Economics at the Federal Communications Commission: 2006–2007

This article focuses on media ownership and spectrum auction design. These two issues have not only been particularly important at the Federal Communications Commission (FCC) over the last year, but also are being informed by economic analysis either completed at the FCC or commissioned by the FCC.     

Economic Analysis at the Federal Communications Commission

This article reviews a number of the major economic issues confronting the Federal Communications Commission (FCC) over the past year and discusses new analytic techniques that FCC economists applied to some of those issues. The article also identifies several areas in which further academic research would be valuable to this agency.Martin Perry is serving as FCC Chief Economist on leave from Rutgers University, New Brunswick NJ. Jonathan Levy is the FCC Deputy Chief Economist and, like Evan Kwerel and Chuck Needy, works in the FCCs Office of Strategic Planning and Policy Analysis. Mark Uretsky works in the FCCs International Bureau and Tracy Waldon in the FCCs Media Bureau. All authors are economists except for John Williams, an engineer consultant who advises the FCC on spectrum issues.     

Economic Analysis at the Federal Communications Commission

This article reviews some of the major economic issues faced by the FCC in thelast year. It focuses on the application of new analytic techniques at the FCC, andidentifies several areas in which further academic research would be valuable to theFCC.Currently serving as FCC Chief Economist     

The costs of competition. FCC Telecommunication Orders of 1997

This article summarizes and discusses the FCC orders for reforming universal service (FCC Order 97–157) and access charges (FCC Order 97–158) that were issued in May, 1997. Also included in the article is a summary and discussion of FCC Order 97–159 which makes some changes in price cap regulation. The article starts with a short tutorial on access charges. It then summarizes the FCC Orders and analyzes their financial impact. The article concludes with some personal observations on the course, thus far, of telecommunications reform in the United States.     

Economics at the FCC, 2011–2012: Spectrum Incentive Auctions, Universal Service and Intercarrier Compensation Reform, and Mergers

The past year in economics at the Federal Communications Commission covered a broad range of topics in telecommunications policy. This paper highlights the economic issues that are addressed in the following key areas: spectrum management, universal service and intercarrier compensation reform, and merger review. In spectrum management, the FCC received congressional authority to implement an ??incentive auction?? to repurpose television broadcasting spectrum into flexible-use licenses that will be suitable for mobile wireless service providers. We discuss some important issues in designing the auction. We next address some aspects of the FCC??s comprehensive reforms of intercarrier compensation, which mainly involves call termination rates, and of universal service. Finally, we discuss the economic analysis of two major mergers: AT&T-T-Mobile, which the FCC staff recommended should be referred to an administrative hearing, and Level 3/Global Crossing, which was cleared with no conditions.     

Economics at the FCC, 2008–2009: Broadband and Merger Review

This article focuses on the topic of the National Broadband Plan, which the FCC is mandated to provide to Congress February 17, 2010, the FCC Merger Review process, and the determination of optimal penalties for violations of FCC rules or orders.     

The (low) power elite : Deregulated licensing criteria for low-power television in the USA

This article examines the policy context within which Low Power Television (LPTV) has developed in the USA, analysing the political, legal, aesthetic and technical considerations used to determine station ownership preferences among competing applicants. Although only a few LPTV stations are in commercial operation, the FCC has received over 32 000 applications from community, minority and commercial interest groups from every state. Unfortunately, this impressive growth potential has been stalled amidst debates concerning the constitutionality of various policy models governing station licensing and operation. At stake in the debate over who should own these outlets are myriad political, social and economic interests among public and private concerns vying for airspace. If the government allows corporate interests to compete against or challenge minority applicants, LPTV may follow the lead of VHF TV with respect to ownership concentration and programme content. Conversely, policies favouring community and minority applicants should promote innovative programme ideas featuring local talent, and address local issues.     

