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  2. September 2011

September 2011

LightSquared, FCC face criticism from Republican lawmakers

The Federal Communications Commission’s initial approval of a troubled satellite venture came under fresh criticism as Sen. Charles Grassley (R-Iowa) questioned whether the agency’s actions could lead to billions of dollars in costs for taxpayers.

LightSquared is trying to build a cellphone network out of satellites, but the technology interferes with Global Positioning System technology used by pilots, consumers and meteorologists. LightSquared wants the military and other federal agencies to refit its equipment with filters. But the cost to the government could be substantial, officials have said. And in a letter to FCC Chairman Julius Genachowski, Sen Grassley questioned whether the agency considered that cost when it allowed LightSquared to take the next step in its plan in January. “At no point has the FCC addressed who will pay to retrofit every single federal, state, and local government GPS receiver, which will require a filter as a result of interference” caused by LightSquared’s network, wrote Sen Grassley.

Don't hold your breath for a la carte cable

Is the cable industry starting to change its mind about the idea of letting consumers decide what channels they want?

A recent story from Reuters says cable operators are working on a such a plan and that it "represents a complete reversal from cable operators' long-held opposition to what is known as 'a la carte' programming." Don't get your hopes up. While there are a handful of small cable operators, including Mediacom, that have expressed interest in pursuing a different distribution system, the big boys -- including Time Warner Cable and Comcast -- are unlikely to advocate for an a la carte system. That's because both are in the programming business and want their channels in the homes of all their subscribers, not just the ones who want them. When Time Warner Cable launches its regional sports channel in Los Angeles next year, consumers will have to pay for both the English and Spanish language versions even if they only want one or -- gasp -- neither. It is a practice called bundling and all the big programmers engage in it.

Cable’s ESPN Dilemma: Wildly Popular -- but Costly

Of the 20 most-watched programs ever on cable TV, 16 were episodes of Monday Night Football -- a show that Walt Disney’s ESPN sports network didn't begin broadcasting on cable until 2006. ESPN is also the only cable channel ever to have more than 20 million households watching a regularly scheduled program at once -- a feat it’s accomplished four times. That ratings strength is the reason most cable operators believe carrying the world’s No. 1 sports network is essential to keeping 99 million U.S. pay-TV subscribers shelling out monthly fees. Now system operators are being forced to figure out how much subscribers are willing to pay for sports -- and at what point they'll throw in the towel.

ESPN charges cable operators an average $4.69 a month for each subscriber that gets the channel, up from $4.34 last year, according to researcher SNL Kagan. Cable networks such as CNN or TBS charge less than a dollar, says Kagan’s Derek Baine. But paying more for ESPN is only part of the problem. Disney charges distribution fees and collects ad revenue from its other channels, including ESPN2, ESPN Classic, ABC Family, and Disney Channel. To get ESPN, pay-TV systems must take bundles of channels, including some less popular. ESPN and ESPN2 account for almost 20 percent of the wholesale cost of the average pay-TV subscription, says Sanford C. Bernstein analyst Craig Moffett.

High Noon for Internet Freedom

[Commentary] As democracy movements worldwide struggle to speak out via the Internet, many here in the U.S. may have overlooked an effort in Congress to undermine this basic freedom. It takes the form of an arcane "resolution of disapproval" now wending its way through the Senate.

If it passes, the resolution would void a recent Federal Communications Commission rule that seeks to preserve long-held Internet standards that protect users against blocking and censorship. The resolution would remove these protections. It was put forth by industry-funded members of Congress who don't mind letting the few corporations who sell Internet access in America decide what we get to see, hear and read on the Internet.

A plaything of powerful nations

Netheads build, run and protect the Internet. They often profit from it too. More than 2,000 of them from more than 100 countries descended on Nairobi this week for the latest Internet Governance Forum (IGF), a conference organized under United Nations auspices.

The ponderous official theme was the Internet “as a catalyst for change”, with a lot of nodding to WikiLeaks and the Arab spring. The reality outside the conference hall, the UN headquarters in the Kenyan capital, was more striking. Kenyans nowadays often go online on their mobile phones. Surfing the web is getting faster and cheaper by the day. The Internet is no longer a geeks’ affair in the rich world, but woven into the fabric of business and life even in the poor one. The IGF is not a typical UN meeting with a carefully staged agenda and much diplomatic protocol. All participants had the same right to take the floor. Government suits had to listen patiently to the complaints of Internet activists. And the end of the shindig was not marked by a finely tuned communiqué, but by a workshop dedicated to what the organizers should do better. All this makes the IGF an unusual grouping. It is in effect a poster child for what insiders like to call the “multi-stakeholder” model.

