We hate spectrum. What could be more geeky-obscure and headache-inducing than the ins and outs of the bands? But it's important. Especially right now.

Expert public interest telecom attorney Harold Feld with Public Knowledge lays out the Verizon/Cox/Spectrum deal blog-style so we all get it and the bad deal it is for consumers.

(Yes it's insanely long. And yes, you should read it). Click on the link or continue below.

http://tales-of-the-sausage-factory.wetmachine.com/my-insanely-long-field-guide-to-the-verizonspectrumcocox-deal/

My Insanely Long Field Guide To The Verizon/SpectrumCo/Cox Deal.

The more I look, poke and prod at the VZ/SpectrumCo/Cox deal the more convinced I am that this becomes one of the defining moments in telecom for 2012 – possibly for the foreseeable future. If AT&T/T-Mo represented the last stand for traditional antitrust , VZ/SpectrumCo represents the new frontier. Where AT&T was a frontal assault on antitrust by accumulating marketshare and spectrum, this hits antitrust up its blind side with collaborative agreements and fundamental questions about when can competitors decide to abandon entire markets to one another. Just about everything single issue in telecom – spectrum aggregation, video distribution, the nature of competition in the age of convergence, the interaction of antitrust and patent technology – all come together in one package so amazingly complicated and wonky that average Americans will fall asleep while you explain it to them.

So, with the help of some incredibly lame innuendos to spice things up a bit, I attempt to explain below . . . . .

How Did Comcast, TWC and BH, aka ‘Spectrumco,’ Get Spectrum? And What Does Cox Have to Do With It?

For those just tuning in, “Spectrumco” is a consortium of Comcast, Time Warner Cable, and Bright House. It also used to include Cox, but they went off on their own for reasons I shall explain in a moment. Some years back, when the DBS guys tried to break into the wireless broadband and cellular biz, the biggest cable companies decided that was not a great idea for them and perhaps they ought to (a) enter the spectrum auction to block their video competitors from getting a new distribution pipe, and (b) pick up some wireless licenses of their own as part of their competition with the telcos. So they formed a joint venture called “Spectrumco” to bid in the FCC’s “Advanced Wireless Services” (AWS) Auction. Spectrumco achieved both goals quite handily, ending up with a whole bunch of AWS licenses and keeping DIRECTV and DISH out of the wireless business.

Problem was, Comcast (the dominant partner in Spectrumco) didn’t really know what to do with the spectrum. Cox, however, wanted to actually try to get into the mobile phone business. So in the 2008 “Spectrum Summer of Love,” in a complicated hook-up involving all 4 cable operators, Sprint, Clearwire, Intel, and Google, Cox split off with a bunch of the AWS licenses (and the 700 MHz licenses they won in that auction), Sprint and Clearwire shacked up in their current love/hate relationship, and Comcast, Time Warner Cable, and Bright House held on to most of the AWS spectrum (along with a passive interest in Clearwire). Man, those were freaky times in Spectrumville! It was like Woodstock, only with less acid and no cool music. But I digress . . . .

Where Does Verizon Fit Into All This?

Anyway, flash forward to 2011. Comcast et al. still don’t have a wireless strategy or a plan to use this really valuable spectrum. Meanwhile, after several years of really trying to break into the mobile telephone biz, Cox was coming to the realization that some of us have known for years — it is damn hard and expensive to break into the wireless business at this point. While the rest of us were consumed in the AT&T/T-Mobile fight, Verizon sidled up to Spectrumco and said: “Hey, nice unused spectrum ya got there. I see you still don’t know what the heck to do with it. I could put that to some excellent use now that I finally have iPhones.” And before you could say “dangerous levels of spectrum concentration,” the former mortal enemies had become total BFFs — just like Stephen Colbert and Jimmy Fallon, but in reverse. In fact, Verizon Wireless and cable multisystem operators (“MSOs” as we say in telecom) are so into each other now that they simultaneously entered into agreements to become exclusive resellers of each other’s products and to jointly develop a whole bunch of new technologies together. The companies insist these three side agreements are totally, completely and utterly unrelated to the spectrum sale and that unrelated side agreements are just the natural love child of freaky four-way spectrum hook ups.

A few weeks later, Verizon graciously offered to buy out Cox’s AWS spectrum so that Cox could get out of the wireless business. And, in what can only be an amazing coincidence for utterly independent agreements that should in no way make anyone think that the major cable players are colluding with their Telco/Wireless chief rival, Verizon and Spectrumco offered to let Cox in on the same three agreements to become exclusive resllers and become a member of the “Joint Operating Entity” (JOE) to develop all these cool new technologies.

So you see, it’s all totally innocent, and does not in the least look like a cartel agreeing not to compete, dividing up markets, and setting up a Joint Operating Entity so they can continue to meet and discuss their business plans on an ongoing basis while developing a patent portfolio to use against competitors like DISH and T-Mobile. In fact, these three side agreements are so harmless and so completely independent of the spectrum sale that Verizon and the MSOs initially refused to give them to the FCC. When they finally did agree to put them in the record under protest, they cut a whole bunch of stuff out. Because really, as Verizon and the cable MSOs said in their response, what one mega-corp says to four of its largest competitors is really no one’s business.

And The Problem Is?

Needless to say, some people see this as an anticompetitive alliance between the major competitors for broadband, video and voice services rather than the product of spectrum free love. Until now, Verizon/Verizon Wireless competed with the MSOs for broadband and voice customers and — where FIOS is available — traditional cable video. Comcast et al. were beating the snot out of Verizon in broadband and video and stealing Verizon’s landline customers, but Verizon owned the largest wireless business and the MSOs had nothing on that front. So Verizon ruled the air, the cable guys won the ground war, and — as smart phones and tablets blur the lines on all these services — consumers waited for both sides to compete for their love and subscription dollars.

