Tag Archives: Mobile

Quote of the Day

March 25, 2013 ,

The statute wants a competitive analysis, but as the Commission correctly points out, competition is not the goal, it the means.  Better performance is the goal.  When the evidence presented in the Sixteenth Report is viewed in this way, the conclusion to be reached about the mobile industry, at least to me, is obvious:  the U.S. mobile wireless industry is performing exceptionally well for consumers, regardless of whether or not it satisfies someone’s arbitrarily-defined standard of “effective competition.”

— George Ford, Phoenix Center chief economist, commenting on the FCC’s 16th Wireless Competition report.

Posted in: Uncategorized , Tagged: , ,

The Broadband Rooster

March 12, 2013 ,

FCC chairman Julius Genachowski opens a new op-ed with a bang:

As Washington continues to wrangle over raising revenue and cutting spending, let’s not forget a crucial third element for reining in the deficit: economic growth. To sustain long-term economic health, America needs growth engines, areas of the economy that hold real promise of major expansion. Few sectors have more job-creating innovation potential than broadband, particularly mobile broadband.

Private-sector innovation in mobile broadband has been extraordinary. But maintaining the creative momentum in wireless networks, devices and apps will need an equally innovative wireless policy, or jobs and growth will be left on the table.

Economic growth is indeed the crucial missing link to employment, opportunity, and healthier government budgets. Technology is the key driver of long term growth, and even during the downturn the broadband economy has delivered. Michael Mandel estimates the “app economy,” for example, has created more than 500,000 jobs in less than five short years of existence.

We emphatically do need policies that will facilitate the next wave of digital innovation and growth. Chairman Genachowski’s top line assessment — that U.S. broadband is a success — is important. It rebuts the many false but persistent claims that U.S. broadband lags the world. Chairman Genachowski’s diagnosis of how we got here and his prescriptions for the future, however, are off the mark.

For example, he suggests U.S. mobile innovation is newer than it really is.

Over the past few years, after trailing Europe and Asia in mobile infrastructure and innovation, the U.S. has regained global leadership in mobile technology.

This American mobile resurgence did not take place in just the last “few years.” It began a little more than decade ago with smart decisions to:

(1) allow reasonable industry consolidation and relatively free spectrum allocation, after years of forced “competition,” which mandated network duplication and thus underinvestment in coverage and speed (we did in fact trail Europe in some important mobile metrics in the late 1990s and briefly into the 2000s);

(2) refrain from any but the most basic regulation of broadband in general and the mobile market in particular, encouraging experimental innovation; and

(3) finally implement the digital TV / 700 MHz transition in 2007, which put more of the best spectrum into the market.

These policies, among others, encouraged some $165 billion in mobile capital investment between 2001 and 2008 and launched a wave of mobile innovation. Development on the iPhone began in 2004, the iPhone itself arrived in 2007, and the app store in 2008. Google’s Android mobile OS came along in 2009, the year Mr. Genachowski arrived at the FCC. By this time, the American mobile juggernaut had already been in full flight for years, and the foundation was set — the U.S. topped the world in 3G mobile networks and device and software innovation. Wi-Fi, meanwhile surged from 2003 onward, creating an organic network of tens of millions of wireless nodes in homes, offices, and public spaces. Mr. Genachowski gets some points for not impeding the market as aggressively as some other more zealous regulators might have. But taking credit for America’s mobile miracle smacks of the rooster proudly puffing his chest at sunrise.

More important than who gets the credit, however, is determining what policies led to the current success . . . and which are likely to spur future growth. Chairman Genachowski is right to herald the incentive auctions that could unleash hundreds of megahertz of un- and under-used spectrum from the old TV broadcasters. Yet wrangling over the rules of the auctions could stretch on, delaying the the process. Worse, the rules themselves could restrict who can bid on or buy new spectrum, effectively allowing the FCC to favor certain firms, technologies, or friends at the expense of the best spectrum allocation. We’ve seen before that centrally planned spectrum allocations don’t work. The fact that the FCC is contemplating such an approach is worrisome. It runs counter to the policies that led to today’s mobile success.

The FCC also has a bad habit of changing the metrics and the rules in the middle of the game. For example, the FCC has been caught changing its “spectrum screen” to fit its needs. The screen attempts to show how much spectrum mobile operators hold in particular markets. During M&A reviews, however, the FCC has changed its screen procedures to make the data fit its opinion.

In a more recent example, Fred Campbell shows that the FCC alters its count of total available commercial spectrum to fit the argument it wants to make from day to day. We’ve shown that the U.S. trails other nations in the sum of currently available spectrum plus spectrum in the pipeline. Below, see a chart from last year showing how the U.S. compares favorably in existing commercially available spectrum but trails severely in pipeline spectrum. Translation: the U.S. did a pretty good job unleashing spectrum in 1990s through he mid-2000s. But, contrary to Chairman Genachowski’s implication, it has stalled in the last few years.

When the FCC wants to argue that particular companies shouldn’t be allowed to acquire more spectrum (whether through merger or secondary markets), it adopts this view that the U.S. trails in spectrum allocation. Yet when challenged on the more general point that the U.S. lags other nations, the FCC turns around and includes an extra 139 MHz in spectrum in the 2.5 GHz range to avoid the charge it’s fallen behind the curve.

