No longer a project, Loon leaves the nest to fly, or flop, as a business

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Loon is ready to fly on its own. In a blog post, the head of Alphabet’s X division, Astro Teller, says that the high altitude balloon-based broadband company, and a drone based sister project, Wing, are leaving the incubator…

Today, unlike when they started as X projects, Loon and Wing seem a long way from crazy — and thanks to their years of hard work and relentless testing in the real world, they’re now graduating from X to become two new independent businesses within Alphabet: Loon and Wing.

As Other Bets, they’ll continue the missions they started here at X. Loon will work with mobile network operators globally to bring internet access to unconnected and under-connected people around the world. Wing is building a drone delivery system to improve the speed, cost, and environmental impact of transporting goods, and an unmanned-traffic management platform to safely route drones through our skies.

Loon’s business model remains focused on providing back haul capacity to mobile carriers in rural area, and regions that remote beyond rural. It finished a proof of concept run in hurricane-ravaged Puerto Rico, and by all accounts managed to make things better. It wasn’t a cosmic solution to Puerto Rico’s connectivity problems, but it did fill the sort of gaps that its business plan is targeting, and demonstrated that it’s a useful tool in disaster recovery operations, according to an article in Ars Technica by Nathan Mattise…

“We usually think about [Project Loon] in places with no existent network, but when a network goes out, people who were served become underserved,” says Sal Candido, a director and principal engineer at X…“In the future, being prepared for these kind of things is something we hadn’t really thought of, but it could be done in advance as a contingency.”

The big question that’s still to be answered is whether the willingness of mobile operators to pay matches the cost of Loon’s bandwidth. That’s what will determine if it’s a sustainable business, rather than ad hoc networking tool.

“Third world” corruption or judicial prudence? California supreme court ices Cal3 initiative

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The plan to split California into three new states won’t be on the November ballot. The California supreme court put the Cal3 initiative on hold Wednesday, while it decides whether or not the proposition meets spec under the California constitution. Opponents claim it is a constitutional “revision”, which needs the concurrence of two-thirds of the California legislature, rather than an “amendment”, which can be put on the ballot by initiative alone.

Arguably, it’s neither. It substitutes a popular vote for the decision making authority of the legislature, as the initiative process is intended to do, and triggers a request to the U.S. congress to create the new states, as the federal constitution allows.

Whether that amounts to a revision of the California constitution is the question before state supreme court justices, who unanimously decided they needed more time

Because significant questions have been raised regarding the proposition’s validity, and because we conclude that the potential harm in permitting the measure to remain on the ballot outweighs the potential harm in delaying the proposition to a future election, respondent Alex Padilla, as Secretary of State of the State of California, is directed to refrain from placing Proposition 9 on the November 6, 2018, ballot.

The initiative’s primary backer, Silicon Valley financier Tim Draper, was outraged, according to the Los Angeles Times

“Whether you agree or not with this initiative, this is not the way democracies are supposed to work,” he said in an email. “This kind of corruption is what happens in Third World countries.”

He said the state’s “insiders” were “in cahoots.”

The Cal3 initiative poses an existential threat to California’s political establishment, which includes supreme court justices: they are political appointees who must periodically face voters. There’s no doubt that the initiative would have landed in their laps if voters approved it, which is how it usually goes. It’s uncommon for them to block a vote.

If they let it proceed, the next window of opportunity is the November 2020 general election, when it and everything else will likely be overshadowed by Donald Trump’s reelection campaign. That would be a shame. Whether it’s a good idea or not, it’s a priceless opportunity to have a consequential debate over how California should be governed.

We need that.

Google’s Android bundling strategy whacked by EU

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Google set two records yesterday: it was hit with the largest fine ever assessed by European Union anti-trust enforcers, which didn’t scare Wall Street because its stock price – actually, its nominal parent company Alphabet’s share price – hit the highest level ever.

The $5 billion fine was accompanied by an order for Google to radically change the way it markets the Android mobile phone operating system, according to a tweet by Margrethe Vestager, the EU’s competition commission and a former member of the Danish parliament…

Fine of €4,34 bn to @Google for 3 types of illegal restrictions on the use of Android. In this way it has cemented the dominance of its search engine. Denying rivals a chance to innovate and compete on the merits. It’s illegal under EU antitrust rules. @Google now has to stop it.

Google CEO Sundar Pichai shot back, also via Twitter, saying that the company will appeal.

The three business practices that Vestager says are illegal are:

  • Requiring mobile phone manufacturers who install the Google Play store to also install the Chrome browser and Google Search apps.
  • Paying manufacturers to give Google Search exclusivity, by not preinstalling other search apps.
  • Requiring manufacturers who preinstall Google apps to pledge not to make, or even develop, devices that run alternate Android versions, aka Android forks.

