The smaller voice/data carriers are launching a new offensive against Qwest's efforts to get its access rates deregulated in four major markets: Minneapolis, Seattle, Denver and Phoenix. What that means is that, if the Federal Communications Commission approves the waiver, Qwest will no longer have to offer smaller telcos cheap wholesale access rates in those cities.

And what that means is that broadband and phone prices will go up, like they did in Omaha when Qwest got a "forbearance" waiver there.

There's no question about the fact that when the FCC deregulates, you better grab your wallet. In fact, the United States Government and Accountability Office (GAO) has produced a study that proves that. "[I]n areas where the FCC granted full pricing flexibility due to the presumed presence of competitive alternatives," the GAO says, "list prices and average revenues tend to be higher than or the same as list prices and average revenues in areas still under some FCC price regulation."

The GAO chose an innocuous enough title for their report on voice and data competition: "FCC Needs to Improve Its Ability to Monitor and Determine the Extent of Competition in Dedicated Access Services." But that opening won't stop readers from interpreting the study as a devastating critique of the Federal Communication Commission's implementation of the Telecommunications Act of 1996, or from seeing it as a historical analysis of a series of practices and policies that, in the end, have failed to deliver competitive telecom access to big cities in the United States.

Here is a timeline summary of the GAO audit.

1991 through 1999

The review begins with a recap of the FCC's telephone regulation policies in 1991. At that time, the Commission implemented caps on the prices that carriers could charge on long distance service - that is, until the Telecommunications Act of 1996.

The Telecommunications Act allowed the big regional phone carriers to get into long distance service, but it also required them to share their networks with competitors. In 1999 the FCC issued a Pricing Flexibility Order that authorized the dismantling of those 1991 price caps, under certain conditions:

The Commission decided that when enough telecommunications infrastructure had "aggregated" or "colocated" in an urban area with more than 50,000 people, "it was a good predictor that competitors had made significant, irreversible sunk investments in facilities, and indicated the likelihood that a competitor could eventually extend its own network to reach its customers."

That meant, to the FCC, that the agency could lift price caps in those areas depending on how much competitive development they had determined had been achieved. The Commission established a set of price flexibility tiers ("Phase I and II," etcetera) that relaxed charges to varying degrees.

But the industry wanted more.

2000 to 2005

In 2000 six big carriers created a lobby called the Coalition for Affordable Local and Long Distance Service (CALLS). The group included four of the five biggest incumbent firms of the time, including AT&T and BellSouth.

They asked for, and got, yearly reductions in price cap levels based on agreed-upon percentages: three percent in 2000, and 6.5 percent for the next three years. Four incumbents - AT&T, BellSouth, QWest, and Verizon - received full price deregulation in over 100 major metropolitan areas.

But by 2005, the GAO notes, many firms began raising concerns that "in places where FCC has granted phase II pricing flexibility, prices have incongruously risen." Critics began wondering out loud whether the FCC's "colocation" formula accurately gauged market competition.

Two more FCC actions complicated the picture. First the Commission conditionally approved the SBC/AT&T merger (now called AT&T) and the Verizon/MCI merger, despite Department of Justice concerns about the anti-competitive nature of these unions. Second, the FCC established a set of rules similar to the "colocation" formula under which big carriers must open their infrastructures, or Unbundled Network Elements (UNEs), to smaller providers . Where sufficient colocation had taken place, the FCC required less UNE access.

Where are we now?