The evolving 5G case study in United States unilateral spectrum planning and policy

This paper tracks increasingly aggressive initiatives by the United States government to reallocate spectrum on an expedited and unilateral basis well before conclusion of inter-governmental coordination. Rather than embrace the customary commitment to achieve consensus on global spectrum allocations at the International Telecommunication Union (“ITU”), the Federal Communications Commission (“FCC”) has auctioned off large blocks of frequencies for the next generation (“5G”) of wireless services.The FCC might have framed its first 5G auction, reassigning Ultra High Frequency (“UHF”) spectrum, as a one-time deviation from compliance with long standing, intergovernmental coordination procedures. These frequencies have ideal signal propagation characteristics and the Commission could use financial incentives—unavailable in most nations—to expedite “repacking” by incumbent broadcasters willing to move, share or abandon spectrum in exchange for ample financial compensation. However, the FCC has continued to auction off 5G spectrum on grounds that it must find ways to abate an acute shortage of wireless bandwidth and doing so will regain or maintain global leadership in wireless technologies. This paper offers a critical rebuke to unilateral spectrum management, because the short-term benefits expected by the U. S. government likely will be offset by countervailing harms to 5G manufacturers, carriers and consumers. The paper tracks fractious preparation for the ITU's 2019 World Radio Conference by the U.S. delegation and the mixed record achieved there. Additionally, the paper explains how injecting trade, industrial policy and national security issues at the ITU can trigger more delays and disputes, including possible retaliation by nations displeased with U.S. efforts to subvert traditional technology optimization goals.A worst case scenario has the ITU deadlocked and unable to reach closure on “mission critical” spectrum planning issues at World Radio Conferences, convened every four years. The paper concludes that costs and likely challenges to the efficacy and legitimacy of the ITU will reduce the benefits accruing from the FCC's unilateral, spectrum planning campaign.     

Computer technology and US communications law

Against a background of recent rulings by the Federal Communications Commission, the author discusses important issues in communications law currently emerging in the USA. His discussion focuses on the Second Computer Inquiry of the FCC and on the deliberations of the US Congress with respect to the Consumer Communications Reform Act. In conclusion, key questions are suggested for consideration in a proposed planning study by the Congressional Office of Technology Assessment.     

Merger Review by the Federal Communications Commission: Comcast–NBC Universal

The Communications Act of 1934 created a dual review process in which mergers in the communications industry are reviewed by the Federal Communications Commission (FCC) as well as the antitrust authorities. Commentators have criticized dual review not only as costly and redundant, but also as subject to substantive and procedural abuse. The process of clearing the 2011 Comcast–NBC Universal merger provides a useful case study to examine whether such concerns are justified. A review of the empirical context reveals that the FCC intervened even though the relevant markets were not structured in a way that would ordinarily raise anticompetitive concerns. In addition, the FCC was able to use differences between its review process and that used by the Justice Department to extract concessions from the merging parties that had nothing to do with the merger and which were more properly addressed through general rulemaking. Moreover, the use of voluntary commitments also allowed the FCC to avoid subjecting certain aspects of its decision to public comment and immunized it from having to offer a reasoned explanation or subjecting its decision to judicial review. The aftermath of the merger provides an opportunity to assess whether the FCC’s intervention yielded consumer benefits.     