Big manufacturers have tried to launch their own app stores and operating systems, notably Samsung with Bada and Tizen, but could not compete with Google Play’s ecosystem of apps, services and content. The only company that’s made any headway with an Android fork is Amazon, which installs the Android-based Fire OS on its own devices, and uses them to sell its own services. Amazon has also attracted Vestager’s attention and, like Google, hit a record high valuation yesterday.

2018 is shaping up to be a rough year for tech giants. Lawmakers in Washington, D.C. and regulators in Brussels are taking aim at them. Politics and protectionism might be behind it, but big, dominant companies are properly the concern of trust busters. They need to move cautiously and prudently, though, else the cure will be worse than the disease.

A Washington, DC republican gets net neutrality religion

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Another network neutrality bill landed in Washington, D.C. on Monday. What’s interesting about this one is that its author is a republican and it would reinstate the core rules established by the Obama administration’s Federal Communications Commission in 2015, but overturned by the Trump administration’s team late last year. At the time, representative Mike Coffman (R – Colorado) urged the FCC to delay repealing net neutrality so federal lawmakers could make the decision instead. The FCC went ahead anyway, so Coffman finally offered his bill in reply.

It sets out the same “bright line rules” as the 2015 FCC decision: no blocking, throttling or paid prioritisation, as well as its ban on interconnection charges. Unlike the net neutrality bill working its way through the California legislature, it wouldn’t ban zero rating, though. Coffman also sidesteps the question of whether broadband is a common carrier service: his bill puts broadband into its own category.

As a encore yesterday, Coffman became the first republican in the U.S. house of representatives to sign a petition asking for a vote on a resolution of disapproval that would cancel the FCC’s net neutrality repeal. He’s number 177 on the list. The magic number is 218, a majority of house members. There are plenty of democrats who haven’t signed, although if republican dominoes start to fall, they will probably close ranks too. The resolution was passed by the U.S. senate, with three republican votes. The gap is wider in the house, though. There are 193 democrats, so 25 republicans would have to climb on board. And then president Donald Trump has to sign it.

That’s pretty much the same challenge that Coffman’s bill has to overcome. Its likely first stop will be the subcommittee run by representative Marsha Blackburn (R – Tennesse), who is a reliable friend of AT&T, Comcast and other big monopoly model broadband companies.

Any bets on what’s going to happen?

Dig once is OK, dig never is not, FCC says

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The Federal Communications Commission fired a shot across the bow of local governments last week, when it published a draft version of a “declaratory ruling” that, as the name implies, declares that moratoria that block broadband deployment violate federal law.

The ruling is primarily concerned with permits to build wireless facilities – cell sites, for the most part – and to install broadband infrastructure, such as conduit, in the public right of way. Some cities refuse to process permit applications for particular, broadband-related projects, the FCC draft says, either because they have formally decided not to – imposed a moratorium, in other words – or because they just sit on applications they don’t like and, in effect, create a de facto moratorium.

Some moratoria, though, are intended to promote broadband infrastructure deployment, and the FCC draft fudges that issue…

Some “street-cut” requirements, which providers sometimes refer to as moratoria, are not designed to thwart construction, but to promote “dig once” policies “in order to preserve the roadway and incentivize interested providers to deploy telecommunications conduit,” and would not qualify as unlawful moratoria if the state or locality imposing such street-cut requirements does not bar alternative means of deployment such as aerial lines or sublicensing existing underground conduits.

Assuming the FCC adopts the draft – as it almost certainly will – the immediate effect will be minimal. The commission would be placing “states and localities on notice” and provide them “the opportunity to ensure that their requirements comply with federal law”. Should they be so ungrateful as to not heed this advice, ultimate enforcement of the declaration would still be in the hands of courts, either directly or via an appeal of any future FCC orders preempting specific local laws. At this point, the FCC says it wants to “inform judicial resolution”.

The declaratory ruling is one item in a larger package of draft rules, that include formal a one touch make ready (OTMR) process, that lets a new broadband company put cables on poles without having to wait – sometimes forever – for incumbents to finish making the pole ready. It won’t have a direct effect in California, though. It only applies to states that use the default federal regulations for managing pole attachment. Here, the California Public Utilities Commission sets pole attachment rules.

Frontier, CETF broadband adoption deal crashes and burns

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A forced partnership between Frontier Communications and the California Emerging Technology Fund (CETF) to enroll low income broadband users fell far short of its 200,000 household goal, gaining only 9,173 subscribers over its two and a half year lifespan. That number is one of the few things that Frontier and CETF agree on. Who’s to blame and what comes next are hotly disputed.

It’s uncertain how many of those households were enrolled by CETF. Frontier independently acquired some, if not most, of those new subs through its normal sales channels.

