less investment, not more) to impact on innovation.

Some would say the FCC is attempting to regulate "ex ante," before a problem exists, rather than tackling any issues as they arise. The factual record suggests only two examples of blocking, sufficiently chastening the entire industry into agreeing that indeed, all lawful applications must be allowed.

The big problem is how networks can be managed under conditions of congestion so as to preserve quality of experience, and there the difference between traffic shaping and "blocking" is technically quite difficult to separate. All voice networks, for example, use blocking techniques at times of peak congestion to preserve service quality. Data networks have many more options.

Some types of lower-priority traffic might reasonably be slowed down to allow higher-priority traffic types to get preferential treatment, especially video and voice traffic that are highly suscepitble to delay.

Such measures also are crucial for new services of the sort businesses routinely enjoy, where users can buy features allowing them to set their own priorities for some types of applications. In a regime where absolutely no prioritization is allowed, it would not be legal for an ISP to create and sell a service that provides higher continuity for tele-medicine, video or voice services, for example.

"Dumbing down" access networks by prohibiting any packet prioritization automatically prevents creation of quality-assured services, even if end users want them.

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U.S. Online Spending up 11% in 2010

U.S. online ad spending looks to be up nearly 11 percent from 2009.

Does Anybody Really Believe a "Small" Number of Title II Rules Will Hold, Long Term?

The Federal Communications Commission's press release on opening its notice of inquiry on Title II common carrier classification of broadband access services will leave many service providers a bit queasy. For starters, the rules almost certainly will apply to cable companies, which never have been regulated, in any way, as "common carriers."

Secondly, even if the FCC promises some lighter-touch "third way," once Title II rules are established as the framework, there is no formal barrier to later changes in rules that would apply more than a "small number" of Title II rules. Nobody familiar with government logic and practice will feel safe that the promised forbearance will hold over the long term.

Taxes and rules get instituted in modest ways, for specific purposes, and then never "sunset." Over time, in the case of taxes, amounts keep creeping up. Over time, in the case of administrative or legal requirements, old rules continue to drift out of date with changed circumstances.

Nor will the actual language provide much comfort. The FCC says it wants to fundamentally alter broadband access regulation, but will "forbear," at its own discretion, from applying all the common carrier rules, "other than the small number that are needed to implement fundamental universal service, competition and market entry, and consumer protection policies."

Not many observers think, over the long term, that the number of rules will remain "small." Where else in federal government action have you seen rules become less numerous over time?

Once Title II is the new framework, any number of steps, including price regulation, entry regulation and other rules are possible. In a nutshell, what was best about the old, highly-regulated monopoly system was service quality and universal access. What was worst was high prices and low rates of innovation.

Under competitive conditions the effect of common carrier regulation is mixed. We are likely to see both low prices and low innovation, plus less investment.

Verizon already earns 70 percent of its cash from operations, not wireline, and the balance continually is shifting to wireless. With lower likely return from wired operations, rational operators will simply starve the wired networks and invest more heavily in wireless.

The problem is that wireline service as a whole is becoming less profitable, and providing less revenue. You don't help matters by making it less profitable, and creating less revenue. You only accelerate its decline.

Facebook 2009 Revenue Was Almost $800 Million

Facebook’s revenue in 2009 was nearly $800 million, and the company turned a part of it into a solid net profit, according to Reuters. That's a big deal for a company that, for the longest time, had no obvious long-term revenue model.

The number is significantly higher than earlier estimates of $500 million revenue in 2009, and even the projected $710 million revenue in 2010. Facebook, as usual, declines to comment on any of these numbers, but sometime in 2009. Facebook seems to have became cash-flow positive.

Facebook 2009 Revenue Was Almost $800 Million [REPORT

How Does iPad Affect Smartphone Browsing?

For people who keep track of statistics such as smartphone operating system market share, device behavior and trends, the iPad and other tablets are going to complicate matters. Should these devices be tracked with smartphones, with PCs, or as a separate category.

Some might argue a tablet is like a smartphone, and should be included in smartphone stats, if the same operating systems are used for both the tablet and smartphone devices. Others will argue that will distort the smartphone data.

