Will Social Media Free Speech Hasn't Be Brought Within the "First Amendment" Orbit?

The shift from analog to digital for all forms of content and communications raises questions we have not had to think about, namely the misfit between traditional regulatory and legal norms with internet-based “everything.”

The tensions are broad. Where most people do not have to think about the difference between “common carrier” or “utility” regulation and realms of life that should not be so regulated, most people seem aware of thorny issues related to media and social media.

Some issues relate to civility, but that necessarily has implications for content moderation. And content moderation requires some imposition of “values” that have potential “freedom of thought” or “freedom of speech” consequences, even if the stated view is simply to control spam, rude and obnoxious or threatening speech. 

source: freespeechhistory.com 

Without content moderation, spam can overrun sites, for example. Without enforcement of civility rules, sites become dangerous places where bullying happens, not just rudeness. 

Worse, even where freedom of speech is guaranteed by law, such laws only protect private actors from government action. The U.S. First Amendment to the Constitution only bars action by government entities. The protections actually were not meant to constrict what private entities might publish or say.  

So it is not so clear--or easy--to apply the desire for free thought and speech in a practical way to private actors who cannot be compelled to do so. Some might note that a comprehensive theory of free speech protections as applied to government has not been developed. 

A growing concern in some quarters is how freedom of expression is protected not from government action but by the actions of platforms. Indeed, some call for greater restriction of free speech on platforms, in the name of so-called hate speech. Others say the restrictions are not equally applied to all speech, and result in the suppression of some political ideas. 

If we assume that the purpose of the First Amendment is to protect freedom of expression in a democratic society, then new media formats and new platforms can raise new issues. And, as is common, the matter is complicated. 

The First Amendment has generally been interpreted to protect the rights of “speakers. But the owners of new platforms (social media, in particular) say their users are the “speakers,” not the platforms. Even if jurists wished to extend some First Amendment protections beyond “government” entities, legal concepts would have to come to a decision on who the “speaker” is, to protect the speaker’s rights. 

In other words, are the users of a platform the speakers, the platform itself, or some combination. Worse, is it the speakers or the audience whose “free thought” rights are to be respected?

Traditionally, citizens are to be protected from government restriction of free speech. 

But the places where “speech” occurs also matter. Public forums--such as public parks and sidewalks--have always been viewed as places where citizens have the right of free speech. 

Nonpublic forums are places where the right of free speech can be limited. Examples are airport terminals, a public school’s internal mail system or polling places. 

In between are limited public forums, where similar restrictions on speech are lawful, especially when applied to classes of speakers. However, the government is still prohibited from engaging in viewpoint discrimination, assuming the class is allowed. 

The government may, for example, limit access to public school meeting rooms to school-related activities. The government may not, however, exclude speakers from a religious group simply because they intend to express religious views, so long as they are in a permitted class of users. 

Those protections have been limited to state action, It is government entities (local, state, or federal) that are enjoined from infringing the right of free speech. Protections have not been deemed applicable to private entities.

There has generally been in other words, no First Amendment right of free speech enforceable on private firms or persons, with some exceptions. 

Common carriers--such as telcos--must allow communications between any users who are willing to pay the tariffs. Telcos cannot censor what those users say. Such regulation--including public accommodation, water and electrical utilities or railroads--is not generally regarded as a direct “free speech” issue, but an issue of commerce.

A common carrier is a person or company that transports goods or people for a fee, the principle being non-discrimination. A common carrier must provide its service to anyone willing to pay its fee, unless it has legitimate grounds for refusal.

If state governments decide to create laws protecting free speech from social media or other private firms, that would at the very least raise an issue: Can the federal government, acting under the guise of the First Amendment, move to restrict state action extending the zone of free speech to include dominant private platforms? 

That might involve a novel regulation of social media platforms as common carriers of a sort. As voice service providers are not, as a rule, allowed to censor what their customers and users may say, so platforms might be barred from such censorship as well. 

That would clearly be a principle that it is the users--not the platform--which has “free speech” protections, as it relates to posted content. Platforms would not surrender their political rights as entities. 

That would plow new ground, but First Amendment law has evolved over the years in an ad hoc way, all along. It would be a contentious argument, to be sure. In the case of social media platforms, we would have to decide who the speaker is, to determine whose rights are to be protected. 

Alternatively, some cases have essentially concluded that it is the audience--the listeners--whose rights are to be protected. That has happened mostly with radio and TV broadcasting, and with cable TV regulation to any extent. But that is arguably not the general principle. 

