"Bigness," By Itself, is Not an Antitrust Problem

Antitrust regulation is the “normal” remedy for excessive market power, even when obtained through competitive processes: people use the dominant products because they prefer them. What might be new is that oligopoly exists in the internet applications space, as tends to occur in the more-regulated telecommunications business. That “winner take all” market outcome now is expected for internet apps.

That gatekeepers issue is relevant for the internet ecosystem because it could, or should, shape policies intended to maintain investment and competition within the ecosystem. Federal Communications Commission policy of the last eight years has assumed that internet service providers are among the key gatekeepers, if not “the” gatekeeper, requiring regulation of internet access under common carrier rules.

Others might argue there are other key gatekeepers as well.

Consider that Alphabet has an 83 percent share of the mobile search market in the United States and just under 63 percent of the US mobile phone operating systems market.

To be clear, some of us are in favor of light or lighter regulatory touch for every part of the ecosystem--app and access providers alike. That is not the only choice. As always, regulators can apply heavier regulation to some industries or companies as a way of fostering more competition. The other approach is to lighten regulation on some potential competitors within the ecosystem able to provide competition.

Some might argue the right approach is to take account of rising and declining “gatekeeper” power within the ecosystem. There might be multiple gatekeepers, but some arguably are gaining power, others losing it. Few who follow the internet ecosystem would disagree that app providers are growing much faster than ISPs. In fact, one might actually argue that ISPs are losing power within the ecosystem.

A not-so-often comparison to telecom providers is made by media entrepreneur Jonathan Taplin, who notes that AT&T has a 32 percent market share in mobile phones and 26 percent in linear subscription TV.

Google and Facebook have 85 percent share of the internet advertising market.

The combined AT&T-Time Warner will have $8 billion in cash but $171 billion of net debt. Alphabet has $76 billion of cash and total debt of less than $4 billion.

Alphabet alone has a market capitalization of around $550 billion. AT&T and Time Warner combined would be about $300 billion.

That is not sufficient reason, some would argue, for taking antitrust action against any of these firms. In some markets, especially the tier-one level of telecommunications, scale seems an inevitable requirement. Scale in application markets arguably means those firms can invest in many new services and capabilities at a high level, and fast.

In fact, in most app markets, the “winner take all” nature of the markets might suggest something about what is needed, at the tier-one level of apps, to compete globally. The point is that “bigness alone” might not be the point, at the tier-one level in the access or apps business. Oligopoly might be the natural outcome of competition in such markets, at the tier-one level.

For tier-one telecom companies, capital intensity might be the issue. For app providers, huge scale required to drive advertising markets might be the requirement.

source: Precursor

AT&T Acquisition of Time Warner is Not an Antitrust Problem

Though good arguments can be made to the contrary, some argue that an AT&T combined with Time Warner would have too much power in the internet ecosystem. Reason enough, some argue, to block the deal, even though the acquisition would not reduce suppliers in the content business, or increase AT&T’s footprint, customer base or assets in the access business.

That might not be the point, critics essentially argue. The point is too much more power held by a gatekeeper. That, one might argue, ignores the simple consolidation trend that is, and will continue to sweep, the media and communications industries. Scale, one might argue, now is required to maintain profit margins, beyond increasing revenue.

Consider the linear video business. ISPs argue they have to raise prices every year because content fees keep rising every year. Scale, ISPs argue, will allow them more bargaining power. Conversely, content owners believe they need to match that scale to maintain their own leverage.

Consumer benefit hangs in the balance: lower service fees are not possible unless content prices are controlled and content contract terms made more flexible, allowing skinnier bundles that cost less.

In a related sense, core ISP revenues are under pressure, as voice, messaging, internet access and video revenue streams face lower demand and higher competition from substitute products. In other words, ISPs (access providers) sell generally-declining legacy products. To wring profits from a declining business, costs have to decline. That is as true in the content business as in any other.

