Thursday, June 30, 2005

Signs of a Not So Cozy Duopoly

Those who would retain the regulatory status quo of pervasive price regulation have switched epithets in the last year from "monopoly" to "duopoly." A duopoly, we are told, is just as bad because the two firms in the market will cozily divide up markets and share supracompetitive profits.

It appears someone forget the duopolists that this is how the textbooks demand they behave. SBC has again escalated the price wars with cable, offering three free months of TV and high-speed Internet service for defectors from cable.

Continue reading Signs of a Not So Cozy Duopoly . . .

posted by Ray Gifford @ 10:54 AM | Broadband, Spectrum

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Monday, June 20, 2005

DTV and Universal Service

Senator McCain's DTV bill and today's Tech Daily (subscription required) article on the House DTV bill by Messrs. Upton and Barton both underscore the core sticking point of accomplishing the transition: the size and extent of the subsidy for DTV tuners. The question is familiar to communications policy: the size and nature of the universal service subsidy.

Continue reading DTV and Universal Service . . .

posted by Ray Gifford @ 8:37 PM | Capitol Hill, Spectrum, Universal Service

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Friday, June 10, 2005

Spectrum Reform: The UK Perspective in Guatemala

An interesting talk at the Guatemala spectrum conference by Martin Cave. Martin teaches at the Warwick Business School and is the author of a report that provided the basis for the UK's spectrum reform proposal which, as he puts it, is "a success story so far - in conception." The 2003 U.K. Communications Act included provision for efficient use of spectrum and trading. Ofcom, the responsible agency, has produced a strategy, an implementation plan and trading procedures. Martin made a few points that are not often discussed. One concerns the issue of windfall gains. The typical economist's solution to a problem like spectrum is to grandfather incumbents. This solution - which essentially makes explicit the property rights that the incumbents already implicitly have - is viewed as a way of buying off those with a vested interest in the status quo, while still realizing the efficiency benefits of moving to a property rights a regime. But Martin makes the point (one that I have recently come to believe myself) that this is not really a politically viable solution, because politicians are extremely reluctant to be viewed as giving private interests what are perceived as undeserved windfall gains. This, of course, makes the transition more difficult. He also talked about the issue of the large amounts of spectrum the government holds for defense, public safety and other uses. He made the point that it is important for the government agencies, as much as possible, to incorporate the opportunity costs of the spectrum they are using into their decision making. I made a similar point in a recent filing at the FCC.

posted by Tom Lenard @ 7:44 PM | Communications, Spectrum, Wireless

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Thursday, June 9, 2005

Spectrum Reform in Guatemala

Guatemala is on the cutting edge of telecom policy, as I'm learning here at a conference at the Universidad Francisco Marroquin, which was founded 30 years ago with a law and economics focus and has arguably become the best university in Guatemala. Guatemala's 1996 telecom liberalization law is also one of the best around. The intent: to make it as easy to start a telecom company as it is to open a hot dog stand. In addition to privatizing the state-owned telecom assets, the telecom law opened the telecom market by providing for free entry and exit, freedom to integrate and use any technology, freedom to operate in any area and, perhaps most importantly, pricing freedom. But, the focus of the conference is on spectrum, where Guatemala is also leading the way and has a lot to teach us. The Guatemalans have created a new legal regime for spectrum, by treating it as property like land. The new law has moved a lot of spectrum into private hands, facilitating new entry into mobile telephony and creating a vibrant secondary market. Mobile telephone penetration increased from 64 thousand in 1997 to about 3.2 million in 2004 - almost triple the number of land lines. This in a country of about 12 million people. The major problem seems to be a significant amount of illegal radio operation, which the system has not yet learned how to cope with. But all in all, Guatemala's spectrum reform is a significant success, with a lot to teach the rest of the world.

