Monthly Archives: July 2014

Net Neutrality: Is Some Web Access More Neutral Than Others?

netneutral

By R. Alan Clanton
Thursday Review editor

(Originally published July 11, 2014) Back in February of this year, when Brian Roberts, CEO of Comcast, announced Comcast’s proposed buyout of Time Warner, there was a storm of media coverage about what the merger of these two cable and internet giants would mean. The majority of the press narrative surrounded customer service: would such a mega merger be good for customers in the long run?

The overwhelming response by those who joined in the discussions regarding the massive merger: no. Most feared longer on-hold waits when calling for customer service or technical support, longer delays in the field during outages or service problems, higher rates and new fees, and—in general—abysmal service from two companies with already poor customer service rankings.

Some economists and business analysts looked at the equation from the standpoint of jobs: layoffs will surely follow in the wake of such a massive merger; more call center and tech support operations will migrate overseas; thousands of blue collar, white collar and office support people would be dumped into unemployment. Cynics said nothing much would change at all.

But some realists, and a few optimists, saw merely an inevitably shifting market with new opportunities: Other technologies would continue to spring to life, especially as younger consumers sought content in unorthodox and unconventional ways. Technical innovations would arrive—as they seem to arrive daily—giving us alternative tools to TV content and entertainment choices. Satellite companies would likely gain customers, and their increased revenue would give them more leverage to expand and update their own technological strengths.

But, at about the time that DirecTV was seeing a surge in new customers—mostly those engaged in a pre-emptive bailout from cable in Time Warner and Comcast areas—AT&T announced its proposal to purchase the satellite giant outright. The marriage of AT&T and DirecTV was, in fact, a logical response to recent Comcast acquisitions. Not wanting to be left standing without a chair when the music stops, other media and telecom giants are looking to shore up flanks and find new ways to remain relevant in an age in which technological changes create paradigm shifts almost overnight. Everyone is affected: Verizon, Apple, Amazon, T-Mobile, Sprint, Charter, Cox.

And remember Aereo? Its tiny dime-sized device—basically an antenna for receiving and storing TV signals—threatened to unravel the business model of both broadcasters and cable television. Aereo’s little device was so disruptive to CBS, Fox, ABC and NBC, that the contentious matter ended up in the Supreme Court, where justices recently agreed with broadcasters and declared Aereo’s antenna a tool for theft.

Aereo lost its case, but you can bet that there will be more digital disruptors and existential challenges very soon, especially as Facebook, Amazon, Apple and Google seek to grab more hours of our collective attentions. It was for this very reason that Comcast justified its need to merge with Time Warner, and those same imperatives apply as AT&T makes its case to Congress for the right to acquire DirecTV. The mergers will continue, and customer relations may suffer.

But lost in the hue and cry over customer service has been what some technologists regard as the more transcendent issue in these massive mergers: net neutrality.

Net neutrality, for those unclear on its passive, almost oblique language, is the basic philosophy that says that all internet traffic should be treated equally. Net neutrality is to internet content what Lady Justice is to the law: a formidable, stoic presence ensuring evenhandedness and fairness, and blindfolded to issues of creed, color, convention and context. Net neutrality means that your cable or internet provider will treat equally all traffic coming into your home: streaming movies, online games, access to banking or retail activity, music downloads, payment activities, photo uploads or downloads, television content, music videos and other short video material.

Advocates of a free and open internet regard its neutrality as crucial—a fundamental tenet essential to the free flow of information and the growth of innovation. And there are other comparisons employed. Just as your landline phone is neutral, able to make or receive calls in an unfettered landscape (unless you choose to block certain callers), so too should your internet access be unhampered. Just as your electricity flows into your home on an equal playing field with that of your neighbor, so too should your web access.

Originally a cherished and critical element in the thinking of the FCC and other Federal agencies, net neutrality has seen slippage over the last decade. In an important change of direction, the FCC in 2002 declared that the internet was more akin to an information service than a public trust. In that sense, according to then-chairman Michael Powell, your internet service provider (ISP) was more like a magazine or newspaper: you can subscribe to it—for a price—but there are no guarantees about its content, which comes at the discretion of owners, publishers, and editors.

That change of philosophy set in motion a slow but inevitable shift in the winds. But the tide has ebbed and flowed well into the late aught years. In 2010, largely as a result of complaints that Comcast was interfering with its customers’ web access and internet preferences, the FCC took a step back toward a policy of neutrality by reaffirming its view that the internet should be treated in the same way that government treated phone lines in the early part of the twentieth century: the web is a public trust, and its architecture serves as a “common carrier.” The FCC’s 2010 position was imperfect, and many technology advocates complained of the loopholes, but it was an important step in the direction favored by those who want to see the freest flow of information and content.

But early this year, a U.S. Appeals Court ruled against the FCC and in favor of Verizon; the case had centered upon Verizon’s arrangements wherein the mobile phone giant was charging additional fees to companies like Amazon, insuring those companies premium access (meaning faster speeds), and relegating other applications and services to a slower lane.

