What keeps Mitch McConnell from letting his people go?

Annie Lowery wrote a piece for The New York Times discussing the hard times faced by the residents of Eastern Kentucky.  Ms. Lowery identifies six Kentucky counties (Breathitt, Clay, Jackson, Lee, Leslie, and Mayoffin) that rank among the ten poorest in the United States.

Among the causes leading to poverty in these counties is a lack of infrastructure that results in isolating these counties from commercial activity and opportunity; and very low investment in education.  According to Ms. Lowery only 7.4% of Clay County residents have a bachelor’s degree or higher.

The educated are more likely to move as a result of their higher level of personal human investment but the poor are pretty much stuck with little in capital necessary for leveraging an escape.

I wonder how persistent poverty best serves any state’s political and economic oligarchy.  As the article points out federal investment has failed to lesson the impact of poverty in Eastern Kentucky.  What kind of returns are the political and economic oligarchs expecting to gain from poverty?  

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Random thoughts on #HobbyLobby

There are two takeaways from the case. First, the state’s mission is to use government as a redistribution mechanism for wealth. This is why factions, left, right, and center, battle for control of government every two years.

In the case of an entrepreneur, the government wants to ensure that part of the entrepreneur’s wealth (positive or negative) goes toward funding of benefits that the electorate has no fiscal stomach for funding itself, in this case access to health insurance and the benefits attached to it. The entrepreneur will either purchase a plan for her employees; pay a fine; or push the employees on to an alternative like Medicaid, if it is available. Under either scenario, the entrepreneur is forced to make a decision she otherwise would not have absent the government’s action.

The second takeaway is that for start-ups, how they organize their business must take into account the “political economy” promoted by the state at the time they form. In other words, what type of environment is the state promoting and how will it impact my ability to generate revenues and hopefully sooner than later earn a profit. In the case of the Affordable Care Act, more entrepreneurs may leverage innovative technology and outsourcing to get around hiring employees and paying exorbitant benefits packages. Why have a payroll when you can retain a mix of temporary workers and independent contractors.

I predict over the next decade more individuals, especially skilled or professional workers, will find themselves in the independent contractor ranks and purchasing benefits on their own. That will be a great day for ….#TheOpenCountry

Posted in Economy, employment, entrepreneur, government, labor markets, libertarian, liberty, Political Economy, public benefits, regulation | Tagged , , | Leave a comment

Forty million dollars was not enough, #NewYorkCity

Yesterday after my son’s performance at the neighborhood arts center, I decided to treat him to a Frosty. “I want a Frosty shake, Dad.” It was Friday so I said what the heck. We enter the restaurant and on a very rare occasion I felt unsafe. Why? Because there were five armed individuals in the store, each of them authorized by the state of Georgia to execute deadly force.

We call them Babylon Bandits. (Full attribution to Barrington Salmon for coining the phrase.) The rest of you call them … the police.

They sat there calmly engaging in cop chit chat and a few minutes later they left. My blood pressure started to go down as the distance between these paid hunters and my son and me increased as they entered their vehicles.

The reality behind raising a son is that as he gets older and taller he inches onto the profile and within the gun sights of these “Urban Cowboys.” As individuals some of these men and women may be cool, but I don’t want to get too close to them to find out.

As the recent settlement between the City of New York and five men wrongfully accused of raping a jogger in Central Park should remind us, unless we are old, gray, and in a wheelchair, we are target practice for a law enforcement and judicial system that still views us as chattel….

Forty million dollars was not enough …..

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#NetNeutrality: Is @Netflix posturing?

The New York Times has an article talking about the net neutrality spat between edge provider Netflix and broadband access provider Verizon.  Netflix posted a warning to its subscribers blaming Verizon for a slow down in viewer streaming.  Verizon has taken issue with the warning, saying that the warning “is self-serving, deceptive, inaccurate and an unfair business practice.”

Sounds like Netflix wants its cake and the chance to eat it, too.  Probably a doughnut would be the better pastry of choice not only because its National Doughnut Day, but because Netflix’s argument has a whole in it.