Instead, under these agreements, Verizon will actually resell the cable MSO video services they used to (and in theory still do) compete against, while the MSOs will resell Verizon’s mobile wireless service. On top of that, they will get together as part of the “JOE” to discuss each other’s business, facilitating further cooperation. Finally, the technology developed by these one-time-rivals will be used to disadvantage competitors, much the same way Comcast is currently using its TV Everywhere certification to keep HBO On The Go off devices that facilitate ‘cord-cutting’, like Roku.

Verizon Wireless and the cable guys have a very reasoned response to these bigoted defenders of “traditional competition.” Stop living in the past, man! Sure, “traditional competition” used to mean one telco monopoly competing against one cable monopoly in a franchise area as God and the other believers in “facilities based competition” intended. But times change, and massive multi-billion dollar corporations are people too, darn it! What one monopoly does with another monopoly is nobody’s business. Certainly not the business of “big government” like the Department of Justice Antitrust Division (DOJ) and the Federal Communications Commission (FCC), with all their ‘traditional values’ about how competition protects consumers by keeping prices down and spurring innovation. Everyone knows that two monopolies colluding together can be just as nurturing and good for consumers as all that “traditional competition” stuff. So if the biggest providers want to get together in a freaky five-way, with a bunch of secret agreements that divide up the markets between us and does who knows what else because we refuse to share them with the FCC, who are you to judge?

I Know You Promised To Be Funny After Last Time, But Could You Please Stop The Lame Spectrum Innuendos?

Fine . . . .

Now, What Are The Issues Here?

We can divide the substantive issues into three main categories: (a) Spectrum concentration issues that come from pumping up one of the top two wireless carriers with even more primo spectrum; (b) whether the side deals represent an illegal division of relevant markets between competing firms or, even worse, the formation of an actual cartel (a term I do not use lightly); and, (c) all kind of angsty, big picture stuff about whether the whole theory of the Telecom Act of 1996 really works and we can have facilities based competition, or whether Susan Crawford is right and we are doomed to a dystopian future where a cable monopoly controls our broadband and thus our digital future — except for the mobile part which will be controlled by an AT&T/Verizon Duopoly. But since they will be part of the new Communication Cartel, that won’t really matter.

A. The Spectrum Concentration Issues

You know this is ridiculously insane when the spectrum concentration stuff is the easy part to explain.

As I noted in my last lengthy post on the subject, for various reasons having to do with economics and stuff, the two largest wireless companies continue to gobble up more and more of the spectrum capacity needed to provide wireless service. So all the competing companies have raised concerns that allowing Verizon, the biggest wireless company in terms of market share and possesor, promises to make this competitive situation worse.

But Verizon has some powerful arguments on their side. For one thing, unlike AT&T, they actually invest in their network and build stuff. This is why, despite having less spectrum than AT&T, they have a far superior network (at least in the high rate of return areas). By contrast, it’s pretty clear that Comcast ‘n friends are unlikely to build out anything anytime soon. So while maybe from a competition perspective it would be better for T-Mo to get the spectrum instead of VZ, it still makes the world a better place by moving the spectrum from unproductive to productive use. Also, while I and other folks have complained SINCE 2008 WHEN I FILED MY FLIPPING PETITION FOR RECON ON THE SUBJECT that the current spectrum screen is too low (pssst . . . FCC, if you lost it, you can find it OVER HERE!), the transaction does not violate the spectrum screen in a massive way. So, says Verizon, why not let us have the spectrum and put it to good use?

I confess, I have a soft-spot for this argument — so much so that I was willing to give it serious consideration back when the deal was first announced (as deal supporters never tire of reminding me). At the end of the day, however, as we at PK concluded in our Petition to Deny, the marginal benefit of moving this spectrum from the unproductive cable guys to Verizon does not equal out against the harm to competition. Verizon readily admits it can meet its short term needs (give them credit for honesty on this one, unlike certain other large wireless carriers with slightly less market share who spent an entire earnings call whining about how mean the FCC is), we have new spectrum in the pipeline for auction and new technologies and strategies for dealing with increasing capacity demand, and the spectrum crunch as a function of rising demand is a problem for all carriers. In fact, it is precisely because the spectrum crunch is faced by all carriers that letting Verizon (rather than one of its even more spectrum-starved competitors) get exclusive access to the open AWS spectrum creates such a problem for competitors (assuming one believes my arguments here).

As a result, despite initially thinking that the spectrum transfer by itself might be a good thing, we at PK concluded (and wrote in our Petition to Deny) that the public interest benefit of the spectrum transfer would be “marginal at best.” Yes, all things being equal, it is better to have spectrum in the hands of someone who will actually use it. But it is a really bad thing to further undermine the already difficult competitive situation in the wireless world by giving the current Number 1 provider an even bigger advantage. So when considering whether the spectrum assignment “serves the public interest” as required under Section 310(d) of the Communications Act, we concluded the answer was “no.”

Needless to say, those who don’t believe a wireless duopoly is a bad thing, or who argue that it is better for consumer welfare to focus on spectrum efficiency (or both), will dismiss these concerns. While I do not begrudge them the freedom to make their arguments, the fact that DoJ resoundingly rejected the first argument in AT&T/T-Mo, and the FCC rejected the second in both AT&T/T-Mo and AT&T/Qualcomm, means we ought to accept them as existing law — at least for the moment. Nevertheless, this is something of a hard sell due to the fact that the transaction does not trigger the spectrum screen in most markets.