From this point of departure, the GAO selected 16 metropolitan areas where the FCC gave those "price cap incumbents" (again, AT&T, BellSouth, QWest and Verizon) varying degrees of regulatory relief, and four metro areas dominated by one of the four. The study analyzed prices for high capacity dedicated access at 1.544 Megabytes per second ("DS-1") and 45 mbps ("DS-3"). It came to the following conclusions:

• "In the 16 major metropolitan areas we examined, facilities-based competition for dedicated access services exists in a relatively small subset of buildings." Competing firms serve no more on average than 6 percent of these buildings with DS-1; about 15 percent of facilities that need DS-3 service get it through competitive vendors.
• "Since phase II pricing flexibility was first granted, list prices for dedicated access that apply under phase II, on average, have increased." This suggests that the more flexibility the FCC gave incumbents, the more they charged their customers.
• "Based on the data available to us, facilities-based competition for dedicated access services to end users at the building level (i.e., analogous to channel terminations to end users) does not appear to be extensive in the MSAs [Metropolitan Statistical Areas] we examined . . . " On the contrary, the GAO found declines in competition in some wire centers, and suggested that the FCC's "colocation" methodology may not accurately predict competitiveness in a given metropolitan area.
• The GAO report also found that colocation, regardless of its significance in determining competitiveness, has declined in many metropolitan areas. "In fact," the report says, "in many MSAs we examined, some wire centers that had competitive colocation several years ago, appear to no longer have any competitive colocation."
• The GAO predicts that the recent mergers between AT&T and SBC and between Verizon and MCI will likely accelerate these trends.
• The GAO also concludes that competition may not be a realistic goal in all markets, especially in small markets where demand for dedicated access is relatively light.
• Finally, the GAO study suggests that the FCC is working with insufficient data to validate its "colocation" methodology. "Regardless of where competition may come from in the future," the report suggests, "it is clear that FCC does not regularly monitor and measure the development of competition, which will affect how FCC responds to emerging trends, and the actions it takes to encourage and foster such competition. We have consistently noted the need for better data at FCC to track competition and deployment of telecommunications services to a variety of consumers."

Reaction from the FCC

The GAO report includes an appendix with FCC Managing Director Anthony Dale's response to the study, which was not positive.

"The GAO Draft Report," Dale wrote on November 13th, "appears to imply the need for a return to price control policies that the Commission abandoned in 1999 during the previous Administration."

Dale also suggested that a more rigorous analysis of competition than the FCC's colocation system would require an "extremely narrow" focus. " . . . the GAO study seems to suggest that at least each individual building and perhaps each floor of a building needs to be considered a separate market," Dale argued, an approach that he says the FCC could not implement.

But the GAO rejects the charge that the agency advocates a return to price controls, and urges the FCC to seek better data on the industries that it regulates:

"Thus, the report calls for FCC, serving in its capacity as the federal regulator of interstate communications services, to better define effective competition and then collect meaningful data on the state of competition in the marketplace," the GAO audit concludes.

What will the Federal Communications Commission decide regarding the proposed XM/Sirius merger? The hell if I know.

But it's fun to come up with predictions, especially if you live 3,000 miles away from Washington, D.C. and mostly get your information via the Internet. One thing is for sure, the path is open to a decision. The Department of Justice has ok'd the union. It's up to the FCC now.

Possibility #1: The FCC will reject the merger outright

This isn't likely, I suspect, but you never know. The FCC's 1997 Order did stipulate that one entity could not own all the spectrum on the Digital Audio Radio Satellite (DARS) band. And XM and Sirius have, after all, flagrantly ignored the agency's requirement that they create an interoperable receiver that could pick up both services. And boatloads of Congresspeople have told the FCC that they hate the idea, including lots of Republicans.

So the Commissions could, in the end, simply reject the union outright, wish XM and Sirius lots of luck, and just move on to the next matter, of which there are many.

Possibility #2: The FCC will accepts the merger

The opposite prospect is that the agency will simply give the union approval without any conditions. They could get around the 1997 anti-monopoly rule by issuing a waiver, as the Commission so often does with its newspaper/TV station cross ownership ban.

But my guess is that the chances of this happening are zero to nothing. The Commissioners, both Republican and Democratic, have too many agendas: localism, non-commerciality, diversity, open platform, indecency, just to name a few items, to let a merged XM/Sirius go completely unmolested by some regulatory oversight.