On the other hand, content is easier to differentiate than internet access, voice or messaging. That is why content prices have been growing every year, while price per unit for voice, messaging or internet access has been dropping.

To use a simple explanation, the path forward for any large ISP is to “own at least some of the content” delivered over the access pipe. That is what Comcast already has done, and what AT&T (and eventually Verizon) will conclude they also must do.

Some see antitrust danger in the AT&T proposal to buy Time Warner. Some of us just see a “keeping up with the Joneses” move that mimics what Comcast already has concluded must be the strategy.

Like it or not, "bigness" might be a survival requirement in the access market, at the tier-one level.

Convergence of Licensed, Unlicensed Spectrum Will Stress "Net Neutrality" Rules

As communication platforms blending licensed and unlicensed spectrum continue to develop, it seems obvious that new thinking might--or must--emerge related to network neutrality and quality of service mechanisms. To use just one example, bonding of mobile licensed spectrum with unlicensed assets to support voice services arguably results in some QoS mechanisms being employed for Wi-Fi networks, to make them operate “carrier grade.”

For consumer internet access regulation, that is an indirect development, as Wi-Fi typically operates as a local distribution mechanism, separate from the actual “access.” In that sense, what is done within any specific Wi-Fi session, by any specific device, does not actually entail a direct use of the access link, and so network neutrality rules are not involved.

In a functional sense, that might not be the case, as in a growing number of cases, Wi-Fi actually does function as an “access” connection. The easiest example is when a third party device registers to use a Wi-Fi hotspot in a public setting, or when a user logs on to a “homespot” operated by a cable TV company.

That is not to say “best effort access” will disappear. There will remain a large number of use cases where best effort access is what the business model will support. That is true for venue amenity access, for example. But many of the other use cases might well involve quality of service mechanisms and prioritized access. That is likely to be the case where mobile bandwidth--used to support carrier voice services--is bonded with Wi-Fi.

Carrier-grade access (already possible for commercial accounts) might also appear to support consumer video entertainment services, as such QoS is a staple for linear video services, where consumers pay for access to content, and then the use of the network (also including mechanisms to assure quality of service) is simply a feature of the service.

The point: strict adherence to the notion that consumer internet access must, by law, be limited to “best effort” is going to be bypassed in a growing number of settings where licensed or unlicensed spectrum assets are used.

Source: Wireless Broadband Alliance

Average Global Data Speeds Grow 21% Year over Year

Global average connection speed increased 2.3 percent to 6.3 Mbps in the third quarter of 2016, a 21 percent increase year over year, according to Akamai.

Global average peak connection speed increased 3.4 percent to 37.2 Mbps in the third quarter, rising 16 percent,  year over year.

Global 10-Mbps broadband adoption rate rose 5.4 percent quarter over quarter, while 15 Mbps adoption grew 6.5 percent. Use of 25 Mbps services grew 5.3 percent.

In the third quarter of 2016, of 61 surveyed countries or regions with mobile data, 24 had an average mobile connection speed at or exceeding the 10 Mbps broadband threshold, while 52 achieved average speeds at or above the 4 Mbps broadband level.

On average, users in Australia averaged 12.8 Mbps. In the United Kingdom, average mobile data speeds were 23.7 Mbps. In the United Arab Emirates, 13.3 Mbps was the average speed.

As you would guess, network demand now hinges almost exclusively on mobile and fixed network data demand.

source: Akamai

"Core" Telecom Market Now Includes Video Entertainment, Boosting Addressable Market at Least 29%

Not so long ago, the U.S. telecommunications market generated total revenue of $200 to $300 billion. These days, depending on what is included in the count, U.S. telecommunications revenue is closer to $500 billion, according to Wiley Rein. The higher figures normally include video entertainment revenues and advertising.

The “traditional telecom” revenues (fixed and mobile service revenues) tend to range in the $350 million range annually. The caveat is that those figures also include video entertainment revenues earned by telcos, not just voice and data in the consumer and business segments.

