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TOTM The next chair has an awfully big pair of shoes (or one oversized coffee mug) to fill. Chairman Pai established an important legacy of transparency and process improvement, as well as commitment to careful, economic analysis in the business of the agency.
One of the themes that has run throughout this symposium has been that, throughout his tenure as both a commissioner and as chairman, Ajit Pai has brought consistency and careful analysis to the Federal Communications Commission (McDowell, Wright). The reflections offered by the various authors in this symposium make one thing clear: the next administration would do well to learn from the considered, bipartisan, and transparent approach to policy that characterized Chairman Pai’s tenure at the FCC.
Read the full piece here.
TOTM Disclosure: The one time I met Ajit Pai was when he presented a comment on my book, “The Political Spectrum,” at a Cato Institute forum . . .
Disclosure: The one time I met Ajit Pai was when he presented a comment on my book, “The Political Spectrum,” at a Cato Institute forum in 2018. He was gracious, thorough, and complimentary. He said that while he had enjoyed the volume, he hoped not to appear in upcoming editions. I took that to imply that he read the book as harshly critical of the Federal Communications Commission. Well, when merited, I concede. But it left me to wonder if he had followed my story to its end, as I document the success of reforms launched in recent decades and advocate their extension. Inclusion in a future edition might work out well for a chairman’s legacy. Or…
TOTM Ajit Pai has been, in my view, the most successful, impactful minority commissioner in the history of the modern regulatory state. And it is that success that has led him to become the most successful and impactful chairman, too.
Much of this symposium celebrates Ajit’s contributions as chairman of the Federal Communications Commission and his accomplishments and leadership in that role. And rightly so. But Commissioner Pai, not just Chairman Pai, should also be recognized.
TOTM The technical and business challenges of connecting rural America are different. Rural America needs different things out of its infrastructure than urban America. And the attitudes of both users and those providing service are different here than they are in urban America. Aji Pai gets this.
I was having a conversation recently with a fellow denizen of rural America, discussing how to create opportunities for academics studying the digital divide to get on-the-ground experience with the realities of rural telecommunications. He recounted a story from a telecom policy event in Washington, D.C., from not long ago. The story featured a couple of well-known participants in federal telecom policy as they were talking about how to close the rural digital divide. The punchline of the story was loud speculation from someone in attendance that neither of these bloviating telecom experts had likely ever set foot in a rural town.
TOTM Ajit Pai will step down from his position as chairman of the Federal Communications Commission (FCC) effective Jan. 20. Beginning Jan. 15, Truth on the Market will host a symposium exploring Pai’s tenure, with contributions from a range of scholars and practitioners.
Ajit Pai will step down from his position as chairman of the Federal Communications Commission (FCC) effective Jan. 20. Beginning Jan. 15, Truth on the Market will host a symposium exploring Pai’s tenure, with contributions from a range of scholars and practitioners.
Scholarship The Internet is a fabulous means of communication. However, the Digital Fuel Monitor by Rewheel/research is a prime example of misinformation on the Internet
By
The dissemination of false information online has become a serious challenge. Adding to this problem are the false claims put forth by Rewheel.
The Internet is a fabulous means of communication. However, the Digital Fuel Monitor by Rewheel/research is a prime example of misinformation on the Internet.[1] To curb the spread of false information, social media platforms have started applying warning labels to content they believe the facts do not support. Still, far too many false claims have attracted attention because separating fact from fiction on the Internet often requires a specific expertise. In this paper, the authors apply their expertise about mobile wireless markets to expose the false claims put forth by Rewheel/research in the recent publication of its Digital Fuel Monitor. We find the Rewheel rankings to lack academic rigor owing to an unsuitable analytical concept, unrealistic assumptions, and the omission of marketplace realities. Counterintuitive results confirm the rankings’ ineptness.
Rewheel, a Finnish consultancy, periodically issues reports that it portrays as international competitiveness comparisons of retail prices for mobile wireless services across the globe; however, these comparisons are not accurate representations of the state of competition in the mobile wireless world. In these reports, Rewheel assigns providers and countries international ranks and various competitive labels. For example, Rewheel ranks a country with alleged high prices a laggardand considers itleast competitive. Conversely, countries that Rewheel views favorably obtain a most competitive ranking. As with much of the information on the Internet, Rewheel follows the freemiummodel. That is, it publishes attention grabbing headlines and some colorful charts for free, but anyone seeking to understand more about the derivation of the data must pay Rewheel’s fees for the full content.