Possibility #3: The Commission will approve the merger and impose conditions

This is very, very possible. Such conditions might include:

1. An open platform. Expect some kind of rule that says that developers who create receivers for XM/Sirius can make them any way they want, without interference from the newly married entity. Plus they can jimmy up the applications to include other goodies: mp3 player, HD radio, Internet connection, whatever. No messing with the developers, the FCC could say.
2. A spectrum set aside. Lots of public interest groups want the FCC to shave off about five percent of the merged entity's spectrum and give that over to some non-commercial somethingorother that distributes the channels to educational, non-profit groups. Amazingly, even Clear Channel has given the ok to this idea (probably because the radio giant wants to weaken the merged entity in any way it can).
3. Channel leasing. This would involve requiring XM/Sirius to lease channels to independent commercial companies. The FCC would also stipulate that XM/Sirius could have no editorial control over the content that these indies broadcast.
4. A new auction. The agency could shave off some spectrum from the newly merged company and pass it off to some other buys in a competitive sale. You never know.
5. Pricing requirements. XM/Sirus have proposed a series of prices for their new products (once they merge). The Commission may hold them to those figures for some given period of time—say, five years or so.
6. Indecency rules. Clear Channel has also proposed that the FCC apply its indecency standards to a married XM/Sirius. This is probably a way of getting back at Howard Stern, who, after he was fired by various Clear Channel stations some years ago, fled to Sirius radio. It is probably, again, a Clear Channel scheme to make XM/Sirius less appealing, and therefore less competitive to terrestrial radio.
7. Diversity. One minority entrepreneur has proposed a 20 percent spectrum set aside, to go to a minority owned satellite radio provider. A lot of minority advocacy groups, especially black groups, support this plan. I'm not sure it will go through, but not because of lack of lobbying.

If you insist on my making a specific sets of predictions, I'll go with Possibility #3 and options number one and three, at minimum. The Commission has already attached the open platform principle to its latest broadband auction. And the channel leasing requirement is already a fact of life in the wonderful world of cable TV, although the cable companies don't make it very easy to lease channels. The rest of the options are pretty advanced for the agency's Republican majority, although they might go for the indecency provision if they're feeling frisky.

There is, of course, the possibility that they will never make a decision on this matter—that the Commissioners will not be able to come to a consensus, and that as a consequence, XM and Sirius will give up on the merger. But the two services have recently cancelled their annual meetings, which is a sign that they expect otherwise. Hope springs eternal, even while waiting for the FCC to make up its mind.

I spent all of Thursday listening to the Federal Communications Commission's second hearing on net neutrality, held at Stanford University. It was an interesting day, because unlike the agency's first hearing on the problem, sponsored by Harvard Law School in February, it was clear that most the Commissioners have now made up their mind about the matter. They spent much of the Stanford event explaining what kind of regulatory measures they will or will not support to create a level playing field on the 'Net.

Here's the lineup of positions by various commissioners. Michael Copps and Jonathan Adelstein, both Democrats, are clearly ready to add a "fifth principle" to the agency's 2005 Internet Policy Statement, something with enforcement teeth in it. Republican Robert McDowell all but wants the FCC to walk away from the problem and leave it to the private sector to sort out. Ditto for co-Republican Deborah Taylor Tate, except she wants the agency to take on illegal file sharing and child pornography.

That leaves FCC Chair Kevin Martin. He's clearly leaning towards some knd of tougher policy that requires ISPs to: a) be more up front about their network management practices, and b) places them under "stricter scrutiny" so that while they manage their networks, they don't arbitrarily discriminate against certain kinds of protocols and applications.

So by my count, we've got three Commissioners who favor some kind of pro-net neutrality Order, and two probable dissenters. One of them, Tate, might be tempted to sign on if the ruling includes some language against illegal content. That racks up in my book to an impending victory for the net neutrality movement. But we'll see.

