Congress

Kudos to the Wall Street Journal today for their twin great editorials on net neutrality and the 700 MHz auction: "Reed Hundt's Spectrum Play" by the Jounal editorial writers and "Telecom Time Warp" by Robert Crandall and Hal Singer.

• The Journal editorial accurately hits on the Google/Hundt cabal to rig the auction rules so they can win the Nation's most valuable spectrum at a deep discount.
• Google is laughing all the way to the bank that they could sucker a Republican Chairman of the FCC to carry their water and stand heavily on the competitive scales to pick them as winner before the bidding commences.
• It will be interesting to see how Chairman Martin "squares this circle" and explains why market participants should ever trust what he says going forward on competition and regulation given that up to now he has discussed no market failure or consumer problem that requires regulation to solve up to now.
• My favorite point of many in Robert and Hal's great editorial is reminding everyone the outrageousness of the FCC mandating "unbundling" (a drastic action reserved for entrenched monopolies) when the wireless industry is so obviously competitive that the price of a wireless minute has fallen by 84% over the last decade!
• Amazing! Chairman Martin apparently finds market failure when prices are plummeting, consumer choice has exploded, subscribership and usage has skyrocketed and investment boomed. Huh?
• What's wrong with this picture? 
• The only apparent explanation is that Chairman Martin now believes more in the regulatory hand of Big Government than the "invisible hand" of market forces.
• Wireless is the single biggest competitive success story in communications!
• And Mr. Martin's reward for all those market players that invested billions of dollars of risk capital to buildout the world's most competitive facilities-based wireless marketplace -- is heavy handed and unnecessary "separations" and unbundling monopoly regulation!

Bottomline:  The Bush Adminstration's sole policy goal in telecommunications has been to promote broadband investment and deployment to all Americans.

According to DowJones, FCC Chairman Kevin Martin is proposing some of the net neutrality/open access regulation that Google requested for 22 of the 60 MHz of prime 700 MHz of spectrum to be auctioned off by the FCC in early 2008 for use in about 2010.

• A similar USA Today cover story got a key part of the story wrong in implying that the net neutrality/open access conditions would apply to  the whole 700 MHz auction, not just to 22 of the 60 MHz being auctioned.

I have three points to make about Chairman Martin's reported net neutrality/open access proposal.

SaveTheInternet has a new video out that breathlessly claims that people only have until July 16th to tell the FCC to keep a "level playing field" in order to "save the Internet!"

• This vacuous "eye-candy" video only says "the Internet is under attack in Washington" but says nothing about what "the attack" actually is, why anyone in their right mind would want to "attack the Internet," what the FCC is actually doing or deciding that needs their input by July 16th, or even why there is a July 16th deadline to act.
• This video propoganda is a disturbingly accurate representation of the vacuousness of SaveTheInternet's whole net neutrality position and crusade.
• It is all form and fear and precious little substance.
• Its scary that they don't even try to inform or educate just incite.  
• It also tells us a lot about what they think of the intelligence-level of average Americans and those on their mailing list -- they obviously just see them as lemings to scare and herd off a proverbial cliff.  
• There is zero respect for people's intelligence in this video propaganda.
• SaveTheInternet sees no need for facts, for information, for context, for balance, or hearing both sides -- just feed the masses the dumbest possible version of a scare message and shout that they have an urgent deadline to act!

This video is damning proof of how vacuous the net neutrality regulation movement has become. View it and weep.

The Washington Post gave a lot of "free" ink to former FCC Chairman Reed Hundt today to push for his Frontline Wireless corporate welfare scheme. The article also provides a "bay window view" of Mr. Hundt's perverted view of "competition."

• Mr. Hundt said: "We're asking the FCC to place conditions on the sale of the license, just like zoning on real estate."
• Competition through zoning regulations!
• This captures the essence of Mr Hundt's "market" views. He has always thought "competition" was much too important to be left to the marketplace.
• Mr. Hundt's entire tenure as FCC Chairman was characterized with a deep distrust of free market forces and a fondness for writing very detailed regulations that heavily tilted the playing field to guarantee his desired outcomes.

