So this is just a brief note to mark the end of a long day.  Up in Canada, the communication regulator has called (again) for line-sharing.  I love the directness of this line from the Ottowa Citizen:

“Putting new lines into homes and neighbourhoods is too costly and would make too much of a mess.”

In other words, the regulator there, the CRTC, has come to the obvious conclusion that wired high-speed Internet connection is a natural monopoly.

“The CRTC said not only must those lines be opened to newcomers, but Bell cannot dictate how fast the Internet connection coming through those pipes can be. Newcomers should be able to provide customers with speeds that rival those supplied by Bell.”

Bell is appealing. The OECD suggests that the CRTC go even farther and require unbundling - a step that has been very helpful in France.

I clicked on the Michael Douglas article in the Ottowa Citizen while getting ready to write this post, and I noticed that all the comments were friendly.  It seems like a civilized place.

As Richard Sandomir of the NY Times reported yesterday, the Tennis Channel (serving up the US Open) is having trouble reaching broad audiences - because large cable providers won’t distribute the Tennis Channel broadly.  The cable systems (who don’t, by and large, compete with each other) will distribute the Tennis Channel, but only on an expensive, additional-cost, additional digital sports tier. That’s Siberia if you’re looking for a good seat with a big audience that allows you to sell a lot of advertising.

Let’s consider the Tennis Channel’s complaint about Comcast.  Placement on a digital sports tier - which reaches only about 11% of Comcast’s subscribers - means the independent Tennis Channel can’t grow.  At the same time, Comcast puts sports channels in which it has equity (MLB Network, NHL Network, NBA TV) on a much more highly-penetrated tier - and it carries its own Versus and Golf channels on a tier that reaches nearly 100% of its 25 million subscribers.

As Sandomir says, “[I]t is reasonable to ask: if Comcast owned the Tennis Channel, would it make it broadly available on its systems or make customers pay extra for it on a sports tier?”

You can’t overstate the amount of fear most people have in dealing with the giant cable networks.  Programmers are terrified.  In particular, Comcast remembers and holds on to grievances.  Programmers may even be unwilling to speak to the Department of Justice, because there’s a risk the information they give about Comcast’s practices will leak over to the FCC and become public.  Comcast does not forget.

That’s why it’s so remarkable that the Tennis Channel is willing to speak up.

This isn’t just a squabble about tiering and channeling.  It’s not even, really, a tussle over contractual terms of carriage.  Nor is this a story about regulating the “speech” of Comcast - although they would undoubtedly claim that it is.

This is much a deeper issue.  When Comcast controls a dominant pipe into the home for all communications - voice, data, entertainment, interaction, you name it - in the areas in which it operates, it will be able to decide what goes quickly, what goes slowly, and how much Comcast gets paid for everything that passes over its lines.  That’s enormous power.  And if Comcast can keep rivals small so that they can’t constrain Comcast’s pricing power, there will be nothing stopping prices for its services from creeping steadily - even if slowly - upwards.

Much of this power already exists.  Comcast has 61% of the Chicago market; 63% of Philadelphia; 58% of San Francisco; 59% of Miami.  This power will be increased by the addition of NBCU content - particularly sports content.

The sports story is a good crystallization of Comcast’s power as a distributor.  Comcast carefully and jealously protected its distribution pipeline when it was dealing with the NFL Network in 2006 - when Comcast didn’t get exclusive distribution rights from the NFL Network, it moved the NFL Network to a (you guessed it) special sports tier.  The sports teams learned their lesson.  When the MLB Network was launched it immediately gave equity to Comcast.  No one needs to be crushed twice.

With the NBCU content, Comcast could put all of its sports online behind the Versus brand and behind an authentication wall so that you have to have a cable subscription to see it.  It would be a grand strategy to protect and grow Versus and avoid commoditization of the cable pipe. No rules apply to this online strategy, at least at the moment.

So - don’t just think white flannels and genteel announcements when you hear about the Tennis Channel.  It’s blood and guts stuff.  The Tennis Channel shouldn’t be an isolated example, and in fact they probably aren’t.  They’re just the people willing to talk.

