Abstract
We discuss several FCC proceedings and other matters of economic interest. These include: the Commission’s new Open Internet (“net neutrality”) rules and economic challenges they pose; regulatory implications of a potential reclassification of certain online video distributors as multi-channel video distributors; the proposed Comcast-Time Warner Cable merger; a set of policy experiments that involve extension of the “Lifeline” universal service program to broadband, and the IP technology transition; and, finally, two major policy initiatives to improve the management of spectrum used by mobile wireless providers.
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Notes
FCC (2015a). The Order was adopted on February 26, 2015, and went into effect on June 12, 2015.
In this article, we use the terms “broadband service provider” and “Internet service provider” (ISP) interchangeably. ISPs are of two types: “fixed,” or wireline ISPs such as cable television operators; and “mobile,” or wireless ISPs.
The merger of AT&T and DIRECTV, which was approved by the FCC with conditions in 2015, reduces the number of households with access to four independently-owned MVPDs by approximately 33 million.
In addition to the privileges of program access and retransmission consent, MVPDs have responsibilities, which include: program carriage; the competitive availability of navigation devices; closed captioning; video description; access to emergency information; and the loudness of commercials.
Including Internet-based distributors in the definition of an MVPD may require changes in copyright law to facilitate OVD retransmission of copyrighted broadcast performances.
Assistant Attorney General Baer was recused from consideration of the Comcast/TWC merger. This speech was delivered after the merger applications had been withdrawn.
Although the Chairman of the FCC concurred in the presentation to the applicants of staff concerns about the merger, the application was withdrawn before the staff could complete a draft order for Commission vote, which would likely have proposed designating the merger for a hearing pursuant to 47 U.S.C. 309(e).
Comcast Corp. v. FCC, 579 F.3d 1 (D.C. Cir. 2009).
Charges paid by online content providers, or “edge providers” such as Netflix, or by the content delivery networks (CDNs) such as Level 3, which transport them to ISPs.
The FCC’s Lifeline program provides discounted telephone service for eligible low-income households. The program supports both landline and mobile telephone service for approximately 14.5 million subscribers as of 2013 (FCC 2014e, Universal Service Monitoring Report available at https://apps.fcc.gov/edocs_public/attachmatch/DOC-330829A1.pdf). As of December 2013, there were 310.7 mobile telephone subscribers and approximately 130 million fixed (switched access and VOIP) telephone subscribers (https://apps.fcc.gov/edocs_public/attachmatch/DOC-329975A1.pdf).
The TDM-to-IP transition refers to the network changes that occur when networks that use older time-division multiplexing (TDM) technologies are replaced with those using Internet Protocol (IP) technology.
For a non-technical explanation of policy experiments, see Abramowicz et al. (2011).
Such non-experimental pilots can often yield a wealth of information: for example, by highlighting practical challenges or demonstrating a proof of concept. What uncontrolled policy implementation cannot generally show is a causal link between policy and outcomes.
The Bureau explained that “ETCs should submit a detailed description of the experimental design and other experimental protocols used suitable for a replication study, what variations on broadband service offerings [would] be tested (e.g., discount amount, duration of discount, speeds, usage limits, digital literacy training or any other factors impacting broadband adoption) and how the project(s) [would] randomize variations on broadband service offerings (e.g., geographic randomization)" (FCC 2012c).
A full description of the pilots and a link to the public datasets is available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0522/DA-15-624A1.pdf.
“Hawthorne effects” (behavior changes due to being observed) and “John Henry effects” (control subjects who change their behavior due to the knowledge that they are in the control group) are two of the most common concerns, and thus the use of a double-blind experiment is advisable whenever possible. See Glennerster and Takavarasha (2013, ch. 7).
An analysis that was conducted in 2012 by the President’s Council of Advisors on Science and Technology (PCAST) concluded that, given the needs of both commercial providers as well as federal users of the spectrum, the provision of additional spectrum for broadband services will require sharing between commercial and federal users. See PCAST, Report to the President: Realizing the Full Potential of Government-Held Spectrum to Spur Economic Growth (rel. July 20, 2012) (PCAST Report). Available at: http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast_spectrum_report_final_july_20_2012.pdf.
Below 1-GHz spectrum has distinct propagation advantages for network deployment over long distances and also reaches deep into buildings and urban canyons, while high-band spectrum possesses certain technical advantages that allow for the transmission of large amounts of information. In this sense, spectrum below 1 GHz may be thought of as “coverage” spectrum, and spectrum above 1 GHz may be thought of as “capacity” spectrum. There are currently 580.5 megahertz of spectrum that are considered suitable and available, and included in the FCC’s spectrum screen. Of that 580.5 megahertz, 134 (or approximately 23 %) are below-1-GHz.
