Title II Regulation of Internet Access Wouldn't Achieve Ban on "Pay for Priority"

“As Democrats who care about the dual priorities of protecting broadband consumers and stimulating broadband investment, we are gravely concerned about President Obama’s endorsement today of monopoly-era, common carrier regulations (called “Title II”) for broadband providers,” say Ev Ehrlich, PPI senior fellow; Michael Mandel, PPI chief economic strategist and Hal Singer, PPI senior fellow.

“The president’s proposal does not balance these goals, nor move us towards compromise on other, arguably more critical, communications issues,” they say.

The Progressive Policy Institute is a policy institute and think tank that claims credit for President Bill Clinton’s “New Democrat” approach.

THe PPI says it concerned both with social equity and economic growth, as well as performance-based government. “We seek to advance progressive, market-friendly ideas that promote American innovation, economic growth and wider opportunity,” the Progressive Policy Institute says.

Ironically, given the widespread concern by network neutrality supporters that “best effort only” remain the only consumer offer for Internet access, “Title II is not necessary to protect consumers from the hypothetical threat of discrimination by broadband providers against edge providers,” PPI says.

In Verizon v. FCC, the D.C. Circuit made clear that the Federal Communications Commission could regulate pay-for-priority deals—and even reverse them after the fact—under Section 706 of the 1996 Act.

More to the point, “Title II itself isn’t guaranteed to stop pay-for-priority by broadband service providers,” they say.

Title II would merely require that the terms of any pay-for-priority deal be extended to all comers.

“The more likely rationale for imposing Title II is to pursue an aggressive regulatory agenda unrelated to net neutrality, in particular, “unbundling,” the policy that requires companies that make investments in broadband infrastructure to share them with competitors at government-set prices,” PPI says.

“Moving backwards to a forced-sharing regime would likely chill broadband investment, along with its job-creation and impact on growth,” PPI says.

“By eschewing real compromise made possible by the D.C. Circuit Court, and instead pursuing a radical prescription of Title II, the FCC guarantees itself a drawn-out litigation battle with broadband providers,” PPI says, when other avenues already exist to achieve network neutrality goals.

Regulation is Correlated with Slower Revenue Growth

All markets are regulated. The question is whether a market is regulated by government or by consumers. Ideally, governments regulate when the market cannot. The problem, some might say, is that the government regulates when it does not have to, or should not regulate.

And some would say appropriate intervention, when required, tends to be more effective when antitrust is the focus, not the more-mundane regulation of market entry, consumer protection or price regulation.

In a study conducted by Antony Davies, associate professor of economics at Duquesne University and Mercatus-affiliated senior scholar at George Mason University, the least-regulated industries grew faster than the most-regulated industries.

To be sure, one might argue that perhaps the least-regulated industries were the fastest growing for other reasons.

The most-regulated industries included motor vehicle and parts dealers; oil and gas; securities, commodity contracts, and other financial investments; railroads; transit and ground passenger transportation and truck transportation, for example.

Building construction; scenic and sightseeing transportation; water transportation; air transportation and insurance also were at the top of the list of “most-regulated industries.

Among the least regulated industries were nursing and residential care facilities; electronics and appliance stores; transportation equipment manufacturing; space research and technology; health and personal care stores ; petroleum and coal products manufacturing; building material and garden equipment and supplies dealers; wood product manufacturing and heavy and civil engineering construction.

Telecommunications is about in the middle, and some might note that telecommunications was in a major deregulation and technology transformation between 1997 and 2010.

Still, in 10 out of the 14 years in the study, the least-regulated industries showed greater annual growth than did the most-regulated industries.

Between 1997 and 2010, the 221 least-regulated industries in each year averaged 3.5 percent annual growth in output per hour.

The 221 most-regulated industries averaged a significantly lower 1.9 percent annual growth.

Accumulating the growth rates over all the years, the least-regulated industries experienced a total of 64 percent growth in output per hour from 1997 through 2010 versus 34 percent for the most-regulated industries.

In 12 out of 14 years, the least-regulated industries had greater growth than the most-regulated industries.

