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Corporate Welfare

"Google-aganda:" Do as I say not as I do" See great Network World piece

Johna Till Johnson of Network World, has got Google's number in the article "Net Neutrality? Google, go first!"

  • "Forget "don't be evil" -- Google's real motto is: "Just trust us (and pay no attention to the man behind the curtain).""

    "Sorry, fellas, I'm not the trusting sort. And I always worry about the man behind the curtain. The reality behind the propaganda is this: The "open" company's considerable fortunes are based around the world's most proprietary search engine. And as for "neutral" -- try Googling Google, and you may notice something surprising: very few negative comments on the company pop up. Odd, no?"

New broadband uncertainty -- is 700 MHz info? or telecom service?

There are so many problems with the FCC's new 700 MHz auction rules that create a more regulated open access/net neutrality license -- its hard to know where to start.

  • Be confident that I will get to them all over time.

Yesterday I highlighted the dirty little secret that there is very substantial risk that this will become known as the "do over auction" because it may not raise enough money to satisfy the rules and because the FCC likely overstepped its legal authority and will be overturned  in court.

Let's raise another dirty little secret behind the new rules that will increase regulatory uncertainty for broadband deployment.

The FCC's "Do Over" Auction?

A much under-reported part of the high drama behind the FCC's current 700 MHz auction rules is that there is a very substantial risk that this becomes known as the "do over" FCC auction.

First, to any outside observer, the FCC's highly-tailored auction rules appear to have a pretty obvious "set aside" for the Google camp and its proposed net neutrality/open access business model for a third of the 700 MHz spectrum.

  • The FCC reportedly is "hedging its bets" on the Google set aside license -- worried that its policy experiment may fail to raise the revenue for the US Treasury that is estimated in the US Budget -- so it is imposing a "reserve price" -- in English, a price floor for this new set aside spectrum open license -- to supposedly guarantee the taxpayer 70% of what an "open" auction would deliver.
    • Some could characterize this FCC-signaled minimum acceptable price for the "Google-set-aside license" as a fixed 30% discount from the price paid at the AWS auction price. However, the real discount is much larger than 30% because the AWS spectrum is no where near as robust or valuable than the 700 MHz spectrum.
  • There are a lot of reasons that Google or others will not bid billions for open access spectrum.
    • First, it is likely not worth it.
      • It's an untested and unproven business model that offers little opportunity to earn a return on the roughly $10b it would take to build and operate such a national network.
      • Most professional and independent investors will ask the blunt and pointed question: how does the 700 MHz set-aside-licensee expect to make money building a highly-capital-intensive wireless-facility model that has dramatically less business and operating flexibility than the other seven existing broadband competitors that have many years head start, and when the cost of acquiring just one new customer could easily be in the $200-400 range on average?
      • What's wrong with that investment and business pitch?
        • It's a money pit.
        • It's dotcom bubble pixie dust.
        • It's a loser.
      • Net neutrality/open access, while cloaked in consumer terms, is basically an old-style industrial policy and corporate wealth transfer scheme from the risk-taking capital-intensive builders of wireless facilities to high-profit tech applications companies like Google, eBay and Amazon, companies who seek for consumers to pay for the bandwidth that they would profit the most from.
    • Second Google is not getting the wholesale resale and unbundling mandates they requested, so their highly-publicized offer to bid $4.6b is moot.
    • Third and most important, why would Google want to become a facilities-based, capital intensive wireless provider?
      • Such a move would change their business model and virtually none of Google's existing growth shareholders would want the dilution and huge capital and operating cost spikes required for Google to become a wireless carrier.
        • It's not going to happen.
        • Google's promise to bid will probably go down in FCC history as one of the best "head fakes" of all time.
    • In short, the FCC has chosen a new policy path that has substantial risk of not generating the revenue expected -- requiring a "do over" of the auction.

Second, there is substantial legal risk that the FCC does not have the authority to condition these licenses in a way that limits an "open" auction and substantially reduces the revenue for the US Treasury.

Jim Harper of Cato has a great piece on the 700MHz auction

Please read Jim Harper's (of Cato) cogent and on-point critique of the FCC's 700 MHz auction.

Well said Jim!

"Open" is clearly in the eye of the beholder.

And "open access" is just as impossible to define as its philosophical twin: "net neutrality."  

Google "exploiting a desperate town" for more corporate welfare

You can tell a lot about the true soul of people by how they treat the vulnerable and disadvantaged; do they naturally seek to help and protect those in need or do they instinctively seek to exploit others weaknesses for their own monetary or other gain?

  • Or after a disaster, do people help with supplies, water, and a helping hand or do they opportunistically price gouge or seek to make a quick buck off of others misfortune? 

Despite Google's infamous words in its "Don't be evil" motto, its actions recently in dealing with the job-loss ravaged town of Lenoir, North Carolina gives us a sad and disappointing glimpse into the real soul of Google -- the Silicon Valley titan and leading brand in the world.