posted by Tom Lenard @ 11:42 PM | Communications, Spectrum, Wireless

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Thursday, June 2, 2005

The DTV Transition - The Costs of Waiting

If anybody needed convincing, a new study demonstrates the enormous costs associated with the slow pace of the DTV transition. Coleman Bazelon of Analysis Group (in a study sponsored by Intel)estimates that the 60 MHz of spectrum that would be freed up would yield $20-$24 billion in auction revenues to the government - very similar to the $28 billion estimate recently published by William Zarakas and Dorthy Robyn of the Brattle Group (in a study done for QUALCOMM). More importantly, the Bazelon study finds that the consumer surplus associated with this spectrum - indicative of the very large benefits that would accrue to consumers from the new services that would be produced with the additional spectrum - is 10 to 18 times the auction revenue. Total social benefits, including auction revenues, consumer surplus and public safety benefits, are between $233 billion and $473 billion. Under any criteria, that's real money.

posted by Tom Lenard @ 5:03 PM | Spectrum

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Monday, May 23, 2005

DTV and Wireless Broadband: Come Now, Folks . .

Last week's draft legislative proposal by House staff has generated some optimism regarding movement in the transition to digital TV. In addition to hastening the day when consumers can enjoy higher-quality and potentially more plentiful television programming, the DTV transition promises to jump-start deployment of wireless broadband and other competitive services even after roping off more spectrum for emergency services.

Yet the transition may stall again if Congress continues to miss the forest for the trees on the issue of subsidizing digital-to-analog "converter boxes." This obstacle, which seems small relative to the overall digital transition, suggests we should temper our optimism about recent progress with healthy unease that success still eludes us.

Continue reading DTV and Wireless Broadband: Come Now, Folks . . . . .

posted by Kyle Dixon @ 5:10 PM | Broadband, Capitol Hill, Communications, Spectrum, Wireless

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Thursday, May 12, 2005

DTV USF

Tech Daily (subscription) reports that congressional action on the DTV transition is stalled "on how to craft a subsidy program designed to ease the transition to digital television for Americans with limited means."

On the one hand, this is not surprising -- politicians rightly do not want to be held responsible for making scores of television sets go dark. On the other hand, plunging into a television universal service system should be done with trepidation and care, if at all.

It would be valuable to know whether the subsidy is needed in the first place. As our Myths and Realities study showed about telecom, many recipients of subsidies have the means to do without them. Second, great care would need to be taken that the universal service program doesn't metastasize into a permanent program of television universal service subsidies.

We should be willing to tolerate quite a lot of unlovely compromises to accomplish the DTV transition. But that ransom must not be given away too richly; nor should it be the springboard for a long-lasting tax and subsidize system.

posted by Ray Gifford @ 9:10 AM | Spectrum

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Sunday, May 8, 2005

The Art of the DTV Deal: Continued

In response to my DTV Art of the Deal post, PFF Adjunct Fellow Joe Kraemer e-mailed the following thoughts, which I reprint here by permission:

1. In order for a [DTV deal] to emerge, there must be uncertainty on the part of all parties that a legislatively-mandated transition date in 2008 or 2009 will be enforced. In other words, the broadcasters must believe that there is a material probability that the date will be enforced while those organizations that want to use the vacated spectrum must believe that Congress may lack the will to enforce the date. Therefore, a legislatively mandated date creates the opportunity because it will paradoxically increase uncertainty [particularly with a presidential race in 2008].

2. The basis for paying the broadcasters an incentive would be the present value of accelerating the transition so that the alternative users would have access two or three years earlier than they otherwise would. The value of the incentive is not the absolute value of the spectrum.

3. The broadcasters would receive funds to cover transition costs, as well as an acceleration premium. There may be a need to set up some type of Transition Administrator that is outside the FCC and would authorize incentive payments based on actual progress towards vacating the spectrum.

Continue reading The Art of the DTV Deal: Continued . . .

posted by Ray Gifford @ 5:15 PM | Broadband, Capitol Hill, Spectrum, The FCC, Wireless

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