Next, Chairman Genachowski heralds a new spectrum “sharing” policy where private companies would be allowed to access tiny portions of government-owned airwaves. This really is weak tea. The government, depending on how you measure, controls between 60% and 85% of the best spectrum for wireless broadband. It uses very little of it. Yet it refuses to part with meaningful portions, even though it would still be left with more than enough for its important uses — military and otherwise. If they can make it work (I’m skeptical), sharing may offer a marginal benefit. But it does not remotely fit the scale of the challenge.

Along the way, the FCC has been whittling away at mobile’s incentives for investment and its environment of experimentation. Chairman Genachowski, for example, imposed price controls on “data roaming,” even though it’s highly questionable he had the legal authority to do so. The Commission has also, with varied degrees of “success,” been attempting to impose its extralegal net neutrality framework to wireless. And of course the FCC has blocked, altered, and/or discouraged a number of important wireless mergers and secondary spectrum transactions.

Chairman Genachowski’s big picture is a pretty one: broadband innovation is key to economic growth. Look at the brush strokes, however, and there are reasons to believe sloppy and overanxious regulators are threatening to diminish America’s mobile masterpiece.

— Bret Swanson

Posted in: Broadband, Mobile , Tagged: , ,

Prof. Krugman misses the App Economy

February 7, 2012 ,

Steve Jobs designed great products. It’s very, very hard to make the case that he created large numbers of jobs in this country.

— Prof. Paul Krugman, New York Times, January 25, 2012

Turns out, not very hard at all.

The App Economy now is responsible for roughly 466,000 jobs in the United States, up from zero in 2007 when the iPhone was introduced.

— Dr. Michael Mandel, TechNet study, February 7, 2012

See our earlier rough estimate of Apple’s employment effects: “Jobs: Steve vs. the Stimulus.”

— Bret Swanson

Posted in: Innovation, Mobile , Tagged: , , , ,

R.H. Stands for Regulatory Hubris

February 1, 2012 ,

“It is the single worst telecom bill that I have ever seen.”

— Reed Hundt, Jan. 31, 2012

Isn’t this rich?

One of the most zealous regulators America has known says Congress is overstepping its bounds because it wants to unleash lots of new wireless spectrum but also wants to erect a few guardrails so that FCC regulators don’t run roughshod over the booming mobile broadband market.

At a New America Foundation event yesterday, former FCC chairman Reed Hundt said Congress shouldn’t micromanage the FCC’s ability to micromanage the wireless industry. Mr. Congressman, you don’t know anything about how the FCC should regulate the Internet. But the FCC does know how to build networks, run mobile Internet businesses, and perfectly structure a wildly tumultuous economic sector. It’s just the latest remarkable example of the growing hubris of the regulatory state.

In his book, You Say You Want a Revolution, Hundt famously recounted his staff’s interpretation and implementation of the 1996 Telecom Act.

The passage of the new law placed me on a far more public stage. But I felt Congress — in the constitutional sense — had asked me to exercise the full power of all ideas I could summon. And I believed that I and my team had learned, through many failures, how to succeed. Later, I realized that we knew almost nothing of the complexity and importance of the tasks in front of the FCC.

…

Meeting in several overlapping groups of about a dozen people each . . . we dedicated almost three weeks to studying the possible readings of each word in the 150-page statute. The conference committee compromises had produced a mountain of ambiguity that was generally tilted toward the local phone companies’ advantage. But under the principles of statutory interpretation, we had broad authority to exercise our discretion in writing the implementing regulations. Indeed, like the modern engineers trying to straighten the Leaning Tower of Pisa, we could aspire to provide the new entrants to the local telephone markets a fairer chance to compete than they might find in any explicit provision of the law. In addition, the law gave almost no guidance about how to treat the Internet, data networks, . . . and many other critical issues. (Three years later, Justice Antonin Scalia agreed, on behalf of the Supreme Court, that the law was profoundly ambiguous.)

…

The more my team studied the law, the more we realized our decisions could determine the winners and losers of the new economy. We did not want to confer advantage on particular companies; that seemed inequitable. But inevitably

wink, wink,

a decision that promoted entry into the local market would benefit a company that followed such a strategy.

There are so many angles here.

(1) Hundt says he and his team basically stretched the statute to mean whatever they wanted. The law may have been ambiguous — and it was, I’m not going to defend the ’96 Act — yet the Supreme Court still found in a series of early-2000s cases that Hundt’s FCC had wildly overstepped even these flimsy bounds. That’s how aggressive and unconstrained Hundt was.

(2) Hundt’s rules helped crash the tech and telecom sectors in 2000-2002. His rules were so complex and intrusive that, whatever your views about the CLEC wars, the PCS C block spectrum debacle, and other battles, it’s hard to deny that the paralysis caused by the rules hurt broadband and the nascent Net.

(3) Is it surprising that, given the FCC’s poor record of reaching way past its granted powers, some in Congress want to circumscribe FCC regulators by giving them less-than-omnipotent authority? Is the new view of elite regulators that Congress should pass laws, the full text of which might read: “§1. Congress grants to the Internet Agency the authority to regulate the Internet. Go forth and regulate.”

(4) On the other hand, it’s not clear why Hundt would care particularly what Congress says in any new spectrum statute. He didn’t care much for the words or intent of the ’96 Act, and he thinks regulators should “aspire” to grand self-appointed projects. Who knows, maybe all those Supreme Court smack downs in the early 2000s made an impression.