So far, it seems iPad usage is someplace between PC and smartphone usage, perhaps suggesting it might be a separate category.

"Among the 14 percent of our iPhone client users who use an iPad, their average session length is 12 percent longer than the average iPod Touch or iPhone users," says Kate Sellers Blatt, iPass director. Some other data suggest iPad owners use the Internet more than they do on their smartphones, but still far less than on their PCs.

Morgan Stanley estimates that iPad browsing activity already is greater than BlackBerry or Android smartphone activity, on a global basis.

If casual and anecdotal evidence is any indicator, most people use their iPads quite heavily in indoor environments, on couches, for example. Mobile devices also are used indoors, sometimes as much as half the time. But there are some indications iPad use is indoors as much as 90 percent of the time.

For the moment, I think it is more useful to consider tablets a separate category from smartphones or PCs, at least for tracking purposes.

Quantcast Blog

Google Might Try to Act More Like Apple

Google is reported to be planning a unified user interface that will be imposed across Android products, ending the fragmentation that dogs the system, but also restricting partners' development of their own user experiences. That shift in philosophy would pull Google closer to the way Apple operates.

The top priority for the next Android update, codenamed Gingerbread, reportedly is to homogenize the user experience and address criticisms of fragmentation. This could severely curtail the freedom of licensees to create their own user interface overlays, most famously, Motorola's Motoblur and HTC's Sense.

It's probably a toss up at this point which approach is better. Apple has proven that absolute uniformity of experience is no barrier to wild acceptance. On the other hand, a uniform approach to user interface will tend to dampen the pace of innovation to a degree.

Google does have a big stake in preventing Android fragmentation, which makes it much harder for developers to create applications guaranteed to run on any Android device with a specific version of the operating system. On the other hand, the HTC "Sense" user interface is quite a differentiator, so handset suppliers might not like the restrictions on their freedom of movement.

As with all engineering decisions, there will be trade offs. A uniform UI is better for software developers, but arguably worse for hardware developers. Most consumers seem to indicate by their buying preferences that a standard UI is, if not a "good" thing, then at least no barrier.

In the battle between "open" and "closed" approaches to development, "closed" seems to be getting more traction these days.

Google risks OEM wrath with unified Android UI plan - Rethink Wireless

FCC Power Grab Will Face Huge Legal Challenges

Despite strong bipartisan objections from a majority of congress, the FCC voted to move ahead to take public comments on FCC Chairman Julius Genachowski’s “third way” proposal to reclassify broadband providers under Title II common carrier status.

It’s truly amazing how we got to such a state of affairs. The FCC had gotten everything it wanted from Comcast before it even issued a ruling, and the entire reclassification movement is incoherent because it is based on a myth to begin with.

The whole thing is a manufactured crisis based on irrational hysteria over the DC Circuit ruling on the Comcast-vs-FCC case.

The courts have ruled many times in favor and against the FCC, yet the reclassification movement acts as if the DC Circuit ruling against the FCC was some earth shaking event that permanently strips the FCC of its authority unless the FCC does something extraordinary to counter it. The reality is that an FCC acting brashly to bypass the court’s ruling would likely result in a nasty rebuke from the courts.

The court has been very clear that it would reject any power grab by the FCC that would “free the Commission from its congressional tether”. With 74 congressional Democrats signing a letter opposing reclassification and the majority of Republicans on board, it’s clear that the FCC doesn’t even have the support of congress much less explicit authority. Furthermore, it appears that the FCC may be violating a legal precedent set in the Midwest Video II case.

Digital Society � Blog Archive � FCC third way – Shattering the congressional tether

Not Much Actual Video Cord Cutting Going On, Nielsen Says

Consumers who really have stopped buying multi-channel video and watch online video instead are young and light TV viewers, a new analysis by Nielsen suggests.

Young, emerging households, younger college graduates and  lower to middle income consumers who may not be fully convinced of the need to pay for digital cable represent the core group abandoning their multi-channel video subscriptions and substituting online video.