BusinessWeek just published an outstanding government/human interest story called: "The High Cost of Wooing Google" where it chronicles the story of how Google exploited the "down-on-its-luck" town of Lenoir, North Carolina with hardball negotiating tactics to extract :  "a package of tax breaks, infrastructure upgrades, and other goodies valued at $212 million over 30 years, or more than $1million for each of the 210 jobs Google said it eventually hoped to create in Lenoir."

The BusinessWeek article continued:

This is a spectrum auction Google not a policy auction! No to "OPEN Sesame!

Anyone who hasn't read Google's letter to the FCC today  on the 700 MHz auction -- you have to -- its an absolute hoot! 

  • I am amazed that a company so rich and successful in business could be so arrogant, impolitic, and ham-handed in Washington!  

First Google, despite what you may think, the US Government and FCC policy is not "for sale."  (And even if you think it is, at least try to be less obvious about your cynicism in public.)

  • Does Google actually think "committing" to a minimum bid of $4.6B in the 700 MHz auction in return for its demands for a change in the 1993 auction law is somehow acceptable behavior for a publicly-traded company?
    • Google is crassly and ham-handedly saying that their opening bid to effectively "buy" FCC policy starts at $4.6B!
    • Hello Google! You "bid" at the spectrum auction not at the FCC for policy favors. One type of "bidding" is perfectly legal the other is not.
  • As only dotcom billionaires can do, Google is disrespecting the FCC as just another type of "hired help" where it just needs to negotiate their "price."
    • Any supporters of Google should be mortified at Google's disrespect for, and cheapening of the FCC policy process. Google should be ashamed and embarassed by this crass letter and tactic.  
      • (It seems that Google is so used to buying off content providers that sue them for IP theft with "revenue sharing arrangements" that they seem to think they can buy-off whomever they want.)   

Second, the demand in their letter oozes with arrogance. Let's parse the final and operative sentence of Google's letter to see just how arrogant.

Great WSJ Editorial on Google: "Sort of Evil" Will consumer groups tune in?

Please don't miss Holman Jenkin's great Wall Street Journal editorial on Google: "Sort of Evil."

I particularly like his new term for net neutrality/open access regulation: "business model chauvinism." Dead on.

  • Google is lobbying for laws and regulations which will advantage their business model and further their dominance of Internet advertising, and also to "block, degrade and impair" any other business model from competing with Google.
    • Simply, Google has a very sophisticated strategy to foreclose potential competition to Google.

He also points the spotlight on what Google is really doing in organizing groups to view broadband companies as the big public enemy for things they might do in the future, and how that conveniently distracts people from scrutinizing Google's own increasing dominance of online advertising and the business model of the Internet. 

Why the FTC Will Likely Block the Google-DoubleClick Merger

My detailed analysis over the last several weeks leads me to believe that the FTC is likely to block the Google-DoubleClick merger because it will enable Google to dominate online advertising and dramatically increase the opportunity for market collusion and price manipulation in the market for consumer click data, ad-performance tools, ad-brokering and ad-exchanges.

Antitrust is fact-specific and evidence-driven. To understand the true antitrust outlook for a merger one needs to become familiar with the core facts of the case. To date, media and investment coverage of this merger has been remarkably superficial.

  • The executive summary and my new 35-page white paper: "Googleopoly: the Google-DoubleClick Anti-Competitive Case" can be found at Googleopoly.net. An audio file of my conference call on this merger outlook will also be on Googleopoly.net. The analysis and conclusions are driven by pages and pages of facts and evidence.
    • The purpose of the paper is to present the detailed case theory, argumentation and evidence of why the merger is anti-competitive and harms consumers, content providers and advertisers.
    • The paper:
      • Defines the market;
      • Explains why Google-DoubleClick are competitors;
      • Explains why startups, Yahoo and Microsoft can't compete with Google in search;
      • Spotlights the four anti-competitive network effects of the merger; and
      • Shows how the merger harms consumers, content providers and advertisers.

I see three big takeaways from my white paper.

First, the more people learn about this merger the more concern they will develop.

FCC Martin chills broadband investment embracing Hundtonomics

FCC Chairman Martin's surprising proposed open access/net neutrality regulations for the 700 MHz auction, threaten to broadly chill the broadband investment necessary to deliver broadband deployment to all Americans.

  • Chairman Martin apparently has chosen to abandon over a decade of bipartisan free-market Internet policy and adopt a new more regulatory "managed competition" broadband policy advocated by new House Chairman Ed Markey, who has strongly praised Chairman Martin for his support for net neutrality regulation/open access.
  • The real world effect of this unwarranted core policy flip flop is to introduce new and very substantial policy, legal and investment uncertainty into what had been a very stable economic growth environment. 
    • Chairman Martin is making the heroic assumption that he can massively interfere with market forces and heavily subsidize untested and likely uneconomic business models with no unintended consequences on investment or economic growth in the critical broadband sector.    

Chairman Martin has now emphatically embraced the core economic principle of former FCC Chairman Reed Hundt's Frontline Proposal (and Frontline's Google gaggle of investors), which is that market forces will not and cannot promote sufficient "competition" so the government must regulate and "manage competition" (i.e. mandate prices, terms and conditions -- either directly or indirectly) to ensure consumer welfare.

 

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Q&A One Pager Debunking Net Neutrality Myths