The issue has now become a political challenge facing the administration of Barack Obama—and probably the administration of the next U.S. presidents. Back in 2008, Obama had campaigned on a promise that he would honor net neutrality, but in practice he has done little to re-establish that central canon. Recent telephony and cable television mega mergers have made it abundantly clear that the time is ripe to establish a core value system for the internet’s rules-of-the-road.

That Appeals Court decision in the Verizon case opened the door to more preferential treatment, and by extension it created an avenue for more revenue for ISPs offering premium access. Comcast and Netflix recently came to an undisclosed arrangement whereby, for a fee, Netflix can stream its content across Comcast’s vast infrastructure without inhibitions on speed or quality. Likewise, AT&T enabled iTunes to have a special “fast lane” across its massive architecture, but only after Apple negotiated for the use of that specially tweaked speed and access. Meanwhile, services similar to iTunes, like Spotify, are left struggling with inferior access simply because they are unwilling or unable to negotiate preferential treatment.

Advocates of an open and neutral internet agree that what suffers most from a tiered arrangement is technical innovation. Smaller companies, unable to pay the premium fees charged by a large ISP like Comcast or AT&T, would face serious challenges to the development of their products and services, and some of those hurdles would be insurmountable without the same access to the internet as other companies. Worse, some fear that a pay-for-speed web would begin an organic process favoring almost entirely the biggest players—those with deep-pockets and little to fear from negotiating privately with big ISPs. Smaller players would be forced from the table quickly, and even those who survive would almost certainly be forced into shotgun marriages with other, larger firms—a cycle of larger companies buying out the smaller ones.

There is also the specific concept of “the last mile” of delivery. Without some form of regulation to maintain an open, unfettered internet, big ISPs become gatekeepers and key-masters in one stroke. Innovative web companies, tech start-ups, hardware makers, software designers, and content creators may have great products and services, but if a big carrier can establish a rate structure for content based on speed and reliability, the benefits and value of these products are lost.

Consumer advocates worry that tiered-price arrangements for content providers will increasingly translate into equally complex pricing and fees for subscribers and web users. In the near future, when Comcast completes its merger with Time Warner, at least one third of the U.S. will be inside the footprint of the Philadelphia-based cable company. That means that customers may experience the full effect of an internet that is anything but neutral. And some business analysts worry that the effects of a stratified U.S. internet could easily spill over into similar behavior in markets around the world. And it may also stifle technology in the U.S. while driving it into foreign markets.

The January court decision was not a total setback, however. Verizon had gone so far as to argue that the FCC had no authority to regulate broadband or wireless access, a position the court rejected totally. But the court basically ruled that the FCC’s 2010 working-position was akin to an overreach. The FCC, according to U.S. Circuit Judge David Tatel, should have more carefully linked its requirements regarding net neutrality to the concept of common carriers. The problem sprang from the FCC’s own bipolar thinking, and dates back to Powell’s 2002 interpretations of ISPs as information services. That 2002 working-position was a legal time bomb, and when in 2010 the FCC attempted to reassert net neutrality, the fuse started burning.

But experts say that now is the time to rewrite and retool the guidelines to better encompass the rapid technologies now unfolding around us.

Some Thursday Review readers have commented in the past about articles we have posted on this topic, especially in the context of recent mergers. One reader, someone familiar with the cable business from the inside, said that the original thinking on internet access was right all along—it’s just that we didn’t collectively see the metaphor as flexible.

“In the 1990’s we called it the Information Superhighway,” he said, “and advocates of a free internet understood that to mean just what that image elicited—lots of cars and trucks moving along at a moderate-to-fast clip. But what was not seen was an age in which there were special lanes for carpooling, lanes for buses, lanes for electric cars, bike lanes, wheelchair lanes, you name it. And there are toll-booths. Some people have speedpay, others pay by the month, some by the year.”

In other words, to paraphrase George Orwell, some web access is more neutral than others.

Verizon, Comcast, Time Warner, AT&T and other ISPs also make the case—and it is not unreasonable—that it is, after all, their capital and their labor which builds the highway. Should they not, under such circumstances, be able to charge more for use of the fastest lanes? And if Amazon and Netflix are willing to pay more for the fastest streaming available to Comcast subscribers, would not that additional revenue stream enable Comcast to reinvest in bigger, better, faster highways for everyone? Maybe.

But not so fast, some say. In that January 2014 court case, the decision was based on a three-judge panel. Even then there was dissent. Judge Laurence Silberman, writing a minority opinion, said that new innovations are always at work, sometime undermining conventional business models.

“This regulation [of internet speeds and reliability],” Silberman wrote, “essentially provides an economic preference to a politically powerful constituency, a constituency that, as is true of typical rent seekers, wishes protection against market forces.”