Accumulating the growth rates over all the years, the least-regulated industries experienced 63 percent growth in output per person versus 33 percent growth for the most-regulated industries.

Reasonable people will disagree about the wisdom of common carrier regulation of Internet access, mobile services or fixed line services. Economists might simply point out that more regulation is likely to lead to less revenue growth for Internet service providers, even though some believe application providers might grow faster, as a result.

Some Mobile Service Providers Might Lost Half Their Customers Over the Next Year

Some mobile operators risk losing as much as half of their customer base over the next 12 months, Ovum warns. That might even be a conservative estimate, when looking only at prepaid accounts that are the most-purchased services globally.

In practical terms, any single mobile service provider would have to have monthly churn about four percent for half the customer base to leave over a year.

Mobile service provider churn rates vary significantly, however. According to Strategy Analytics, mobile customers change providers every 27 months. Prepaid customers change providers about every 17 months (every 1.4 years).

Prepaid customers, on the other hand, churn about every 67 months (every 5.6 years), according to Strategy Analytics.

So gross churn, for a prepaid provider, might easily be half of the existing base over 12 months.

Since postpaid customer bases churn at much lower rates, the “typical” customer life cycle might be 1.4 years for a prepaid provider and 5.6 years for a postpaid provider. In some markets, postpaid customer lifecycle, especially for postpaid customers on shared or family plans, can be as long as eight years.  

So it is not unusual that about 25 percent of all mobile users globally say they will definitely change providers, while another 25 percent say they might do so, as Ovum reports. Most customers globally buy prepaid service.

If the Strategy Analytics figures are correct, more than half of prepaid customers might leave every year, with a monthly churn rate of perhaps six percent a month.

If respondents follow through with their expressed opinions, mobile service providers could risk losing as much as half of their existing customer base over the next 12 months, according to the Ovum global survey.

The Ovum forecast also might seem feasible only if gross churn, rather than net churn, is considered.

The Ovum survey finds that almost twice as many customers of Airtel India or LG U+ in Korea plan to churn more than the global average of 23 percent, Ovum says.

In contrast, customers of Vodafone Germany or NTT DoCoMo in Japan are less likely to desert their current service providers, with only about 10 percent indicating they plan to switch operators.

Dissatisfaction with mobile high speed access might be the driver, rather than experience attributes that relate to voice.

About 37 percent of respondents say they either have left or plan to move to another provider because of slow connection speeds.

The survey, which included over 15,000 consumers and 2,700 enterprises in 15 major global markets, also underlines the global importance of being online.

iPhone customers are much more likely to churn than users of competing handsets, mostly to find a provider with faster mobile speeds, the study also suggests.

Churn rates of about 25 percent over a year would not be unusual in the mobile business. But what really matters is “net churn,” the sum total of new customer acquisitions (including customers churning from other providers), less the number of current customers who leave.

By definition, churn describes the behavior of current mobile customers, who are quite unlikely to abandon use of mobile services altogether.

That said, there is a certain amount of uncontrollable churn, as when a customer dies, or moves from one country to another, or perhaps moves from an area where the current carrier provides good experience (signal strength, mobile Internet speed, dropped calls).

But nearly all customers who leave one carrier sign up with another. So net churn, even in markets with monthly prepaid churn rates between four percent and six percent monthly, might have net churn far lower than that, after accounting for new customers gotten from other providers in the market.

Youth is Not a Segment: It is the Whole Future Market

Changes in consumer demand, especially those that disrupt existing products and revenue streams, have been acute for the telecommunications business over the past couple of decades.

To note only a few of the key changes, people text instead of talk, use mobile instead of fixed telephones and use the Internet--both mobile, fixed and untethered. All of those changes, plus shifts in provider market shares, have created profound instability in what once was a very-stable industry.

“One of the most striking cultural and social changes in the U.S. in recent decades has been the revolution in the ways Americans communicate,” says Gallup.

Texting, using a mobile phone and email messages are the most frequently used forms of non-personal communication for adult Americans, according to a new Gallup poll of communications behavior.