Generally, courts have decided it is “speakers” whose rights are to be protected. There are caveats. It has generally been the owners of assets whose rights are protected, in a practical sense: printing press owners, early on; then magazine or newspaper publishers; then radio broadcasters; TV broadcasters; then cable companies and networks.

Social media has not yet been addressed. But issues seem to be mounting. And that generally leads to court cases, which leads to Supreme Court action, which might set new precedents.

Fibonacci, Pareto and the Connectivity Business

Some mathematical ratios reoccur so often they are applied in nature and business. Fibonacci provides an example. “The Fibonacci sequence is a famous group of numbers beginning with 0 and 1 in which each number is the sum of the two before it. It begins 0, 1, 1, 2, 3, 5, 8, 13, 21 and continues infinitely,” Smithsonian magazine says.

Fibonacci sequences drive the Golden Ratio which applies to mollusk shells, sunflower florets, and rose petals to the shape of the galaxy. In financial markets Fibonacci is used by technical traders.

“If you divide the female bees by the male bees in any given hive, you will get a number near 1.618,” notes Investopedia.  “The golden ratio also appears in the arts and rectangles whose dimensions are based on the golden ratio appear at the Parthenon in Athens and the Great Pyramid in Giza.” 

Others note Fibonacci sequences also apply to human anatomy. 

source: Smithsonian 

The Pareto theorem also occurs often in life and business. Most of us are familiar with the 80/20 rule, which suggests that roughly 80 percent of value or outcomes are generated by about 20 percent of actions. Formally, it is the Pareto theorem. 

We also tend to see Pareto distributions in global connectivity provider revenue, though the pattern is clearer when looking at net profit rather than gross revenue, for example. As a rule, profits are driven by business accounts rather than consumer accounts, for example; urban areas rather than rural areas; dense parts of cities more than suburbs; some product lines rather than others.  

source: Techeconomy 

The traditional rule for fixed networks is that service providers made money in urban areas; broke even in the suburbs and lost money in rural areas. That arguably remains true for mobile networks as well. 

If usage is a measure of implied profit, then mobile operators might earn as much as half their “revenue” from about 10 percent of sites. Perhaps a total of 30 percent of all cell sites handle 80 percent of traffic, and hence, revenue. 

Another way to think about it is any single user’s usage. For any single user, perhaps half of all usage occurs in just one macrocell. About 80 percent of usage happens in three cells. About 20 percent of usage happens in 28 additional cells. Again, we see a Pareto style distribution: just four cells handle 80 percent of any single user’s traffic. 

source: T-Mobile

One way of possibly using Pareto is ownership of cell sites versus leasing capacity. A competitive supplier--such as a cable operator--might conclude it is best to own the sites where half to 80 percent of usage happens. That might include the home coverage and work site coverage, which are fixed usage locations. 

That is especially true if a cable operator can use its own existing network to support such cell sites. For the 20 percent of usage that happens when people are out and about, it makes sense simply to buy wholesale capacity. 

All service providers essentially try to do this when segmenting their customer bases. If most of the profit comes from  one or just a few customer segments, it makes sense to focus on those segments. The segmentation can be geographic, customer type, customer volume; product line or demographic or psychographic. 

The point is simply that mathematical patterns exist in the business. 

"Access" Remains 80% of Total Connectivity Network Cost

Terrestrial connectivity networks always require as much as 80 percent of total invested capital in the access portion of the network, not the long haul or other facilities. For mobile operators and internet service providers, nearly all the capital cost lies in the access network (exclusive of spectrum investments, which would skew the ratio even further in the direction of access as the cost driver). 

The same holds true for operating costs, where perhaps 85 percent of total operating costs lies in the access network. 

Some focus only on WAN costs and interconnection, especially when arguing that “ISP prices are too high,” but the real costs for any ISP lie in the access network. Cost per gigabyte of transferred data might be low, but that is a relatively insignificant cost of doing business for ISPs operating in denser markets. 

As always, interconnection and other transport costs are a higher cost item for ISPs in rural areas, with low subscriber density and distance from the nearest internet onramp (interconnection) point. 

That also appears to be the case for energy consumption, as most of the active devices operate in the access plant. A 4G or 5G network, for example, might consume 73 percent of total energy in the radio access network. 

The wide area core network might consume about 13 percent of total energy, while data centers and servers might consume nine percent of total energy. 

source: ENEA 

The broader observation is that access is the expensive part of a connectivity network, whether looking at capital investment or operating expense.

When Price Comparison Shopping Rules, So Do Hidden Fees

Though sellers have good reasons for using hidden fees, customers generally dislike the, since total price is greater than top-line advertised price.  Though annoying for buyers, there are reasons for such tactics. 