Netflix’s data traffic accounts for 34% of North America’s downloads, according to The Wall Street Journal, testament to America’s appetite for video services online.  With that amount of traffic there is bound to be congestion. According to The Journal:

“Overall, Internet traffic is becoming a much more concentrated affair, even as regulators in Washington debate rules to encourage new competitors by maintaining, in theory, equal access to broadband subscribers. The biggest online brands like Netflix, Google,Apple AAPL +0.59% and Amazon account for a dominant share of Americans’ personal data usage. The growth is fueled by the large size of video files offered by a few of the most popular sites.”

Hope you read the above paragraph carefully for the net neutrality side note.  Not only are we seeing heavy video traffic, but heavy traffic coming from an increasingly concentrated source of edge providers.  Netflix and Google talk about strong net neutrality while distracting their grassroots supporters from the lack of “search neutrality” on the edge provider/content producer side.

I have no problem with concentration.  It signals the market that it may be time to invest in a little disruptive technology.  Let it concentrate then blow it up.  What I have a problem with is the posturing on the part of Google, Netflix, and other large edge players seeking to optimize their positions on the Internet with a little deception of their own.  Just be honest about it.

Posted in broadband, broadband access provider, cable, Federal Communications Commission, Internet, media, net neutrality, regulation, technology | Tagged , , , , , | 2 Comments

#Broadband: Why would an edge provider let @FCC see its business model #netneutrality

Technocrat’s Anne L. Kim blogged on comments Consumer Electronics Association CEO and president Gary Shapiro made at a recent Brookings Institution event.  Here is an excerpt from her post:

On net neutrality, Shapiro wants more of a hands-off approach from the government. He wants to see government allow industry and nongovernmental organizations establish principals. “And if the principals are violated, then act,” he said.

“I personally am fearful of all of a sudden sending those companies into a new area of regulation like utilities,” referring to the FCC considering using Title II of the 1996 Communications Act to rewrite net neutrality rules.

He said he likes things the “way they are” and that he’s rather not see them changed, adding that “good intentions scare me.”

Take a look at Title II, something more edge providers need to do, and you can appreciate some of Mr. Shapiro’s fear.  For example, section 211 of the Communications Act requires that common carriers (a classification that net neutrality advocates want applied to broadband providers) file copies of all contracts that they have with other common carriers.  So, if Google, a broadband wannabe, has peering or transit contracts with Comcast, Google will have to file its contracts with the Federal Communications Commission, and probably with state public utility commissions as well.  If these contracts contain information regarding traffic from certain edge providers a la Netflix, Netflix wouldn’t be happy that some aspect of its business model may be on public display with the FCC.

This type of transparency may bring joy to net neutrality proponents but not to the edge providers they purportedly are so concerned about.  In my opinion, letting the government have a copy of a contract entered into autonomously is the same as the government regulating your free speech.  Unless there is a dispute to be resolved between two parties to a contract, I see no reason to let the government have access to its contents.  If edge providers want to see a slippery slope created that takes regulation right to their doorsteps, Title II will lay the bricks for that driveway.

My walk down the Yellow Brick Road of regulation gets scarier when I take a look at section 215.  Section 215 allows the FCC to examine transactions involving the furnishing of services, supplies, equipment, personnel, etc., to a carrier.  Also, the FCC, pursuant to this section, may examine transactions that impact charges a common carrier assesses for provision of wire or wireless services.  Section 215 also allows the FCC to determine how reasonable these charges are.  Also, the FCC may report its recommendations to Congress as to whether charges are invalid and should be modified and prohibited.

Now, not to knock on Google, but since they are the Internet flavor of the week given the disclosure of their perceived wretched diversity in hiring practices, disclosing matters regarding personnel much less on their services should make the company and its investors think twice about supporting net neutrality brought to you via Title II classification.

All of Title II should be scary to venture capitalists, private equity, and their investor clients, but section 218 should bring great pause. This section allows the FCC to inquire into the management of all common carriers.  The FCC may obtain management information not just from the carriers, but from entities that directly or indirectly control them.  That, in my mind, includes private equity firms or venture capitalists that may have a controlling interest in some little regional or rural broadband provider.  With the SEC stepping up its scrutiny of private equity via the Dodd Frank Act, does private equity want another alphabet soup agency knocking on its door?

Here is one more, especially for the app developers.  Section 231 speaks to app developers, or more definitively access software providers.  This section prohibits the use of the World Wide Web to transmit material harmful to minors.  I wonder how many apps fall under this category.

