Wednesday, April 24, 2013

Having a Grasp of Basic Facts

In the book by Crawford, Captive Audience, she develops the argument that the COMCAST and NBC merger was an example a writer who in my opinion had a good tale to tell but was ill equipped to do it.

This is a difficult book to review. Not because of some of its conclusions, which I am hearty agreement with based upon hands on experience, but because the author all too often steps well outside her area of expertise and opines on things which are just wrong.

Moreover this is one of those books on Amazon which has some sort of following. No sooner had I posted it then people started stating it was not a helpful review without comments, at least as yet. Now this review gores both oxes; the cable company and the clique who seem to follow what the author writes with religious zeal. It will interesting to see how these results evolve. 

However her conclusions are of merit despite the confusion of her argument.

1. “Cable Companies are bad”. She has some very valid point here as she demonstrates through the vehicle of the Comcast and NBC merger. She argues that such a merger should never have happened. One could provide substantial grounds for preventing is, most on antitrust issues, but they were never truly approached by the current administrations. The reasons why is a tale unto itself.

2. “Fiber is the only way.” Here I argue she is clearly wrong and is so since she does not understand the technology. Since this is a key point in her argument one wonders why she did not at least reach out to find better support and understanding.

3. “Government is the best market regulator.” This is an extreme position which has mixed, at best, results. In fact it has been clear in the technology space that the Government is the worst regulator.

Let me address the above points and relate them to the text itself:

1. Wireless has substantially more capacity than the author understands.

2. The cost of fiber is dominated by local costs such as franchise acquisition, costs of pole attachments, and the delay costs of laying the fiber.

3. There exists a significant body of law the antitrust laws which can and should be used to manage the industry not just regulation.

4. Cable companies are monopolies for the most part and should be regulated as such.

Let me now provide some details contained within the book specifically supporting the above:

On p 78 the author speaks of the abandonment by Verizon of fiber deployment. Why did Verizon abandon its buildout? Frankly there are two. First there were the exploding legal costs and delays in getting local franchises. These were exasperated by the local cable companies but facilitated by the local towns who often did not understand the economics of competition, they just asked for more as they were advised by the incumbent cable operators. Second, and this is a critical element, was the success of wireless in expanding bandwidth efficiency. Namely with only a 1 bps/Hz a decade earlier they now were at almost 10 bps/Hz and they could see ultimately even another order of magnitude increase. This focus on wireless was most evident with the succession to the CEO position with the wireless head taking the helm. Thus it was to some degree a problem with the incumbent but it also was an understanding that the wireless alternative was more than viable.

On p 90 there is an interesting discussion regarding the “interstate access charges”. In fact these were the interconnect fees. The author refers to the Prodigy effort, but such an effort was doomed from the start by the massive overhead put on it by IBM, yet at the same time they were facing the overhead of AT&T. The access charge issue is a simple one. There were local phone companies and long distance ones, at that time.

The local companies demanded and received a fee for interconnecting to the local company. Even though the local companies were separately paid by the customer, they were allowed by the FCC to impose this charge to third parties such as an AOL or Prodigy. Fortunately the FCC abandoned this stance. The author seems to have not fully understood this issue.

On p 95 the author tries to outline the history of on line capabilities using the AOL and Time Warner as an example. In fact it began in 1978 with Warner Cable and the QUBE system. This was the first two way cable system that allowed interaction and online purchasing. This Warner, and perforce Time Warner, had been developing this for almost two decades. In the early 1980s Warner Cable developed the first “Electronic Shopping Mall” a two way video on demand d system in a joint venture between Warner, Bank of America and GTE, with Bell Atlantic and DEC participating. That effort collapsed when Warner ran into financial difficulties. Chase Bank and others did the same during the videotex period. The author appears to posit this sudden even with Time Warner and AOL when in reality there had been many trials, tests, and attempts.

On p 125 the author states that Edison invented the telegraph. What of Morse? Perhaps some fact checking of simple facts would help.

On p 129 and on the author refers to Sen Franken so many times one wonders why? The book was not written by Franken and based upon his public record he was both new and definitely not an expert in regulatory issues and technology. This continual referencing becomes a distraction.

On p 133 there is a discussion of the new channels being cash cows. However there is a very serious issue here. The cable companies bundle up packages of programs which they also own and demand that anyone providing one provide the full package and at premium prices. The consumer gets the full sports package and pays for it no matter if they have ever seen a single sports event. This is the major failing of the FCC and the FTC. Legally this is akin to bundling, a practice clearly prohibited by the antitrust laws. But to data the DoJ has never acted upon this, nor has the FTC.