In competitive markets where price comparison engines operate,  price obviously is among the key differentiators. Where search engines rank products by price, it always makes sense to advertise the lowest-possible retail price, if competitors do so. 

Mandating all-inclusive pricing by government edict is one way of improving transparency while not putting any single supplier at a disadvantage. 

In the absence of such mandates,  “below the line” price add-ons are simply a requirement for sales processes highly dependent on automated search mechanisms. Buyers may not like it, but so long as price comparison engines get used, lead price matters. Advertised prices always have mattered, but arguably matter more now that price comparisons made online are such an important part of consumer buying behavior. 

In fact, such additional fees have represented as much as a quarter of total costs for some bundled-service packages in recent years (video plus internet access, for example). Equipment rental charges or other “cost recovery” fees often are included in total recurring prices. 

source: Consumer Reports 

One might think it irrational for firms to willingly compete on such a basis, but there is upside to balance price pressure downside: greater reach. Allowing price comparison engines to use retail pricing data does lead to price competition. But it also provides any single retailer greater prospect reach. As always, top competitors want to be available at retail where the top rivals also are present.   

Of course, service providers often levy fees of various types, below the line, for precisely the same reason. We might disagree with the practice, or the reasons for the fees, but suppliers are responding to the implications of price increases in an era when price discovery is easier than ever. Add-on fees are an “easy” way to maintain to-line posted prices while actually increasing them. 

When inflation exists, prices must be raised, since input prices climb. Consumers rarely claim to “like” their video providers or the many additional fees they see on their bills. But “broadcast TV” fees are a reflection of the rising prices video distributors must pay station owners for the right to carry their programing. 

The same logic applies to sports programming costs that keep rising annually as well. Since 1983, for example, the cost to carry National Football League programming has increased at an eight percent compound annual growth rate. Subscription TV suppliers are distributors: they do not generally own the content they bundle for their customers. So when those costs rise, they must be passed on to customers, just as energy and transportation, storage or marketing costs must ultimately be passed on to customers. 

Few--if any--businesses could survive eight-percent annual cost increases for an essential input to their retail products without adjusting prices.

Digital Infra is Anything but Supercore

Digital infrastructure investing, like alternative asset investing generally, now has moved to embrace core plus concepts. The nomenclature comes from the traditional real estate investment concepts used by buyers of alternative assets. 

Some might say “core” assets are akin to Class A office buildings, which are the most prestigious in a city. Class B buildings might be those which offer fewer prestige value than class A, and might be located outside a downtown core area. Class C buildings will tend to be aimed at more industrial or service oriented businesses and smaller businesses. 

source: Bullpen

It might be more accurate to characterize the different classes of assets by risk and return profiles, as there is less the notion of “prestige” as in office space, and more the fact that digital infra is a newer class of alternative or real estate assets, albeit with generally higher exposure to economic cycles and less business moat protection. 

As the range of infrastructure assets has grown, some now see more gradations of risk, adding “supercore” as a category of regulated assets, to distinguish between other assets that are not formally rate or price regulated. 

By definition, digital infra assets would not be considered supercore, as data center, cell tower, fiber network and other “telecom” network assets are unregulated in terms of pricing and do not offer guaranteed rates of return. 

In a private equity or other institutional investment context, “core” infrastructure  has meant gas or electricity utilities that have business moats, offer predictive cash flow and are relatively resistant to economic fluctuations. These businesses also tend to be rate regulated, with low capital appreciation, longer asset holding cycles and lower yield. 

That profile fits requirements of large pension funds and other institutional investors including sovereign wealth funds, for example. 

“Core plus” adds new classes of assets such as airports, seaports, roads that have more exposure to economic cycles but higher capital gain potential, balanced by potentially less predictable cash flow. 

Data centers, specialized fiber networks, edge computing facilities, fiber-to-home networks, towers and hosting facilities are considered “value add” assets. Capital gain potential is higher, assets holding periods might be shorter and yield is expected to be  lower. 

“Opportunistic” assets might be digital infra in developing markets or  distressed assets. 

source: Mercer

Yet others will use a related taxonomy using “super core” (core); core (what others might call core plus) and core plus (what others might call value add). 

As always, people will disagree about the boundaries between asset classes or the placement of specific assets within a class. Some argue that “core” infrastructure includes assets which are primarily income-producing. That view groups toll roads, bridges and hospitals in the same grouping with gas and electrical utilities. 

Also, some now view “core infrastructure” as including mobile towers, cloud storage and data centers. In that typology, some would say core plus/value add is a different category. 

The classification scheme matters to the extent that it guides investment thinking about what is core and what is “core plus'' or “value add.” 