Amy Schatz of the WSJ had a nice piece yesterday on the white spaces issue - a matter that has been hanging fire now for two years or more - reporting that “Technology and telecommunications companies could soon get access to unused TV airwaves, allowing them to introduce new wireless gadgets and services, under rules that Federal Communications Commission officials are close to putting into final form.”

Smart end-user devices, certified by the FCC to operate on these vacant frequencies while sensing and avoiding interference with TV broadcasts, could be using this spectrum on an unlicensed basis.  This would maximize the use of the airwaves and make possible dramatically-increased mobile high-speed Internet access.  Just as we’ve seen an explosion of tens of millions of wifi devices share (much less desirable) spectrum, we could see a huge advance in wireless use using the TV white spaces - which are beachfront, sought-after spectrum because of their propagation characteristics.  Spectrum sensing is proven technology at this point - we’re ready, but we need the certification rules in place.

We’re in the midst of titanic battles about the entire structure of the communications industry.  An important element for the country’s communications future is to loosen up use of the white spaces on an unlicensed basis.  The issue has been teed up for years, and it’s good to hear that there may be motion soon.

Here’s why the Antitrust Division is interested:  Comcast can potentially maintain its regional-monopoly power over video-to-the-home by making online video distributors’ subscription products unattractive to consumers.

It’s called monopoly maintenance, and it’s just like what Microsoft did more than ten years ago - there, the DC Circuit agreed, MSN sought to leverage its market power into the nascent browser market in order to hang onto its operating system dominance.  This time, the nascent market is online video aggregation and distribution - so-called “over the top” video.

Section 2 of the Sherman Act makes it unlawful for a firm to “monopolize.” 15 U.S.C. § 2. The offense of monopolization has two elements: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

Here, the argument could go, Comcast possesses pay-TV monopoly power in several key markets in the US (including Chicago, Philadelphia, Miami, and San Francisco).

A few more facts:  Comcast is tying access to its online content to a cable subscription.  (So are other cable providers, like Time Warner - this is the TV Everywhere model.)  Comcast is not required by any law to give competing online distributors access to its content so that they can distribute it.  Comcast plans to put all of its cable channel material online (including the hugely popular NBCU channels like USA) behind a TV Everywhere authentication wall. The large cable systems have divided up the country and don’t compete with one another.

These few simple facts, taken together with the giant cable companies’ great power in particular markets, make tremendous gears turn.

Comcast knows that viewers may want to cut the cord.  (Pew and comScore and other people say the cord-cutting numbers are growing.)  They’d like to hang onto their pricing power in the face of this phenomenon. The cable programmers have every interest in playing along so that they can reap fees from guaranteed subscription distribution.  And they have to do what Comcast wants because Comcast controls distribution access to 25% of US households.  Comcast would like cable programmers to put everything behind a TV Everywhere wall.

So, if you’re a DirecTV subscriber with a AT&T DSL connection, you won’t be able to purchase access to Comcast’s TV Everywhere online portal (currently weirdly branded Fancast Xfinity TV) a la carte.  And if you’re a competing online video distributor, with a new goofy name that we haven’t yet taken to heart, you won’t necessarily be able to buy access to programming that your subscribers love at a reasonable price.  Not only that, but because Comcast is effectively pricing online video subscriptions at zero - by tying access to their cable subscription - consumers will be unhappy paying separately for anything substantial online.

It’s this last bit that the DOJ is focused on.  If Comcast and the other cable companies have made it prohibitively expensive (or impossible) for online distributors to sell subscriptions to sports and other key programming, that is potentially anticompetitive.

The cable companies may be succeeding in holding off the threat to their cable video franchises.  This delay is good for Comcast and other cable companies, because it maintains their monopoly in regional video-distribution.  It’s good for traditional programmers.  But it’s bad for consumers - who will inevitably be paying higher prices.

Notice the language of addiction - hooked on Pay TV, can’t live without those cable shows. Desire fed by television.  In economic terms, addiction is a substantial comparative advantage.  Americans spend more time watching TV than engaging in any other form of leisure activity. Who wouldn’t want to take advantage of those revenue flows?