(5) Hundt says he and his team later realized, in effect, how naive they were about “the complexity and importance of the tasks in front of the FCC.” So he’s acknowledging after things didn’t go so well that his FCC underestimated the complexity and thus overestimated their own expertise . . . yet he says today’s FCC deserves comprehensive power to structure the mobile Internet as it sees fit?

(6) Hundt admitted his FCC relished its capacity to pick winners and losers. Not particular companies, mind you — that would be improper — merely the types of companies who win and lose. A distinction without very much of a difference.

(7) We don’t argue that Congress, instead of the FCC, should impose intrusive regulation through statute. We don’t advocate long and complex laws. That’s not the point. Laws should be clear and simple, but stating the boundaries of a regulator’s authority is not a controversial act. No one should be imposing intrusive regulation or overdetermining the structure of an industry. And that’s what Congress — perhaps in a rare case! — is protecting against here.

Posted in: Uncategorized , Tagged: , ,

Roam, roam on the range. Will Washington’s new intrusions discourage wireless expansion?

January 26, 2012 ,

The U.S. wireless sector has been only mildly regulated over the last decade. We’d argue this is a key reason for its success. But this presumption of mostly unfettered experimentation and dynamism may be changing.

Consider Sprint’s apparent decision to use “roaming” in Oklahoma and Kansas instead of building its own network. Now, roaming is a standard feature of mobile networks worldwide. Company A might not have as much capacity as it would like in some geography, so it pays company B, who does have capacity there, for access. Company A’s customers therefore get wider coverage, and Company B is paid for use of its network.

The problem comes with the FCC’s 2011 “digital roaming” order. Last spring three FCC commissioners decided that private mobile services — which the Communications Act says “shall not . . . be treated as a common carrier” — are a common carrier. Only D.C. lawyers smarter than you and me can figure out how to transfigure “shall not” into “may.” Anyway, the possible effect is to subject mobile data — one of the fastest growing sectors anywhere on earth — to all sorts of forced access mandates and price controls.

We warned here and here that turning competitive broadband infrastructure into a “common carrier” could discourage all players in the market from building more capacity and covering wider geographies. If company A can piggyback on company B’s network at below market rates, why would it build its own expensive network? And if company B’s network capacity is going to company A’s customers, instead of its own customers, do we think company B is likely to build yet more cell sites and purchase more spectrum?

With 37 million iPhones and 15million iPads sold last quarter, we need more spectrum, more cell towers, more capacity. This isn’t the way to get it. And what we are seeing with Sprint’s decision to roam instead of build in Oklahoma and Kansas may be the tip of this anti-investment iceberg.

Last spring when the data roaming order came down we began wondering about a possible “slow walk to a reregulated communications market.” Among other items, we cited net neutrality, possible new price controls for Special Access links to cell sites, and a host of proposed regulations affecting things like behavioral advertising and intellectual property (see, PIPA/SOPA). Since then we’ve seen the government block the AT&T-T-Mobile merger. And the FCC is now holding up its own important push for more wireless spectrum because it wants the right to micromanage who gets what spectrum and how mobile carriers can use it.

Many of these items can be thoughtfully debated. But the number of new encroachments onto the communications sector threatens to slow its growth. Many of these encroachments, moreover, are taking place outside any basic legislative authority. In the digital roaming and net neutrality cases, for example, the FCC appeared clearly to grant itself extra- if not il-legal authority. These new regulations are now being challenged in court.

We need some restraint across the board on these matters. The Internet is too important. We can’t allow a quiet, gradual reregulation of the sector to slow down our chief engine of economic growth.

— Bret Swanson

Posted in: Uncategorized , Tagged: , , , ,

The Slow Walk to a Reregulated Communications Market

May 24, 2011 ,

The generally light-touch regulatory approach to America’s Internet industry has been a big success story. Broadband, wireless, digital devices, Internet content and apps — these technology sectors have exploded over the last half-dozen years, even through the Great Recession.

So why are Washington regulators gradually encroaching on the Net’s every nook and cranny? Perhaps the explanation is a paraphrased line about Washington’s upside-down ways: If it fails, subsidize it. If it succeeds, tax it. And if it succeeds wildly, regulate it.

Whatever the reason, we should watch out and speak up, lest D.C. do-gooders slow the growth of our most dynamic economic engine.

Last December, the FCC imposed a watered down version of Net Neutrality. A few weeks ago the FCC asserted authority to regulate prices and terms in the data roaming market for mobile phones. There are endless Washington proposals to regulate digital advertising markets and impose strict new rules to (supposedly) protect consumer privacy. The latest new idea (but surely not the last) is to regulate prices and terms of “special access,” or Internet connectivity in the middle of the network.

Special access refers to high-speed links that connect, say, cell phone towers to the larger network, or an office building to a metro fiber ring. Another common name for these network links is “backhaul.” Washington lobbyists have for years been trying to get the FCC to dictate terms in this market, without success. But now, as part of the proposed AT&T-T-Mobile merger, they are pushing harder than ever to incorporate regulation of these high-speed Internet lines into the government’s prospective approval of  the acquisition.

As the chief opponent of the merger, Sprint especially is lobbying for the new regulations. Sprint claims that just a few companies control most the available backhaul links to its cell phone towers and wants the FCC to set rates and terms for its backhaul leases. But from the available information, it’s clear that many companies — not just Verizon and AT&T — provide these Special Access backhaul services. It’s not clear why an AT&T-T-Mobile combination should have a big effect on the market, nor why the FCC should use the event to regulate a well-functioning market.