On p 156 on the author delves into the cable versus wireless issue and here she is well out of her depth. It is a pity because this area is a significant one for possibilities. Let me first outline the wireless argument and then return to the text:

1. Wireless capacity can be measured by the number of bits per second, bps; it can deliver to a user.

2. The user demands bps depending on the application and the number of them the user may have. For example HDTV had been a bid user of bandwidth.

3. Now two things have occurred technically over the past ten years. First bandwidth efficiency, measured in bps/HZ, has increased from 1 bps/Hz to now 10 bps/Hz. Yet at the same time the data rate required for video has collapsed, going from 100 Mbps down to 4 Mbps. Thus supply, that is bps/Hz, has exceeded the demand, such as Mbps. Namely we can now easily use wireless for HDTV.

4. The acquisition of bandwidth by the wireless companies has continued and now provides almost universal service. Wireless does not require franchises or pole attachments, and can be delivered in a short order.

5. Wireless efficiency now at 10 bps/Hz is anticipated to increase to 100 bps/Hz. That means that a 20 MHz spectrum could provide a 2 Gbps channel to a single user, and with multibeam antennas it can to so to a plethora of users. This backs up directly to a competitor of fiber. And at a tenth the cost!

On p 160 the author again reinforces her lack of technical understanding and capabilities. She states:

“When people want to download a lot of data, say to make a video call, they overwhelmingly opt for high speed wired connections.”

Perhaps she has not been made aware of the iPad.

This distortion continues throughout this chapter. She does it again on p. 161,

On p 251 she states:

“Will wireless help America reach the president’s goal of one gigabit to every community? No.”

The answer is yes, and since the wireless companies have hundreds of MHz not the 20 above, they can well exceed that.

On p 258 she describes the franchises being exclusive. In fact almost all were no-exclusive. The problem was the cost of overbuild.

On p 263 she demands “For starters most Americans should have access to reasonable priced 1-Gb symmetric.” Now I assume she means 1 Gbps not 1 Gb. it is rate not totality, and she

On p 265 she begins her argument of moving to a utility model. She states “To do this though American needs to move to a utility model.” Frankly the issue should be one of bundling or tying in and the control is the existing antitrust laws. The problem with the utility model is all too well known. The FCC controlled and was controlled by AT&T before divestiture. The result was very slow development of technology and capability. The utility model sets prices based on a return on investment, namely the provider is guaranteed a profit based on invested capital, and their costs are covered no matter how inefficient. The result is a capital intensive and bloated system. Better would be a real competitive market where the barriers to entry are not enforced by the Government but the Government enforces the antitrust laws already on the books.

On p 267 she also makes statements regarding the costs of fiber. Based upon my experience doing this her numbers are categorically wrong. The most significant costs not included is the franchise acquisition costs, often in excess of $1,000 per sub, plus the costs of pole attachments and the delay costs associated with dealing with local regulators.

On p 267 she further states “The government standardizes, regulates, provides tax subsidies, and puts price supports in place every day.” One could just imagine the Government standardizing wireless or broadband structures. They have no technical depth and furthermore the politics that would ensnarl such would be unimaginable. The Government should just stand apart from any standards. Let the technical people deal with that, and live or die by their decisions.

On p 269 she gets into the Internet discussion. Again for some reason she uses Franken as a foil but they are a distraction. The fact is that indeed ARPA, specifically IPTO, developed the early Internet deployment in the 1970s. In fact I ended up with the task of deploying the international circuits for IPTO. Then through the early 1980s it somewhat slowed but with the help of Kahn and Cerf the IETF was formed and began an open source development of what could be called standards, albeit very flexible one. Then the DOD abandoned it and spun off a separate network and the result almost went nowhere but at the end of the 80s we saw such academic networks such as NYSERNET evolve and the NREN come forth. Thus the Internet history is a mixed bag of public and private parentage and the bright line alluded to by the author is without merit.

The book is worth reading but only if one can work through the mire of the author’s statements for which she has no basis or those which are just outright technically in error.

The classic book on telephone change is the Coll book, Deal of the Century, outlining the breakup of ATT. Coll is a brilliant writer and deals with facts he both understands and can explain. The author of this book had such an opportunity but she clearly went well beyond her ken and the result is that between the facts and opinions are prognostications based on fact-less presumptions. The issue she is focusing on is truly an important issues and needs as much public understanding as possible. The cable companies have secured for themselves a protected niche and have further vertically integrated in a manner which later 19th century antitrust minds would find abhorrent. This is ever so true in view of the channels they control; information and communications.