How to Create a More Efficient Broadband Universal Service Program by Incorporating Demand and Cost-Effectiveness Analysis

The proposed Connect America Fund intended to provide broadband to high-cost areas should abandon a cost-based approach in favor of a value-based approach in which subsidies depend on whether the incremental benefits are worth the cost. A cost-effectiveness analysis focused on willingness to pay and incremental effects can ensure the CAF is more efficient than the current universal service high-cost fund.

In the paper, Wallsten, TPI Senior Fellow and Vice President for Research, identifies two flaws in the current high-cost fund. Specifically, it does not incorporate how much consumers value the services being subsidized, and does not measure the incremental, rather than average, effects of the program. CAF can overcome both problems and operate far more efficiently than the existing high-cost program ever could. To avoid replicating these flaws in the Connect America Fund, "decisions about where to provide subsidies should take into account how much consumers value the improvement in service the subsidy would bring beyond what is currently available." This would require regular studies on what consumers are willing to pay for different levels of broadband service. "This information would be used to help determine what types of service should be subsidized in unserved areas, which areas to fund, and the maximum amount that should be spent on subsidies," Wallsten explains. Wallsten concludes that the approach outlined above, "will help achieve universal service objectives in a way that provides real benefits to citizens, does not enrich particular firms, and limits total spending."

Not so simple: U.S. spy agency trying to go mobile

Troy Lange knows that just mentioning cellphones is enough to give security officers heartburn at the National Security Agency. Lange, as the NSA's mobility mission manager, is developing a smartphone that he wants to bring inside the super-secret U.S. spy agency to access classified information and apps while on the move. He wants it to work as easily as any of the smartphones those that are so ubiquitous in the outside world.

That is no small vision for an agency where entire buildings are designated as Sensitive Compartmented Information Facilities, known as SCIFs in spy speak, with many restrictions to ensure the handling and discussion of secret information stays secure. Visitors to the Fort Meade (MD) NSA complex are not allowed to bring outside cellphones into the building. Lange argues that using smartphones inside areas that deal with secret material will increase efficiency. "I want to get this into everybody's hands" -- every employee in the Defense Department, intelligence community and across government, he said, while acknowledging that kind of talk makes "the security people's heads pop off." He is working on a pilot project expected to begin running late this year or early next year using a smartphone that looks like any bought in stores but with security configurations to allow top-secret communication.

The Role of Internet Intermediaries in Advancing Public Policy Objectives

This book presents a comprehensive view of Internet intermediaries, their economic and social function, development and prospects, benefits and costs, and roles and responsibilities.

Part I, The Economic and Social Role of Internet Intermediaries, develops a common definition and understanding of what Internet intermediaries are, of their economic function and economic models, of recent market developments, and discusses the economic and social uses that these actors satisfy.

Part II, , examines the roles and responsibilities of Internet intermediaries in advancing public policy objectives, as well as the costs and benefits of their involvement through a series of case studies.

Part III provides a summary of an expert workshop that identified lessons learned and best practices from the experience to date of Internet intermediaries in advancing public policy objectives.

Softbank to Launch High-Speed Wireless Service

Softbank will launch a 4G high-speed wireless service using personal handy-phone technology on November 1.

PHS technology is a mobile network system used mainly in Japan, China and Taiwan. Offering speeds of up to 110 megabits per second, the service would be the fastest available for mobile phones and other portable communication devices, outpacing the Xi service of NTT DoCoMo.

September 24-30: Kindle on Fire (Or Amazon, the Company That Consumed the World)

September 24-30: Kindle on Fire (Or Amazon, the Company That Consumed the World)

The headlines burned this week in breathless anticipation of Amazon's new tablet computer. Since January 2010 , Apple's iPad has dominated the tablet market. Apple's iPad has accounted for nearly 75 of tablet sales this year. iPads have become the device of choice on Capitol Hill , in doctors' offices , and even public libraries.

So some wondered if Amazon's device could be a true competitor to the iPad. They looked at Amazon's brand recognition, bevy of existing loyal Kindle e-reader owners, and Web-based e-commerce platform that includes one-click access to buying e-books, movies, digital music downloads, its own Android app store, and streaming media catalog. Tony Bradley in PCWorld wrote, "That adds up to Amazon being uniquely suited to go head-to-head with Apple in the tablet market and become a formidable competitor across the industry." Writing for paidContent.org, Ian Fogg said Amazon could only win by being different than Apple. He suggested observers look at these areas to judge the Kindle tablet:

  • The extent to which the Kindle tablet’s business model is content-subsidized.
  • The extent of the app catalogue available at launch and soon afterwards.
  • The type of color screen used.
  • Whether there is any business relationship with Google.
  • The role for new visual eBook and magazine formats.
  • Type of connectivity, 3G / WiFi, and route to market.