Sprint is a majority owner and major partner of 4G mobile network Clearwire, which uses its own microwave wireless links for 90% of its backhaul capacity. Sprint used Clearwire backhaul for its Xohm Wi-Max network beginning in 2008 and will pay Clearwire around a billion dollars over the next two years to lease backhaul capacity.

T-Mobile, meanwhile, uses mostly non-AT&T, non-Verizon backhaul for its towers. Recent estimates say something like 80% of T-Mobile sites are linked by smaller Special Access providers like Bright House, FiberNet, Zayo Bandwidth, and IP Networks. Lots of other providers exist, from the large cable companies like Comcast, Cox, and TimeWarner to smaller specialty firms like FiberTower and TowerCloud to large backbone providers like Level 3. The cable companies all report fast growing cell site backhaul sales, accounting for large shares of their wholesale revenue.

One of the rationales for AT&T’s purchase of T-Mobile was that the two companies’ cell sites are complementary, not duplicative, meaning AT&T may not have links to many or most of T-Mobile’s sites. So at least in the short term it’s likely the T-Mobile cells will continue to use their existing backhaul providers, who are, again, mostly not Verizon or AT&T. It’s possible over time AT&T would expand its network and use its own links to serve the sites, but the backhaul business by then will only be more competitive than today.

This is a mostly unseen part of the Internet. Few of us every think about Special Access or Backhaul when we fire up our Blackberry, Android, or iPhone. But these lines are key components in mobile ecosystem, essential to delivering the voices and bits to and from our phones, tablets, and laptops. The wireless industry, moreover, is in the midst of a massive upgrade of its backhaul lines to accommodate first 3G and now 4G networks that will carry ever richer multimedia content. This means replacing the old T-1 and T-3 copper phone lines with new fiber optic lines and high-speed radio links. These are big investments in a very competitive market.

Given the Internet industry’s overwhelming contribution to the U.S. economy — not just as an innovative platform but as a leading investor in the capital base of the nation — one might think we wouldn’t lightly trifle with success. The chart below, compiled by economist Michael Mandel, shows that the top two — and three out of the top seven — domestic investors are communications companies. These are huge sums of money supporting hundreds of thousands of jobs directly and many millions indirectly.

via Michael Mandel

We’ve seen the damage micromanagement can cause — in the communications sector no less. The type of regulation of prices and terms on infrastructure leases now proposed for Special Access was, in my view, a key to the 2000 tech/telecom crash. FCC intrusions (remember line sharing, TELRIC, and UNE-P, etc.) discouraged investments in the first generation of broadband. We fell behind nations like Korea. Over the last half-dozen years, however, we righted our communications ship and leapt to the top of the world in broadband and especially mobile services.

I’m not arguing these regulations would crash the sector. But the accumulated costs of these creeping Washington intrusions could disrupt the crucial price mechanisms and investment incentives that are no where more important than the fastest growing, most dynamic markets, like mobile networks.Time for FCC lawyers to hit the beach — for Memorial Day weekend . . . and beyond. They should sit back and enjoy the stupendous success of the sector they oversee. The market is working.

— Bret Swanson

Posted in: Internet , Tagged: , , , ,

Up-is-down data roaming vote could mean mobile price controls

April 11, 2011 ,

Section 332(c)(2) of the Communications Act says that “a private mobile service shall not . . . be treated as a common carrier for any purpose under this Act.”

So of course the Federal Communications Commission on Thursday declared mobile data roaming (which is a private mobile service) a common carrier. Got it? The law says “shall not.” Three FCC commissioners say, We know better.

This up-is-down determination could allow the FCC to impose price controls on the dynamic broadband mobile Internet industry. Up-is-down legal determinations for the FCC are nothing new. After a decade trying, I’ve still not been able to penetrate the legal realm where “shall not” means “may.” Clearly the FCC operates in some alternate jurisprudential universe.

I do know the decision’s practical effect could be to slow mobile investment and innovation. It takes lots of money and know-how to build the Internet and beam real-time videos from anywhere in the world to an iPad as you sit on your comfy couch or a speeding train. Last year the U.S. invested $489 billion in info-tech, which made up 47% of all non-structure capital expenditures. Two decades ago, info-tech comprised just 33% of U.S. non-structure capital investment. This is a healthy, growing sector.

As I noted a couple weeks ago,

You remember that “roaming” is when service provider A pays provider B for access to B’s network so that A’s customers can get service when they are outside A’s service area, or where it has capacity constraints, or for redundancy. These roaming agreements are numerous and have always been privately negotiated. The system works fine.

But now a group of provider A’s, who may not want to build large amounts of new network capacity to meet rising demand for mobile data, like video, Facebook, Twitter, and app downloads, etc., want the FCC to mandate access to B’s networks at regulated prices. And in this case, the B’s have spent many tens of billions of dollars in spectrum and network equipment to provide fast data services, though even these investments can barely keep up with blazing demand. . . .

It is perhaps not surprising that a small number of service providers who don’t invest as much in high-capacity networks might wish to gain artificially cheap access to the networks of the companies who invest tens of billions of dollars per year in their mobile networks alone. Who doesn’t like lower input prices? Who doesn’t like his competitors to do the heavy lifting and surf in his wake? But the also not surprising result of such a policy could be to reduce the amount that everyone invests in new networks. And this is simply an outcome the technology industry, and the entire country, cannot afford. The FCC itself has said that “broadband is the great infrastructure challenge of the early 21st century.”