Mirroring much of the free content on the Internet, Rewheel’s rankings are unscientific and erroneous. Unfortunately, this contributes to the spread of misinformation about the state of competition in mobile wireless markets. Rewheel should be subject to the same warning labels as those placed on other suspicious information. Before turning to the shortfalls of the Rewheel rankings, we highlight that valid inferences regarding the competitiveness of mobile wireless service provisioning in a country cannot be made from a simple, unadjusted ranking of international prices. Countries differ in many aspects including network quality, consumer preferences, income, regulatory and legal environment, factors of production costs, and market size. These and many other differences among jurisdictions contribute to price variations. A proper international comparison considers these factors and compares the value proposition not simply prices.
In its recent ranking exercise, Rewheel ranks providers and countries by purportedly averaging the retail prices of 10 retail service plans. The 10 plans include five smartphone plans on 4G or 5G networks with varying levels of voice allowances, data allowances, and download speeds. Rewheel also includes three mobile broadband data-only plans and two home broadband (fixed wireless) plans. This exercise finds an average of €109 (US$127) for Canadian mobile wireless providers TELUS, Bell, and Rogers. Rewheel sweepingly declares that these providers offer “the least competitive monthly prices.”[2] With an average price of €29 (US$34), Finnish provider Elisa wins Rewheel’s distinction of offering “the most competitive … monthly prices.”[3] The Rewheel story is easy to understand. It is also completely wrong.
Rewheel bases its rankings on a meaningless concept that offers no economic market insights.
Comparing the prices of a collection of products (baskets) is not new. Prior to the introduction of the Internet, analysts used basket prices to compare supermarket prices. That is, they compared the costs of identically filled shopping carts across supermarkets. However, Rewheel’s application of the basket method is not appropriate for comparing prices of different mobile wireless services. Rewheel created its own version of the basket method that includes the calculation of meaningless averages, random combinations of different services, improper assumptions, and factual errors. Not surprisingly, as evidenced by the results derived by Rewheel, the rankings are incorrect and counterintuitive. We find Rewheel’s rankings are of no value in comparing prices and assessing the level of competition in wireless markets.
Comparing total grocery bills for two identical shopping carts from two different supermarkets might be a rational approach. However, knowing the average price of the items in the shopping cart clearly is useless especially when including a wide range of items. Nevertheless, Rewheel does just that – it compares average prices across varying items (in this case services). Knowing that the average price of a certain T-Mobile USA smartphone, tablet, and home Internet plan is €106 (US$125) is about as useless as knowing that the average price per item in a shopping basket containing a six-pack of beer, a dozen eggs, and a pound of oranges is US$10.
Rewheel’s assumptions are unsupported and create distorted rankings. Rewheel mixes prices from different providers and ignores market realities.
Rewheel does not explain why it would make sense to take the average of five smartphone plans, three data-only plans, and two wireless home Internet plans. Grocery bills are the sum of all items purchased at the supermarket. Presumably, consumers need all these items in their daily life. As such, the total grocery bill measures the household expenditure for food. Rewheel’s basket, however, does not represent anything. It does not represent an individual’s spending for mobile wireless services because subscribers do not need five smartphone plans. Subscribers also do not rely heavily on wireless home Internet access. Instead, the more prevalent means to access the Internet is through fixed broadband services offered by landline telephone and cable TV companies. Yet, fixed broadband services are missing from Rewheel’s basket. Thus, the average of Rewheel’s eclectic mix of services is meaningless. It certainly does not represent a consumer’s wireless spending, and it does not represent the average price of a particular service. Rather, the Rewheel basket is a mix of substitute and complementary items. Moreover, Rewheel’s basket overlooks an important item (fixed broadband) on a consumer’s shopping list.