I’m not one for anti-TV paranoia.  My generation grew up living with TV; it was never a novelty for us; we cannot imagine life without it.  It’s a pleasure to watch, a comfort to have around.  But these high doses of TV must be having (and must have had) an effect.

Maybe that effect includes a deepening desire for simplicity, for sameness even across tens and hundreds of channels.  For order and dominion over chaos.  Look at this week’s New Yorker cover, with a man pointing a remote control at the ocean.  We look to television to solve our problems.

From a 1990 essay by David Foster Wallace:

[S]o the gestalt of TV expands to absorb all problems associated with it.  The pseudo-communities of prime-time soaps like Knots Landing and thirtysomething are viewer-soothing products of the very medium whose ambivalence about groups helps to erode people’s sense of connection.  The staccato editing, sound bites, and summary treatment of knotty issues is network news’ accommodation of an Audience whose attention-span and appetite for complexity have atrophied a bit after years of high-dose spectation.  Etc.

There’s a telling line in one of today’s Times articles:

“And so, in the battle for the living room, 2010 seems to be the year that the incumbent is strengthening its foothold.”

The answer to what otherwise might be an onslaught of online video choices (how confusing!) may be in the TV Everywhere plan developed by Jeffrey Bewkes, disarmingly rendered in yet another Times article today.  It’s a way to extend online the existing cable model. Americans longing for their favorite shows will line up.  They will have the freedom to pay for HBO across all possible platforms.

The question is whether the barriers to entry - comparative advantages - created by access to TV Everywhere products conditioned on subscription to pay TV will make it impossible for independent sources of online video to be successful.  If those independent sources of online video don’t take off, there may be no reason for anyone to compete with cable providers to give Americans their single pipe into the home.

And the other question is whether anyone will care.

Comcast asserts that the deal really isn’t that big - and does it with a picture.  With a large, long, red bar it shows AOL/TW at $165 billion, but Comcast/NBCU is just $30 billion and gets a pale yellow, dinky little bar.  No problem!

The picture lets us think about everything that’s happened in the last ten years or so.

AT&T/TCI, 1999, SBC/Ameritech, 1999, Bell Atlantic/GTE, 1999, AT&T/MediaOne, 2000, AT&T/Comcast, 2002, Sprint/Nextel, 2005, SBC/AT&T, 2005, Adelphia, 2006, AT&T/BellSouth, 2007

And now, Comcast/NBCU.  (I’d show you the picture but the file doesn’t allow copying.)

Three thoughts prompted by that list.  First, there’s been enormous consolidation in the market for high-speed Internet access services.  All those mergers.  The most recent figures from the FCC, released in February of this year, show that when it comes to local access at or above 3 Mbps most Americans have a choice of at most two providers - a duopoly.

What’s really interesting, though, is the second thing the list should make you think about.  When it comes to access at higher than 6 Mbps speeds, cable is clearly in charge.  Over 96% of that market is cable’s - and the big players don’t compete with one another.  Those are the speeds you need to watch video.

And that’s why the relative size of the merger isn’t all that relevant.  What’s relevant is the market power that Comcast has in particular regions to provide what is rapidly becoming a single fast pipe to the home.  Over that pipe, the cable industry’s view is that Internet access can take up a few channels but that the rest of the pipe belongs to them.  And they have every interest in ensuring that alternative video marketplaces online don’t take off.

I’ve read the last filings that came in this week.  Comcast does a masterful job of pulling together all the objections and showing how they’ve been answered/cleaned up/distinguished/are merely complaints by competitors/are really attempts to work out industry structures through the merger process.

No one has ever seen a lobbying campaign to equal this one.  That’s the third thought prompted by the picture:  those other guys were pikers compared to Comcast.

It’s a hopeful sign, then, that yesterday, the Administration announced more than 90 investments in broadband projects in 37 states.  (List is here.)  This is the kind of stimulus that does make sense.  This money is going out not according to state block-grant traditions but under fiercely competitive conditions.

It’s been set up to have the maximum impact:  much of the DOC part of the investment is focused on middle-mile installations - breaking up existing bottlenecks and allowing competitive last-mile providers to connect on reasonable terms.  It’s not a complete answer to our nation’s broadband infrastructure problem, this grant program, but it is in my view a shining example of what a good stimulus effort should be.