Following the Stanford event I got a little curious about the various definitions of net neutrality that  scholars, activists, and institutions offer. Here are a bunch:

From the Trans Atlantic Consumer Dialogue:

"Net neutrality is a state in which users have the freedom to access the content, services, applications, and devices of their choice."

From About.com:

"Net neutrality refers to the way information is transmitted on the internet. With a neutral internet set up, internet service providers and search engines merely send you the information or the website for which are looking. ISPs are hoping to replace this neutral system with a fee based system in which websites would be pay a fee to the ISP for the service, and the sites that pay the highest fees would be prioritized . . . "

From Common Cause:

"Network neutrality is the principle that Internet users should be able to access any web content they choose and use any applications they choose, without restrictions or limitations imposed by their Internet service provider."

From the Congressional Research Service:

"There is no single accepted definition of 'net neutrality.' However, most agree that any such definition should include the general principles that owners of the networks that compose and provide access to the Internet should not control how consumers lawfully use that network; and should not be able to discriminate against content provider access to that network."

From Larry Downes:

"The general idea of net neutrality is to ensure that broadband access providers (defined in the IFPA as 2-way transmission in which transmission in at least one direction is at least 200 kilobits per second) make their infrastructure available in a content-neutral pricing scheme - no charging (or offering as a premium service) more to deliver on a higher priority content from any particular subset of providers."

From the Federal Communications Commission:

"The Commission has jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner. Moreover, to ensure that broadband networks are widely deployed, open, affordable, and accessible to all consumers, the Commission adopts the following principles:

• To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to access the lawful Internet content of their choice.
• To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement.
• To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to connect their choice of legal devices that do not harm the network.13
• To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to competition among network providers, application and service providers, and content providers."

From Google:

"Fundamentally, net neutrality is about equal access to the Internet. In our view, the broadband carriers should not be permitted to use their market power to discriminate against competing applications or content. Just as telephone companies are not permitted to tell consumers who they can call or what they can say, broadband carriers should not be allowed to use their market power to control activity online."

From Ray Lin, University of California:

"Simply put, net neutrality is a network design paradigm that argues for broadband network providers to be completely detached from what information is sent over their networks. In essence, it argues that no bit of information should be prioritized over another. This principle implies that an information network such as the internet is most efficient and useful to the public when it is less focused on a particular audience and instead attentive to multiple users."

From PC Magazine Encyclopedia:

"Refers to the absence of restrictions placed on the type of content carried over the Internet by the carriers and ISPs that run the major backbones. It states that all traffic be treated equally; that packets are delivered on a first-come, first-served basis regardless from where they originated or to where they are destined."

From David Vaina:

"Net neutrality is the idea that those who provide internet service treat the content producers equally. It is the framework, as it exists now, that allows users to access Google, blogs, and everything in between at the same speed, thus leveling the playing field between the largest media companies and ordinary citizens who produce an estimated 60% of the content on the Web."

From Webopedia:

"Network neutrality or net neutrality, as it is abbreviated, is the term used to describe networks that are open to equal access to all . They are non-discriminatory as they do not favor any one destination or application over another."

From Whatis.com:

"Net neutrality is the principle that data packets on the Internet should be moved impartially, without regard to content, destination or source. Net neutrality is sometimes referred to as the 'First Amendment of the Internet'."

From Wikipedia:

"Network neutrality (equivalently "net neutrality", "internet neutrality" or "NN") is the guiding principle that preserves the free and open Internet. Put simply, Net Neutrality means no discrimination. Net Neutrality prevents Internet providers from speeding up or slowing down Web content based on its source, ownership or destination."

From Tim Wu:

"Network neutrality is best defined as a network design principle. The idea is that a maximally useful public information network aspires to treat all content, sites, and platforms equally. This allows the network to carry every form of information and support every kind of application."