The must-carry assumption. Rewheel assumes that in order for markets to be competitive all providers in the world mustoffer all 10 service plans in its basket. If a provider does not offer a specific plan, then that provider is “assigned the highest monthly price among all 168 operators.”[4] For example, per Rewheel, Vodafone in India does not offer a fixed wireless broadband plan with at least 1,000 GB of data and download speeds of 100 Mbps or faster. Therefore, under the must-carry assumption, Rewheel artificially increases Vodafone India’s price average by loading it with the highest observed international value for this plan. In this case, the highest monthly price that Rewheel found belongs to a provider in the United Kingdom by the name of EE Limited (formerly Everything Everywhere). Thus, Vodafone India’s average includes a plan price from the United Kingdom. Rewheel applies this exact price to no less than 133 of the 168 providers (79 percent) in its ranking.
Rewheel’s irrational assumption is akin to imputing that the price of buffalo meat in a vegetarian supermarket is the same as the price of the most expensive buffalo meat vendor in the world. There is no economic or statistical support for this approach. In fact, in some countries, Rewheel’s must-carry plans cannot even be offered because the regulator has yet to release 5G spectrum. Rewheel’s baseless assumption renders the comparison useless because the average price by which providers and countries are ranked is not composed of retail prices faced by subscribers in the respective markets.
The non-specialization assumption. Rewheel’s ranking unrealistically assumes that for a provider (and thus the market) to be competitive it must not specialize but must offer and compete on all plan levels selected by Rewheel. This assumption is counter to basic economic principles.
A rational business enterprise introduces service plans for the express purpose of earning positive economic profit. Based on this objective, an enterprise derives a strategy that determines its retail offerings. Unlike Rewheel’s assumption, this does not mean that all competing enterprises offer the same services. Quite the contrary, competitors seek to distinguish themselves from their peers through price and non-price service attributes and by offering new and innovative services to gain a competitive advantage.
Consider, for instance, Freedom Mobile Inc., a Canadian regional mobile wireless provider owned by Shaw Communications, a Canadian cable provider. Freedom does not offer fixed wireless broadband services. Rewheel incorrectly deduces from this observation that Freedom’s offerings are not competitive. Freedom is a profit-maximizing firm; therefore, its decision not to offer fixed wireless services is simply an indication that the service does not align with the company’s strategic blueprint. Freedom finds that it can best compete by specializing in offering mobile wireless services in select regions of Canada. Rewheel’s approach also overlooks service providers that mainly specialize in fixed wireless broadband, like Xplornet, which is not listed among Canada’s providers.
The standalone assumption. Rewheel incorrectly assumes that consumers demand and are supplied with standalone only plans. In Rewheel’s ranking system, there is no demand for bundled service plans where a consumer purchases mobile wireless service along with TV, fixed Internet, or fixed telephony services. However, in reality, many subscribers bundle their services and thereby receive discounts on mobile wireless and broadband services. Relatedly, mobile wireless providers offer bundled services to competitively distinguish themselves. For instance, AT&T offers free HBO Max subscriptions to some of its customers.[5] By ignoring bundled offerings and discounts, Rewheel overstates actual consumer expenditures.
The no-sharing assumption.The Rewheel ranking exercise also contains the untenable assumption that the increment of demand is always one mobile phone line and never more, which is false. For instance, AT&T offers unlimited plans starting at US$30 “when you get 5 lines.”[6] Rewheel ignores this US$30 price point. Instead, it uses a US$65 price point, which is AT&T’s lowest price for an unlimited plan with a single line.[7] Yet, as of 2015, an estimated 68 percent of US subscribers were part of a shared or family plan.[8] By ignoring the fact that subscribers purchase in increments of more than one line, Rewheel significantly overstates US prices.
Specifically, instead of the US$65 price assumed by Rewheel, the average price of AT&T’s cheapest unlimited plan is closer to US$41.[9] For this example alone, Rewheel’s assumption results in an overstatement of prices by 58 percent. The popularity of shared plans in the United States is not the exception. In Canada, approximately half of mobile wireless subscribers purchase a plan shared with others.
The price-only assumption.Rewheel’s incorrect ranking assumes that consumers only care about price and not what they get in exchange for their money. In building its average, Rewheel looks for the price of the cheapest plan that meets or exceeds its selection criteria.[10] The plans offered by different providers exceed the selection criteria by different amounts. Yet, Rewheel ignores this fact and creates an apples-to-oranges comparison where consumers do not care about anything but price. Omitting the value of additional minutes, data allowances, or faster download speeds is not realistic.
