Elizabeth Jacobson

“Big Media” Critics Miss the Big Picture on Comcast-NBC Deal

by Elizabeth Jacobson on December 4, 2009 · 2 comments

in Tech & Telecom

Media watchdogs are having a fit this week over the announced agreement between Comcast and NBC Universal. Under this deal, Comcast will hold 51% of NBC, while General Electric holds onto 49%. Tom Jicha at the Sun-Sentinel accurately describes what we can expect in the coming months as both companies seek the government’s approval of the deal:

It will be more than a year before federal regulatory authorities sign off on the deal after hearings indulging every crackpot, gadfly and political activist group with an ax to grind against Comcast, NBC, TV or life in general.

To say that those media activists making a fuss over this media merger (business as usual for them) are missing the bigger picture would be a huge understatement. In the age of youtube, hulu, and a plethora of other video-hosting websites, subscription cable TV is a content distribution channel with a looming expiration date. In purchasing a controlling stake in a large content enterprise, Comcast is wisely looking ahead to the future. Comcast’s alleged market power in providing cable TV will not last indefinitely. As consumers spend more time online streaming their favorite TV shows, many of them are realizing that much of what they get for a $70/month cable subscription can be viewed on the web for free. If Comcast doesn’t diversify its holdings, it will face huge problems in the next few years as its biggest revenue source – cable subscriptions – dries up.

The methods of content distribution in the entertainment industry are changing. The most innovative and successful companies are those that rethink their business strategy, anticipate future trends, and adapt to changing market conditions. Comcast should be allowed to remain competitive by expanding its business holdings – including acquiring a stake in a more robust sector of the industry – without a long, costly government inquiry standing in its way.

30 Jobs “Created or Saved” in a Phantom Congressional District

by Elizabeth Jacobson on November 17, 2009 · 7 comments

in Features, Odds & Ends, Politics as Usual, Stimulus to Nowhere, Zeitgeist

ABC News broke the story this week of an executive administration that, ambitious to appear in control of the economy during this steep recession, reported patently false stimulus-related employment information. The Recovery Board, a task force created to track the $787 billion in federal stimulus spending, published on its website data for jobs “created or saved” in congressional districts that don’t even exist!

In one example, the stimulus tracking website reported that 30 jobs have been “created or saved” in Arizona’s 15th congressional district. Arizona only has eight congressional districts.

Late Monday, officials with the Recovery Board created to track the stimulus spending, said the mistakes in crediting nonexistent congressional districts were caused by human error.

“We report what the recipients submit to us,” said Ed Pound, Communications Director for the Board.

Pound told ABC News the board receives declarations from the recipients – state governments, federal agencies and universities – of stimulus money about what program is being funded.

Has the government ever heard of research assistants? Fresh college grads willing to do menial tasks (like research and fact-checking) for a small pittance are in no short supply in Washington DC. Hiring a small staff of people to double-check the validity of reported numbers would be a minor cost for the Recovery Board, but it would save them the embarrassment of looking either shady and deceptive or downright incompetent.

Wireless Customers Don’t Like Variable Billing

by Elizabeth Jacobson on November 16, 2009

in Tech & Telecom

The Sunday New York Times ran an article over the weekend that digs into the apparent madness behind cell phone and wireless mobile service pricing. Athour Saul Hansell eschews traditional economics and instead turns to behavioral economic insights to explain consumers’ seemingly irrational behavior when it comes to selecting cell phone plans:

Neither the cellphone companies nor their customers, as it turns out, always act in the rational way that economists might predict. Consumers often put immediate gratification and the avoidance of unpleasant surprises above their long-term interests. The companies, meanwhile, are trying to meet the sometimes irrational expectations of investors, who want growth without too much nasty volatility, even if their profits suffer.

The article cites several unintuitive examples of customers and wireless carriers acting “irrationally”:  consumers switching to costlier plans when given the choice of a discounted or variable-priced plan; carriers charging a flat fee for data services even though they are expensive to provide; and consumers’ unwillingness to shop for lowest cost-per-minute deals.

It would seem that consumers dislike having variable monthly cell phones bills. Hansell cites the example of Sprint’s 2004 “Fair and Flexible Plan” offering. Fair and Flexible was a two-tiered pricing plan in which customers would pay a flat $35 for the first 300 minutes per month, and then $2.50 per each additional block of 50 minutes. While this plan makes sense economically, customers didn’t warm up to it, and instead signed on to plans that are more typical of today’s offerings among the Big Four: a flat-but-higher monthly fee for a bigger basket of anytime minutes, plus overage charges. Compared to a more variably-priced contract, this pricing plan doesn’t result in the lowest possible per-minute charges, but consumers have revealed a preference for consistent monthly bills over variable, usage-based pricing.

On the sellers’ side of the equation, cell phone service providers have difficulty determining their per-unit costs. Customers vary in their average monthly usage, and what’s more, usage among individuals isn’t static from month to month either. Thus, it’s hard for the companies to accurately estimate their costs-per-minute. As a result, the business strategy employed is to try to get a consistent amount of money from subscribers every month, and to have enough subscribers to cover total costs. For example, it costs very little for a wireless carrier to transmit a text message, yet the big four carriers each charge $0.20 per message. At the same time, they each offer an “unlimited texting” plan for $10-$20 per month. Again, consumers have shown a preference for consistent billing, and have signed up almost en masse for unlimited texting plans.