When you look behind the curtain of good open network intentions, you can find some scary stuff.

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#Energy: Blacks want their place at the #cleanenergy table

I just read an insightful piece by my good friend Charles Ellison in The Root where he poses the question, “Where’s the black political conversation on climate change?  Mr. Ellison points out that black politicians, save President Obama, are absent from the climate change discussion.  Black political leadership have not even taken the opportunity of leveraging a press conference to discuss climate change and its environmental and economic impact on blacks.

“Even within the context of climate change’s devastating and disproportionate impact on communities of color, black politicos won’t follow the president’s lead on the issue. The Congressional Black Caucus didn’t say if it would, at the very least, take a look at the rules—nor does it list climate change as an issue of focus (leaving it to the multicultural Congressional Progressive Caucus). There are no press releases popping about the White House National Climate Assessment or that recent EPA drop from big civil rights organizations like the National Urban League or the NAACP—even though the NAACP sports a convenient Climate Justice initiative.”  

But while their political leaders may be slow to get on board the Ark, Black Americans are concerned about climate change.  Blacks are also concerned about the costs of conservation programs being disproportionately borne by their community. Issues that stem from climate change, including impact on health and access to economic opportunities in the green economy require blacks have a seat at the table to make sure that stake holders such as clean energy, environmentalists and traditional energy companies and government –don’t throw Black Americans under the bus.

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#Broadband and #Energy: Convergence 3.0

We are in Convergence 3.0.  Convergence 1.0 occurred in the 1990s when telecommunications companies wanted to compete with long distance carriers; long distance carriers wanted to be local phone companies; and cable companies wanted to provide voice services.

In Convergence 2.0 we found cable companies, wireless phone companies, and traditional phone companies competing with hardware creators such as Apple; search engines, such as Google and Yahoo; and social media platforms, such as Facebook, LinkedIn, and Twitter, to become a higher form of media company, competing for eyeballs by owning and developing content that can be easily seen on their devices and connected to by their networks.

In this Bloomberg Businessweek article it appears that Convergence 3.0 is here.  Google and AT&T are providing services beyond the electric companies’ meters, services that promote the “Internet of Things” where not only can you turn on your lights with your smartphone, but you can use broadband connectivity as part of net metering services that allow consumers to monitor their energy conservation efforts and sell excess energy that they generate at home back to the utilities.

Consider this quote from the article:

“ ‘The battleground over the next five years in electricity will be at the house,” says David Crane, CEO of NRG Energy (NRG), whose company has made large investments in solar and is facing off against established utilities. “When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter. We aren’t worried about the utilities, because they have no clue how to get beyond the meter, to be inside the house.” Collaborating with Comcast, Crane’s NRG is running a trial in Pennsylvania that adds electricity to the traditional cable, phone, and Internet triple-play package.”

In addition, also from the article, here is an example of how broadband is used to monitor energy conservation:

Vivint’s business plan exploits the company’s large home-security customer base—800,000 homes across six states and the District of Columbia—to lease rooftop solar arrays. Vivint, which was bought by private equity giant Blackstone Group(BX) in 2012 for $2 billion, installs the solar equipment for free. Customers sign contracts to buy the power their systems generate at rates as much as 30 percent lower than the local utility. In just two years, Vivint’s solar unit accounts for 9 percent of all new rooftop solar installs in the U.S.

Because its customers are still hooked up to the grid, Vivint is able to sell any excess power back to the utilities under state-mandated net metering programs. Vivint and others are also learning how to deploy smart technology that can consolidate energy savings from millions of homes and businesses. Vivint offers a security system that incorporates computerized energy-conserving features—including the ability to set thermostats and control appliances. Utilities can contract with home-automation companies like Vivint to get their customers to defer the use of big appliances or turn down their air conditioning units during peak periods, helping utilities avoid power outages or the need to buy power on the spot market to make up for shortages. Consumers like it because they get paid for saving energy.

You have to ask yourself if we will also see a convergence of regulators and if there is a convergence of regulation, how will this impact capital flow and investment.  The net metering and the associated rates and credits affiliated with the program are regulated by state utility commissions.