A real-world example illustrates the consequences of this baseless assumption. Koodo is a mobile wireless provider in Canada that is part of the TELUS family of brands. The cheapest Koodo plan that meets Rewheel’s criteria for its first plan (i.e., Smartphone: 4G&5G, 100 mins, 1 GB, 1 Mbps) is a plan priced at US$22.[11] Now, consider the Irish mobile wireless provider called 3 whose plan meets or exceeds the same Rewheel criteria and is priced at US$17.[12] Rewheel heralds 3 as a cheap provider and labels TELUS as “least competitive.”[13] Table 1 provides the details of these two plans.
As the table reveals, for an additional US$5 per month (not withstanding other differences), Koodo offers download speeds that exceed those offered by 3 by a factor of over four. By ignoring non-price service attributes, Rewheel assigns a least competitive label on Koodo and a most competitivelabel on 3, thereby incorrectly assuming that consumers do not care about network quality and that they would not be willing to pay for a higher speed. Presumably, Rewheel would also argue that consumers are not willing to pay more for high-grade Japanese wagyu beef than they would pay for a cheaper cut of beef.
The cost-equality assumption.Rewheel also ignores that building a network costs money. Rewheel unrealistically assumes that building a network in Finland (which Rewheel highlights as a competitive market) costs the same as building a network in Canada (which Rewheel highlights as a noncompetitive market) even though Finland has a population one-sixth the size of Canada and a landmass one twenty-ninth the size of Canada. Finnish mobile wireless providers also pay about 90 percent less for radio spectrum relative to their Canadian peers.[14] For a business enterprise to remain viable, it must recover its costs and earn a competitive return. Because all providers face buildout and spectrum costs, they are reflected in the retail prices for mobile wireless services. Yet, in Rewheel’s utopian world, all providers face the same costs.
Rewheel’s results are counterintuitive and confirm that a flawed concept and unreasoned assumptions guarantee incorrect findings.
The counterintuitive results.Two simple examinations demonstrate that Rewheel’s results are incorrect and offer no economic insight. First, we retraced Rewheel’s construction of the ranking average for one mobile wireless provider, that is, TELUS, a mobile wireless provider in Canada, which offers three brands – TELUS, Koodo, and Public Mobile. Examining the websites of the TELUS family of brands reveals that across the three brands TELUS only offers two of the 10 specific plans that Rewheel uses for its average. Specifically, as shown in Table 2, Koodo offers a plan at US$22.33 that meets and exceeds the first Rewheel plan (i.e., Smartphone, 4G&5G, 100 minutes, 1 GB, 1 Mbps). Koodo also offers a plan at US$55.81 that meets and exceeds the second Rewheel plan (i.e., Smartphone, 4G&5G, 1000 minutes, 10 GB, 10 Mbps). The TELUS brands do not offer any of Rewheel’s other eight specific plans although TELUS offers many other plans.
Rewheel ignores the fact that it misses 80 percent of the sample and simply substitutes the missing data points with “the highest monthly price among 168 operators.”[15] The data provided by Rewheel in its free Public Version on the Internet does not disclose what prices it used in every instance where a provider did not offer a plan. However, it is possible to ascertain that for the ninth plan (i.e., fixed wireless broadband plans with at least 1,000 gigabytes and 100 Mbit/s peak speed) Rewheel used US$88.37, which is the price for the most expensive plan that Rewheel found for this plan type. EE Limited in the United Kingdom supposedly offers this plan. For the sixth sample plan, Rewheel blends a price point of US$116.28 from Rogers, another Canadian mobile wireless provider, into TELUS’ average.
As the TELUS example demonstrates, Rewheel’s ranking is pure fiction. Aside from its theoretical failings and the fact that it misses the plans purchased by 50 percent of Canadians, Rewheel observes only two data points for TELUS, which average €34 (US$39). Based on Rewheel’s ranking, an average of €34 would put TELUS in third place out of 168 providers, which would appear to make it one of the most competitive mobile wireless providers in the world. However, Rewheel reports TELUS’ average at €109 (US$127), which is purely an artifact of Rewheel’s methodology that assigns TELUS the highest price for eight out of 10 sample plans – plans that TELUS does not even offer.