But if Washington actually wants more infrastructure investment, it has a funny way of showing it. On Sunday at a Boston conference organized by Free Press, former Obama White House technology advisor Susan Crawford talked about America’s major communications companies.  “[R]egulating these guys into to an inch of their life is exactly what needs to happen,” she said. You’d think the topic was tobacco or human trafficking rather than the companies that have pretty successfully brought us the wonders of the Internet.

It’s the view of an academic lawyer who has never visited that exotic place called the real world. Does she think that the management, boards, and investors of these companies will continue to fund massive  infrastructure projects in the tens of billions of dollars if Washington dangles them within “an inch of their life”? Investment would dry up long before we ever saw the precipice. This is exactly what’s happened economy-wide over the last few years as every company, every investor, in every industry worried about Washington marching them off the cost cliff. The White House supposedly has a newfound appreciation for the harms of over-regulation and has vowed to rein in the regulators. But in case after case, it continues to toss more regulatory pebbles into the economic river.

Perhaps Nick Schulz of the American Enterprise Institute has it right. Take a look. He calls it the Tommy Boy theory of regulation, and just maybe it explains Washington’s obsession — yes, obsession; when you watch the video, you will note that is the correct word — with managing every nook and cranny of the economy.

Posted in: Mobile , Tagged: , , ,

AT&T’s Exaflood Acquisition Good for Mobile Consumers and Internet Growth

March 21, 2011 ,

AT&T’s announced purchase of T-Mobile is an exaflood acquisition — a response to the overwhelming proliferation of mobile computers and multimedia content and thus network traffic. The iPhone, iPad, and other mobile devices are pushing networks to their limits, and AT&T literally could not build cell sites (and acquire spectrum) fast enough to meet demand for coverage, capacity, and quality. Buying rather than building new capacity improves service today (or nearly today) — not years from now. It’s a home run for the companies — and for consumers.

We’re nearing 300 million mobile subscribers in the U.S., and Strategy Analytics estimates by 2014 we’ll add an additional 60 million connected devices like tablets, kiosks, remote sensors, medical monitors, and cars. All this means more connectivity, more of the time, for more people. Mobile data traffic on AT&T’s network rocketed 8,000% in the last four years. Remember that just a decade ago there was essentially no wireless data traffic. It was all voice traffic. A few rudimentary text applications existed, but not much more. By year-end 2010, AT&T was carrying around 12 petabytes per month of mobile traffic alone. The company expects another 8 to 10-fold rise over the next five years, when its mobile traffic could reach 150 petabytes per month. (We projected this type of growth in a series of reports and articles over the last decade.)

The two companies’ networks and businesses are so complementary that AT&T thinks it can achieve $40 billion in cost savings. That’s more than the $39-billion deal price. Those huge efficiencies should help keep prices low in a market that already boasts the lowest prices in the world (just $0.04 per voice minute versus, say, $0.16 in Europe).

But those who focus only on the price of existing products (like voice minutes) and traditional metrics of “competition,” like how many national service providers there are, will miss the boat. Pushing voice prices down marginally from already low levels is not the paramount objective. Building fourth generation mobile multimedia networks is. Some wonder whether “consolidation of power could eventually lead to higher prices than consumers would otherwise see.” But “otherwise” assumes a future that isn’t going to happen. T-Mobile doesn’t have the spectrum or financial wherewithal to deploy a full 4G network. So the 4G networks of AT&T, Verizon, and Sprint (in addition to Clearwire and LightSquared) would have been competing against the 3G network of T-Mobile. A 3G network can’t compete on price with a 4G network because it can’t offer the same product. In many markets, inferior products can act as partial substitutes for more costly superior products. But in the digital world, next gen products are so much better and cheaper than the previous versions that older products quickly get left behind. Could T-Mobile have milked its 3G network serving mostly voice customers at bargain basement prices? Perhaps. But we already have a number of low-cost, bare-bones mobile voice providers.

The usual worries from the usual suspects in these merger battles go like this: First, assume a perfect market where all products are commodities, capacity is unlimited yet technology doesn’t change, and competitors are many. Then assume a drastic reduction in the number of competitors with no prospect of new market entrants. Then warn that prices could spike. It’s a story that may resemble some world, but not the one in which we live.

The merger’s boost to cell-site density is hugely important and should not be overlooked. Yes, we will simultaneously be deploying lots of new Wi-Fi nodes and femtocells (little mobile nodes in offices and homes), which help achieve greater coverage and capacity, but we still need more macrocells. AT&T’s acquisition will boost its total number of cell sites by 30%. In major markets like New York, San Francisco, and Chicago, the number of AT&T cell sites will grow by 25%-45%. In many areas, total capacity should double.

It’s not easy to build cell sites. You’ve got to find good locations, get local government approvals, acquire (or lease) the sites, plan the network, build the tower and network base station, connect it to your long-haul network with fiber-optic lines, and of course pay for it. In the last 20 years, the number of U.S. cell sites has grown from 5,000 to more than 250,000, but we still don’t have nearly enough. CEO Randall Stephenson says the T-Mobile purchase will achieve almost immediately a network expansion that would have taken five years through AT&T’s existing organic growth plan. Because of the nature of mobile traffic — i.e., it’s mobile and bandwidth is shared — the combination of the two networks should yield a more-than-linear increase in quality improvements. The increased cell-site density will give traffic planners much more flexibility to deliver high-capacity services than if the two companies operated separately.