Toward international settlement reform: FCC benchmarks versus ITU rates

The global telecommunications service market is undergoing significant change as more countries privatize suppliers, liberalize national markets, and encourage entry. Despite these changes, international settlement rates remain significantly higher than the cost to terminate calls and many carriers reap substantial monopoly profits from the settlement payments they receive. Annual US settlement payments approximate $5 billion. Settlement rates are declining but the progress has been slow. High settlement rates, by raising the cost of international telephone service, result in high calling prices. To accelerate a reduction in settlement rates, the US Federal Communications Commission (FCC) adopted a set of maximum rates, called benchmark rates, which it expects US carriers to use in their settlements with other carriers and created a process designed to insure the implementation of these rates. The FCC benchmark rates vary primarily on the basis of a country's level of economic development. When the FCC took its action, the benchmark rates, which range from 15 to 23¢, were significantly below the rates in effect with most countries. The FCC action was widely criticized even though the rates exceed costs, vary according to countries’ levels of economic development, and will be phased in over five years to give countries time to adjust. The International Telecommunication Union (ITU) took an unprecedented step of proposing an alternative set of settlement rates for its members. The ITU rates differ significantly from the FCC rates, being much lower for economically advanced countries and significantly higher for less developed countries. The ITU rates vary according to a country's teledensity but the rationale for the ITU categories lacks support. In addition, other, arbitrary categories are part of the plan. Neither the FCC nor the ITU approach to reducing settlement rates address the problem of reforming the international settlement process and replacing it with an economically efficient, market oriented payment scheme. The first stage of the FCC policy went into effect in 1999. Complemented by changing market conditions, the policy has lead to lower US settlement rates, but most rates still exceed competitive market levels. Virtually all US minutes in the FCC's top two income categories comply with the prescribed benchmark rates. In fact, many countries in these two categories have rates with US carriers that are below benchmark levels. Several less developed countries have also negotiated rates with US carriers that conform to the FCC plan. As a result, US carriers benefit from the FCC policy as their average settlement costs decline. These cost reductions make possible lower calling prices but the market structure of US international communications service industry may inhibit the flow-through of these savings to US consumers. US consumer's prices were falling before the FCC acted on settlement rates. The FCC action seems to have increased the pressure to further reduce these rates. At the same time, however, service markets are being increasingly segmented and price discrimination is more widely practiced so only some US consumers benefit from lower settlement rates.     

Spatial data constraints: Implications for measuring broadband

The accurate determination of where broadband telecommunication services are available in the United States continues to be a significant challenge. Existing data regarding broadband provision, such as that provided by the Federal Communication Commission (FCC) simply designate ZIP codes with at least one high-speed Internet subscriber. As ZIP code areas vary greatly in size and shape, the lack of geographic specificity as to exactly where broadband is available, particularly within ZIP code areas, confounds communications policymaking. Further, there are a number of additional geographic nuances concerning broadband availability that also inhibit empirical examination and policy generation, including the spatial limitations of digital subscriber line services. The purpose of this paper is to briefly review the issues concerning broadband measurement in the United States and provide an empirical analysis of several spatial data constraints that must be accounted for when interpreting and constructing public telecommunications policy.     

Telecommunications resale: A policy analysis

The traditionally monopolistic character of common carrier telecommunications in the USA has meant that all communications functions have been the responsibility of the carrier. Recent proposals by the Federal Communications Commission, if accepted by the courts, will allow intermediaries to operate between the carrier and the user. The author examines the background to the issues involved, describes and analyses the policy options that were open to the FCC and finally summarises the reasons behind its ultimate decision.     

Where have all the boundaries gone?

Interstate communications in the USA are regulated by the Federal Communications Commission (FCC). The guidelines within which the FCC must operate are set by the Communications Act of 1934, which primarily reflects the technology and industry norms of the late 1920s. There have been dramatic improvements since the second world war in the electronic technology which supports telecommunications. The past decade has brought changes in the price and performance of electronic components, eg Large Scale Integration (LSI), so great as to be a shift in kind and not merely one of degree. The impact of these advances in technology upon the FCC has been to make some of the fundamental distinctions upon which the FCC has based its actions meaningless (eg communications/computers, telephone/telegraph, multi-point/point-to-point, and monopoly/competition). Communications common carriage can no longer adequately be distinguished from many other forms of telecommunications or from non-communications activities in any substantive technical or economic sense. While it may be possible to develop criteria upon which valid distinctions can be based, these will have to be new ones — the traditional criteria have been eroded by technology.     

Economics at the FCC, 2017–2018: Internet Freedom,International Broadband Pricing Comparisons,and a New Office of Economics and Analytics

The Federal Communications Commission’s (FCC’s) current strategic plan lists four priority goals: closing the digital divide; promoting innovation; protecting consumers and public safety; and reforming the FCC’s processes. Economists at the FCC contribute toward the realization of each of these goals, through analysis of the nature and significance of the underlying problems that regulations are intended to solve, as well as assessments of alternative solutions. Three major FCC initiatives demonstrate the role that economic analysis played in Commission decisions in 2017–2018: the Restoring Internet Freedom Order; the new hedonic pricing model that was used in the International Broadband Data Report; and the order that reorganized Commission economists into the Office of Economics and Analytics.     