Second, in Rewheel’s world where only price matters, one would not expect providers with the most competitive monthly prices to be in the same market as providers with the least competitive prices. The reason for this is simple. Like any other rational economic agent, subscribers would not select a more expensive plan over an identical but less expensive plan. However, the myriad of unreasonable assumptions in Rewheel’s ranking produces this counterintuitive result.
Consider the case of Romania where Rewheel calculates average prices of US$69, US$70, US$122, and US$123 for Orange, Vodafone, RCS-RDS, and T-Mobile, respectively. In the same order, per Rewheel, these prices would rank the four providers as 23, 25, 141, and 146. This ranking presumably offers Orange and Vodafone a label of most competitive, whereas RCS-RDS and T-Mobile are least competitive. If the Rewheel price-only world were accurate, RCS-RDS and T-Mobile would not have sustainable business cases because Orange and Vodafone allegedly offer better prices and thus would attract all market demand. Nevertheless, the actual market shares in Romania tell a different story. RCS-RDS and T-Mobile have market shares of 12.6 percent and 18.7 percent, respectively.[16] It is counterintuitive that two alleged highly uncompetitive providers would attract about one-third of the country’s subscribers. We observed similar anomalies in other countries, including Finland, Switzerland, the United States, and the UK. These economic anomalies are prima facie evidence that Rewheel’s results are incorrect.
Rewheel’s Digital Fuel Monitor needs a warning label.
The warning label. Given the many theoretical and practical flaws and errors contained in the Rewheel study, we find it of no value when comparing prices internationally or establishing the level of competition in a country. A warning label informing readers about the lack of intellectual rigor and the misleading and incorrect nature of the Rewheel study’s results is appropriate and recommended.
[*] NERA Economic Consulting received financial support from TELUS Communications Corporation for the research and initial drafting of this paper. No other authors received compensation. All views expressed are those of the authors.
[1] See Rewheel/research, “4G&5G connectivity competitiveness 2020,” Digital Fuel Monitor, Rewheel research PRO study (Public Version), November 2020 (hereinafter Rewheel).
[2] Ibid, p. 1.
[3] Ibid.
[4] Ibid.
[5] See AT&T “Stream HBO Max with some AT&T unlimited plans,” https://www.att.com/support/article/wireless/KM1261921/.
[6] See AT&T Wireless Plans, https://www.att.com/plans/wireless/.
[7] Ibid.
[8] See Pew Research Center, “U.S. Smartphone Use in 2015, Chapter One: A Portrait of Smartphone Ownership,” p. 2.
[9] 30*0.68+65*0.32 = 41.20.
[10] For example, Rewheel collected “4G&5G mobile broadband plans with at least 100 gigabytes and 50Mbit/s peak speed” plans. (Rewheel, p. 3, (emphasis added).)
[11] See Koodo Prepaid Plans, https://www.koodomobile.com/prepaid-plans?INTCMP=KMNew_NavMenu_Shop_PrepaidPlans. Rewheel 2H 2020 State of Broadband Pricing, October 2020, p. 18.
[12] See 3 Prepay Plans, https://www.three.ie/buy/prepay.html#prepay-phone-plans; see also Rewheel 2H 2020 State of Broadband Pricing, October 2020, p. 18.
[13] Rewheel, p. 1.
[14] See Richard Marsden, Dr. Bruno Soria, and Hans-Martin Ihle, “Effective Spectrum Pricing: Supporting better quality and more affordable mobile services,” GSMA, February 2017, Figure 13.
[15] Rewheel, p. 11.
[16] Shares are for third quarter 2019 just prior to Rewheel’s data collection. (See TeleGeography, Country Profile, Romania, as of November 9, 2020, p. 32).
Regulatory Comments The central question presented by this docket is: How does the FCC properly incentivize the economically efficient rollout of broadband on existing infrastructure in order to optimize the process to ensure deployment as quickly as possible?