From Xiaowei Yang, Gene Tsudik, and Xin Liu, Department of Computer Science, UC Irvine:

"ISPs should not be able to discriminate against packets based on contents, application types, or packet sources or destinations that are not their own customers. We call this type of discrimination non-neutral discrimination. But ISPs are eligible to offer differentiated services to their customers. Our hypothesis is that the present market structure may not have sufficient competition to prevent an access ISP from degrading the service of a particular application or a site, but might be sufficient to keep them from intentionally ill-treating their own customers."

I love our cat. Her name is Henry.

You may be wondering how a she-cat came to be called such. I'll concede that ignorance played an important role in the decision. But let's start at the beginning.

The kitty next door

Henry the Cat

For many years the house just above our's on Bernal Hill in San Francisco belonged to an elderly couple who, well, did not keep the place up, to put it mildly. The situation got worse after the husband died. The back of the house decayed. The wood rotted. The back door literally fell off its hinges and hung from the rear of the structure. A great jungle of nasty and very tough weeds rose up from the rear yard and often threatened to spread into ours.

The widow also hoarded quite a lot of junk, it seems. Her good hearted nephew came by and sold some of it, or gave it away. She made do as best she could, accompanied by a small gray/white cat.

The cat obviously loved her aged protector. It greeted her on the street when she returned from grocery shopping. Since our neighbor's back door was dislodged, it just came and went as it so desired.

Sometimes the feline pooped in our garden, which annoyed us, so we shooed it off. When that happened, it would leap over our fence, and claw its way up to that broken back door hinge, staring suspiciously at us, safe from 20 feet above the ground.

I had a few unexpected interactions with the little critter. One evening it stood in our rain alley, meowing rather loudly. I walked out into the back yard and puzzled as it stood there trembling.

"What's wrong?" I asked the cat.

It kept mewing. It also kept looking over my shoulder. I glanced in the direction upon which the cat's glare had fixed. There, on the fence, were three big, fat raccoons, about five feet away, staring at me and the cat.

I jumped back into the house. The raccoons teetered on the fence for about five minutes, clawed about aimlessly, then marched off towards Bernal Heights Park on the top of the hill. Once the coast was clear, the cat leaped back up to its perch. I watched it. It watched me. We both went to bed.

The lean months

Eventually the widow's kin showed up, got mom, and trundled her off to an assisted living home. But nobody thought to relocate the cat. In fairness, it was a bit wild, this little beast, and not inclined to be picked up by anyone but her now moved mistress. For a while the house stood empty save the semi-feral pet, occasionally fed by the nephew or his mother via a bowl of cat food placed next to the garage door.

Then a local residential developer bought the property. He hired a contractor to flush the hovel out and rebuild it. This was no easy task. It meant stripping the joint of an amazing quantity of garbage, then rebuilding it from scratch. For weeks and weeks my partner Sharon and I marvelled as workers carried out a seemingly endless pile of wood, pipe, plaster, and dirt from the place, only to discover more the next day.

All this activity, needless to say, drove the cat from the residence. It lurked in our alleys, on our back yard fence, and atop those of others. It slinked around under our neighbors' back yard tool garage. And the poor thing looked pretty miserable; staring at us from a distance through the evening before slipping off into the night. To make matters worse it was the rainy season.

Then we started noticing the dead rats.

These large eviscerated rodents were left on our back yard doorstep. One's demise was particularly impressive. The cat had eaten it exactly in half. The head, front paws, and chest remained; the rump end of the vermin snarfed down with gusto. No entrails were left behind. Three of these victims appeared in about the same place over four weeks. Clearly, somebody was trying to develop a relationship with us.

After throwing the latest rat in the garbage, I glanced around. There was our homeless cat, looking rather pathetically at me. And getting pretty skinny too.

"Maybe we should start feeding it," Sharon said to me one morning. So I went down to the grocer, bought a small box of Purina dry food, and put it out in a bowl where the rats had been left. Within four hours, the container was empty.

To be continued . . . .