Nielsen data shows that these individuals are typically light TV viewers who watch 40 percent less TV per day than the national average. And while they stream about twice the average amount of video, they still only stream about 10 minutes per day, hardly an indication of a monumental shift to online-only viewing, Nielsen says.

The number of people per month viewing online video increased six percent year-over-year, the study shows.

Online video streaming still only accounts for less than 2.5 percent of total video consumption across all demographics.

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Tablets Becoming a User's Second PC

Tablets will be used as a second computer, primarily for media consumption, with a laptop becoming their principal computing device, Forrester Research analyst Sarah Epps says.

Tablet computers like Apple's iPad will outsell netbooks by 2012 and surpass desktops by 2015, growing at a 42 percent compound annual growth rate between now and 2015. She estimates there will be about 3.5 million tablets sold in 2010.

By 2015, only laptops will have a greater share of the market, with 42 percent, versus a projected 23 percent market share for tablets.

Big Smartphones, Small Tablets

One wonders how big smartphone screens can get, and small tablet screens can get. The Sprint HTC Evo 4G and Verizon's Motorola Droid X have huge screens of about 4.3 inches and 4.4 inches, respectively.

The Evo 4G measures 4.8 by 2.6 by 0.5 inches and has a 4.3-inch touchscreen. T-Mobile's HD2 phone, also built by HTC, has similar dimensions--4.7 by 2.6 by 0.4 inches--as well as a 4.3-inch display. The Droid X, slated to debut next week, is even bigger than the Evo 4G or HD2, and has a 4.4-inch screen. By comparison, Apple's new iPhone 4 is relative petite with its 3.5-inch LCD.

The Dell Streak, an upcoming tablet device, will feature a 5-inch touchscreen. While the Streak will have 3G broadband and Wi-Fi, as well as a front-facing camera for video chat, it's definitely not a smartphone, according to Dell.

There are boundaries for how big a phone can be, and still be usable, though. One might argue the same thing is true of tablets. There is some point at which they likely are too small to be highly useful. Right now, it's hard to say where the line is, though.

Weight and battery size are other issues. To drive a larger screen you need a bigger battery. That adds both heft and weight to any device, but especially for a phone.

Supersized Smartphones: How Big Can They Get? - PCWorld

FCC Votes to Open Title II Reclassification for Broadband Access

The U.S. Federal Communications Commission has taken the first step toward imposing limited regulations on broadband providers by voting Thursday to launch a notice of inquiry exploring the change.

The commission voted three to two to launch the notice of inquiry, which asks for public comment on a proposal by FCC Chairman Julius Genachowski to reclassify broadband as a common-carrier regulated service. It might be an expensive proposition, if the FCC proceeds.

Proposed regulation of high-speed Internet service as a "common carrier" service could cost the U.S. economy at least $62 billion annually over the next five years--a total of $310 billion--and eliminate 502,000 jobs, according to a study released by the Advanced Communications Law & Policy Institute at New York University Law School.

The report estimates that broadband providers and related industries may cut their investments by 10 percent to 30 percent from 2010 to 2015 in response to additional regulation.

At at 30 percent reduction in investment, the economy might sustain an $80 billion hit, according to Charles Davidson, director of the law school's Advanced Communications Law & Policy Institute.

"There will be follow-on effects in the whole ecosystem," said Bret Swanson, president of technology researcher Entropy Economics in Zionsville, Ind., who co-authored the study with Davidson. "A diminution of investment by the big infrastructure companies will reduce network capacity, new services, and investment by all the ecosystem companies."

These investments would spur capital expenditures by others in the ecosystem. A five-percent incremental increase in capital expenditures by the rest of the  ecosystem companies could boost investment by approximately $18 billion per year between 2010 and 2015--about $90 billion over five years--and yield an additional 450,000 jobs created or sustained.

One might ask whether it makes sense to place further burdens on a business whose revenue steadily is declining as a percentage of total end-user communications spending. It wouldn't be the first time the FCC or Congress has moved to essentially disrupt industry structure in hopes of spurring higher consumer welfare.