Thank you for the opportunity to comment on this important, though often underappreciated, issue. All parties concerned believe that rural broadband connectivity must remain a top priority for the FCC as it fulfills its mandate to connect all Americans. Finding an equitable and cost-effective way to share the expense associated with pole attachments is part and parcel of that process. The challenge confronting both the FCC and industry alike is how best to realize this goal in a timely and economically sustainable fashion.
The pace of broadband rollout is contingent upon its cost. The more expensive deployment becomes, necessarily, the more difficult it is to realize sustainable profits on that deployment. This dynamic invariably leads to a more selective use of scarce resources to the detriment of rural deployment.
Thus, the central question presented by this docket is: How does the FCC properly incentivize the economically efficient rollout of broadband on existing infrastructure in order to optimize the process to ensure deployment as quickly as possible?
Current estimates suggest that as much as twenty-five percent of the cost of broadband deployment in rural areas comes from attachers dealing with pole replacement and upgrade issues.[1] That’s a massive expense.
As the NCTA noted in its petition, part of the cost of pole replacement arises as a result of pole owners allowing some substantial portion of their pole inventory to remain in use after their useful life has ended.[2] When attachers, like broadband providers, endeavor to add their equipment to those poles, the owners seek to offload the cost of replacing or repairing the poles onto the attachers.[3] In other cases, pole owners make demands for “betterment” of existing poles that are not quite past their useful lifespan before new equipment can be installed.
The net effect of these inequitable practices is the unreasonable enrichment of pole owners, not just at the expense of attachers, but also at the expense of consumers – since broadband providers must necessarily pass along at least some of this cost. This is not a surprise. For example, a review of the pass-through literature published by the United Kingdom’s Office of Fair Trading, reports that 56-70% of increased wholesale price increases are passed through to consumers and 5.0-6.4% of increased commodity prices are passed through to consumers.[4]
And even where the cost is partially internalized by the broadband provider, this cost-shifting from pole owners to attachers forces a tradeoff for attachers which, in the end, results in slower and more expensive rollout. This ultimately results in rural customers receiving speed upgrades more slowly than their suburban and urban counterparts, while facing potentially higher prices when those upgrades happen.[5]
Allowing this situation to go on only encourages pole owners to continue to shift costs and introduce delays, to the detriment of consumers. Both the current administration, as well as the Biden campaign have announced 5G deployment as an important priority.[6] This bipartisan vision can only be realized if broadband is deployed in a cost-effective manner — including by requiring equitable sharing of pole replacement costs.
Continuing to permit pole owners to shift the cost of replacing their property onto broadband providers and other attachers violates both legal and economic logic.
First, Section 224 of the Communications Act requires that the FCC enforce “just and reasonable” terms for pole attachment requirements:
[T]he Commission shall regulate the rates, terms, and conditions for pole attachments to provide that such rates, terms, and conditions are just and reasonable[.][7]
If pole owners are able to shift all improvement costs of their poles onto attachers, pole owners are forcing others to pay to replace their own property—a clear violation of a requirement that pole attachment conditions are “just and reasonable.”
Second, even a rudimentary understanding of economics demonstrates that broadband deployment will become more expensive and slower if pole owners are not required to equitably share in the costs of replacing their own property. A simple and straightforward illustration shows why requiring firms to pay the entire cost of a pole replacement will result in lower replacement rates than a policy in which the costs are equitably distributed.
Consider three hypothetical companies deciding how many polls to install. Each company (A, B, and C), values the marginal benefit of each poll differently. For example, Company A values the first pole at $3,000 while Company B values the first pole at $2,500. Each company faces a diminishing marginal benefit: the first poll is more valuable than the second, and so on.
Assume the cost of installing a pole is $4,000 and poles are a public good, in which case the market “demand” is given by the vertical summation of each company’s marginal benefit schedule.[8] Combined, the companies value the first poll at $7,500. If the first pole were installed, the three companies would have a surplus of $3,500 ($7,500 – $4,000).
But, no single firm values the first poll at $4,000. Thus, in the absence of coordination, no polls would be installed.
However, if the installation cost is split three ways, the cost to each company would be $1,333 per pole. Because each company’s share of the cost is less than its marginal benefit, each company would enjoy a surplus from installing the first poll. So, at least one poll will be installed.