Economics at the FTC: Deceptive Claims,Market Definition,and Patent Assertion Entities

In 2015, the Federal Communications Commission (FCC) imposed common carriage regulation—so-called Title II requirements—on previously unregulated broadband Internet service providers. The regime shift was premised on the FCC’s findings that such rules had demonstrably yielded economic gains. This paper evaluates the FCC’s empirical arguments and finds them uncompelling. Adjustments for inflation or general economic trends eliminate the effects cited by the FCC. Moreover, contrary to the Commission’s assessment, mobile services and broadband markets have shown notable growth in response to deregulatory events that reduce Title II requirements.     

Network effects and merger analysis: instant messaging and the AOL–Time Warner case

The AOL–Time Warner merger, announced in January 2000, was and still is the largest merger ever consummated. The merger plan was submitted to the FTC for antitrust review and to the FCC for license transfer review. The FTC approved the merger with conditions relating to open access. The FCC approved the merger subject to a condition (among others) that mandated interoperability for future (but not present) generations of AOL's popular instant messaging (IM) service, based on the potential leveraging of merger assets together with current IM network effects into market power in next-generation IM services. This condition was controversial and represents a new departure in antitrust analysis for industries imbued with network effects. This paper analyzes AOL's IM service and the ability to leverage merger assets into future market power in the context of the FCC condition; counter-arguments are considered and larger lessons for “new economy” antitrust are drawn from this experience and analysis.     

Alternative radio licensing arrangements: A case study of the multipoint distribution service

Currently, the FCC assigns radio licences after making a determination of the public interest. Conflicting licence applications are resolved through comparative hearings. This mechanism is cumbersome and unreliable. This article analyses three alternatives: Increasing the available spectrum; an auction; or, lottery of radio licences. The analysis deals specifically with the Multipoint Distribution Service (MDS). The analysis suggests that increasing the spectrum allocation will create more assignments than will be demanded by MDS. Rough calculations suggest that auctions offer a more efficient selection mechanism. Lotteries with resale of the license are better than hearings, but not as good as auctions.     

A note on the implementation of cable TV rate caps

In devising rate caps under the 1992 Cable Act, the FCC measured the effects of market power in cable TV by comparing overbuild franchise areas (served by more than one cable operator) with monopoly areas. This paper draws attention to, and corrects, several shortcomings in the FCC's analysis. We conclude that the overbuilds' rates are, on average, 12 percent lower than monopoly rates (and not 16 percent as estimated by the FCC, a difference of approximately $700 million in terms of annual cable revenues). Furthermore, overbuild operators offer better service quality than monopoly systems; the average overbuild offers upto 34 percent more non-broadcast channels.     

A preview of the broadband fabric: Opportunities and issues for researchers and policymakers

The Broadband Deployment Accuracy and Technological Availability (DATA) Act signed into law in March 2020 requires the development of a national “broadband serviceable location fabric (BSLF)” containing georeferenced information on all locations where fixed broadband could be installed. This represents a significant shift from prior datasets, where broadband availability was gauged from the estimated number of people/households in each Census Block (i.e., without geolocations). The inclusion of agricultural structures is particularly important, since broadband investment in agricultural zones has been limited to date. We use an early version of the BSLF for the state of Oklahoma, produced by CostQuest Associates, to demonstrate the opportunities and issues that may arise for broadband researchers and policymakers as the DATA Act becomes reality. We highlight four main takeaways: (1) consideration of non-residential units greatly impacts overall availability estimates; (2) data quality (and quantity) varies greatly across counties; (3) BSLF residential unit counts differ from FCC or Census estimates; and (4) practitioners will still need service-area shapefiles/addresses from providers to use the fabric most effectively.