Here they are (see the bottom of this post) the top paid communications CEOs of 2006. That is to say the CEOs who run big broadcasting and telecommunications companies. And what a deserving bunch of fellows they were (not that I'm bitter or anything like that). I got this from the Security and Exchange Commission's (SEC) handy dandy executive pay Web site, which I check in on from time to time to see how the stats change (I know, get a life).

2006 is the latest the SEC has. This is total compensation: annual pay, bonuses, stock options, benefits, call girls, wuddever. Viacom is the obvious winner, its former president snarfing down  almost 90 million in 2006. Oddly, Viacom's new guy Phillip Dauman only pulled in 11 mill. What a let down that must be. I feel bad.

Next comes Edward E. ("my pipes") Whitacre, CEO of AT&T,  the fellow whose grubby comments helped fuel the net neutrality movement: "Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?"

Apparently these were the only fellows in communications who approached a 9 figure income. The rest hovered in the 20 million category, not that I'd turn that down. CBS, then Comcast, Sprint, Verizon. Hmm. A lot of telcos here. There's poor Clear Channel down at the bottom, with Mark Mays bringing a pathetic 9 million home to the wife and kids. What's with that?

Actually its unclear how long Mays will stay on this list, given that his bid to take Clear Channel private seems to be losing steam. Apparently with all the private equity firms tanking, his backers can't raise the dough to leverage Clear Channel for him and the rest of the Mays clan. So he's suing the banks that won't stick with the plan, which may or may not be a terribly good idea.

I'm not even going to pretend to know what I'm talking about here; and I truly do not care if Clear Channel goes private. But it does seem like the guy doth protest too much, as Hamlet's mom once said during a play. Here's May's statement:

"The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt. The behavior of these banks is irresponsible, unprofessional, and unjustified. The defendants have made clear that they are determined, by any means possible, to destroy the merger and thus avoid their obligation to fund, as they are required legally to do."

Yeah, suing banks just doesn't seem like a great business strategy to me. But I'll tell you who earns their money at Comcast: David Cohen, the guy who keeps telling the Federal Communications Commission that Comcast isn't blocking BitTorrent at these Ivy League school hearings the FCC has from time to time (actually only two, the next at Stanford this Thursday). Cohen made almost 10 million in 2006, and given his level of chutzpah, I say the guy's worth the cash.

Not a lot of newspaper folk on the list. Not surprising. Newspapers seem to be in trouble these days. But no Fox TV anywhere in sight either. Guess these folks have to settle for 6 or 7 million at maximum.

But all in all it pays to be in telecommunications and broadcast entertainment. Case in point: Exxon sucks down WAY more revenue than any of these companies. But its CEO E.G. Galante only got 17 million in annual compensation. We're talking about a company that collects 365 BILLION dollars in revenue, as opposed to Viacom's 11 billion.

Anyway, enjoy the list. I'll check in with the SEC from time to time to see who is raking in the dough.

Thomas E. Freston
Former President and Chief Executive Officer
Viacom Inc. (New), 89,302,968.00

Edward E. Whitacre, Jr.
Chairman and Chief Executive Officer
AT&T Inc., 60,726,924.00

Leslie Moonves
President and Chief Executive Officer
CBS Corp., 28,637,111.00

Brian L. Roberts
Chairman of the Board and Chief Executive Officer
Comcast Corporation, 26,001,696.00

Gary D. Forsee
Chairman, Chief Executive Officer and President
Sprint Nextel Corp., 21,301,435.00

Ivan G. Seidenberg
Chairman & CEO
Verizon Communications Inc., 21,260,700.00

Scott T. Ford
President and CEO
ALLTEL Corp., 14,115,770.00

Chase Carey
President and Chief Executive Officer
DIRECTV Group Inc. , 12,470,904.00

Philippe P. Dauman
President and Chief Executive Officer
Viacom Inc. (New), 11,190,049.00

Mark Mays
Chief Executive Officer (PEO)
Clear Channel Communications, 9,311,996.00