It’s also possible that coordination could allow for the installation of a second poll. If the cost is split evenly across the three firms, Companies A and B would enjoy a surplus, but the cost to Company C would exceed the benefits it would receive. With coordination, some of the benefits to A and B could be used to compensate C sufficiently to entice C to participate.
Moving from the example back into concrete terms, two lessons may be extrapolated. First, that unappreciated pole costs for poles not yet ready for replacement should be shared between pole owners and attachers and, second, that pole owners should be compensated equitably for the cost of replacement of end-of-life inventory, and should not reap a windfall. By connection, new attachers should be responsible for the incremental costs associated with attachment.
Thus, on the complementary bases of the facial legal reasoning of the NCTA petition and straightforward economic judgment, we support the recommendations and conclusions of the NCTA’s petition to the Commission.
On a related basis, we believe that a system should be employed to ensure that cases and controversies involving access to, and the costs of replacing, poles are resolved in an expeditious manner. Pole attachment issues are ripe for such treatment by virtue of the relatively limited universe of facts and analysis that may be determinative in related disputes. What’s more, a system already exists within the remit of the FCC to accomplish that objective in the form of Accelerated Docket Proceedings, which find resolution within 60 days.[9] The goal of closing the digital divide should not be subverted by largely superfluous procedural wrangling and, to that end, the Commission should direct staff to place more pole attachment disputes on the accelerated docket.
The changes proposed by NCTA are “just and reasonable” and, therefore, comport with the requirements of Section 224. Moreover, they also comport with sound economics, and will serve to further the timely deployment of broadband to all Americans. It is not every day that the FCC can undertake such seemingly small steps while having such an outsized impact on closing the digital divide.
[1] Petition of NCTA for Expedited Declaratory Ruling, In the Matter of Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment, WC Docket No. 17-84 (July 16, 2020), at 5-9, available at https://www.ncta.com/sites/default/files/2020-07/071620_17-84_NCTA_Petition_for_Declaratory_Ruling.pdf.
[2] Id.
[3] Id.
[4] RBB Economics, Cost Pass-through: Theory, Measurement, and Potential Policy Implications
A Report Prepared for the Office of Fair Trading 156-57 (Feb. 2014), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads /attachment_data/file/320912/Cost_Pass-Through_Report.pdf. One reason for the wide variation of pass-through rates is the nature of competition and vertical arrangements that govern the relationship between upstream and downstream firms.
[5] Hearing Before the Senate Committee on Commerce, Science, and Transportation on Oversight of the Federal Communications Commission, 114th Cong. (2015) (testimony of Commissioner Ajit Pai), available at https://www.govinfo.gov/content/pkg/CHRG-114shrg98498/html/CHRG-114shrg98498.htm (Because of increased fees on broadband providers, “the reduction competition that Title II is going to work across this country, but especially in rural America, is going to be substantial. You’ve heard our exchanges about how some of these smaller ISPs, in particular, are going to have to either, you know, suck up the cost or go out of business altogether.”)
[6] See White House, President Donald J. Trump Is Unleashing America’s 5G Potential (Aug. 10, 2020), available at https://www.whitehouse.gov/b7riefings-statements/president-donald-j-trump-unleashing-americas-5g-potential/ ; see also Joseph R. Biden, Jr., Why America Must Lead Again, Foreign Affairs (Mar./Apr. 2020), available at https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again
[7] 47 U.S.C. § 224 (2018).
[8] This is in contrast to the market demand for private goods, which is the horizontal summation of individual demand schedules.
[9] 47 C.F.R. § 1.736(a) (2018).
Regulatory Comments On behalf of the International Center for Law & Economics, I offer the following reply comments in support of the Federal Communications Commission’s (FCC) Notice . . .
On behalf of the International Center for Law & Economics, I offer the following reply comments in support of the Federal Communications Commission’s (FCC) Notice of Proposed Rulemaking (NPRM) to expand and enhance the use of the 5.850 – 5.925 GHz spectrum band.