Possible Conditions? Assuming the FCC does not reject the transaction, the FCC can still impose conditions that address the competitive concerns. The most obvious is mandatory data roaming even if the D C Cir. affirms Verizon’s pending challenge to the current data roaming rules. This way, competitors could still have access to spectrum capacity, albeit at a significant cost and only subordinate to the use of Verizon Wireless. We also proposed significant rural build out conditions (since the AWS licenses at issue are pathetic on requiring build out to less profitable rural areas) and our current favorite “use it or share it” to prevent spectrum wharehousing. (Under “use it or share it,” unused spectrum would go into the TV white spaces database for unlicensed use until the licensee actually builds out its system.)

B. The 3 Side Deals.

In addition to the sale of spectrum, the parties negotiated three “side deals” that they claimed were totally independent of the spectrum transfer. Two of them deal with the former competitors/potential competitors becoming exclusive marketing agents for each other. When Verizon Wireless negotiated the purchase of Cox’s AWS spectrum a few weeks later, they agreed to extend the agreements to Cox.

Under the agreements, Verizon Wireless will now market the video products of Comcast, TWC, Cox and BH within their respective territories. Although Verizon Wireless may also jointly market FIOS within its FIOS territories, Verizon Wireless may not market any other video service that competes directly with its cable partners. Comcast, TWC, and BH contract to become resellers of Verizon Wireless service, but no other competing service. In addition, after a couple of years, the cable operators have the right to become wholesale providers of Verizon Wireless service under their own brand names. e.g., Comcast can get a wholesale contract for capacity from Verizon Wireless and sell its customers Comcast-brand mobile 4G broadband. (We call this a “mobile virtual network operator” or “MVNO” agreement.)

The third agreement is the most obscure, the hardest to understand, and in my opinion, the single most dangerous agreement for the future of competition. The parties agree to form a “Joint Marketing Entity” (JOE) “for the development of technology to better integrate wireline and wireless products and services” (to quote the official press release). To translate: the largest residential broadband providers, who also happen to be among the largest residential video, and the largest mobile services provider, will sit down to jointly develop technologies on how to better integrate their supposedly competing services. You know how Google, Apple, Microsoft, and RIM are all involved in this “mobile patent war?” Imagine if, instead of each of them trying to develop competing wireless operating systems and technologies, they said: “Hey, we’re the four biggest developers of mobile operating systems. Instead of competing, lets pool all our patents together and not let anyone else license them from us except on terms we all agree to use. We’ll meet in a back room every month, talk about all our future development plans, and make sure that we develop patented technologies and proprietary standards for where we plan to take the industry going forward.” Why would that possibly raise any concerns?

Issues With the Side Agreements.

The side agreements raise a bunch of issues on two levels, immediate impacts on competition and broader industry structure. But before we can even get to those questions, we need to pass the first hurdle: do the FCC and/or DoJ even have jurisdiction over these agreements? If so, do they have jurisdiction as part of the review of the AWS license transfers, or under more general antitrust authority or the Communications Act?

Substantive Issue 1: The Future of Competition In Telecom, Video, and Broadband.

I’m sorry, I can’t get to the issues without a passel of background material on how we got to our current competitive situation where telcos and cablecos are the primary sources of “triple play” competition for video/data/voice and why that matters for policy. So please bear with me.

Back when Congress passed the Telecommunications Act of 1996, Congress made a conscious decision to replace the theory of “natural monopoly” (which held that economics made provision of telecommunications a ‘natural monopoly’ that the government must regulate to protect consumers) with competition. We made a bet that we could get all kinds of exciting competition for all of our communications and media needs if we tweaked a few things and encouraged cable operators to get into the telecom business, phone companies to get into the video business, long-distance carriers to get into the local business, wireless companies to get into any business, etc., etc. When Michael Powell became chairman of the FCC in 2001, policy shifted to rely not merely on “competition,” but on “facilities based competition.” You either built your own network to deliver whatever service you wanted to deliver, or you were a scum sucking parasite not a “competitor” and the FCC had no interest in whether you lived or died.

So competition based on resale of services pretty much died out as a serious competitive influence in the country. Only two entities had fully grown networks with wires stretching to everyone’s houses — telcos and cablecos. As a result, telcos and cablecos became the dominant providers of wireline broadband. Meanwhile, we saw some separate competition in video (which telcos have tried to enter) from stand-alone video competitors like direct broadcast satellite (DBS). Similarly, we saw competition in mobile services between stand alone mobile providers such as Sprint and T-Mo and the integrated mobile and landline voice players AT&T and Verizon. (Voice has been pretty much eliminated as a separate market.) But cable guys have not been able to penetrate into the wireless market.

By happy historic irony, this happened just when much of Europe abandoned traditional monopoly service in favor of competition through resale. Whether we ended up with the better deal or they did (or if each rule set comes with its own set of problems) is one of those never ending debates in telecom. What’s important for the Verizon/Spectrumco/Cox deal is that, as a result of the last 15 years of policy choices, we live in a world where we rely almost entirely on competition between cable broadband and telco DSL (with the exception of where Verizon has deployed FIOS) to protect consumers in the broadband market. In addition, we have shaped much national telecom policy on the idea that cable cos and telcos will compete not merely on the basis of their broadband offering, but on the entire “triple play” package of video, broadband, and voice.

In the fight between cablecos and telcos, cable won. Period. It’s a very long blog post to explain why. But cablecos have very successfully pulled voice customers away from telcos, whereas telcos have pulled far fewer video customers away from cable operators. Even FIOS, the most successful video investment by a telco, has only about 4 million subscribers out of a potential market of about 17 million in the current FIOS footprint. Worse from a broadband competition perspective, cable continues to beat out DSL for marketshare. Where Verizon and AT&T have continued to dominate over their cable rivals, however, is in wireless.