Between 37 percent and 39 percent of all U.S. residents said they used each of these "a lot" on the day prior to being interviewed. Perhaps the most-significant finding, however, is that just nine percent of respondents use a home landline phone over the same time frame.

About 15 percent of respondents reported using a landline phone at work the prior day.

All of that leads some to speculate that within a few decades, nobody uses a landline phone anymore.

That might be too extreme a prediction. As service providers already have discovered, bundling voice as part of a triple-play offer props up buying of voice, increasingly the least-in-demand service within the fixed network bundle. But the long-term trend is clear enough, since mobile phones now are the preferred way most people use voice communications.

Telecom executives are relatively unperturbed about dwindling voice revenues in large part because other replacement revenues already have been identified, while the next generation of new services and apps already are within sight. It will be hard work. But the roadmap is in place.

As you would guess, communications behavior varies with age, with the widest divergences in behavior occurring between the youngest and oldest age cohorts.

Sending and receiving text messages is the most prevalent form of communication for 68 percent of surveyed U.S. residents 18 to 29.

About eight percent of U.S. residents 65 or older did so.

That same pattern holds for use of landline phones. About seven percent of respondents 18 to 29 reported using a home landline phone the past day, compared to 17 percent of those 65 or older.

More than 66 percent of those 18 to 29 say they sent and received text messages "a lot" the previous day, as did nearly half of Americans between 30 and 49.

Younger Americans are also well above average in their use of cellphones, email and social media on a daily basis. All that matters for one important reason.

The “youth market” is in some sense not a “segment” of the telecommunications market. At some point, younger consumers become the whole market. In the earlier days of the U.S. cable TV business, the same age-dependent adoption pattern could be seen.

At some point, the older consumers naturally left the market, and the younger age cohorts became today’s middle-aged and “65 or older” populations. In 2014, U.S. linear video subscriptions are purchased by more than 88 percent of U.S. households 68 or older.

Among households headed by consumers 18 to 35, linear video subscriptions are bought by about 62 percent of households.

But product demand changes over time. Though it remains unclear how purchasing behavior might change as the youngest cohort ages, buys homes and has children, many note that, at present, use of streaming services such as Netflix, though used by virtually all age groups, is highest amongst the households headed by the youngest consumers.

That might be the precursor to a demand shift changing prospects for linear video, just as changes in communications behavior by younger consumers portend a shift in demand for telecom services.

500 Million New India Internet Users by 2017?

Google India has launched the Indian Language Internet Alliance, an initiative to promote local language content, increasing the relevance of the Internet in India for up to 500 million new Indian users by 2017.

Google also announced its Hindi Voice Search and a new website hindiWeb.com, which shall offer curated content in Hindi.

Localization of content is one obstacle to be overcome to connect up to four billion people who do not presently use the Internet. About 56 percent of web content is in English despite the fact that less than five percent of the world’s population speak it as a first language, with only 21 percent estimated to have some level of understanding. Hindi accounts for 0.1 percent of web content.

Localized content will increase the value of using the web, stimulating demand.

Device cost also is an issue Google is working on, with Android generally and Android One, specifically. Android One enables production and use of  devices with standardized hardware, stock Android experience and timely updates, priced at or below Rs 5000 (US$81). Lower device costs will create a wide basis of Internet capable devices.

Also, Internet service providers have to get the cost of going online within easy reach. That generally is viewed as a recurring price for access that represents no more than two percent to three percent of income.

Of the world’s seven billion people, 2.7 billion have access to the Internet, while 4.3 billion do not.

Most of them live in developing countries.

Though it still is possible to argue about whether the high adoption of Internet access and higher degree of economic development are causal or correlated, even those who might tend to think high Internet access and higher economic development are correlated, not causal, might support fastest possible adoption of Internet access everywhere, for the same reasons it was deemed important to provide voice communications to everyone.

If developing countries were to catch up with levels of internet access in developed economies today, they would reach a penetration level of around 75 percent, more than tripling the number of present “global south” Internet users from 800 million to three billion.