For whatever reason, consumers have shied away from lower-cost mobile plan options in favor of higher flat fees and plans with perks when given the choice. Whether it’s because we’re all just risk-averse and hate wildly-varying bills, or we’re drawn towards extra goodies like unlimited texting or in-network calling, the best way to discern what consumers want is to look at what they’ve chosen in the past. While critics of the cell phone industry complain that the wireless industry isn’t competitive or that wireless providers don’t compete on price, this article explores that American consumers’ preferences have guided those companies to the pricing system we have today.

Intel Settles With AMD

by Elizabeth Jacobson on November 12, 2009

in Tech & Telecom

Intel and AMD have announced a settlement in their 4-year legal antitrust battle. As per the agreement, Intel will pay AMD $1.25 billion, an amount that’s likely far less than what they would have owed had Intel lost it’s case in court. Intel claims that it will not change its business practices because they were never illegal in the first place.

Hopefully, this agreement between private companies will send a signal to the Federal Trade Commission, New York Attorney General Andrew Cuomo, and European Union regulators. Each has targeted Intel in the past, with the EU’s case against the company resulting in a fine of $1.5 billion. If two companies can agree that no unfair business practices are going on, it’s difficult to see where that leaves a federal case against them, especially considering that consumers don’t appear to have been negatively affected by the increasingly fast (and ever-cheaper) processors that have been coming to market in the past decade.

While it remains unclear what impact this agreement will have on Intel’s other legal troubles with both the federal government and European Union regulators, consumers can take heart knowing that this truce has the effect of freeing up vast resources for both companies that would have otherwise been wrapped up in legal costs. Intel and AMD can quit taking jabs at each other and get back to building newer, faster, cheaper processors.

Free Government Money: Broadband Edition

by Elizabeth Jacobson on November 12, 2009

in Stimulus to Nowhere, Tech & Telecom

As part of the America Reinvestment and Recovery Act of 2009, congress has set aside $7.2 billion for Obama’s national broadband plan. It should come as no surprise that numerous municipalities and telecommunications companies have applied for a piece of the pie. In light of the continuing climb in the unemployment rate (which reached 10.2% in October), the Obama administration has decided to try to put the broadband stimulus money in the hands of developers ASAP, and has announced that the rest of the broadband funds will be awarded in one more round, instead of two more as was previously planned.

Matt Lasar at Ars Technica outlines some of the overly-ambitious – and unbelievably expensive – grant requests that can be found on the BroadbandUSA Applications Database. Among the bank-breaking proposals include a $240 million request to build an under-the-sea fiber network to connect the most remote parts of Alaska, and a request for $35 million to provide gigabit-speed (yes, gigabit!) connectivity in Hawaii.

I’ve perused the BroadbandUSA database myself, and I found plenty more requests for astronomical amounts of taxpayer money. Some of the more excessive proposals:

  • $70 million to bring last-mile Fiber-to-the-home connections to residents of southeast Iowa.
  • $56 million for “world-class” fiber gigabit service plus wireless for Vermont residents.
  • $125 million for “state-of-the-art” access for rural Mississippi counties.
  • $60 million to increase the speeds of available internet in the dense urban landscape known as “western Texas” (the same desert that served as the setting for No Country for Old Men, a region with a population density of about 10 people per square mile).
  • $500 million for Echostar and ViaSat to bring satellite internet to 20 targeted states. It seems that if your next business venture requires a $500 million government handout in order to become profitable, the project probably wasn’t going to create much value in the first place.
  • $275,000 to create several youth-oriented public internet radio stations for public housing communities in Pennsylvania.

While the dollar amount of the last one on this list is dwarfed by most of the other proposals, the request illustrates the wishful thinking of public broadcasting aficionados. Youth-oriented children’s radio programming may have a positive impact on youngsters growing up in public housing, I don’t know. But public radio only serves the public interest insofar as there are people who actually tune in. If National Public Radio and their frequent pleas for money pledge drives are any indication, the demand for public radio is pretty weak. Unless the government wants to sit children down and force them to listen, this sounds like $275k will be going straight down the drain.

Just as there are trade-offs involved in all policy decisions, there are also trade-offs to consider when determining where to live. High-speed internet access is best-suited for communities with large enough populations such that high demand makes the large capital investments of building new networks an attractive investment. Smaller, outstate communities generally have to wait for the price of technology to come down before next-generation connections arrive in their locale. This is neither some kind of strange phenomenon, nor ploy by capitalists to keep the good life away from rural populations; it’s just the economics of the high-tech sector. Government cannot turn Mason City, Iowa into San Jose, California without causing a huge dead-weight loss to the taxpayers.