The DOJ asserts that “In a highly concentrated industry with large margins between price and incremental cost of existing wireless broadband services, the value of keeping spectrum out of competitors’ hands could be very high” (DOJ 2013, p. 11). In addition, the DOJ concludes that the Commission should “consider the potential that the acquisition of specific blocks of spectrum may have to foreclose or raise the costs of competitors in its policies on spectrum acquisition” (DOJ 2013, p. 11).
Note that the actual amount of the spectrum reserve is tied to the quantity that is demanded by reserve-eligible bidders in each geographic license area at the point that the final stage rule is satisfied in the forward auction (FCC 2014f, p. 79). Thus, spectrum is reserved only where there is demand at market-based prices, and the amount of reserved spectrum in each geographic license area will be set at the level that is demanded by reserve-eligible entities, up to the maximum amount of 30 megahertz (FCC 2014f, pp. 80–81).
The Commission’s enhanced factor review was applied for the first time in the AT&T-Plateau Wireless transaction, in which AT&T acquired Plateau Wireless’s spectrum licenses that covered parts of New Mexico and Texas, as well as approximately 40,000 subscribers, along with network equipment and other assets (FCC 2015e). The Commission analyzed the likely competitive effects and found that the likelihood of competitive harm was low -- notwithstanding the fact that AT&T would hold more than one-third megahertz of below-1-GHz spectrum in one of the markets—in its evaluation of the particular factors that are ordinarily considered. These factors include, but are not limited to: the rural nature of the market; the number of rival service providers and their market shares; coverage by technology; and the spectrum holdings of the acquiring entity, as well as by rival service providers (FCC 2015e). In addition, certain public interest benefits such as the deployment of advanced broadband technologies and increased network quality were found to be likely (FCC 2015e).
In addition to regulatory approaches, sharing may be facilitated by advances in technology, ranging from dynamic spectrum assignment to systems that allow for operation of smaller cells at lower power.
The FCC’s rules to allow new commercial and private operations, while protecting federal and other incumbent users, are based on a multi-phased approach that was recommended by the National Telecommunications and Information Administration. The first phase will establish geographic exclusion zones around areas of incumbent use, especially near coastlines, with no operations by PA or GAA users allowed in these areas. The second phase will be initiated when environmental sensing capability is established for these PA and GAA users. At this time, exclusion zones will be converted into protection zones, and PA and GAA users will be allowed to operate in these areas when there are no federal incumbent operations (FCC 2015d, paras. 247–268).
An alternative that is under consideration in the Further Notice is for the FCC to define use in terms of how PA licenses would exclude GAA users. In this alternative arrangement, the PA licensee would pay a portion of the winning bid when the license is awarded, then pay the remaining portion only at the time that it wished to operate in the spectrum. The proposed approach is designed to facilitate sharing with GAA users while providing PA licensees with an incentive to consider the opportunity cost of this resource as well as a mechanism to ensure access to it when needed (FCC 2015d, paras. 425–426). See Reply Comments of William Lehr, “PALs as Option to Exclude GAA,” in Amendment to the Commission’s Rules with regard to Commercial Operations in the 3550–3650 MHz Band, GN Docket No. 12-354. Available at http://apps.fcc.gov/ecfs/document/view?id=7521763142.
To ensure mutual exclusivity and competition for PA licenses that are auctioned, the FCC will auction one fewer license than the number of applications in each market (up to a maximum of seven licenses). If it should happen that only one PA license application is filed in a given market, then no PA licenses will be made available in that market and the spectrum will be made available for GAA use.
The geographic area for PA licenses will be based on census tracts (with 74,000 units as compared to 734 license areas for Cellular Market Areas).
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Acknowledgments
We are grateful to the editor, Larry White, and to Claude Aiken, Hillary Burchuk, Hillary DeNigro, William Dever, Jack Erb, Scott Jordan, Evan Kwerel, Paul Lafontaine, Eric Ralph, Jonathan Sallet, Paroma Sanyal, Susan Singer, Phil Verveer, Stephanie Weiner–and especially to Jonathan Levy—for their very helpful comments and suggestions. Daniel Herder and Pierre-Alexander Low provided expert editorial support. The opinions expressed in this paper are those of the authors and do not necessarily represent the positions of the Federal Communications Commission or of the United States Government.
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Bring, D., Leighton, W., LoPiccalo, K. et al. The Year in Economics at the FCC, 2014–2015. Rev Ind Organ 47, 437–462 (2015). https://doi.org/10.1007/s11151-015-9491-y
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DOI: https://doi.org/10.1007/s11151-015-9491-y