Of the new global south Internet users, some 700 million would be in Africa, 200 million in Latin America and 1.3 billion in Asia.

AT&T to Buy Mexican Mobile Operator Iusacell

AT&T is buying Iusacell the Mexican mobile service provider for US$2.5 billion, inclusive of Iusacell debt.

AT&T will acquire all of Iusacell’s mobile  properties, including licenses, network assets, retail stores and approximately 8.6 million subscribers.

The acquisition will occur after Grupo Salinas, the current owner of 50 percent of Iusacell, closes its announced purchase of the other 50 percent of Iusacell that Grupo Salinas does not already own.

“Iusacell gives us a unique opportunity to create the first-ever North American Mobile Service area covering over 400 million consumers and businesses in Mexico and the United States, said  Randall Stephenson, AT&T chairman and CEO. “ It won’t matter which country you’re in or which country you’re calling – it will all be one network, one customer experience.”

Iusacell offers wireless service under both the Iusacell and Unefón brand names with a network that today covers about 70 percent of Mexico’s approximately 120 million people. AT&T plans to expand Iusacell’s network.

Iusacell operates a 3G wireless network using the GSM/UMTS air interface that AT&T uses in the United States.

Iusacell owns between 20 MHz and 25 MHz of 800 MHz spectrum, primarily in the southern half of the country, including Mexico City and Guadalajara, and an average of 39 MHz of personal communications service spectrum nationwide (similar to the 2=GHz spectrum used by T-Mobile US and Sprint.

The acquisition is not unusual. The former SBC grew to its present size primarily through acquisitions, and AT&T has almost run out of sizable acquisition targets in the U.S. market.

NextLight Municipal Gigabit Network Gets 8% Take Rates on Day One

Day one take rates for the Longmont Power and Communications NextLight gigabit Internet access network, being built in Longmont, Colo.,  seemed to be about eight percent on Nov. 3, 2014.

NextLight service will be available to residents at about $50 a month for one gigabit speeds if they sign up in the first three months the service is available to their home. Regular price for those that sign up after three months will be roughly $100 a month.

Comcast, which serves Longmont, sells 25 Mbps Internet access on a stand-alone basis at introductory prices of $40 a month. But that is a promotional price that rises after a year.

Comcast’s fastest current offer is 150 Mbps, sold for $90 a month for a year, rising after that introductory period.

So NextLight will be able to underprice Comcast, unless there is a price reaction from the cable company.

Those “charter members” will keep the introductory price as long as they keep their service and will take that rate to their new home, while also reserving that rate for the home they leave, according to a Times Call report.

Customers who miss the charter member window also can qualify for the same rate as a customer loyalty reward after one year, knocking the regular price down from $100 a month to $60 a month.

The city also sells a symmetrical 25 Mbps service for about $40 a month. So the big question, longer term, is what percentage of customers opt for the 25 Mbps service rather than a gigabit service.

Longmont, it is safe to say, was able to undertake building and operating its own Internet access service because it also owns its own power company, Longmont Power & Communications.

The network will be built in phases, with completion slated for 20127.  The new community-owned broadband network will cost $20 million.

The business plan commissioned in 2013 predicted the network would pay for itself in about 10 years, assuming that 35 percent of Longmont residents became LPC telecom customers.

Longmont voters approved a $45.3 million bond issue in 2013 to build the network and get operations up and running.

NextLight expects to settle in at about 27 employees by 2017. Longmont has a population of about 90,000. So capital investment amounts to about $222 per home. It is not clear whether that figure includes installation of active drops, which might add about $300 in per-customer costs. At 33 percent adoption, the NextLight network costs $667 per customer.

And Longmont is not the only community looking at ways to do something similar. The Northwest Colorado Council of Governments, Boulder, Yuma, Wray, Colo., Cherry Hills Village, Red Cliff, San Miguel County and Rio Blanco County also are looking at municipal networks.

Though many obstacles remain, the notion that there is not enough competition in the high speed access business might not hold for much longer, in parts of Colorado, as Google Fiber has created a three-way supplier market across markets in the United States.