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The FCC's Dangerous Road

10:45 AM -- The Federal Communications Commission (FCC) recently led discussions on proposed net neutrality rules, covering, but not limited to, new definitions of broadband speeds. This comes at the same time the Commission is working on a broader plan to bring broadband to areas of the country unserved and underserved by high-speed connections. (See 100-Meg Price Tag: $350B, MSOs Ask for $442M to Fund BB Stimulus Proposals, and Recovery Act: Round One Brings 'Nearly $28B' in Bids.)

This is yet another dangerous road the FCC is attempting to navigate from a top-down regulatory standpoint, and could simply derail the original intent to stimulate broadband-related investments.

Here are the perilous implications:

  • Mandating ISP speeds on the front end of legislation could impede private investment from taking on the challenges of serving sparsely populated or lower demographic areas.

  • Creating an open and share-all approach for content access will again scare off potential investors, which will be dubious about reaching respectable returns on their money.

  • The burgeoning Internet advertising market will be hampered, or even stopped, from investing in the very sector the FCC is attempting to help grow.


These are the important net neutrality issues that need to be addressed while proposing to regulate an industry on the verge of creating the broadband-based applications and services that consumers want. My message to the FCC is: Do not blow the very opportunity to let private investment create the infrastructure, content, and applications you have urged them to create, by over-regulating those companies into inaction.

It continues to be evident that the best incentive would be to take a hands-off approach to regulation while enabling the capital for ISPs to build out their infrastructures. What scares Wall Street more than anything is the prospect of heavy regulation that will stifle investment opportunities. This has a negative effect on company stocks, shareholders, and the willingness of private investment to flourish and, in essence, get the job done.

The FCC should be promoting a healthy investment and competition environment rather than a heavy-handed regulatory approach for the future of Internet access. This would create the win-win situation the government agency is looking for, whether it realizes the implications or not.

— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Cable Digital News

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paolo.franzoi 12/5/2012 | 3:54:56 PM
re: The FCC's Dangerous Road

 


So, I hear all the net neutrality stuff and wonder if it is not carrier bluster on a regulatory matter.


Verizon, AT&T, Comcast are ALL highly profitable (as are many other smaller carriers) and are pouring Billions into their infrastructure having nothing to do with Broadband Stimulus.


Anybody seen a slowdown in rollout of high speed stuff?  What I see is concentration on high ARPU/low construction cost/high density areas.  Is it perfect?  No, but DOCSIS 3.0 and FTTP/FTTN continue to roll out in volume.


The rural IOC carriers have had generally high take rates of DSL.  I can't speak for the small MSOs as I don't know that market.  The problem areas are generally rural RBOC properties.  None of that is impacted by Broadband Stimulus OR Net Neutrality.


My solution to fix it (as I have stated) is to make Broadband a Universal Service and mandate what we consider today as relatively high speeds and put those speeds on an escalation path.  On top of that maximum concentration ratios (or oversubscription ratios if you prefer) would be mandated as well.


There would be a cry and a sob from all the carriers.  Who are all (okay not Charter) massive amounts of money and free cash flow. 


seven


 

paolo.franzoi 12/5/2012 | 3:54:55 PM
re: The FCC's Dangerous Road

 


My only comment is that at some level I agree with (God help me for saying this) rj that this is definitely an area requiring some amount of regulation.


However, I agree with your basic principle from the following standpoint.  If I look at the Telecom Act of 96, who would have predicted the current state of the industry from that document.  So, I believe that regulators have to be very careful in getting in the way of changes that are occuring on the technology level.


I still believe that Net Neutrality is a complete red herring.  Broadband rollouts continue apace and the broadband service providers are raking in all kinds of cash flow from the service - WITHOUT - any add on services (or diminimus amounts of them). 


seven


 

LeonardGrace 12/5/2012 | 3:54:55 PM
re: The FCC's Dangerous Road

Seven, thanks for the good comment!


When I see the FCC leaning toward top-down regulation rather than a supporter of free market competition, it makes me cringe.


Whether it is under the guise of Net Neutrality, or Broadband Stimulus, it can have negative effects on private investment communities which most operators rely on.


I see their role as more of a referee, calling a foul when a company gets out of line, which is going to happen as in the past. But to regulate ISP speeds, content, or any other scenerio that would hamper true investment; it becomes a market problem, not a solution.


 

LeonardGrace 12/5/2012 | 3:54:54 PM
re: The FCC's Dangerous Road

Seven, good point to the effect that the FCC should be vigilant in understanding and helping markets to thrive with both buinsess and consumers getting what they want.


MSO's are raking in the cash, but as the result of the huge investments made in infrastructure and content related to the Digital TV arena. So demand continues dictate the price for those services, and as long as consumers are willing to pay, prices will not diminish that much.


But the environment is changing and the FCC should make sure that investment continues on the ISP side where content seems to be headed. We have already seen companies move in that direction with TV Everywhere and Tru2way research.


But the primary role of the FCC should be to encourage competition and make sure markets are not manipulated to favor any sector or company over another.

rjmcmahon 12/5/2012 | 3:54:51 PM
re: The FCC's Dangerous Road

I agree with seven that net neutrality is a red hering.