One of the conditions the California Public Utilities Commission imposed when Frontier bought Verizon’s wireline telephone systems in California was an “aspirational” – delusional would be a better description – pledge to bring 200,000 low income households into the digital world in less than three years. To do that, Frontier promised to distribute “up to” $3 million to community organisations, via CETF. It’s a non-profit corporation tasked with managing tens of millions of dollars worth of so called “public benefit” obligations that were likewise extracted from telecoms mergers in California.

(It’s completely separate from the California Advanced Services Fund – that money comes from taxpayers and is directly administered by the CPUC).

In May, a month before the agreements that created the program expired, CETF asked the CPUC to amend its original decision and, in effect, extend the two contracts between CETF and Frontier by decree. And, as a kicker, fine Frontier $35 million. Frontier’s response amounts to a deal is a deal.

There are other issues. One involves Frontier’s promise to give 50,000 Chromebooks to low income households – it’s unclear how many were distributed. Frontier says it will continue to give away the devices, but only to its own subscribers. Another is Frontier’s $13.99 low income broadband package, which has morphed into a confusing and hard to find array of three packages with different rules and price points. Then there’s the 50 free WiFi hotspots Frontier pledged to fire up. It apparently managed to get 17 in operation, and is working on the rest.

There’s more to the dispute. The documents published so far are linked below, and I’ll be writing about it in the weeks ahead.

On the face of it, Frontier is more or less doing what it promised. The contracts that CETF signed are vague and larded with weasel words, like “aspirational” and “up to”. The $3 million figure was a cap, with the amounts paid determined by the performance of CETF and its partners – $60 per new broadband sub they signed up (whether for Frontier’s service or someone else’s) and $50,000 for workshops. The only significant hard deadline was the expiration of the second, implementation contract at the end of last month (the initial settlement contract set the goals and outlined the program, the second one filled in the details).

On the other hand, there’s the question of what the CPUC thought it was getting when it gave Frontier permission to buy Verizon’s Californian systems. The CPUC’s formal decision was bundled up with all the settlement contracts Frontier signed with CETF, and several other groups that “intervened” in the case. Commissioners will have to decide whether to reopen that review.

Commonly, the CPUC either rejects this sort of request – a “petition to modify” a decision – or just makes technical corrections. I’m not going to hazard a guess as to what they’re going to do with this one. It’s worth noting, though, that three of the other “intervenors” – the CPUC’s office of ratepayer advocates, TURN and the Center for Accessible Technology – filed an ambivalent joint response. They “take no position regarding…CETF’s request for commission action”, but instead “urge the commission to investigate the allegations”.

Translation: it’s a mess.

Documents published to date:

Not so fast, doc. Justice department appeals AT&T Time Warner decision

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In a terse filing, the federal justice department gave notice last week that it is appealing a judge’s decision to allow AT&T to buy Time Warner’s content companies, with no strings attached.

The justice department didn’t outline a specific goal, but one possibility is that it wants AT&T to give up some of its new empire, perhaps Turner channels such as CNN. According to a story in Variety by Ted Johnson, it could turn out to be a risky maneuver…

Larry Downes, senior industry and innovation fellow at the Georgetown Center for Business and Public Policy, said that the Justice Department’s appeal carries risks for the government. Leon’s decision does not hold precedent, he noted, while the D.C. Circuit decision likely would.

“The court could use the opportunity to comment generally on the legal standards for opposing vertical mergers, for example, or reaffirm in broad terms the general principles of consumer harm that have guided antitrust law for the last forty years — rejecting, in effect, recent calls for expanding antitrust to take into account the economics of online platforms that don’t charge consumers and therefore don’t raise prices when they acquire other companies,” he said via email…

“The DOJ is really gambling — and could wind up losing not just this case but its ability to challenge future deals in a wide range of industries currently undergoing disruption,” he said.

Perhaps. But federal trust busters won’t get anywhere by rolling over and playing dead either. Immediately after the decision, Comcast saw daylight and moved to add Fox to its menagerie of captive content. AT&T followed up with a price hike for its Internet video service, DirecTv Now, repudiating lawyerly claims it made during the trial that consumer costs would come down.

Vertical mergers – where a company acquires its supply chain – aren’t always anticompetitive. But it always will be when dominant, monopoly model Internet service providers like AT&T and Comcast can manipulate broadband traffic to favor in-house content, as the end of network neutrality allows them to do.

Billion dollar fine, new management and “security guarantees” gains ZTE U.S. access

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ZTE is back in business. The Chinese mobile phone and network equipment manufacturer paid $1.4 billion in fines and replaced its board of directors in order to make peace with the U.S. government. The federal commerce department effectively shut ZTE in May when it cut off access to U.S.-made products, including high end chips and key bits of the Android mobile operating system.