So our great hope for facilities-based competition in the last few years has been the hope that Verizon and AT&T will leverage their wireless for a “quad play” that will force cable to respond by getting into the mobile business (because even if mobile does not directly substitute for wireline, it offers coolness in its own right) or that video distribution by wireless networks (generally as a form of Internet streaming rather than as a stand alone cable-like service) will compete with traditional cable video services. This, ideally, would force cable operators to develop some kind of “wireless strategy” to keep customers (like the way Cablevision developed a Wi-Fi based strategy when it failed to win any licenses in FCC auctions). As critics liked to point out, this wasn’t much of a competition policy. But at least it was something for those who cherished the idea from the 1996 Act that we could use (facilities based) competition to replace regulated natural monopolies.

“Competition Is Hard.”

The Verizon/Spectrumco deal side agreements amount to: “competition is hard, we don’t want to do it.” By Verizon agreeing to provide the video services of its chief rivals (at least in its DSL territories) and the cable guys reselling the largest wireless provider as their ‘wireless strategy,’ the side agreements amount to a tacit agreement to divide the markets between them and avoid competition. (The argument this is ‘tacit’ is the best case scenario for VZ and the cable guys. I’ll explore the possibility of less “tacit” collusion below.) Verizon gets the wireless world without worrying that cable will someday come barging in and take its last residential market. The cable guys can stop worrying about pesky capital investment in their broadband networks as Verizon lets its wireline voice and DSL offering (other than FIOS, which VZ still needs to pay off) whither away. And while Verizon won’t shut down FIOS anytime soon, it won’t expand the footprint either. Even in territories where Verizon FIOS has a franchise, but has not built out a network, Verizon is unlikely to invest in a new build. Why would it, when it really has no further interest in spending what it takes trying to compete with cable for video and residential broadband customers?

To this VZ and the cable guys have two answers. First, they will reflexively reassure everyone that of course they still plan to be ferocious competitors, eat each other for breakfast, yadda yadda yadda. They will then respond that, even if they are giving up on entering each other’s markets, that is not their problem. “Dude, I’m sorry you pegged your hopes on us having a throw down, but we are in business for profit not for policy. No matter how much you may want cable to enter wireless, or want Verizon to expand FIOS, we only make those business decisions where it makes sense. you can’t make us enter new businesses and compete with each other. And while this may make you all existential angsty with hand-wringing about big issues like ‘what is the future of telecom competition in a converged world’ and ‘what does this mean for residential broadband,’ that is not our problem. Verizon tried with FIOS. Cox tried to offer a competing wireless service. It’s just too hard. Deal.”

To which I will answer yes, competition is hard. But that does not mean the government has to make it easy to surrender to each other. Alternatively, if we aren’t going to get facilities based competition, we need to figure out what happens next. (Depending on your philosophy and economic interest, you either (a) invest a lot of money hiring economists to explain why we either still have lots of competition or why we don’t need competition to benefit consumers; (b) you figure out what regulations you need to protect consumers; or (c) spend a lot of time hoping the problem magically solves itself.)

“Competition Is Hard, Collusion Is Easy.”

It’s one thing to say that “we are not going to try to break into a new line of business, that’s too hard.” It’s another thing to say “hey, why don’t we get together and actively avoid competing with each other; we could make much more money by coordinating with each other and working together to screw over our competitors.”

The danger when you have competitors collaborating is that they will — surprise! surprise! — not only avoid competing, but will actively try to collude. As Adam “invisible hand” Smith, the patron saint of free markets, famously said: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Here, we have the leading companies in telecom not only avoiding competition, but actively going into business with each other. Worse, they have made the arrangement exclusive. If Time Warner Cable doesn’t want to go into the wireless business, fine. But why should they pledge to never team with anyone other than Verizon Wireless, while Verizon Wireless pledges never to team with any competing video provider but TWC (in TWC’s franchise territory)?

More to the point, these guys are our primary wireline broadband providers. For years, we’ve relied on the cable/telco dsl duopoly for what competition we have in broadband. These companies will now be going into business together for every line of business but residential wireline broadband. They will work together through the JOE to come up with all manner of cool technologies to deploy on their networks. They will gather together for JOE meetings, discuss their deployment plans and strategies, and we somehow expect that they will do all of this without colluding with each other?

And let’s consider the JOE. It will develop a set of patents and proprietary standards for all things streaming between wireless and wireline networks. The companies that control 40% of the wireline broadband market, 40% of the wireless market, and 40% of the video market will adopt these technologies. Anyone want to take bets on whether Verizon Wireless licenses them on fair, reasonable and non-discriminatory terms (what we call “FRAND”) to T-Mobile? Or whether Comcast will license these patents to DIRECTV? Tell you what, go look up OCAP. I’ll wait.

Finally, if this is just about spectrum, why did Verizon Wireless and Cox enter into the exact same side agreements? I can believe Brian Roberts of Comcast and Lowell MacAdams of Verizon independently came up with a set of side agreements on a trip to the Men’s Room while negotiating the spectrum sale. But for Verizon and Spectrumco to turn around and welcome Cox into the club a few weeks later looks a heck of a lot more like collusion.

Competition is hard, collusion is easier . . . . also more profitable. Hence the very real concern that these agreements are not just agreements not to compete, but agreements to actively collude.

Needless to say, Verizon and the cable cos have a fairly predictable response. How DARE you accuse us of such a horrible thing as collusion? Shocked, shocked am I that you could even suggest such a thing! This is all just rampant speculation from evil Uber-Socialists who don’t trust free markets.

From Competition to Collusion To Cartel?

Finally, if we let these agreements stand, and the government decides they lie totally outside their jurisdiction, what prevents the parties from further amending them later? Verizon and Spectrumco have now amended their agreements to welcome Cox into the club. They have a back room in the form of the JOE to meet regularly. They sit at the heart of our telecommunications infrastructure. As the Adam smith quote above highlights, we should generally expect that given the opportunity to form an alliance that will permit these companies to manage the industry to their advantage and squelch competition, they will do so.

