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mostlysignssomeportents · 6 months

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Big Telco’s fury over FCC plan to infuse telecoms policy with facts

I'll be at the Studio City branch of the LA Public Library on Monday, November 13 at 1830hPT to launch my new novel, The Lost Cause. There'll be a reading, a talk, a surprise guest (!!) and a signing, with books on sale. Tell your friends! Come on down!

Reality has a distinct anti-conservative bias, but conservatives have an answer: when the facts don't support your policies, just get different facts. Who needs evidence-based policy when you can have policy-based evidence?

Take gun violence. Conservatives tell us that "an armed society is a polite society," which means that the more guns you have, the less gun violence you'll experience. To prevent reality from unfairly staining this pristine ideological mind-palace with facts, conservatives passed the Dickey Amendment, which had the effect of banning the CDC from gathering stats on American gun-violence. No stats, no violence!

https://en.wikipedia.org/wiki/Dickey_Amendment

Policy-based evidence is at the core of so many cherished conservative beliefs, like the idea that queer people (and not youth pastors) are responsible for the sexual abuse of children, or the idea that minimum wages (and not monopolies) decrease jobs, or the idea that socialized medicine (and not private equity) leads to death panels:

https://pluralistic.net/2023/04/26/death-panels/#what-the-heck-is-going-on-with-CMS

The Biden administration features a sizable cohort of effective regulators, whose job is to gather evidence and then make policy from it:

https://pluralistic.net/2023/10/23/getting-stuff-done/#praxis

Fortunately for conservatives, not every Biden agency is led by competent, honest brokers – the finance wing of the Dems got to foist some of their most ghoulish members upon the American people, including a no-fooling cheerleader for mass foreclosure:

https://pluralistic.net/2023/03/06/personnel-are-policy/#janice-eberly

And these same DINOs reached across the aisle to work with Republicans to keep some of the most competent, principled agency leaders from being seated, like the remarkable Gigi Sohn, targeted by a homophobic smear campaign funded by the telco industry, who feared her presence on the FCC:

https://pluralistic.net/2023/03/19/culture-war-bullshit-stole-your-broadband/

The telcos are old hands at this stuff. Long before the gun control debates, Ma Bell had figured out that a monopoly over Americans' telecoms was a license to print money, and they set to corrupting agencies from the FCC to the DoJ:

https://pluralistic.net/2021/11/14/jam-to-day/

Reality has a vicious anti-telco bias. Think of Net Neutrality, the idea that if you pay an ISP for internet service, they should make a best effort to deliver the data you request, rather than deliberately slowing down your connection in the hopes that you'll seek out data from the company's preferred partners, who've paid a bribe for "premium delivery."

This shouldn't even be up for debate. The idea that your ISP should prioritize its preferred data over your preferred data is as absurd as the idea that a taxi-driver should slow down your rides to any pizzeria except Domino's, which has paid it for "premium service." If your cabbie circled the block twice every time you asked for a ride to Massimo's Pizza, you'd be rightly pissed – and the cab company would be fined.

Back when Ajit Pai was Trump's FCC chairman, he made killing Net Neutrality his top priority. But regulators aren't allowed to act without evidence, so Pai had to seek out as much policy-based evidence as he could. To that end, Pai allowed millions of obviously fake comments to be entered into the docket (comments from dead people, one million comments from @pornhub.com address, comments from sitting Senators who disavowed them, etc). Then Pai actively – and illegally – obstructed the NY Attorney General's investigation into the fraud:

https://pluralistic.net/2021/05/06/boogeration/#pais-lies

The pursuit of policy-based evidence is greatly aided by the absence of real evidence. If you're gonna fill the docket with made-up nonsense, it helps if there's no truthful stuff in there to get in the way. To that end, the FCC has systematically avoided collecting data on American broadband delivery, collecting as little objective data as possible:

https://pluralistic.net/2020/05/26/pandemic-profiteers/#flying-blind

This willful ignorance was a huge boon to the telcos, who demanded billions in fed subsidies for "underserved areas" and then just blew it on anything they felt like – like the $45 billion of public money they wasted on obsolete copper wiring for rural "broadband" expansion under Trump:

https://pluralistic.net/2022/02/27/all-broadband-politics-are-local/

Like other cherished conservative delusions, the unsupportable fantasy that private industry is better at rolling out broadband is hugely consequential. Before the pandemic, this meant that America – the birthplace of the internet – had the slowest, most expensive internet service of any G8 country. During the lockdown, broadband deserts meant that millions of poor and rural Americans were cut off from employment, education, health care and family:

https://pluralistic.net/2021/02/12/ajit-pai/#pai

Pai's response was to commit another $8 billion in public funds to broadband expansion, but without any idea of where the broadband deserts were – just handing more money over to monopoly telcos to spend as they see fit, with zero accountability:

https://pluralistic.net/2020/05/26/pandemic-profiteers/#flying-blind

All that changed after the 2020 election. Pai was removed from office (and immediately blocked me on Twitter) (oh, diddums), and his successor, Biden FCC chair Jessic Rosenworcel, started gathering evidence, soliciting your broadband complaints:

https://pluralistic.net/2021/03/23/parliament-of-landlords/#fcc

And even better, your broadband speed measurements:

https://pluralistic.net/2021/04/14/for-sale-green-indulgences/#fly-my-pretties

All that evidence spurred Congress to act. In 2021, Congress ordered the FCC to investigate and punish discrimination in internet service provision, "based on income level, race, ethnicity, color, religion, or national origin":

https://www.congress.gov/117/plaws/publ58/PLAW-117publ58.pdf

In other words, Congress ordered the FCC to crack down on "digital redlining." That's when historic patterns of underinvestment in majority Black neighborhoods and other underserved communities create broadband deserts, where internet service is slower and more expensive than service literally across the street:

https://pluralistic.net/2021/06/10/flicc/#digital-divide

FCC Chair Rosenworcel has published the agency's plan for fulfilling this obligation. It's pretty straightforward: they're going to collect data on pricing, speed and other key service factors, and punish companies that practice discrimination:

https://www.fcc.gov/document/preventing-digital-discrimination-broadband-internet-access

This has provoked howls of protests from the ISP cartel, their lobbying org, and their Republican pals on the FCC. Writing for Ars Technica, Jon Brodkin rounds up a selection of these objections:

https://arstechnica.com/tech-policy/2023/11/internet-providers-say-the-fcc-should-not-investigate-broadband-prices/

There's GOP FCC Commissioner Brendan Carr, with a Steve Bannon-seque condemnation of "the administrative state [taking] effective control of all Internet services and infrastructure in the US. He's especially pissed that the FCC is going to regulate big landlords who force all their tenants to get slow, expensive from ISPs who offer kickbacks to landlords:

https://www.fcc.gov/document/carr-opposes-bidens-internet-plan

The response from telco lobbyists NCTA is particularly, nakedly absurd: they demand that the FCC exempt price from consideration of whether an ISP is practicing discrimination, calling prices a "non-technical aspect of broadband service":

https://www.fcc.gov/ecfs/document/110897268295/1

I mean, sure – it's easy to prove that an ISP doesn't discriminate against customers if you don't ask how much they charge! "Sure, you live in a historically underserved neighborhood, but technically we'll give you a 100mb fiber connection, provided you give us $20m to install it."

This is a profoundly stupid demand, but that didn't stop the wireless lobbying org CTIA from chiming in with the same talking points, demanding that the FCC drop plans to collect data on "pricing, deposits, discounts, and data caps," evaluation of price is unnecessary in the competitive wireless marketplace":

https://www.fcc.gov/ecfs/document/1107735021925/1

Individual cartel members weighed in as well, with AT&T and Verizon threatening to sue over the rules, joined by yet another lobbying group, USTelecom:

https://www.fcc.gov/ecfs/document/1103655327582/1

The next step in this playbook is whipping up the low-information base by calling this "socialism" and mobilizing some of the worst-served, most-gouged people in America to shoot themselves in the face (again), to own the libs:

https://pluralistic.net/2022/12/15/useful-idiotsuseful-idiots/#unrequited-love

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/11/10/digital-redlining/#stop-confusing-the-issue-with-relevant-facts

Image: Japanexperterna.se (modified) https://www.flickr.com/photos/japanexperterna/15251188384/

CC BY-SA 2.0: https://creativecommons.org/licenses/by-sa/2.0/

Mike Mozart (modified) https://www.flickr.com/photos/jeepersmedia/14325839070/

https://www.flickr.com/photos/jeepersmedia/14325905568/

https://www.flickr.com/photos/jeepersmedia/14489390566/

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mostlysignssomeportents · 1 year

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Venture predation

Tomorrow (May 20), I’ll be at the GAITHERSBURG Book Festival with my novel Red Team Blues; then on Monday (May 22), I’m keynoting Public Knowledge’s Emerging Tech conference in DC.

On Tuesday (May 23), I’ll be in TORONTO for a book launch that’s part of WEPFest, a benefit for the West End Phoenix, onstage with Dave Bidini (The Rheostatics), Ron Diebert (Citizen Lab) and the whistleblower Dr Nancy Olivieri.