In the Telecommunications Act of 1996, voice services were liberalized. What nobody apparently anticipated is that wireline voice would suddenly reach its zenith, and begin a long, steady decline. The background assumption was that the business was a "growth" business, rather than a "declining" business. But common sense suggests that different policies are needed when a business is shrinking, than when it is growing, when a business can grow faster because of more competition and when it will simply decline faster because of new constraints. $310 Billion Economic Loss, Over 5 Years if Title II Rules are Imposed

Is Email Going Away?

Lots of people, including Facebook COO Sheryl Sandberg, think email is fading away as a communiation activity. "Only 11 percent of teens email each day," Facebook COO Sheryl Sandberg says. "Email is probably going away."

Part of that behavior pattern can be explained by the fact that teens are not in the work world in the same way as older users are, and email remains highly important in the work world.

This is good news for Facebook and online advertising in general, she argues.
People are more comfortable seeing ads directed at them in their Facebook "News Feed" than they are in their email inboxes, she argues.

While ads in an inbox are called "spam," Facebook users will even sometimes click "Like" on a brand's Facebook page and volunteer to receive messages directly from advertisers.

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Mobile Advertising Growing, But Revenues Still Modest

Mobile advertising will continue to be a modestly-sized segment of the digital media ecosystem as long as different segments of marketers have alternative media vehicles which better meet their business objectives, say researchers at MagnaGlobal. But mobile commerce and mobile marketing are destined to grow.

Global online advertising will rise by 12.4 percent in constant currency terms during 2010, to $61 billion dollars globally. Accounting for actual and expected changes in currencies over the course of 2009 and 2010, online advertising will grow during 2010 by 13 percent in U.S. dollar terms or by 21 percent in Euros.

Paid Search has quickly become the most important component of online advertising, and in 2010 this segment will account for nearly $30 billion, up by 16.5 percent over 2009 totals on a constant currency basis, and about 49 percent of total revenues.

Google is the global leader in paid search, but in the paid search markets of China and Russia, the leading paid search providers are domestic players Baidu and Yandex.

All other online advertising will account for $31 billion, up by 8.7 percent in constant currency terms.

Advertising networks retain their importance to advertisers given their ability to aggregate and monetize vast quantities of inventory in an inexpensive manner. Social networking sites such as Facebook capture a large and growing share of audience time.

These trends should continue over the next five years, and the report expects online advertising to collectively grow by 11.7 percent in 2011 and by an average rate of 11 percent through 2015. At this time the global industry will generate $103 billion dollars in constant dollars.

The ongoing global economic recovery has contributed some modest uplift to the expectations of growth, but secular factors are the primary cause of this rapid and sustained pace of development. Importantly, says the study, industry growth is not directly caused by increasing numbers of consumers online nor by rising levels of time spent online.

Instead, growth is driven by businesses, many of them small, that find online media to be the single most effective platform to accomplish their business goals.

PC Sales Up by 52% Next Five Years, Forrester Says

Apple CEO Steve Jobs has compared the PC to a farm truck, saying that when America was an agrarian economy, “all cars were trucks because that’s what you needed on the farm."

The analogy is that PCs will be displaced by new devices such as the iPad.

Steve Ballmer, Microsoft CEO, obviously does not agree. “I think people are going to be using PCs in greater and greater numbers for years to come," he said. "The PC as we know it will continue to morph form factor."

Semantics aside, there still is a question: is the iPad something new, a new market, or simply a new PC form factor? Steve Jobs may not view the iPad as a PC, but we do, says Sarah Rotman Epps, Forrester Research analyst.

"Our view is that the consumer PC market in the United States is indeed getting bigger," she says. "Over the next five years, PC unit sales across all form factors will increase by 52 percent."

Desktops are the only type of PC whose numbers will be fewer in 2015 than they are today, she argues.

Growth will come from new form factors like tablets, but laptop sales will increase steadily also.

Tablets will, however, cannibalize netbooks, outselling netbooks starting in 2012.

In 2015, 23 percent of all PCs sold to consumers in the US will be tablets.

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A Contrarian View on iPhone?

It takes a brave constitution to suggest iPhone is losing its "cool" factor, especially given iPhone's success in the very-tough Japanese market, where foreign-made devices tend not to succeed.