According to the FCC’s annual wireless competition report, total wireless service revenue in 2014 was $187.8 billion. By some estimates, as much as 80 percent of consumer revenue is generated by the mobile segment.

Another $100 billion or so worth of revenue is added to the “telecom market” total, including cable TV and satellite operator revenue. In that sense, the “core telecom” market might already be in the $450 billion range.

In 2014, cable video revenue was $62.3 billion, and satellite video revenue was $40.6 billion.

"Free" is a Compelling Price Point, But Subscription Models Gain Some Traction

Advertising always has been a primary method of defraying the “cost to consumers” of content, ranging from “free over the air TV and radio” to newspapers and magazines, linear video to web sites. Up to a point, consumers “prefer” lower-cost ad-supported content access. That now also applies to key applications ranging from messaging and email to search, social media and other consumer applications.

On the other hand, there has for several decades been an “advertising-free, subscription-based” access model of some importance for content and apps. “Freemium” models in the apps business and ad-free video channels provide examples.

The search for less-intrusive advertising models always is a concern, but some amount of advertising is key to defraying end user access costs. Use of ad blockers is one trend that undermines the model. Intrusive ads are another source of irritation.

But unless consumers are willing to pay the full cost of using media apps and services, some amount of advertising remains crucial. The business model is most clear for video entertainment and music, least clear for news content.

Though "nothing really is free," the prevalence of "no incremental cost" content and app access remains an unsettled issue.

More Freedom, Or Less, in Next Phase of Communications Regulation?

source: W.H. Dutton

Among key issues Berin Szóka, TechFreedom president believes U.S. communications policy makers should take up to “break a logjam” are some issues widely acknowledged to be top issues (network neutrality), some that are enduring issues (promoting broadband) and some that arguably do not register.

The enduring issues for broadband deployment include the key issues of how to simultaneously promote deployment, adoption and competition. That is a key balancing act, as incentives for investment and competition tend to be rival goods.

When competition wrings too much of the profit out of the business, there is reduced incentive to invest, and heavy barriers to robust investment in new facilities. On the other hand, without effective competition, consumer welfare is harmed.

Net neutrality has been a hugely-contentious issue. The present “strong form” of network neutrality, which not only restricts consumer access to “best effort only” also is viewed by some as a mandate to outlaw other practices such as zero rating or quality of service mechanisms.

That might be difficult, long term, as internet access moves increasingly to support bandwidth-intensive entertainment video, while many new services require latency control.

The least talked about issue is outdated regulation by silo. Traditionally, different media types and industry segments were regulated in highly-disparate ways. Print content was unregulated. Broadcast TV and radio were somewhat regulated, as was cable TV and other linear video platforms.

Voice and messaging were viewed through the lens of common carrier regulation, and highly regulated. Internet access once was unregulated; now has been regulated as a common carrier service.

As appropriate as that might have been in the legacy era, it increasingly makes no sense in the internet era, where all media types are accessible over the internet and IP networks. The mess is that the same apps, services and industry segments (equivalent functionality is probably the better phrase) wind up regulated in different ways. That violates our sense of “fairness,” equal treatment and distorts competition.

Looking only at internet access, fixed network telcos no longer are anywhere the “dominant providers.” That role is held by cable TV operators. In the linear video business, AT&T now is the largest supplier by market share.

In the voice business, “leadership” counts almost for nothing, as voice increasingly is a feature, not the industry revenue driver. The same holds for messaging.

In the mobile business, telco leadership soon will be tested as cable operators become major suppliers in that market.

The issue now is how to harmonize, update and modernize the rules relating to regulation of like services, despite “industry legacy.” As always, the choices are to lighten or tighten regulation, either relying on the rules that presently apply to the most-free segments, or impose the more-stringent existing rules on the lesser-regulated industry segments.

More freedom, or less. That always is the fundamental question.