The U.S. today has the most competitive mobile market in the world (second, perhaps, only to tiny Hong Kong). Yes, it’s true, even after the merger, the U.S. will still have a more “competitive” market than most. But “competition” is often not the most — or even a very — important metric in these fast moving markets. In periods of undershoot, where a technology is not good enough to meet demand on quantity or quality, you often need integration to optimize the interfaces and the overall experience, a la the hand-in-glove paring of the iPhone’s hardware, software, and network. Streaming a video to a tiny piece of plastic in your pocket moving at 60 miles per hour — with thousands of other devices competing for the same bandwidth — is not a commodity service. It’s very difficult. It requires millions of things across the network to go just right. These services often take heroic efforts and huge sums of capital just to make the systems work at all.

Over time technologies overshoot, markets modularize, and small price differences matter more. Products that seem inferior but which are “good enough” then begin to disrupt state-of-the art offerings. This was what happened to the voice minute market over the last 20 years. Voice-over-IP, which initially was just “good enough,” made voice into a commodity. Competition played a big part, though Moore’s law was the chief driver of falling prices. Now that voice is close to free (though still not good enough on many mobile links) and data is king, we see the need for more integration to meet the new challenges of the multimedia exaflood. It’s a never ending, dynamic cycle. (For much more on this view of technology markets, see Harvard Business School’s Clayton Christensen).

The merger will have its critics, but it seriously accelerates the coming of fourth generation mobile networks and the spread of broadband across America.

— Bret Swanson

Posted in: Exaflood, Mobile , Tagged: , , , ,

Data roaming mischief . . . Another pebble in the digital river?

March 17, 2011 ,

Mobile communications is among the healthiest of U.S. industries. Through a time of economic peril and now merely uncertainty, mobile innovation hasn’t wavered. It’s been a too-rare bright spot. Huge amounts of infrastructure investment, wildly proliferating software apps, too many devices to count. If anything, the industry is moving so fast on so many fronts that we risk not keeping up with needed capacity.

Mobile, perhaps not coincidentally, has also been historically a quite lightly regulated industry. But emerging is a sort of slow boil of small but many rules, or proposed rules, that could threaten the sector’s success. I’m thinking of the “bill shock” proceeding, in which the FCC is looking at billing practices and various “remedies.” And the failure to settle the D block public safety spectrum issue in a timely manner. And now we have a group of  rural mobile providers who want the FCC to set prices in the data roaming market.

You remember that “roaming” is when service provider A pays provider B for access to B’s network so that A’s customers can get service when they are outside A’s service area, or where it has capacity constraints, or for redundancy. These roaming agreements are numerous and have always been privately negotiated. The system works fine.

But now a group of provider A’s, who may not want to build large amounts of new network capacity to meet rising demand for mobile data, like video, Facebook, Twitter, and app downloads, etc., want the FCC to mandate access to B’s networks at regulated prices. And in this case, the B’s have spent many tens of billions of dollars in spectrum and network equipment to provide fast data services, though even these investments can barely keep up with blazing demand.

The FCC has never regulated mobile phone rates, let alone data rates, let alone data roaming rates. And of course mobile voice and data rates have been dropping like rocks. These few rural providers are asking the FCC to step in where it hasn’t before. They are asking the FCC to impose old-time common carrier regulation in a modern competitive market – one in which the FCC has no authority to impose common carrier rules and prices.

In the chart above, we see U.S. info-tech investment in 2010 approached $500 billion. Communications equipment and structures (like cell phone towers) surpassed $105 billion. The fourth generation of mobile networks is just in its infancy. We will need to invest many tens of billions of dollars each year for the foreseeable future both to drive and accommodate Internet innovation, which spreads productivity enhancements and wealth across every sector in the economy.

It is perhaps not surprising that a small number of service providers who don’t invest as much in high-capacity networks might wish to gain artificially cheap access to the networks of the companies who invest tens of billions of dollars per year in their mobile networks alone. Who doesn’t like lower input prices? Who doesn’t like his competitors to do the heavy lifting and surf in his wake? But the also not surprising result of such a policy could be to reduce the amount that everyone invests in new networks. And this is simply an outcome the technology industry, and the entire country, cannot afford. The FCC itself has said that “broadband is the great infrastructure challenge of the early 21st century.”

Economist Michael Mandel has offered a useful analogy:

new regulations [are] like  tossing small pebbles into a stream. Each pebble by itself would have very little effect on the flow of the stream. But throw in enough small pebbles and you can make a very effective dam.

Why does this happen? The answer is that each pebble by itself is harmless. But each pebble, by diverting the water into an ever-smaller area,  creates a ‘negative externality’ that creates more turbulence and slows the water flow.

Similarly, apparently harmless regulations can create negative externalities that add up over time, by forcing companies to spending  time and energy meeting the new requirements. That reduces business flexibility and hurts innovation and growth.

It may be true that none of the proposed new rules for wireless could alone bring down the sector. But keep piling them up, and you can dangerously slow an important economic juggernaut. Price controls for data roaming are a terrible idea.