And not to be rude, but the article is full of nonsensical rhetoric.  The ideology is so confused it is silly.  Here's an obvious flaw per the article.


"The FCC should be promoting a healthy investment and competition environment rather than a heavy-handed regulatory approach for the future of Internet access."


What a savy investor looks for is a sustainable competitive advantage which really means make sure no competition can threaten the ROI.


"One of the most important things that Warren Buffett has used in finding stocks that he believes are a good value as well as winners in the long run is the economic moat of a company. What does the term economic moat mean? An economic moat is a competitive advantage that is difficult to copy or emulate, which provides a significant barrier to competition from other firms. Buffett has often referred to an economic moat as being similar to a fortress or a medieval castle that one can not penetrate. "


Pharmaceuticals are granted patents (also known as government sponsored monopolies) so they have an incentive to sink costs into R&D for new drugs.  I see no difference between this sunk capital and the capital that needs to be sunk into fiber OSPs. 


The competition illusion (or delusion) is on par with the God delusion where some omnipotent and omniscience being watches as millions of children made in His image die from things like malaria.  Maybe a start to solving our problems is to put aside the delusions and start dealing with reality?

kaps 12/5/2012 | 3:54:51 PM
re: The FCC's Dangerous Road

Every time I hear or see the proclamation that net neutrality regulations will keep people from investing, my eyes start to water as I cry tears, thinking of those poor investors who don't have the opportunity to invest in those rock-solid monopolies of days gone by.


Does anyone really believe such blather? Are there any real investors out there who can speak for themselves, and tell us all that unless we allow providers to do as we please, there won't be any more networks built, ever?


Meanwhile Verizon says it's OK now to have Google Voice on your cellphone and AT&T says it's OK to run VoIP over 3G. So maybe open networks aren't such a bad idea after all. But just don't regulate that idea! If you do, all the money will run away to... where, exactly?


Blah blah blah incentive to invest blah blah blather. Can't the telco cronies come up with some new, better anti-net neutrality material?

kaps 12/5/2012 | 3:54:51 PM
re: The FCC's Dangerous Road

Every time I hear or see the proclamation that net neutrality regulations will keep people from investing, my eyes start to water as I cry tears, thinking of those poor investors who don't have the opportunity to invest in those rock-solid monopolies of days gone by.


Does anyone really believe such blather? Are there any real investors out there who can speak for themselves, and tell us all that unless we allow providers to do as we please, there won't be any more networks built, ever?


Meanwhile Verizon says it's OK now to have Google Voice on your cellphone and AT&T says it's OK to run VoIP over 3G. So maybe open networks aren't such a bad idea after all. But just don't regulate that idea! If you do, all the money will run away to... where, exactly?


Blah blah blah incentive to invest blah blah blather. Can't the telco cronies come up with some new, better anti-net neutrality material?

LeonardGrace 12/5/2012 | 3:54:50 PM
re: The FCC's Dangerous Road

Hey guys, thanks for the great comments!


MSO's are largely unregulated today because there is deemed sufficient competition within the marketplace. Warren Buffet's investment comments were, in essence, a mandate to choose companies who are (first to market) with a product or service that is hard to emulate.


That creates real value for investors, when companies have the confidence to invest in R&D without undue regulation of markets. Competition spurs companies to have the best product at the lowest possible price.


 

paolo.franzoi 12/5/2012 | 3:54:50 PM
re: The FCC's Dangerous Road

 


The universe has now imploded as rj and I agreed.


seven


Edit:  The issue Leonard is that there is some bit of the natural monopoly working here where competition is restricted in the markets.  There are not likely to be a large number of competitors for broadband access in any given area.  I like cross-modal competition - but even then it is no more than 4 in the MOST competitive area.


That is why regulation HAS to play a larger role.  For example, if companies want to save money....just make a single 56K modem your connection to the local peering point.  You can charge the same for access rates as actually availability of bandwidth is not what is sold, but instead train up rate of the interface.


seven


 

rjmcmahon 12/5/2012 | 3:54:48 PM
re: The FCC's Dangerous Road

re: "But just don't regulate that idea! If you do, all the money will run away to... where, exactly?"


If net neutrality regulation is adopted, Wall Street will be so scared that they'll only invest in high value, unregulated activities such as life settlements.   So, if we see another collapse of and by the financial sector, don't blame lack of regulation of that sector, but rather blame a cause and effect where the regulation of another sector triggered a run to safe harbours by these respectable traders.


"Wall Street is developing a product that packages life-insurance policies into investable bonds, and the plan already is generating controversy, according to a media report Sunday.


Investment banks expect to buy life insurance policies that ill and elderly people sell for cash, then package hundreds or thousands of them into bonds. Institutional and other buyers would be the primary buyers of these bonds, receiving a payout when people with the insurance die, the New York Times reported in its online edition.


With $26 trillion of life insurance policies in force in the U.S., the market for these "life settlements" bonds could be immense, the Times said.


Investment banks stand to profit from the creation, sale and trading of the bonds.


Wall Street has been searching for a product to replace the once-lucrative mortgage business, and life settlements policies are being seen as the answer, the Times said."


Boy, as a society, we should do whatever Wall Street comes up with as that's surely the only solution to any problem.





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