The obvious areas of disagreement are that some assets viewed as “core plus” by some will be considered “core” by others. In a digital infra context, that means deciding whether data centers, tower networks and fiber access networks are “core” or “core plus.” 

The same definitional issue is whether those sorts of assets are “core plus” or “value add.” Perhaps nobody is going to confuse those categories with “opportunistic” investments which involve some level of asset distress or uncertainty. 

Digital infra, as viewed by many, has become an “essential” sort of infrastructure akin to roads, airports, seaports, electricity and natural gas supply. If so, then cell towers, fiber networks and data centers are “core” assets. So “core plus” and “value add” are the adjacencies to be explored, aside from the occasional “opportunistic” play.  

As a practical matter, digital infra investors tend to view those assets as core. Historically, infrastructure investors have looked for investments that:

• are real, capex-intensive assets 

• are essential services 

• offer steady and stable returns

• Are economic cycle protected 

• provide cash yields

• have barriers to entry

• are typically within energy, telecom or transport.

Most observers would likely agree that “core plus” means any additional new asset classes or assets with less utility-like characteristics. That might mean assets with shorter-term contracts, no rate regulation and some exposure to economic cycles, though generally regarded as “essential” facilities and functions. 

With the emergence of “supercore” asset baskets that consist exclusively of assets with regulated pricing, it seems logical to include data centers, tower networks, edge computing facilities or fiber networks as “core.”

Correlation is Not "Causation"

All economic benefit forecasts hinge on the assumptions made about the correlation between some investment and expected outcomes. 

But few--if any-- studies actually claim a causal relationship between home broadband and economic outcomes. Generally, less direct descriptions are made. Broadband is said to have effects on economic growth rates, for example. Broadband is said to influence economic growth.  

Or faster broadband, such as 5G, is said to provide economic benefits as well as social outcomes. We might agree that broadband has “effects, influence or provide benefits of various types. 

We might agree that quality broadband tends to be associated with higher or faster economic growth. But that is correlation, not causation. Consumer purchasing of faster-speed broadband is associated with higher incomes, higher levels of education and wealth, for example. But nobody claims broadband “caused” higher income, education levels or wealth and income. They tend to be associated. 

Such correlation is often cited as “causation,” but economists rarely are so direct, though some might have made such claims. 

“High levels of broadband adoption are (arguably) causally associated with higher incomes,” says one study. Note the wording: even a correlation between broadband and higher incomes is only “casually associated.” No claim of causality is made. 

“Our analysis indicates a positive relationship between broadband expansion and economic growth,” says another study. “Although the evidence leans in the direction of a causal relationship, the data and methods do not definitively indicate that broadband caused this economic growth,” the study concludes. 

Likewise, home broadband or internet access is claimed to boost productivity, or is at least said to be correlated with such gains. The issue there is a broader difficulty measuring knowledge worker or office worker productivity, not simply the assumed impact of broadband. 

It is one matter to argue home broadband or faster broadband provides benefits. It is another matter to argue that the faster speed “causes” outcomes. Again, correlation is not “causation.” 

Predictions for 2023 are Predictable

It is the time of year when analysts make predictions about what comes next in the new year. It might be correct to say such predictions are mostly what we already know, and can extrapolate and foresee. It is the black swans we most want to know about, but, by definition, we cannot foresee such disruptions.

As always in the computing or connectivity business, most of the trends are extrapolations from what happened this year. In businesses as capital intensive and scale-dependent as computing and connectivity, very little that moves the revenue, products or operations volume needles can be started or finished in only a year. 

Consumer price hikes might trigger regulator attention while service providers continue to seek cost cuts. Investment in 5G will continue, as will efforts to align connectivity with higher-bandwidth, low-latency xReality applications and use cases, Analysys Mason suggests.

Some service providers will continue to push into and operate in adjacent areas of the internet ecosystem, such as content and banking. Service providers will make additional efforts to ensure their services support enterprise multi-cloud strategies. 

In the broader technology industry, much the same is true: if a trend was important in 2022, it will be important in 2023. In the connectivity realms, premises networking such as Wi-Fi, 5G rollouts and commercial deployment of low earth orbit satellite constellations will be top of mind. 

source: Zdnet 

Other current trends, such as attention to extended reality use cases, applied artificial reality and machine learning will continue. Effort to reduce energy consumption will continue as well. 

While some might add perspective on sales trends for digital infrastructure, private equity interest in digital infra assets or the possible impact of recession on consumer behavior--most observers probably noting some possibility of slowdowns for such reasons--the underlying trends will remain intact. 

Personally, I am always more interested in all the things that will happen that nobody really predicted. But, of course, we cannot predict such occurrences.