They said it couldn’t happen. After decades of antitrust enforcement against Predatory Pricing — selling goods below cost to kill existing competitors and prevent new ones from arising — the Chicago School of neoliberal economists “proved” that predatory pricing didn’t exist and that the courts could stand down and stop busting companies for it.

Predatory pricing — the economists explained — may be illegal, but it was also imaginary. A mirage. No one would do predatory pricing, because it was “irrational.” And even if there was someone irrational enough to try it, they would fail. Stand down, judges of America — predatory pricing is solved.

Chicago School economists — whose job (to quote David Roth) is to find new ways to say “actually, your boss is right” — held enormous sway of the federal judiciary. The billionaire-backed Manne Seminars offered free “continuing education” junkets to judges — all-expense-paid luxury vacations salted with lengthy your-boss-is-right econ seminars. 40% of the US federal judiciary got their heads filled up at a Manne Seminar.

For monopolists and other predators, the Manne Seminar was an excellent return on investment. After attending a Manne Seminar, the average judge’s legal decisions tipped decidedly in favor of monopoly, operating on the Chicago bedrock assumption that monopolies are “efficient,” and, where we see them in nature, we should celebrate them as the visible manifestation of the entrepreneurial genius of some Ayn Rand hero in a corporate boardroom:

https://pluralistic.net/2021/08/13/post-bork-era/#manne-down

A little knowledge is a dangerous thing. Even as post-Chicago economists showed that predatory pricing was both possible and rampant, a “rational” and effective strategy for cornering markets, suppressing competition, crushing innovation and gouging on price, judges continued to craft tortuous, unpassable tests that any predatory pricing case would have to satisfy to proceed. Economics moved on, but predatory pricing cases continued to fail the trial-by-ordeal constructed by Chicago-pilled judges.

Which is a shame, because there are at least three ways that predatory pricing can be effective:

Cost Signaling Predation: A predator tricks competitors into thinking they’ve found a new way to cut their costs, which allows them to drop prices. Competitors, fooled by the ruse, exit the market, not realizing that the predator is merely subsidizing their products’ costs to trick them.

Financial Market Predation: A predator tricks the competitors’ creditors into thinking the predator has a new way to cut costs. The creditors refuse to loan the prey companies the money needed to survive the price war, and the prey drops out of the war.

Reputation Effect Predation: A predator subsidizes prices in one region or one line of goods in order to trick prey into thinking that they’ll do the same elsewhere: “Don’t try to compete with us in Cleveland, or we’ll drop prices like we did in Tampa.”

These models of successful predation are decades old, and have broad acceptance within economics — outside of Chicago-style ideologues — but they’ve yet to make much of a dent in minds of the judges who hear Predatory Pricing cases.

While judges continue to hit the snooze-bar on any awakening to this phenomenon, a new kind of predator has emerged, using a new kind of predation: the Venture Predator, a predatory company backed by venture capital funds, who make lots of high-risk bets they must cash out in ten years or less, ideally for a 100x+ return.

Writing in the Journal of Corporation Law Matthew Wansley and Samuel Weinstein — both of the Cardozo School of Law at Yeshiva University — lay out a theory of Venture Predation in clear, irrefutable language, using it to explain the recent bubble we sometimes call the Millennial Lifestyle Subsidy:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4437360

What’s a Venture Predator? It’s “a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share.” The predator sets millions or billions of dollars on fire chasing “rapid, exponential growth” all in order to “create the impression that recoupment is possible” among future investors, such as blue-chip companies that might buy them out, or sucker retail investors who buy in at the IPO, anticipating years of monopoly pricing.

In other words, the Venture Predator constructs a pile of shit so large and impressive that investors are convinced that there must be a pony under there somewhere.

There’s another name for this kind of arrangement: a bezzle, which Galbraith described as “the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it.”

Millennial Lifestyle Subsidy companies are bezzles. Uber, annihilated tens of billions of dollars on its bezzle, destroying the taxi industry and laying waste to public transit investment, demolishing labor protections and convincing people that impossible self-driving robo-taxis were around the coner:

https://pluralistic.net/2021/02/16/ring-ring-lapd-calling/#uber-unter

But while Uber the company lost billions of dollars, Uber’s early investors and executives made out like bandits (or predators, I suppose). The founders were able to flog their shares on the secondary market long before the IPO. Same for the early investors, like Benchmark capital.