Needless to say, the response from Verizon, Comcast , et al. to the concern that these agreements might be the basis for an actual cartel, a formal structure by which competitors act to coordinate their business to strategically limit outputs and disadvantage competitors similar to when Rockefeller and Standard Oil got together with the Railroads, is to react as if I have taken leave of my senses. To this I can only respond that I do not raise such charges lightly. But after reading those portions of the side agreements — particularly the JOE — made available under the Second Protective Order, I cannot come to any other conclusion. I frankly do not see how you comply with the obligations of the JOE and not be a cartel. To dismiss these concerns on the grounds that “cartel” is a naughty word that upsets one’s delicate sensibilities is a useful rhetorical tactic but a failure of policy.

Substantive Issue 2: The JOE and The Future of Streaming Technology

Even if we set aside my concerns that these agreements promote collusion and provide the foundation of a future Communications Cartel, the problem of the JOE and the ability to leverage patents and proprietary standards for steaming media between wireline and wireless networks is huge. We are still at a fairly early stage in the development of technologies to hand off streaming seamlessly between various networks. If a handful of companies develop a portfolio of foundational patents, combined with the market power to establish these patents as standards in the marketplace, it will give the largest companies enormous control over the future direction of the industry.

Substantive Issue #3: Violation of Section 652 of the Communications Act

Section 652 (47 U.S.C. 572) of the Communications Act prevents a cable operator from acquiring an interest in a Local Exchange Carrier (LEC) or vice versa. 652(c) prevents certain kinds of joint ventures to offer phone service or video service. Comcast, TWC, Cox and BH are all incumbent cable operators. Verizon is, among other things, a LEC. So this raises some questions.

Needless to say, Verizon and the cable cos have plenty of reasons why they don’t think their deals violate this provision. Chief among them being that Section 652(c) does not explicitly prohibit joint ventures between cable operators and the affiliates of LECs. The cable cos argue that their deal is with Verizon Wireless, not Verizon Communications — which is the actual LEC. This is rather like Fredrick, despite turning 21, remaining apprenticed to the Pirate King because he was born in Leap Year and thus stuck in indentures until 1940. (What? Too literary?) We have various reasons why we think that argument does not carry the day. In the interest of actually finishing this blog post at some point, I will avoid rehashing them in detail here.

There are other provisions under the Communications Act that we argue gives the FCC both authority and responsibility to act. Again, in the interest of moving on, I shall simply flag this as we argue one way, applicants obviously disagree, and invite folks interested in the specifics to peruse our Petition.

Procedural Issues: Comcast and the Magic Black Crayon.

The Applicants started with the position that the side agreements were utterly and completely separate and independent. They argued the FCC didn’t even have any jurisdiction over them, and if the FCC wanted to know what was in them they could go and look at them over at the DoJ, so there! So the FCC sat there and waited until the parties finally agreed to voluntarily put the agreements in — subject to a few minor redactions to protect what the parties regarded as highly sensitive but irrelevant information. You can see the letter where the Applicants explain all this here. The FCC, in the belief the applicants meant what they said, then put the application to transfer the agreement on public notice and the clock started ticking.

Turns out when the applicants said “we will redact a few things” they meant “we will black out huge chunks of stuff based on whatever we feel like.” I confess I blame Comcast for this. Having dealt with them before in a number of similar situations, I have to say this is a favorite time wasting tactic of theirs. Some of the redactions almost seem designed to be of the “look, I’m messin’ with you, what you gonna do about it?” variety. Others looked a lot more substantive. So opponents of the transaction spent a bunch of time and filings saying: “Yo, FCC, make these guys put stuff in the record like anyone else,” to which Verizon, Comcast et al. responded with “won’twon’twon’twon’twon’tWON’T ANDYOUCAN’TMAKEMESOTHERE!!! Please Commission, aren’t I your favorite MVPD? Please tell these meanies to go away.”

Did The FCC Make A Decision About The Side Agreements?

After about a month or so of chewing on this, the FCC responded. The FCC required Verizon and the cable cos to submit some additional material in the side agreements, but not all. At the same time, an FCC spokesperson issued a statement via email. I can’t find any link, so I reprint it below:

“After an initial review of the proposed spectrum license transfers as well as the commercial agreements between Verizon Wireless and several cable companies, the Commission staff has concluded that portions of the commercial agreements are inseparable from the proposed license transfer and related wireless competition issues. Consequently, those portions of the commercial agreements will be examined within the license transfer proceeding.”

“The additional competitive implications of the commercial agreements are being reviewed in a separate inquiry. This administrative approach will facilitate the fair, timely, and thorough review of the proposed transaction and agreements.”

To translate as best I understand it. The FCC decided that the side agreements raise a lot of questions, some of which clearly belong in the evaluation of the license transfer decision while other questions appear to stand on their own regardless of whether the license transfers happen or not. So the FCC will consider all the issues in a kind of parallel way. However, the “separate inquiry” for whatever questions the FCC thinks don’t actually belong in the license transfer has no formal docket number or process or anything like that. It might, ultimately, some day, if the FCC decides that something actually needs to happen. Or it might not. The FCC does a lot of investigations and inquiries and looking at stuff. Sometimes nothing happens (for example, nothing seems to have happened on the inquiry on whether Google’s “spy-fi” escapade violated FCC regs), whereas the FCC investigation into Verizon “mystery charges” ultimately produced a big financial settlement.

So What Do You Think Will Happen Here?

I have every confidence the FCC will thoroughly investigate these matters and fully expect the agency to take the necessary steps to protect consumers and promote competition.

Ouch! That Bad?

