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July 2009

Handset Exclusives Drive Growth & Broadband Adoption -- Why regulate tech/computer sales?

Handset marketing exclusives are a pro-competitive wellspring of wireless growth and broadband adoption. Marketing exclusives are also a legitimate, proven and widespread marketing practice that marshals maximum marketing resources for selected, potentially-hot-new-products in order to drive maximum sales and adoption.

Behavioral Advertising's New Swiss Cheese Privacy Proposal

The new industry-proposed "Self-Regulatory Principles for Behavioral Advertising" which Google publicly patted themselves on the back for today, conveniently do not apply to most all of Google's current advertising business. 

  • When one examines the fine print of the detailed document, it becomes clear that the new proposed self-regulatory privacy guidelines (which in fact are a significant improvement over the status quo) conveniently do not apply to contextual search advertising, the leading form of Internet advertising that Google dominates (per the DOJ), nor to contextual display advertising, the second-leading form of Internet advertising which Yahoo leads.  

As a big proponent of responsible self-regulation, I am disappointed when self-regulation is given a bad name when industry leaders badly game the system by conveniently self-defining themselves, for the most part, from being subject to much of the new self-regulatory guidelines.  

Why am I pointing out this arbitrage of privacy laws?

DOJ is formally investigating another Google deal

An unusual and notable pattern appears to be developing with Google and DOJ antitrust enforcers. 

  • Twice in less than a year, the DOJ has formally investigated Google for trying to anti-competitively extend its monopoly market power via a market agreement.
    • It is unusual for the DOJ to seriously investigate a single formal market agreement/settlement for anti-competitive behavior because normally antitrust lawyers can convince a company's leadership to stay away from the anti-competitive line that possibly could prompt a DOJ investigation and/or suit.
    • What is exceptionally unusual is for a company to propose two non-merger-related market agreements in less than a years time that prompt serious antitrust investigations from the DOJ.
  • Today, the DOJ Antitrust Division wrote a letter to the Federal Judge overseeing the Google Book Settlement deal "to inform the court that it has opened an antitrust investigation into the proposed agreement between Google and representatives of publishers and authors... we have determined that issues raised by the proposed settlement warrant further inquiry."

This is the second formal agreement in less than a year that Google has negotiated and drafted that has "crossed the line" prompting DOJ antitrust officials to have to formally and publicly investigate. 

The Father of Indexing Calls My Indexing Thesis "Nuts!"

When Investment News asked John Bogle, Vanguard's founder and the father of indexing, about my "Indexing into the Ditch" thesis (that indexing is one of the root causes of the financial crisis) he said: it “is nuts! Last time I looked, index funds accounted for about 0.4% of all stock trading ... Just perhaps the other 99.6% might bear a teeny-weeny bit of the responsibility.

Let me first respond to Mr. Bogle's points in order.

The thesis "is nuts! "I must admit I smiled at the ad hominum implication that my thesis was "nuts" and not worth listening to; I remembered that Bernie Ebbers called me the "idiot Washington analyst" because my research was the first to charge that WorldCom's business simply did not add up.

DOJ will find vibrant competition in reviewing telecom industry

The DOJ has opened an initial review of the telecom industry, per WSJ reports, as part of the Obama Administration's and the Varney Antitrust Division's "aggressive stance on antitrust enforcement."

Antitrust enforcement is fact-driven, since it ultimately must be proven in court. The competitive facts in the telecom industry will speak for themselves; the industry is clearly and overtly competitive and trending more competitive. 

This review will not be difficult or take long since the DOJ has vast and deep experience with the U.S. telecom industry -- having overseen the AT&T Consent Decree 1984-1996, been intimately involved with the drafting and implementation of the 1996 Telecom Act including the detailed development of local competition and Bell entry into long distrance. The DOJ also has reviewed and approved a number of telecom mergers over the last several years, most recently the approval of Verizon-Alltel and Centurytel and Embarq.