Since the company’s IPO, its finances have steadily worsened, and the company has resorted to increasingly sweaty balance-sheet manipulation tactics and PR offensives to make it seem like a viable business:

https://pluralistic.net/2022/08/05/a-lousy-taxi/#a-giant-asterisk

But Uber can’t ever recoup the billions it spent convincing the market that there was a pony beneath its pile of shit. The app Uber uses to connect riders with the employees it misclassifies as contractors isn’t hard to clone, and it’s not hard for drivers or riders to switch from one app to another:

https://locusmag.com/2019/01/cory-doctorow-disruption-for-thee-but-not-for-me/

Nor can Uber prevent its rivals from taking advantage of the hundreds of millions of dollars it spent on “regulatory entrepreneurship” — changing the laws to make it easier to misclassify workers and operate unlicensed taxi services.

It’s not clear whether Uber ever believed in robo-taxis, or whether they were just part of the bezzle. In any event, Uber’s no longer in the robotaxi races: after blowing $2.5B on self-driving cars, Uber produced a vehicle whose mean-distance-between-fatal-crashes was 0.5 miles. Uber had to pay another company $400M to take its self-driving unit off its hands:

https://pluralistic.net/2022/10/09/herbies-revenge/#100-billion-here-100-billion-there-pretty-soon-youre-talking-real-money

Uber’s prices rose 92% between 2018–21, while its driver compensation has plunged. The company is finding it increasingly difficult to passengers into cars, and drivers onto the road. They have invented algorithmic wage disrimination, an exciting new field of labor-law violations, in order to trick drivers into thinking there’s a pony under all that shit:

https://pluralistic.net/2023/04/12/algorithmic-wage-discrimination/#fishers-of-men

To Uber’s credit, they have been a wildly innovative company, inventing many new ways to make the pile of shit bigger and the pony more plausible. Back when Uber and Lyft were locked in head-to-head competition, Uber employees created huge pools of fake Lyft rider accounts, using them to set up and tear down rides in order to discover what Lyft was charging for rides in order to underprice them. Uber also covertly operated the microphones in its drivers’ phones to listen for the chimes the Lyft app made: drivers who had both Lyft and Uber installed on their devices were targeted for (strictly temporary) bonuses.

Uber won’t ever recoup, but that’s OK. The investors and execs made vast fortunes. Now, normally, you’d expect company founders and other managers with large piles of stocks in a VC-backed company to be committed to the business’s success, at least in the medium term, because their shares can’t be liquidated until well after the company goes public.

But the burgeoning “secondary market” for managers’ shares has turned investors and managers into co-conspirators in the Venture Predation bezzle: “half of Series A and B deals now have some secondary component for founders.” That means that founders can cash out before the bezzle ends.

The trick with any bezzle is to skip town while the mark is still energetically digging through the shit, before the pony is revealed for an illusion. That’s where crypto comes in: during the cryptocurrency bubble, VCs cashed out of their investments early through Initial Coin Offerings and other forms of securities fraud. The massive returns this generated were well worth the millions they sprinkled on Superbowl ads and bribes for Matt Damon.

But woe betide the VC who mistimes their exit. As Wework showed, it’s entirely possible for VCs to be left holding the bag if they get the timing wrong. Wework blew $12b on predatory pricing — promising tenants at rivals’ businesses moving bonuses or even a year’s free rent, all to make the pile of shit look larger and thus more apt to contain a pony. The company opened its co-working spaces as close as possible to existing shops, oversaturating hot markets and showing “growth” by poaching customers through deep subsidies, then pretending that those customers would stay when the subsidies evaporated. But Wework’s “product” was temporary hot-desks, occupied by people who could (and did) move at the drop of a hat.

To its competitors, its competitors’ creditors, and credulous investors, it appeared that Wework had developed some kind of “efficiency advantage” — a secret sauce that let it sell a product at a price that was far below its rivals’ costs. But once Wework filed for its IPO, its S-1 — the form that discloses the company’s finances — revealed the truth. Wework’s only “advantage” was the bafflegab of its cult-like leader and the torrent of cash supplied by its VCs.

Wework’s IPO was a disaster. After canceling a real IPO, the company eventually went public through a scammy SPAC, saw its shares immediately tank, and continue to fall, as its balance-sheet is still blood-red with losses.

Another Venture Predator is Bird, the company that flooded American cities with cheap, flimsy Chinese scooters, choking curbs and sidewalks. 25% of the gross revenues from each scooter ride had to be written off as depreciation on the scooter. As a Bird spokesperson told the LA Times: “There are very few unique companies for which you can build global scale really quickly and build a dominant market position before other people do, and for those rarefied companies scaling quickly matters more than short-term profits.”