Here’s a grant in North Carolina:

This approximately $75.8 million award will allow MCNC to offer affordable middle-mile broadband service in 69 of the most economically disadvantaged rural counties along the northern and southern borders of North Carolina. The project plans to directly connect 170 community institutions to broadband. As many as 5.1 million stand to benefit as do 160,000 businesses. In addition to the jobs this project will create, it will provide a foundation for economic growth and job creation for decades to come.

More could be done for core infrastructure in this country, but this effort is well-done and worthwhile.

One running joke is the consolidation of every kind of business.  You work either for Media, Retail, or Credit, and there’s often only one company for each - like AlliedWasteCVSCitigroup.  At one point the main character, a man named Lenny, reassures the young Eunice that she has a future.  “You’re still young, Eunice!  You’ll work in Media someday,” he says.  Both of them have reached NYC on flights offered by UnitedContinentalDeltamerican (clever elision there at the end).

The data cloud surrounding everyone takes very practical shape in this book - you walk by Credit Poles (like telephone poles) that announce your three-digit credit score to the world.

The book’s well worth reading, and like Snow Crash will stay with you.

Speaking of Media, Bob Fernandez of the Philadelphia Enquirer brings us up to date on Comcast’s efforts to get its merger with NBCU cleared: $90 million so far in 2010, $20 million to African American businesses, $6 million for independent films, millions of documents, and full-page ads.  And this statement from David Cohen:

“Comcast voluntarily agreed to certain conditions on the deal when it was announced in December but would not accept government-imposed “abusive” conditions, Cohen said. “We are not willing to accept conditions that would impede our ability to run the legacy Comcast business and our new NBCU business and deliver outstanding returns to shareholders,” Cohen said.”

There’s a conglomerate in Super Sad True Love Story that doesn’t do very well:  “the failing ColgatePalmoliveYum!BrandsViacomCredit albatross.”  But the hero’s parents spend all their time watching FoxLiberty-Plus and Fox-Liberty-Ultra.  Those two companies probably didn’t accept any conditions either.

I don’t blame them for trying.  These are profit-making companies, not regulators and not advocacy groups.  I’m sure Google, in particular, is tired of the multi-year slog that has gone into the net neutrality debate - and tired of being made the poster-child for the issue as other major online companies have steadily backed away.

The key takeaway from today’s announcement is that it underscores the urgency of FCC action to ensure that it has jurisdiction to speak to American companies about high-speed Internet access.  As someone told me today - snappy line - the agency is being disintermediated.

Funny, but not good for the American economy.  These two giants have found a policy vacuum and they have, understandably, filled it. A private deal - even a private deal aimed at suggesting legislation - is not the same thing as acting in the public interest.  That’s the FCC’s charge.

The key tradeoff being made here is between the treatment of wireless services, on the one hand, and the treatment of nondiscrimination, on the other.  Google gave on wireless, and so there’s no policy suggestion for wireless net neutrality that has been provided by the companies.  That’s a huge hole, given the growing popularity of wireless services and the recent suggestion by the Commission that we may not have a competitive wireless marketplace.  Verizon gave on nondiscrimination, and so there is a suggestion that paid prioritization of services over the Internet would be presumed unlawful (something that AT&T would not have agreed to).

Both companies left “managed services” (or “other services”) off the table for regulation.  That’s a giant, enormous, science-fiction-quality loophole.  It means that Verizon could decide what bits reach consumers more quickly; it means they’ll be able to favor particular uses of Internet access for exclusive deals.  It’s the exception that swallows the rule, as lawyers like to say.  It’s prioritization using another label.  There’s a save in there that suggests that the “other service” has to be distinct in scope and purpose from Internet access (something cable would not have agreed to), but that’s a long way from an enforceable standard.

What’s needed now is leadership.  Here’s a quote sent to me yesterday - from LBJ to regulators:  “Let the venal and the self-seeking and the tawdry and the tainted fear to enter your building.”  You need backbone to regulate a giant industry, and this one is too important to our economic, social, and cultural future to ignore.