Actually, I have no idea. As I said above, this presents a lot of very tough questions. Some of them seem pretty straight up and have fairly straight up solutions (e.g., eliminate the JOE). Others are much tougher (so, facilities based competition did not work out — what’s Plan B?). This is a clever way to handle things from the FCC’s perspective, in that it gives the FCC a lot of flexibility to decide what to do and doesn’t require the FCC to make an immediate determination on the hard questions about the side agreements and overall jurisdiction.

Those who regard the FCC as thoroughly pwned by Comcast and/or Verizon will have no doubt that this is just window dressing so that the FCC can pretend to care while letting the biggest incumbents do whatever they want. Those regarding the FCC as a ravenous regulatory beast lusting to command-and-control free market innovation into oblivion will regard this as an unwarranted exercise in regulatory bullying. The fact that Genachowski totally spiked the AT&T/T-Mo deal gives him that air of unpredictability that keeps you guessing. Sure, it doesn’t look like the FCC is doing anything. But if they were going to do something, they would look just like they weren’t going to do anything until they actually did something.

What Do You Think Happens?

Beats the heck out of me at this point. Anyone following our fillings at PK knows what I would like to see happen. I ultimately think that if the FCC approves the spectrum transfer (which most folks would say is the smart way to bet) we will see conditions designed to address the competition and rural deployment concerns. As I noted before, whether one agrees with this position or not, the FCC has consistently signaled in the most recent competition reports and the AT&T/T-Mo and AT&T/Qualcomm deals that it believes we have a significant competition problem from the growing concentration of spectrum in the hands of the two largest providers.

The contract issue is more difficult. I can see a range of possibilities from requiring the parties to suspend the agreements entirely to agreeing with Verizon and the cable cos that the agreements fall outside of the FCC’s jurisdiction to a whole bunch of possibilities in between. Unlike the spectrum concentration issues, the issues raised by the side agreements are novel, difficult, and go to the heart of every serious competition question in the new world of telecom convergence. In other words, there are exactly the kind of thing that agencies loath needing to make decisions about — especially in the context of an existing transaction.

Stay tuned . . . .

The Best of 2011 from the Public News Service

2011 was a year that featured big developments across the world. From Tunisia, protests erupted across the middle east. The suggestion of one consumer advocacy magazine launched protests across the United States with young activists voicing dissatisfaction with the priorities of the nation’s leaders.

2012 promises to be full of important decisions. Here at home, PNS is reaching 24 million people a week. To put this in comparison, top online sites are getting 24 million views a month. Before we get too wrapped up in the new year, we would like to take a look back at all of the work we accomplished in the last year.

We assembled this list to highlight some of the great changes that took place in 2011 and the good work our team has done in covering the events as they have unfolded.

10. Workers: Does Strike at Verizon Have Darker Horizon?

It was a turbulent year in the telecomm industry. Workers for major communications carriers fought hard to preserve jobs and we covered the struggle between middle class workers and corporate executives.

9. Supreme Court Considers Walmart Class Action Lawsuit

Walmart was also in the crosshairs of workers seeking better compensation. We followed the case brought against Walmart for failing to promote women at the same pace as men in the organization. This, despite the Arkansas behemoth ranking among the Top 50 companies for executive women.

8. “Occupy Ohio Homes:” Homeowners, Activists Observe Nat’l Day of Action

What started on the south side of Manhattan became a global movement. Cities large and small saw protesters encamped in parks and public spaces demanding a change to business-as-usual and our broad network of reporters enabled us to cover many local movements. This story covers Occupy protesters from Dayton, Ohio demanding better solutions to the housing crisis and better protection from predatory lending.

7. Wisconsin Protests: Biggest Capitol Crowd Ever

Wisconsinites swarmed the state capitol when Gov. Walker moved to strip workers of collective bargaining rights and make huge cuts to the state budget. We were on the scene speaking with local advocates about their disagreement with the Governor and the fears they had about his plans’ effects on Wisconsin.

6. ID Proposal for Prepaid Phones Raises “Privacy, Access and Safety” Concerns

Our New York producers were quick to catch this Suffolk County attempt to violate the privacy of pre-paid cell phone users. The boogeymen of “drug dealers” and “terrorists” was dismissed as an unwarranted attempt to prevent a non-existent threat by incurring upon individuals’ civil liberties.

5. Tax Scam: The Florida Real Estate Connection

< We were excited to begin using spot.us to allow individuals to help support our reporting. This is the first story we produced with the help of the spot.us community. The community-funding model allowed our reporter to dig deep into the data and uncover some alarming trends in the Florida housing market.

4. Rescued Research Beagles Get a New “Leash” on Life

The economy may have dominated the discussion, but we continued to keep track of a wide range of issues. This was one of the most popular stories we did on animal welfare last year. We are always looking to keep the breadth of coverage as broad as possible and with our new individual membership drive and the help of networks like spot.us, we are increasing the variety of our coverage.

3. Bill to Redefine Rape a Congressional “Bait and Switch?”

We were happy to follow Ms. Magazine ‘s very successful campaign, which saw results within a year. In the first week of 2012, the Obama Administration announced that they would follow Ms.’ directive and update the definition of rape.

2. From Kansas to Colorado: Koch Brothers Influence Environmental Policy

2011 was a big year for collaboration for us. We also joined forces with the American Independent News Network to track the influence of the Koch Brothers on Colorado politics. While their role in the Wisconsin political process was made well known, we continued to follow the trail and highlight their undue influence in Colorado.

1. Groups: Consumers Win When AT&T Drops Merger Plan

With all of the protests and strikes going on, we want to wrap up our review of 2011 on a positive note. A story we followed from the beginning came to a happy ending in the form of a failed merger and the preservation of many American jobs.

As newsrooms across the country shave off staff due in part to slipping ad revenue and corporate media conglomeration, The Franklin Center for Government and Public Integrity, is rushing to fill the gap. The group has 43 state news websites, with writers in over 40 states. Its reporters have been given state house press credentials and its news articles are starting to appear in mainstream print newspapers in each state. Who funds Franklin and what is its agenda?