Meanwhile, the Federal Communications Commission issued proposed net neutrality rules for the alleged purpose of ensuring that consumers can access the content of their choice at whatever points of the combined 66,000 networks we call the Internet.  These rules are also intended to ensure that app developers can deploy their services without fear of discrimination.

What happens if an electric utility says to a company like Vivint or to a consumer that they can’t use a certain application for accessing their network?  Can the FCC construct an argument under current statute that says the utility is discriminating against the consumer’s choice of application used on its network, thus a net neutrality violation?  And there is the more fundamental question of whether an electric utility is a broadband provider simply because it deploys smart grid technology within its network and allows connectivity with other wireless networks?

If the FCC were to wade into these waters, its strongest regulatory scheme would be section 706 versus Title II.  An electric utility could make a very strong argument that its not a telecommunications company and that Title II shouldn’t apply to it.  Smart grid and net metering are arguably advanced communications technology where computers are talking to and exchange information with each other about a consumer’s energy usage and under section 706 the FCC could make the argument that an electric utility’s prohibition of an application’s use on its network goes against the goal of deploying advanced communications.

Codifying section 706 in rule format may only serve to restrict the FCC even if it wanted to make an exception for electric utilities and avoid the headaches of dealing with over 50 state regulatory boards.

Regulatory arbitrage in the broadband age.  Something to think about.

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#Broadband: The New York Times needs to stop using silos to assess broadband

The New York Times’ editorial board today opined on the proposed merger between Comcast and Time Warner.  In the piece, the editorial board argued that the combination could mean that in the future Comcast could keep competitors from accessing its NBC content and that there would be an inordinate amount of control over the consumer’s broadband access to content.  Here was my response:

“The Editorial Board is focusing on a lot of “what ifs” that if the feared scenarios were carried out by Comcast, the result would be a devaluing of their network and the content that they own. Comcast wants its NBC content shown on as many platforms as possible. The more eyeballs for its content means certainty in advertising and license fees generated by viewers.

Also, the Board is still stuck in the 1990s view of regulation. You can’t use the silo view of how to view Comcast or Time Warner. Google and Apple are developing a business model that connects consumers end-to-end to content. Google is also exploring providing broadband in a number of cities.

A Comcast-Time Warner combination is merely good planning as the companies try to prepare themselves for a future where companies that have been erroneously described as tech companies are showing their through colors as media companies.

The notion of information portal is being taken to another level by all of these companies and it’s time for the FCC and the U.S. Department of Justice to recognize this.”

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#Capital: Should public policy use an #entrepreneur definition of systemic risk?

An article in yesterday’s The New York Times discusses the U.S. House Financial Services Committee’s review of the processes behind the Financial Services Oversight Council’s designation of non-bank financial entities.  Under section 113 of the Dodd-Frank Wall Street Reform Act, the FSOC can designate a non-bank financial company as one that may threaten the stability of the financial system due to its financial stress and the level of connectivity it has with other bank and non-bank financial institutions.  The author of the article takes issue with committee chairman U.S. Representative Jeb Hensarling’s position that the failure of asset management companies did not lead to the financial crisis.  What I have found lacking in the Dodd Frank discussion is a clear definition for  “threat to the financial system” and “systemic risk.”  What I have heard so far does not take into account the entrepreneur’s perspective.  I would define threat to the financial system in the following way.

From the entrepreneurial view, a threat to the financial system is where the market fails to provide alternative pools of loanable funds for entrepreneurs and small businesses to tap into when a supplier or a number of suppliers can no longer provide credit to potential borrowers.  After family and friends have been tapped out, banks and other financial institutions are the next stop.  If the road starts getting littered with financial institutions that are no longer lending, is there a framework in place that provides the entrepreneur with a safe detour toward ones that will extend credit?

The conversation in the media and among policy makers doesn’t seem to include that question.  The focus has been on increasing capital requirements for banks and issuing rules that restrict a bank’s ability to engage in proprietary trade.  The aforementioned article focuses on the conduct and duties of the FSOC.  There is more concern about artificial stimulation of the markets by monetary policy than concern for keeping capital flowing to entrepreneurs.