On September 28, Amazon made a big splash launching Kindle Fire -- a tablet with a 7-inch display and selling for $199 (compared with $499 for Apple’s cheapest iPad). The device, a souped-up version of the Kindle electronic-book reader, will run on Google’s Android software. While the Kindle Fire can vie with the iPad in access to media content, it lacks a camera, microphone or a connection to a 3G wireless network. It may not appeal to consumers who are drawn to the iPad’s larger screen and willing to pay a premium for added features such as video chat. Piper Jaffray's Gene Munster estimates that Amazon is probably losing $50 for every Fire tablet it sells. The subsidization, writes Michael Wolf for GigaOm , has created a mass-market alternative for a tablet. [Update: IHS iSuppli estimates it costs $209.63 for Amazon to make the Kindle Fire.]

Amazon also introduced touch-screen versions of its e-reader, to be called Kindle Touch. With that release, Amazon's use of advertising to subsidize hardware becomes more engrained. For example, the Kindle Touch with Special Offers costs only $99, but if you want one without ads it will cost $40 more. The new Kindle, without a touchscreen, costs $109 — that’s $30 more than the attractive $79 pricetag for the ad-subsidized model. Amazon started experimenting with advertising earlier this year, by discounting the Wi-Fi and 3G versions by $25 to $114 and $139, respectively. Amazon said earlier this month that both of those are already the bestselling Kindles, and that “customers report that they love the money-saving special offers.”

But why all the Headlines attention for the Amazon announcement this week? Bloomberg/BusinessWeek ran a long, interesting piece this week, "The Omnivore," that gets at why this all seems so important. Amazon sells millions of goods and services, from toys and high-definition televisions to server space for other Internet companies and digital reading devices for book lovers. Borders found it impossible to match Amazon’s selection and went out of business earlier this year. Best Buy has watched Amazon undercut it and commoditize whole product categories, and is now trying to shrink the square footage of its superstores. Wal-Mart Stores has struggled to match the ease and reliability of Amazon’s shipping network, and posted nine straight quarters of declining same-store sales. Web sites that have matched Amazon in selection, price, and customer service­Zappos, Diapers.com­Bezos has quickly acquired. As its rivals steadily asphyxiate, Amazon is ringing up 50 percent growth in quarterly revenues, and could reach $50 billion in sales this year. “Amazon is such a smart learning organization,” says Nancy F. Koehn, a professor of business administration at Harvard Business School. “It’s like a biological organism that through natural selection and adaptation just keeps learning and growing.”

Koehn thinks Amazon may be getting big enough for people to finally start considering the ramifications -- for towns, shopping centers, and jobs -- of a world dominated by online buying.

The Kindle Fire is designed to ensure that even more purchases go to Amazon. The company once saw spikes in traffic during the workday lunch hours. Now traffic is more evenly distributed as people pick up their tablets anytime of the week, buying the books and albums they see on television and making impulsive decisions about replacing their dishwashers. Consumers who browse retailers' websites using tablets are much more likely to pull the trigger on purchases than other online shoppers -- and they place bigger orders -- in some cases adding 10% to 20% more to the tab -- on average than shoppers using PCs or smartphones.

Amazon has built a tablet-optimized shopping application, with simplified and streamlined pages but none of the clutter of the main website. The app is pre-installed and sits at the bottom of the Fire’s main screen (users can get rid of it if they want). The device also comes with the enticement of a 30-day free trial of Amazon Prime, the company’s $79-a-year two-day delivery program that tends to convert members into Amazon addicts who triple or even quadruple the amount they spend on the site.

Kindle Fire also includes a new browser, called Silk, designed to speed up Web searches on Amazon's devices. CEO Jeff Bezos pitched it as a solution to the problem of pulling up content from today's increasingly complex Web pages, using as an example a typical CNN home page with its 53 static images, 39 dynamic images, 3 Flash files, 30 JavaScript files from 7 different domains, 29 HTML files and 7 CSS files. To get all this on the screen of a hand-held device without an unreasonable delay, Bezos and his engineers explained, Amazon has split the task in two: Some of the work is done by the tablet, but most is carried out in Amazon's giant server farms, where users' Web request are sent for pre-processing and, where possible, caching for future use.