The Funding Trail Leads to Bradley, Koch, and Other Right-Wing Groups

The websites started sprouting up in 2009. Some of these new sites go by the moniker "Reporter" as with the Franklin Center's Wisconsin Reporter that was launched in January as a website and wire-like service. Others have taken the shared name of "Watchdog.org," or "Statehouse News." The websites all offer their content free to local press -- many of the news bureaus send out their articles to state editors every day. The sites also offer free national stories that media can receive daily by subscribing.

The websites are coordinated and funded by a new non-profit group that calls itself the "Franklin Center for Government and Public Integrity." The Franklin Center told the Center for Media and Democracy that it does not disclose its funders, but some of its funding can been uncovered from foundation reports. Franklin acts as a hub that distributes funding that it receives from right-wing institutions such as the Wisconsin-based Lynde and Harry Bradley Foundation and the Chicago-based Sam Adams Alliance. The North Dakota and DC-based center works with reporters embedded in conservative think tanks and others who have their own news bureaus.

According to Media Transparency, a media watchdog group that was acquired by Media Matters Action Network in 2008, the Bradley Foundation's clear political agenda and network has allowed it to have extensive influence on public policy. The media group notes that while the Foundation's "targets range from affirmative action to social security, it has seen its greatest successes in the area of welfare 'reform' and attempts to privatize public education through the promotion of school vouchers." The Bradley Foundation gave the Franklin Center $190,500 last year.

The Franklin Center was launched with the help of Sam Adams Alliance, which calls itself "SAM." The CEO of SAM, Eric O'Keefe, has been featured at events funded by David Koch's right-wing group called "Americans for Prosperity" (AFP). As the Center for Media and Democracy/PRWatch.org has previously noted, O'Keefe frequently and positively profiles the Tea Party and attacks health care reform and other progressive ideas. He also helped launch the "American Majority" group which trains conservatives to run for office. He sits on the Board of Directors of the Club for Growth Wisconsin, which ran divisive ads in support of Scott Walker's radical overhaul of collective bargaining rights for Wisconsin workers. He previously worked for David Koch's AFP predecessor group named "Citizens for a Sound Economy," among other roles.

O'Keefe's latest enterprise, SAM, gets part of its funding from the State Policy Network (SPN), which is partially funded by The Claude R. Lambe Foundation. Charles Koch, one of the billionaire brothers who co-own Koch Industries, and his wife and children, along with long-time Koch employee Richard Fink, comprise the board of this foundation. SAM is named after Founding Father Sam Adams, one of the leaders in the Boston Tea Party tax protests.

In its first year, the Franklin Center had a budget of $2.9 million, much of it from O'Keefe's SAM.

"Franklin Center" Staffed by Right-Wing Activists

Many Franklin staffers have ties to conservative activist groups and the GOP. The Franklin Center’s president, Jason Stverak, is the former Regional Field Director for SAM, and former Executive Director of the North Dakota Republican Party.

In late July, Erik Telford, the Director of Membership Online Strategy for Koch's AFP, announced that he would take on the position of Vice President for Strategic Initiatives Outreach for the Franklin Center. He had worked at AFP for four and a half years. In his farewell letter, he minced no words in explaining the activist role he will play in his new position, "As I move on to a new challenge, I look forward to staying involved with AFP, but now in an even more important capacity: that of a member and grassroots activist."

The Franklin Center's Director of Donor Relations, Matt Hauck, is a former Associate at the Charles G. Koch Charitable Foundation. The center's Chief of Staff, Gwen Beattie, is the former Director of Development and Operations at America's Future Foundation, an organization committed to "identify and develop the next generation of conservative and libertarian leaders." The Franklin Center's 2009 IRS 990 form lists Rudie Martinson as director and secretary. He formerly worked as the assistant state director for North Dakota's chapter of Koch's Americans for Prosperity.

The Franklin Center was one of the sponsors of the Western Republican presidential candidate debate in Las Vegas this month, along with Americans for Prosperity and other right-wing groups.

Interestingly, unlike traditional journalistic outlets, the screening process for writing for websites like the Wisconsin Reporter asks applicants ideological questions. As the Poynter Institute, a Florida-based school and resource for journalists, has reported, Wisconsin Reporter applicants must answer questions like: “How do free markets help the poor?” and “Do higher taxes lead to balanced budgets?” Such queries likely have optimal answers to a group like the Wisconsin Reporter, just as some of its stories have been criticized for being results-oriented in ways that are consistent with its funders' world view.

The address listed on the Franklin Center's 2011 nonprofit disclosure form is a UPS Store Post Office box, as reported by a North Dakota political blog. The North Dakota phone line on the Franklin Center contact page is re-routed to the DC office.

"The Franklin Center" Supports the American Legislative Exchange Council

At the 2011 American Legislative Exchange Council (ALEC) annual conference in New Orleans, The Franklin Center was listed as a "Vice-Chairman" level sponsor of the ALEC conference. In 2010, this equated to a gift of at least $25,000. It was also one of about 60 companies and institutions represented in the conference exhibition hall. ALEC brings corporations, such as Koch Industries, and state legislators together in task forces to vote on so-called “model legislation” that benefits the corporate bottom line or ALEC's ideological agenda. These bills are then introduced by legislators in state houses across the country, without any mention that corporations previously approved such legislation behind closed doors, as the Center for Media and Democracy has reported.

Sloppy Reporting, or Manufacturing News?

In August 2010, the West Virginia Watchdog blog reported that an unnamed source said that the former Democratic Governor Joe Manchin's office had been subpoenaed as part of a federal grand jury investigation. The story said that the subpoenas asked for contracts and records for businesses that have done work at the governor’s mansion. "The target may be Manchin himself, according to a source who asked to remain anonymous," the original story said.