Posted in: bandwidth, Exaflood, Mobile , Tagged: , , ,

Mobile traffic grew 159% in 2010 . . . Tablets giving big boost

February 3, 2011 ,

Among other findings in the latest version of Cisco’s always useful Internet traffic updates:

  • Mobile data traffic was even higher in 2010 than Cisco had projected in last year’s report. Actual growth was 159% (2.6x) versus projected growth of 149% (2.5x).
  • By 2015, we should see one mobile device per capita . . . worldwide. That means around 7.1 billion mobile devices compared to 7.2 billion people.
  • Mobile tablets (e.g., iPads) are likely to generate as much data traffic in 2015 as all mobile devices worldwide did in 2010.
  • Mobile traffic should grow at an annual compound rate of 92% through 2015. That would mean 26-fold growth between 2010 and 2015.

Posted in: bandwidth, Exaflood , Tagged: , , , , , , , , ,

A Victory For the Free Web

April 7, 2010 ,

After yesterday’s federal court ruling against the FCC’s overreaching net neutrality regulations, which we have dedicated considerable time and effort combatting for the last seven years, Holman Jenkins says it well:

Hooray. We live in a nation of laws and elected leaders, not a nation of unelected leaders making up rules for the rest of us as they go along, whether in response to besieging lobbyists or the latest bandwagon circling the block hauled by Washington’s permanent “public interest” community.

This was the reassuring message yesterday from the D.C. Circuit Court of Appeals aimed at the Federal Communications Commission. Bottom line: The FCC can abandon its ideological pursuit of the “net neutrality” bogeyman, and get on with making the world safe for the iPad.

The court ruled in considerable detail that there’s no statutory basis for the FCC’s ambition to annex the Internet, which has grown and thrived under nobody’s control.

. . .

So rather than focusing on new excuses to mess with network providers, the FCC should tackle two duties unambiguously before it: Figure out how to liberate the nation’s wireless spectrum (over which it has clear statutory authority) to flow to more market-oriented uses, whether broadband or broadcast, while also making sure taxpayers get adequately paid as the current system of licensed TV and radio spectrum inevitably evolves into something else.

Second: Under its media ownership hat, admit that such regulation, which inhibits the merger of TV stations with each other and with newspapers, is disastrously hindering our nation’s news-reporting resources and brands from reshaping themselves to meet the opportunities and challenges of the digital age. (Willy nilly, this would also help solve the spectrum problem as broadcasters voluntarily redeployed theirs to more profitable uses.)

Posted in: Net Neutrality , Tagged: , , , , , , ,

More wireless connectivity? Or more politics?

April 1, 2010 ,

For years we’ve been talking about the need for more wireless bandwidth, more spectrum, and a host of creative new strategies to complement our mobile phone networks — from familiar Wi-Fi to more exotic femtocells and satellites. The continuing explosion of mobile data traffic means we need these things now more than ever. In the graph below, Cisco projects 120% compound annual growth in North American mobile data from 2009 through 2013.

The Federal Communications Commission recognized these trends and needs in its new National Broadband Plan. It set the bold goal of unleashing 500 MHz of mostly dormant wireless spectrum for more productive use in new broadband Internet and media applications.

On March 29, the FCC had a chance to begin putting its Plan into action when it approved the acquisition of SkyTerra by Harbinger Capital. The result of the merger is a new wireless company that will use both MSS satellite spectrum and so-called ATC terrestrial spectrum to deliver a new hybrid mobile service. Harbinger announced it would build a nationwide, wholesale, “open access” 4G broadband wireless network at the cost of $6 billion. Although not part of the FCC’s 500 MHz push, the new Harbinger strategy aligns nicely with the goal of more, better, and broader wireless access and options throughout the country (in this case, Canada, too).

But the FCC order, which was not voted by the full commission but issued by the bureau chiefs, contains two curious provisions. The provisions restrict Harbinger’s cooperation with two important mobile service providers and could hinder the very goal of extending more wireless coverage to more Americans. (more…)

Posted in: Mobile , Tagged: , , , , ,

Lawyerpalooza

March 7, 2010 ,

Larry Downes, author of the excellent Laws of Disruption and a new colleague at the Tech Liberation Front, notes the proliferation of patent lawsuits in the mobile phone world and points toward this good graphic in the New York Times to help make his point, that “It’s both much worse and not as bad as it seems”:

Posted in: Intellectual Property, Mobile , Tagged: , , ,

ExaTablet?

January 21, 2010 ,

The Wall Street Journal‘s Digits blog asks, “Could Verizon Handle Apple Tablet Traffic?”

The tablet’s little brother, the iPhone, has already shown how an explosion in data usage can overload a network, in this case AT&T’s. And the iPhone is hardly the kind of data guzzler the tablet is widely expected to be. After all, it’s one thing to squint at movies on a 3.5-inch screen and quite another to watch them in relatively cinematic 10 inches.

“Clearly this is an issue that needs to be fixed,” says Broadpoint Amtech analyst Brian Marshall. “It can grind the networks to a halt.”

Posted in: Uncategorized , Tagged: , , , ,

New York and Net Neutrality

November 20, 2009 ,

This morning, the Technology Committee of the New York City Council convened a large hearing on a resolution urging Congress to pass a robust Net Neutrality law. I was supposed to testify, but our narrowband transportation system prevented me from getting to New York. Here, however, is the testimony I prepared. It focuses on investment, innovation, and the impact Net Neutrality would have on both.

“Net Neutrality’s Impact on Internet Innovation” – by Bret Swanson – 11.20.09

Posted in: bandwidth, Net Neutrality , Tagged: , , , , ,

Did Cisco just blow $2.9 billion?