Bird was another company that could never recoup, whose executives and investors could only cash out if they could maintain the faint hope of the pony underneath its pile of shitty scooters. It drove the company to some genuinely surreal lengths. For example, in 2018, I reported on the existence of a kit that let you buy an impounded Bird scooter for pennies and retrofit it to run without an app, so you could take it anywhere:

https://boingboing.net/2018/12/08/flipping-a-bird.html

Shortly thereafter, I got a legal threat from Linda Kwak, Bird’s Senior Corporate Counsel, claiming that publishing a link to a website that sells you a product you install by unscrewing one board and inserting another was a violation of Section 1201 of the DMCA, which was an astonishingly stupid claim:

https://www.eff.org/document/bird-rides-takedown-boing-boing-dec-20-2018

It was also an astonishingly stupid claim to make to me, a career activist with 20 years experience fighting DMCA1201, a decades-old professional affiliation with EFF, and a giant megaphone:

https://boingboing.net/2019/01/11/flipping-the-bird.html

But Bird was palpably desperate to keep its bezzle going, and Kwak — an employment lawyer with undeniable deficits in her understanding of copyright and cyber-law — was their champion

Fascinatingly, one thing Bird didn’t worry about was competition from Uber and Lyft, who piled into the e-scooter market. Bird circulated a (leaked) pitch-deck reassuring investors that Uber/Lyft weren’t gunning for them, because they ““won’t subsidize prices” as they prepared for their IPOs, which involved disclosing their finances to their investors.

Bird’s investors either lost money or made small-dollar returns, but they were outfoxed by Bird founder Travis VanderZanden, a superpredator who cashed out $44m in shares just as the VCs were piling in.

Venture Predation is another stinging rebuttal to the Chicago School’s blithe dismissal of Predatory Pricing as an illusion. Private firms — of the sort that VCs back — whose boards are made up of founders and VCs who stand to benefit from the pile-of-shit gambit are perfectly capable of spending huge fortunes to make Predatory Pricing work. VCs make a practice of repeatedly co-investing in businesses together, which fosters the kind of trust that allows for these gambits to be played again and again.

For later stage, pony-thirsty investors who get stuck holding the bag, the lure of monopoly profits is both powerful and plausible — after 40 years of antitrust neglect, monopolies are the kinds of things one can both attain and defend (think of Peter Thiel’s maxim, “competition is for losers,” or Warren Buffett’s terrifying priapisms induced by the mere thought of businesses with “wide, sustainable moats”).

In a world of Facebook and Google, dreaming of monopolies isn’t irrational — it’s aspirational.

VCs are ideally poised to play the Venture Predation gambit. They are risk-tolerant and need to cash out over short timescales. What’s more, VCs’ longstanding boasts of their ability to identify companies who have invented new, super-efficient ways to do boring things like “rent out office space” or “provide taxis” gives the pile-of-shit pony-pitch a plausible ring.

The Venture Predator gambit isn’t just a form of plute-on-plute violence in which billionaires fleece millionaires. Like any anticompetitive scam, Venture Predators are able to pick winners in the marketplace — rather than getting the taxi or the office rental service or the scooter that serves you best, you get the scammiest version.

Workers who are roped in by the scam also suffer — the authors raise the example of a cab driver who leases a car to drive for Uber, based on the early subsidies the company offered, only to find themselves unable to make payments once the bezzle ends and Uber starts clawing back the driver’s wages.

Then there’s the cost to society: during the decade-plus in which Uber was pissing away the Saudi royal family’s billions subsidizing rides, cities dismantled their public transit, even as residents made decisions about where to live and work based on the presumption that Uber was charging a fair, sustainable price for rides.

The authors propose a bunch of legislative fixes for this, but warn that none of them are likely to get through Congress or the Manne-pilled judiciary. But they do hold out hope for a proposed SEC rule “requiring large, private companies to make basic financial disclosures.” These disclosures would make it impossible for companies to pretend that they had built a better mousetrap when all they had was a bigger pile of shit.

Catch me on tour with Red Team Blues in Toronto, DC, Gaithersburg, Oxford, Hay, Manchester, Nottingham, London, and Berlin!

If you’d like an essay-formatted version of this post to read or share, here’s a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/05/19/fake-it-till-you-make-it/#millennial-lifestyle-subsidy

[Image ID: A giant pile of manure with a pony sticking out of it.]

Image: Eli Duke (modified) https://www.flickr.com/photos/elisfanclub/6834356283

CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0/

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