  • It is important to note that the scrutiny standard of approving a merger is a dramatically tougher standard than that of a Sherman antitrust action.
  • Generally as a rule of thumb, the DOJ prevents proposed mergers that would create combined market share of over 30%, while the market share standard to prove a Sherman antitrust case generally requires at least a 50% share and more likely 70-90% share.    

Moreover, the DOJ will examine the telecom marketplace to see if it exhibits the core characteristics of a competitive market:

What Do Broadband Stimulus Decisions Signal about Future Broadband & Net Neutrality Policy?

What do the Administration's new "NOFA" guidelines, which implement the $7.2b broadband stimulus package, tell us about the trajectory for broadband and net neutrality policy going forward? 

  • If one listened to just the public comments of net neutrality proponents one would miss a lot of important substance and clues about where broadband and net neutrality policy may be going, given that these new grant guidelines/conditions are the first major official broadband guidance stemming from the new Congress and the new Administration.

What do we know now that we didn't know before the release of the NOFA guidelines?

I. The Administration implicitly rejected extreme net neutrality.

The grant conditions strongly rejected the extreme net neutrality position of the tech elitists: (FreePress, Save the Internet and the Open Internet Coalition) that any bit interference is de facto discrimination.  The Administration substantially limited what could possibly constitute Internet discrimination by substantially expanding the number of exceptions to the FCC's Broadband Policy Statement as it applies to these broadband grants.

Read Swanson's "Biting the handsets that connect the world"

If you are interested in the question of wireless competition and antitrust, please don't miss this great post by Bret Swanson of Entropy Economics.

He nails how distant this DOJ telecom/wireless review is from the competitive facts on the ground that most every consumer readily understands.






Why Security is Google's Achilles Heel

Google's launch of a new PC operating system on the heels of its announcement ending the "beta" phase for its popular gmail, Calendar, Docs and Talk applications, is happening in the midst of a new era where cyber-security has been made a new national priority and internet security breaches are increasingly serious and commonplace.

  • All this naturally puts a spotlight on Google's approach to security, because Google is becoming increasingly central to so many people's Internet experience.

An examination of Google's own public representation of its corporate philosophy and design principles shows security/safety is simply not a priority for Google. In many respects, security is viewed as a hinderance to, or a drag on, Google's over-riding goal of speed-efficiency.

In Google's philosophy statement, "Ten things Google has found to be true" there is no mention of the importance of security/safety to Google or Google's users.

#3 point on the philosophy list says: "Fast is better than slow:"

New Insightful Wallsten International Broadband Comparisons Report

Scott Wallsten of the Technology Policy Institute issued an informative and insightful report on the many international broadband measures out there; I recommend reading it if you are interested in the subject. 

I particularly liked the new data on how broadband is used that shows that the U.S. has the highest:

  • Digital share of recorded music sales of surveyed OECD nations;
  • Sales of online films; and 
  • Online TV and video revenue per head. 

I liked these new measures because they begin to expand this discussion to how broadband is used and how people benefit from broadband rather than just a sterile and not very useful debate over broadband penetration.

  • Broadband is a means not an end. 
  • What it enables is what is important.  

Scott's report does a very good job at showing the vast richness of different ways international broadband comparisons can be made. It adds a lot of value to the ongoing debate over where the U.S. stands internationally on broadband.  





Special Access Nostalgia for Telecom's Bronze Age is No Path to 21st Century Broadband Leadership

The supreme irony of the special access* issue is that competitors, who want to avoid investing in next generation broadband access facilities, are demanding that the FCC... (whose top priority is a National Broadband Plan to encourage the rapid build-out of modern broadband facilities to all Americans) ...regulate copper access prices in a way that surely would discourage investment in the exact next generation facilities that the FCC wants to get built.

  • * "Special access" is basically the business-to-business leasing market of the copper wire connections that link many buildings and cell towers to the Internet backbone at DS1 (1.5 Mbs) and DS3 (44.7 Mbs) speeds.
  • Bronze is 90% copper and 10% tin.


Q&A One Pager Debunking Net Neutrality Myths