The governor’s office responded saying that “Neither subpoena was directed to Governor Manchin or the Governor’s Office. No individual in the Governor’s Office was served with a subpoena…. The State has not been informed that Governor Manchin or any other state employee is under investigation.” The West Virginia Watchdog updated its site with these statements then reported that their "source was ultimately wrong about the purpose of the subpoenas." But the damage had been done. The article was picked up by the Associated Press, Charleston CBS affiliate, Charleston Daily Mail, and other news sites. The story also was reported in outlets like Politico and CNN. The reporter who broke the story is stationed at the Public Policy Foundation of West Virginia. While this group does not disclose its funders, some outlets have alleged it to be linked to the Koch brothers.

The timing was convenient. Manchin had announced in July of that year he would run to fill the unexpired term of U.S. Senator Robert Byrd, who passed away in 2010. Despite the controversy, Manchin did end up taking Byrd's seat.

In February, the Franklin Center's Wisconsin Reporter sponsored a questionable poll asserting that 71% of state residents thought Wisconsin Governor Scott Walker's budget proposal to cut the collective bargaining rights of most of the state's public sector workers was "fair." Several local and national news outlets cited the poll without investigation, including MSNBC. The result seemed completely out of whack with other polling leading some to question the source. The same month, We Ask America, largely owned by the Illinois Manufacturing Association, a leading business organization in the region, conducted a similar poll surveying 2,400 Wisconsin residents and found that 52 percent opposed Walker's plan. The Franklin Center's poll was conducted by Pulse Opinion Research.

In 2009, the New Mexico Watchdog reported that based on data from Recovery.gov, millions of dollars were spent in non-existent congressional districts in the state. The story picked up steam among reporters, even turned into a Colbert Report segment called "Know your Made-up District." The Franklin Center released a national report that said $6.4 billion in stimulus money had been spent in hundreds of “phantom” congressional districts. There was truth to the New Mexico Watchdog report, but it turned out, as reported by the Associated Press, that the culprit was an error-ridden government database. The funds were actually distributed to the right recipients, but errors, such as zip codes entered incorrectly, accounted for the "phantom districts." The money had not, as the report suggested, been unaccounted for or misused.

Even with this new information on the shortfalls of the Recovery.gov site, the Franklin Center failed to set the record straight. In its 2010 Annual report, the Center boasted it broke the story that federal stimulus money was allocated to 440 non-existing congressional districts. It did not mention the errors in the database, but let the record stand as a story of government waste.

Franklin Center Comes Under Fire From Journalism Watchdogs

The journalistic integrity of these sites has been called into question by media watchdog groups. Laura McGann, assistant editor at the Nieman Journalism Lab at Harvard University, wrote in a 2010 piece in the Washington Monthly, that the Franklin Center sites are engaging in distorted reporting across the country.

"As often as not, their reporting is thin and missing important context, which occasionally leads to gross distortions," wrote McGann, who pointed to several instances where the Watchdog websites wrote stories that turned out to be misleading or untrue.

"This sort of misleading reporting crops up on Watchdog sites often enough to suggest that, rather than isolated instances of sloppiness, it is part of a broad editorial strategy," she wrote.

The Pew Research Center's Project for Excellence in Journalism, using a sliding scale of highly ideological, somewhat ideological and non-ideological, ranked the “Watchdog.org” franchise "highly ideological." Not surprisingly, Glenn Beck, a controversial conservative FOX talk show host, has touted the Franklin Center's network as a nonpartisan trusted source of news and information.

Writers affiliated with Franklin Center groups are asking for accreditation in various legislatures.

Responding to criticisms from the Neiman Foundation, Jason Stverak said: "Obviously, there is skepticism coming from some in the traditional legacy media…. We write for the people, and the content that we produce is at such a high-quality level that it is continually being embraced by consumers in each community."

New Breed of Reporting

Graeme Zielinski, Wisconsin Democratic Party spokesperson, accused the Wisconsin Reporter of using off-the-record comments, butchering quotes, and not correcting the record when errors were called to its attention.

Zielinski told the Center for Media and Democracy that he's never worked with a news outlet that operates like the Wisconsin Reporter. He acknowledges that other outlets across the state are biased, but the difference, he said, is that the Wisconsin Reporter's content is ideologically-motivated and passed off in newspapers across the state as "straight-shooting reporting." He calls their methods of journalism "ambush reporting." He said he has received calls late in the evening and early in the morning on weekends from their reporters, given a short deadline to comment on slanted and inflammatory statements.

Yet, this newsource is gaining traction in the state. Wisconsin Reporter's stories have been picked up by a host of local media outlets in the state, such as La Crosse Tribune, Eau Claire’s Leader Telegram, Wausau Daily Herald, Steven's Point Journal, Chippewa Herald, and Beloit Daily News.

Dave Zweifel, co-founder and long-serving president of the Wisconsin Freedom of Information Council, and editor of the Madison-based Capital Times, told the Center for Media and Democracy that the Wisconsin Reporter is a new breed of news reporting. "Of course, many news organizations are owned by corporations or supported by politically active donors, but most keep a hands off approach when it comes to covering the news," he said. "This outfit masks itself as an investigative journalism service that provides free content to newspapers, many of which are cash-strapped these days, and eager for such a product.... You have to give these guys credit for capturing the moment when the press is particularly vulnerable."

This manner of producing and distributing 'news' is such a clever idea that its inspired other right-wing think tanks to devote resource to news production. The Heritage Foundation launched the "Scribe," a blog that features reports complimentary to the Foundation's stance on policy issues. It cites the Franklin Center's successes in expanding think tank journalism as a reason for its launch.