Chris Espinosa says this'll mean that "Amazon will capture and control every Web transaction performed by Fire users. Every page they see, every link they follow, every click they make, every ad they see is going to be intermediated by one of the largest server farms on the planet. People who cringe at the data-mining implications of the Facebook Timeline ought to be just floored by the magnitude of Amazon's opportunity here."

On September 30, we also saw news that Amazon is likely to purchase WebOS from Hewlett-Packard. For Amazon, the idea would be to use WebOS as a basis for its new line of tablets -- rather than the forked version of Android that Amazon is currently using to power the Fire tablet. Perhaps more significantly, Amazon could also use the platform to power other products in the future, too -- such as smartphones and PCs, both areas where Amazon could naturally move, given its strong position in mobile retail already, plus its huge push to cloud computing with Amazon Web Services.

Amazon's tentacles deeply reach into all parts of the book industry, including its growing interest in inking deals with authors to publish some of the hit books Amazon sells. Booksellers and publishers are crying foul, saying they're being cut out of the chain by an aggressive Goliath. But some authors who have recently signed with Amazon Publishing say the company simply offered them a better, fairer deal than traditional publishers. And those Amazon deals are a boon for consumers, the authors say, because they bring earlier book releases and cheaper prices.

Magazine publishers see tremendous potential in the Fire and hope that the device can do for their business what the Kindle did for books: bring droves of new customers into a business that is having difficulty retaining its traditional print readers. With another player besides Apple – particularly one that is as large and influential with consumers as Amazon is – magazine companies could suddenly find they have a useful bargaining chip when it comes to negotiating with Apple. The Fire also allows publishers to start getting a higher price for their magazines. The magazine business has long sold subscriptions on the cheap – many for as little as a dollar an issue – while advertising subsidized much of their costs. But as much as it lamented the practice and tried to raise prices, it found consumers were resistant. Prices of many magazines on the Amazon Fire are set higher than print editions. And by offering buyers a newsstand, publishers can avoid having to worry that their magazines are getting lost in a jumble of other media.

Past devices, Amazon has been quietly taking bolder steps in another part of its business. It is trying to sell more advertisements for competing retailers, even promoting products that Amazon itself sells. This might seem a counterintuitive step in the hyper-competitive retail sector. But by accepting such ads, Amazon is turning itself into the ultimate destination site for online retail of any kind.

Although Amazon may fall off the agenda next week, there's another big product launch on the horizon -- on October 4, a computer company based in Cupertino (CA) is announcing some sort of upgrade or something. No, of course, Apple's press event to show off the iPhone 5 comes with its own breathless speculation -- the most interesting may be from Fast Company. Kit Eaton predicts the new device will again transform the cell phone -- this time into a smart personal assistant: think talking to your phone to set up an alarm or reminder, requesting GPS directions using voice alone. Basic interactivity in other words, but such that it renders the keyboard practically redundant. The device is also expected to interface with WolframAlpha -- Stephen Wolfram's "fact computer" that can intelligently understand data-specific questions and return meaningful suggestions.

Howard Lindzon wrote in Fast Company about all of this is just part of the relentless pace of innovation in the mobile industry. Mobile phones are "going to have as much RAM as you used to have in your laptop two years ago -- now in the phone," says angel investor Eghosa Omigui. But while hardware is improving exponentially, we seem to be lagging in our imagination and ways to use these ingenious, disruptive devices. Human interface is a fast growing topic and trendy investment theme. Last year Microsoft unveiled the Kinect accessory, turning their Xbox 360 game console into a gesture-driven device. The imaginations of engineers everywhere are running wild with possibilities about how we can better interact with our devices, but not fast enough for consumers.

The 2-year-old iPad is radically changing our perception of personal computing and it is becoming clear that tablets are destined to take over as the standard PC device. The massive computing and processing power surge will undoubtedly produce thousands of new products related to hardware and productivity, from solving the typing issue to improving battery life to even projecting video and images directly from your smartphone. It would be shortsighted to think that the opportunities in this mobile gold rush are limited just to apps.

On the policy side, Washington seems most focused on making sure mobile carriers have the spectrum they need to handle the data demands of their subscribers. To this end, the House Commerce Committee's Communications Subcommittee may mark-up a spectrum bill next week -- and many in the industry think spectrum auctions (yes, plural) are likely to be part of the debt-reducing recommendations of the Congressional "super committee" later this year.

Here's the agenda for next week. See you in the Headlines.

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