October 14, 2009 ,

Cisco better hope wireless “net neutrality” does not happen. It just bought a company called Starent that helps wireless carriers manage the mobile exaflood.

See this partial description of Starent’s top product:

Intelligence at Work

Key to creating and delivering differentiat ed ser vices—and meeting subscriber demand—is the ST40’s ability to recognize different traffic flows, which allows it to shape and manage bandwidth, while interacting with applications to a very fine degree. The system does this through its session intelligence that utilizes deep packet inspection (DPI) technology, ser vice steering, and intelligent traffic control to dynamically monitor and control sessions on a per-subscriber/per-flow basis.

The ST40’s interaction with and understanding of key elements within the multimedia call—devices, applications, transport mechanisms, policies—and assists in the ser vice creation process by:

• Providing a greater degree of information granularity and flexibility for billing, network planning, and usage trend analysis

• Sharing information with external application ser vers that perform value-added processing

• Exploiting user-specific attributes to launch unique applications on a per-subscriber basis

• Extending mobility management information to non-mobility aware applications

• Enabling policy, charging, and Quality of Ser vice (QoS) features

Traffic management. QoS. Deep Packet Inspection. Per service billing. Special features and products. Many of these technologies and features could be outlawed or curtailed under net neutrality. And the whole booming wireless arena could suffer.

Posted in: bandwidth, Exaflood, Mobile , Tagged: , , ,

Neutrality for thee, but not for me

October 4, 2009 ,

In Monday’s Wall Street Journal, I address the once-again raging topic of “net neutrality” regulation of the Web. On September 21, new FCC chair Julius Genachowski proposed more formal neutrality regulations. Then on September 25, AT&T accused Google of violating the very neutrality rules the search company has sought for others. The gist of the complaint was that the new Google Voice service does not connect all phone calls the way other phone companies are required to do. Not an earthshaking matter in itself, but a good example of the perils of neutrality regulation.

As the Journal wrote in its own editorial on Saturday:

Our own view is that the rules requiring traditional phone companies to connect these calls should be scrapped for everyone rather than extended to Google. In today’s telecom marketplace, where the overwhelming majority of phone customers have multiple carriers to choose from, these regulations are obsolete. But Google has set itself up for this political blowback.

Last week FCC Chairman Julius Genachowski proposed new rules for regulating Internet operators and gave assurances that “this is not about government regulation of the Internet.” But this dispute highlights the regulatory creep that net neutrality mandates make inevitable. Content providers like Google want to dabble in the phone business, while the phone companies want to sell services and applications.

The coming convergence will make it increasingly difficult to distinguish among providers of broadband pipes, network services and applications. Once net neutrality is unleashed, it’s hard to see how anything connected with the Internet will be safe from regulation.

Several years ago, all sides agreed to broad principles that prohibit blocking Web sites or applications. But I have argued that more detailed and formal regulations governing such a dynamic arena of technology and changing business models would stifle innovation.

Broadband to the home, office, and to a growing array of diverse mobile devices has been a rare bright spot in this dismal economy. Since net neutrality regulation was first proposed in early 2004, consumer bandwidth per capita in the U.S. grew to 3 megabits per second from just 262 kilobits per second, and monthly U.S. Internet traffic increased to two billion gigabytes from 170 million gigabytes — both 10-fold leaps. New wired and wireless innovations and services are booming.

All without net neutrality regulation.

The proposed FCC regulations could go well beyond the existing (and uncontroversial) non-blocking principles. A new “Fifth Principle,” if codified, could prohibit “discrimination” not just among applications and services but even at the level of data packets traversing the Net. But traffic management of packets is used across the Web to ensure robust service and security.

As network traffic, content, and outlets proliferate and diversify, Washington wants to apply rigid, top-down rules. But the network requirements of email and high-definition video are very different. Real time video conferencing requires more network rigor than stored content like YouTube videos. Wireless traffic patterns are more unpredictable than residential networks because cellphone users are, well, mobile. And the next generation of video cloud computing — what I call the exacloud — will impose the most severe constraints yet on network capacity and packet delay.

Or if you think entertainment unimportant, consider the implications for cybersecurity. The very network technologies that ensure a rich video experience are used to kill dangerous “botnets” and combat cybercrime.

And what about low-income consumers? If network service providers can’t partner with content companies, offer value-added services, or charge high-end users more money for consuming more bandwidth, low-end consumers will be forced to pay higher prices. Net neutrality would thus frustrate the Administration’s goal of 100% broadband.

Health care, energy, jobs, debt, and economic growth are rightly earning most of the policy attention these days. But regulation of the Net would undermine the key global platform that underlay better performance on each of these crucial economic matters. Washington may be bailing out every industry that doesn’t work, but that’s no reason to add new constraints to one that manifestly does.

— Bret Swanson

Posted in: Net Neutrality , Tagged: , , , , , , , , , , ,

Quote of the Day

July 7, 2009 ,

“There’s also no denying that these distribution deals have benefited consumers. More than 30 devices have been introduced to compete with the iPhone since its debut in 2007. The fact that one carrier has an exclusive has forced other companies to find partners and innovate. In response, the price of the iPhone has steadily fallen. The earliest iPhones cost more than $500; last month, Apple introduced a $99 model.

“If this is a market malfunction, let’s have more of them. Isn’t Washington busy enough re-ordering the rest of the economy?”

— The Wall Street Journal, July 7, 2009

Posted in: Quote of the Day , Tagged: ,