The problems began when the U.S. government accused ZTE of doing business with Iran and North Korea, in violation of U.S. trade sanctions. ZTE’s response wasn’t robust enough to suit the U.S. government, so the company was cut off from U.S. technology and had to close its doors, albeit temporarily. That kicked off a round of what passes for superpower diplomacy these days, according to a story in Bloomberg

President Donald Trump reversed course in May, saying he was reconsidering penalties on ZTE as a personal favor to Chinese President Xi Jinping. Later that month, his administration announced it would allow the company to stay in business after paying a new fine, changing its management and providing “high-level security guarantees”…

ZTE last month took a major step forward in meeting the White House’s conditions by firing its entire board and appointing a new chairman. Its new management faces the challenge of rebuilding trust with phone companies and corporate customers. But the company is said to be facing at least $3 billion in total losses from a months-long moratorium that choked off the chips and other components needed to make its networking gear and smartphones.

ZTE isn’t alone. Huawei, China’s biggest mobile phone maker (ZTE is number two), is also in the Trump administration’s crosshairs. The Federal Communications Commission is considering locking both companies out of federally subsidised projects, because of security concerns. That same kind of thinking led the Trump administration to block the sale of Californian chipmaker Qualcomm to a Singapore based company, Broadcom.

It’s appropriate for the U.S. government to worry about national security, and to take specific steps to meet specific threats. But conflating security with economic advantage is a losing game. The best guarantee of national security is shared economic interests, not trade barriers. To paraphrase Benjamin Franklin, perhaps egregiously, those who would give up a free market to purchase a little temporary security will get neither.

CPUC approves FTTH grants, but says Frontier needs skin in the game

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Frontier Communications will get $2.7 million from the California Advanced Services Fund (CASF) for two fiber to the home projects. One is in the Imperial County towns of Desert Shores and Salton Sea Beach, and the other in Lytle Creek, in the mountains of San Bernardino County. The California Public Utilities Commission unanimously approved the subsidies at its meeting yesterday, and declined to add another $600,000 as demanded by Frontier.

At least for now.

The commission is in the middle of rebooting the CASF program, following the California legislature’s rewrite of the law that governs it. Lawmakers effectively transformed CASF from a source of independent and, to a degree, competitive broadband infrastructure financing, into a piggy bank for Frontier and AT&T. The language in the new law allows for 100% funding of broadband projects, but doesn’t require it. Commissioner Martha Guzman Aceves is in charge of making the changes, and she held out hope that Frontier could come back later and get the rest of the money. Commissioner Liane Randolph said that would be something to consider, but companies should share at least some of the costs…

I am supportive of both of these projects at the level currently recommended by staff. I’m open to – if there’s an opportunity in the future, if the criteria changes and there’s a procedural way that they can apply for more funds, but we would be approving these projects with the understanding that we would be approving them at 80 and 90 [percent] at this time. I think it’s important for the companies to have a financial participation in the project. They will eventually be able to earn a profit on this infrastructure.

As it stands, taxpayers will pick up the tab for 80% of the Lytle Creek project and 90% of the Desert Shores project. At that level, both projects will be turning a profit for Frontier within a handful of years, according to CPUC staff estimates. On the other hand, Frontier has threatened to not build anything at all if it has to invest its own money.

CPUC votes today on Frontier’s California cash grab

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Frontier Communications isn’t getting any sympathy yet from the California Public Utilities Commission. Commissioners are scheduled to vote this morning on grants for two southern California fiber to the home projects, in Lytle Creek, in the mountains of San Bernardino County, and Desert Shores and Salton Sea Beach in Imperial County. The subsidies would come from the California Advanced Services Fund (CASF).

You might think that Frontier would be happy with a gift of $2.7 million of taxpayer money, but it isn’t. It wants $3.3 million, which is the full tab for building the systems. Including the cost of buying customer premise equipment for customers who don’t exist – there are about 200 empty homes in the Desert Shores project area. Frontier claimed its household count was based on its own “its well tested methodology used extensively in broadband deployment”. Turns out Frontier’s “well tested methodology” involves using 2016 population figures, instead of the newer but, um, inconvenient data generated by the California finance department in 2017.

CPUC staff rejected Frontier’s arguments that the CPUC should pay for 100% of both projects, instead of the 80% and 90%, respectively, that’s currently proposed, saying…

Frontier has offered an interpretation of AB 1665 whereby every project is evaluated according to the unique set of criteria, chosen by the applicant, that will justify full funding for that project.

Assembly bill 1665 was passed by the California legislature and signed into law by governor Jerry Brown last year. The bill rewrote the rules for the CASF program, turning it into a private piggy bank for Frontier and AT&T, with some spiffs on the side for cable companies. It’s not surprising that Frontier thinks it can whack CASF with a hammer any time it’s running a little low on cash, but that’s the product of a seemingly limitless sense of entitlement, rather than a rational interpretation of the law.

So far, the give and take has been with staff. Commissioners will have the final say later this morning.