Sen. Amy Klobuchar Criticizes Verizon, Ignores Wireless Industry Realities

by Elizabeth Jacobson on November 10, 2009

in Tech & Telecom

Senator Amy Klobuchar (D-MN) is once again proving that she has no understanding of either the wireless phone industry, the rationale behind contract law, or basic economics. Verizon Wireless announced last week that it was changing its early contract-termination fee for smartphone customers from a flat $175 to a pro-rated $350 that decreases $10 for every month that contract is in effect. Sen. Klobuchar sent complaints to both FCC Chair Julius Genachowski and Verizon CEO Lowell McAdam. From her letter:

I remain concerned that ETFs – especially at these high prices – unfairly penalize consumers, bear little to no relationship to the cost of the handset device, and are anti-consumer and anti-competitive.  In fact, Verizon Wireless’ decision underscores the need for Congress to act and to pass the Cell Phone Consumer Empowerment Act.

Sen. Klobuchar – a vocal critic of the wireless industry – obviously doesn’t understand that wireless carriers subsidize the cost of handsets for customers in exchange for a fixed-duration service contract. $500 upfront for an internet-capable handset is prohibitively expensive for most consumers, and so the popular business model has been below-cost phones + two-year (give-or-take) contracts. No wireless company could stay in business offering subsidized phones without requiring customers to sign service contracts. Moreover, having a brand new shiny gadget – near or below cost – is neither a right nor an entitlement for any consumer. Verizon’s response stated that if a customer absolutely cannot wait two years to get a new high-tech cell phone, then they have the option of going contract-free and upgrading – at full retail price – whenever they desire.

The government should not be in the business of regulating service charges and contract fees. A clever commenter in the Star Tribune article (cited above) exemplifies the madness of Sen. Klobuchar’s complaint best: “I got charged four bucks for a movie late fee the other day. I believe that fee unfairly penalized me and bears little relationship to the price of the movie.”

European Regulators Target Another American Tech Company

by Elizabeth Jacobson on November 6, 2009

in Tech & Telecom

The European Commission is once again targeting an American tech company with an antitrust investigation. This time the EC has its sights set on Oracle and it’s $7.4 billion bid for Sun Microsystems. In short, the worry is that if Oracle acquires Sun, along with it’s popular open-source database software MySQL, that somehow competition in the database market will become nonexistent.

But as Matt Asay at Cnet.com pointed out this week, competition is alive in well in the database market. Amazon recently announced that it will launch its own version of the MySQL software, proving that the EC’s probe is a dead-end. By gaining MySQL, Oracle would gain a foothold in a new market of database users (web-based and small businesses). Asay’s conclusion:

Oracle’s bid for Sun/MySQL, in other words, isn’t about squelching competition, but rather about enhancing it. Amazon’s RDS proves that strong, viable competitors to MySQL can arise from within the MySQL community, which disproves the EC’s argument that Oracle’s control of MySQL will somehow crush competition.

Clearly, the case against the Sun-Oracle deal is without merit. The EC needs to quit targeting American’s most innovative companies.

Free Kareem D.C. Rally Today!

by Elizabeth Jacobson on November 6, 2009

in Bureaucrash, Odds & Ends, Personal Liberty

The Free Kareem protest is going on today at 12 pm outside of the Egyptian Cultural and Educational Bureau on New Hampshire just south of Dupont Circle. If you’ll be in the area, please stop by and show your support for Kareem Amer, the blogger who is serving a four-year prison sentence for criticizing the Egyptian government.

UPDATE: Check out photos and video from today’s rally.

Nvidia Rumored to Compete in Supposedly Uncompetitive Market

by Elizabeth Jacobson on November 4, 2009 · 6 comments

in Tech & Telecom

Rumors abound that graphics chip maker Nvidia is getting set to enter the x86 processor market. Recall that, according to AMD’s lawyers, the processor market is uncompetitive and being unfairly monopolized by Intel.

Now, if the antitrust lawyers are correct, and the CPU market is uncompetitive and needs government intervention, then there must be some barriers to entry that are keeping other competitors out of the market, allowing Intel to reap outrageous profits. However, if Nvidia can and does enter the processor market and supply an alternative processor product line, where would that leave the antitrust argument?

MPAA: Net Neutrality Will Kill Film Industry

by Elizabeth Jacobson on November 3, 2009

in Tech & Telecom

The Motion Picture Association of America has come out against net neutrality… sort of. In its filing with the FCC[PDF] late last week, the MPAA reminded the commission of the importance of content companies in driving new infrastructure technologies, and claims that protecting these content companies (i.e. forcing ISPs to filter out file-sharers) is vital for the future health of the internet.

It would seem fair to speculate that file sharing, contrary to the both the MPAA’s and the RIAA’s earlier claim, has actually helped to drive the growth of the internet, although that’s beside the point. While it’s great to see a big content industry on our side of the Net Neut debate, the MPAA’s stand is little more than a thinly-veiled attempt at regulatory capture. The MPAA’s history of rallying against new technology (“the VCR will destroy the industry!”) is evidence enough of their insincerity. Unfortunately, there are real arguments to be made against government regulation of the pipes and the airwaves, and the phony arguments put forth by the film and music studios will only cause Neutrality supporters to conflate economic reasoning with sheer nonsense.

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