In previously submitted comments, I offered support for the FCC’s proposed reallocation of the lower 45 MHz of the 5.9 GHz band based on the spectrum’s current underuse relative to its value in the context of Wi-Fi. Since those comments were submitted, subsequent studies have estimated that opening the lower 45 MHz of the 5.9 GHz band would result in $28.14 billion in economic value by 2025. These findings lend further support to the FCC’s proposed plan of action. Yet, opposition from elements of the transportation sector persists. Those opponents have offered, broadly, four justifications for delaying, modifying and/or abandoning elements of the FCC’s 5.9 GHz NPRM. ICLE’s reply comments will address and rebut each, in turn.
Click here to read the full comments.
Regulatory Comments In order to maximize the benefits of broadband to society, including through the provision of public safety communications and services, public policy must promote the . . .
In order to maximize the benefits of broadband to society, including through the provision of public safety communications and services, public policy must promote the proper incentives for broadband buildout. Both the 2015 Title II Open Internet Order (the “OIO”) and the 2017 Restoring Internet Freedom Order (the “RIFO”) were premised on this. But each adopted a different approach to accomplishing this objective.
The OIO premised its rules on the theory that ISPs are “gatekeepers,” poised to kill the golden goose of demand for broadband by adopting business practices that could reduce edge innovation.
The key insight of the virtuous cycle is that broadband providers have both the incentive and the ability to act as gatekeepers standing between edge providers and consumers. As gatekeepers, they can block access altogether; they can target competitors, including competitors to their own video services; and they can extract unfair tolls. Such conductwould, as the Commission concluded in 2010, “reduce the rate of innovation at the edge and, in turn, the likely rate of improvements to network infrastructure.” In other words, when a broadband provider acts as a gatekeeper, it actually chokes consumer demand for the very broadband product it can supply.
The RIFO, on the other hand, properly conceives of ISPs as intermediaries in a two-sided market that aim to maximize the value of the market by adopting practices, like pricing structures and infrastructure investment, that increase the value for both sides of the market.
We find it essential to take a holistic view of the market(s) supplied by ISPs. ISPs, as well as edge providers, are important drivers of the virtuous cycle, and regulation must be evaluated accounting for its impact on ISPs’ capacity to drive that cycle, as well as that of edge providers. The underlying economic model of the virtuous cycle is that of a two- sided market. In a two-sided market, intermediaries—ISPs in our case—act as platforms facilitating interactions between two different customer groups, or sides of the market— edge providers and end users. . . . The key characteristic of a two-sided market, however, is that participants on each side of the market value a platform service more as the number and/or quality of participants on the platform’s other side increases. (The benefits subscribers on one side of the market bring to the subscribers on the other, and vice versa, are called positive externalities.) Thus, rather than a single side driving the market, both sides generate network externalities, and the platform provider profits by inducing both sides of the market to use its platform. In maximizing profit, a platform provider sets prices and invests in network extension and innovation, subject to costs and competitive conditions, to maximize the gain both sides of the market obtain from interacting across the platform. The more competitive the market, the larger the net gains to subscribers and edge providers. Any analysis of such a market must account for each side of the market and the platform provider.
In other words, the fundamental difference of approach between the two Orders turns on whether it is edge innovation, pushing against ISP incentives to expropriate value from edge providers, that primarily drives network demand and thus encourages investment, or whether optimization decisions by both ISPs and the edge are drivers of network value. The RIFO rightly understands that ISPs have sharp incentives both to innovate as platforms (and thus continue to attract and retain end users), as well as to continue to make their services useful to edge providers (and, by extension, the consumers of those edge providers’ services).
The D.C. Circuit upheld RIFO’s fundamental rationale as a supportable basis for the FCC’s rules in Mozilla v. FCC. But it also accepted that three specific concerns were insufficiently examined in the RIFO, and remanded the case to the FCC to address them. Among these was the question of the RIFO’s implications for public safety. In its Public Notice seeking to refresh the record on the remanded issues, the Wireline Competition Bureau asks (among other things):
These are the questions to which this comment is primarily addressed.
In Part I, we discuss how the RIFO fosters investment in broadband buildout, in particular by enabling prioritization and by reducing the effects of policy uncertainty. In Part II, we describe how that network investment benefits public safety both in both direct and indirect ways. In Part III, we highlight the benefits to public safety from prioritization, in particular, which is facilitated by the RIFO.
Read the full comments here.