If entrepreneurs are the drivers of the economy and capital is the fuel, then policy is placing the fuel in the wrong gas tanks.  During a crisis a lifeline to entrepreneurs would be an appropriate short term fix since we don’t want to see entrepreneurs curtail production or send employees home with pink slips.  The very next step should be to have an action plan in place to redirect business borrowers to alternative lenders should the supply-side of the loanable funds market be unable to send the proper signals to borrowers.

Government should be acting as an information clearinghouse during a financial crisis, allowing the market to clear out failed financial institutions and clearing the road of the debris so entrepreneurs can find the financial firms that can satisfy its needs. .

 

 

Posted in capital, commerce, credit, Economy, entrepreneur, Financial Regulation, government, Political Economy, stimulus | Tagged , , , , , | Leave a comment

Can @FCC look at peering arrangements? No

The New York Times yesterday reported that Federal Communications Commission chairman Tom Wheeler wants to take a look at peering arrangements.  Here is a definition of peering provided by TechTarget.com:

“Peering is the arrangement of traffic exchange between Internet service providers (ISPs). Larger ISPs with their own backbone networks agree to allow traffic from other large ISPs in exchange for traffic on their backbones. They also exchange traffic with smaller ISPs so that they can reach regional end points. Essentially, this is how a number of individual network owners put the Internet together. To do this, network owners and access providers, the ISPs, work out agreements that describe the terms and conditions to which both are subject. Bilateral peering is an agreement between two parties. Multilateral peering is an agreement between more than two parties.

Peering requires the exchange and updating of router information between the peered ISPs, typically using the Border Gateway Protocol (BGP). Peering parties interconnect at network focal points such as the network access points (NAP) in the United States and at regional switching points. Initially, peering arrangements did not include an exchange of money. More recently, however, some larger ISPs have charged smaller ISPs for peering. Each major ISP generally develops a peering policy that states the terms and conditions under which it will peer with other networks for various types of traffic.

Private peering is peering between parties that are bypassing part of the public backbonenetwork through which most Internet traffic passes. In a regional area, some ISPs exchangelocal peering arrangements instead of or in addition to peering with a backbone ISP. In some cases, peering charges include transit charges, or the actual line access charge to the larger network. Properly speaking, peering is simply the agreement to interconnect and exchange routing information.”

I decided to post this definition to give readers a taste of the complexity of peering arrangements.  The FCC may have a bit of time discerning paid from free exchanges of traffic as well as figuring out whether they are looking at a private arrangements circumventing the public Internet or one that is indeed running over networks used by everyone.

Mr. Wheeler may be throwing a ratchet into the definition of net neutrality with this initiative.  Net neutrality has so far focused on the relationship between an end-user of Internet services and her broadband access provider.  Peering arrangements don’t fall into that traditional net neutrality box since the relationship is between broadband providers, edge providers, or content distribution networks. In addition, Mr. Wheeler made clear last week before a House sub-committee on communications and technology that net neutrality was about that “last mile” connectivity between broadband providers and end-users.  If he is changing the definition, does he have a legal leg to stand on?

Well, he can’t look to Title II.  Section 251 of the Communications Act describes interconnection requirements for telecommunications companies and the intent behind that section was to help spur competitive markets for local telephone service.  Unless Mr. Wheeler is ready to make a dangerous Title II reclassification move, I don’t see him going down that road on peering arrangements.

How about under Title I, specifically section 157 which encourages the provision of new services to the public.  I don’t see a winner here either.  Peering arrangements are not services for the public.  They are network management strategies employed by network owners to regulate and manage traffic.  Sure in the end the end-user may benefit when traffic flows to his computer, but peering arrangements may not be for consumer traffic and the FCC would have to determine which portion of traffic is flowing for what purpose.

Finally, section 1302 of the Act, otherwise known as section 706 of the Telecommunications Act of 1996, doesn’t seem to help out Mr. Wheeler either.  Yes, the section calls for incentivizing deployment of advanced telecommunications services through regulatory mechanisms such as price cap regulation, regulatory forbearance, or other methods that remove barriers to investment, but again peering is about network interconnection, not about encouraging local telecommunications competition.  The local competition boat successfully left the regulatory harbor years ago and demand for broadband services and the benefits of the Internet appear to be encouraging infrastructure development on its own.

No, the FCC need not look at peering arrangements.

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