Now that his company has $3b in capital and is prepared to raise up to $10b in the next five years, according to the Post, why is he so afraid to compete in the auction like everyone else?

The New York Times article today: "South Koreans Connect Through Search Engine" provides a huge window into what the real source of a search engine's market dominance is. (The article indicates that in South Korea, Naver.com is the leading search engine with 77% share, followed by South Korean company Daum.net with 10.8%, and Yahoo with 4.4%. Google's market share is 1.7% in South Korea.)

• The South Korean example is a particularly helpful set of facts and insights to the FTC and Congress in their journey to understand Google's increasing search dominance and the potential anti-competitive effects of the Google-DoubleClick merger.

Specifically, what makes Google's 1.7% South Korean search market share different from its 90% share in Germany, Spain, 82% share in France, 75% share in the UK, and its 65% share in the US -- given that Google has been competing in the South Korean market since 2000?

Frontline's Reed Hundt is mounting a furious eleventh hour effort to finagle a backroom sweetheart deal for his company from the FCC, in the 700 MHz auction. He attacked the outstanding op ed in the Washington Post by Robert Hahn and Hal Singer in both the Post and in RCR.  Our former Big Government FCC Chairman, Mr. Hundt also apparently has lost his cool and perpsective in railing against the rollout of the new, innovative and already successful iPhone as somehow a market failure that only his company can cure.

A core purpose of NetCompetition.org is to promote a debate of Net neutrality regulation on the merits. SaveTheInternet.com had a recent blog post "Painting over broadband failures with pretty pictures" that prompted me to comment on their blog -- which I have included below:

"If SaveTheInternet followers are truly "open" to diverse points of view that may be different from theirs, I recommend that you consider the mounting evidence that the US is in fact not falling behind but is actually a unique success in promoting facilities-based broadband competition in the world. Please see this link for the four best alternative views on this question:
http://www.precursorblog.com/node/451 .

Given the ongoing reporting of claims by net neutrality proponents that US broadband deployment is falling behind our international competitors (like the USA Today article in this link suggests), it is helpful to pull together some of the best analyses I have seen that debunk these claims by the OECD/CWA.  

For those who care to more substantively review the facts, evidence and merits of this very important public policy question, I highly recommend reading the following four sources linked in this blog, which all effectively and differently debunk the claim the US is falling behind on broadband:

Congrats to Jeff Eisenach of Criterion Economics for his outstanding and incisive analysis "Due Diligence: Risk Factors in the Frontline Proposal."

• Jeff Eisenach wonderfully brings clear thinking and common sense to a topic that sorely needs it.

The analysis exposes the Google-supported Frontline Wireless proposal for what it is... a "trust us" investment of effectively billions of dollars in forgone receipts due to the American taxpayer in a free market auction.

Kudos to Robert Hahn and Hal Singer for their outstanding op ed in the Washington Post "Earmarked Airwaves."

• The editorial cogently presents the fork in the road that faces any major FCC decision: to follow law, which promotes competition and market-driven outcomes, or to freelance and try and "manage" competition and pick winners and losers in advance through "spectrum earmarking."
• FCC history is littered with freelance "managed competition" failures, but two are particularly ignominious and highly relevant to this 700 MHz auction:
• the illegal UNE-P scheme to rig telecom competitive outcomes following the 1996 Telecom Act; and
• the Nextwave auction scandal that kept 30 MHz of prime spectrum fallow and tied up in court for almost a decade.

At its core a spectrum auction is the quintessential type of competition. The auction law's purpose in 1993 was to use market forces, competition, to allocate the public's asset most appropriately, largely because previous FCC spectrum allocation processes were so ineffective, unfair and prone to serious abuse and graft.

• While no process is perfect, a clean competitive auction process has proven highly effective in rewarding US taxpayers and fostering a growing and highly competitive wireless marketplace that greatly benefits consumers.

This 700 MHz auction may be shaping up to be FCC Chairman Kevin Martin's legacy moment: will it be marked by promoting competition and market-based outcomes or will it be marked by standing on the auction scales to ensure the spectrum is "earmarked" to the predetermined, chosen "winner" -- in this case former Clinton-Gore FCC Chairman Reed Hundt's Frontline Wireless company.