In the meantime, a billion or more people are now connected to the internet via broadband, telephone infrastructure, or through handheld devices. That number grows by millions worldwide every day. Even giants like Comcast, AT&T, Verizon, Deutsch Telekom, T-Mobile and others cannot keep up with that growth. Thus companies like Google, Facebook and Amazon enter into serious consideration of space hardware and drone technology to bring internet access to still more millions.

In the end, innovation suffers most. Without net neutrality, the web’s core value gets inverted. The internet has enabled tens of thousands of business start-ups to blossom, often with little or no investment of cash, and this influx of dazzling competitiveness has radically realigned the marketplace and reshaped the economy. The power of a neutral highway means that thousands of little companies have the same opportunities as the dozens of big companies, and this can sometimes have transformative effects (just look at Blockbuster, Borders and most major daily newspapers). That level playing field ought to be honored as central to a dynamic economy and a capitalist framework.

Thursday Review will have more on this important topic in the near future, and we invite our readers to send us their opinions and comments on this issue.

– See more at: http://www.thursdayreview.com/NetNeutral.html#sthash.CnlHWlap.dpuf

40 Years Ago: A Very Popular Book

whscripts

By R. Alan Clanton | published June 18, 2014 | Thursday Review editor

County commissioners in Arlington County (Virginia) recently approved a proposal by a company called Monday Properties to demolish the multi-level parking structure once used by Washington Post reporter Bob Woodward and his secret contact for Watergate investigation information. Back then, Americans knew the name of Woodward’s source only as Deep Throat, a moniker penned by Managing Editor Howard Simons to describe Woodward’s extremely shy contact as “being on deep background.” Decades later, a former top FBI agent named Mark Felt would reveal himself to have been the secret source.

The demolition of that parking garage will take place sometime next year, and its destruction will make way for a high rise apartment building and a small retail complex. There is already a commemorative marker on the street near the garage now, explaining the historical significance of the site, but the county and the developers agreed to enlarge the signage, possibly adding additional materials and even photographic displays. The passing of that garage was, perhaps, to be expected. Some buildings of historic significance survive, some do not. A parking garage hardly compares to Monticello, or the Custis-Lee Mansion. In the meantime, a more important milestone has been reached in the long shadow of Watergate. Forty years ago, newspapers and book publishers printed the first editions—almost all of them in paperback—of the Presidential Transcripts. Both the New York Times and the Washington Post partnered with publishers (The Times with Bantam, the Post with Dell) to make available, for about $2.50, a massive paperback with the complete text of the tapes released by Richard Nixon and his staff in 1974. The subtitle of the book was in fact the official title of the materials handed over by Nixon to Congress: Submission of Recorded Presidential Conversations to the Committee on the Judiciary of the House of Representatives by President Richard M. Nixon. A more cumbersome namesake than just “The White House Transcripts,” as those pages became popularly known. By the time of the publication of the books, Watergate had become a national obsession, with hundreds of reporters working full time on the topic, and the majority of nightly broadcast news devoted to the investigation. The whole thing had started on the night of June 17, 1972 (42 years ago, yesterday), when five Cuban-American men dressed in upscale suits broke into the offices of the Democratic National Committee, which at the time was in the Watergate, an upscale multi-use suite of offices, apartments and hotel in Washington, D.C. The burglars were caught with electronic bugging equipment, thin envelopes of cash (the $100 bills were in sequence), and a couple of small notebooks which contained some phone numbers of people at the White House. Woodward was sent to their arraignment, and the investigation began in earnest, with Woodward working alongside veteran reporter Carl Bernstein. In addition to the Washington metro police, the FBI began investigating. Working in a parallel trajectory, Woodward and Bernstein did their own gumshoe work even as the FBI moved slowly with its massive inquiry. By early 1973 the case had found its way to the attention of Congress, and into several courtrooms. Hearings were launched on Capitol Hill, with all the predictable grandstanding by politicians, courtroom theatrics by attorneys and counsel, evasions and obfuscations by witnesses. One of those called to testify was Alexander Butterfield, a mid-level staffer and security expert for Nixon. A day or two after rumors began circulating that some of Nixon’s conversations might have been tape-recorded, Butterfield was asked directly by Senate Counsel Fred Dalton Thompson if there was a taping system. Butterfield not only acknowledged the taping, but said it had been expanded to include most offices in the EOB, and that the system was voice-activated. Contrary to the widespread mythology of Watergate, Nixon did not install the taping system. The first tape recorders were installed during the last year of the administration of Franklin Roosevelt. The recording systems were expanded and upgraded by subsequent presidents, from Truman to Eisenhower to Kennedy. Lyndon Johnson further expanded the taping system, upgrading it even more, and it was during Johnson’s tenure that tape recording systems were added to key phone lines as well, including in the Oval Office, the Lincoln Sitting Room, and the several smaller offices. The recording systems were eventually centralized and housed in a small utility room on a lower level of the White House, where they were maintained and checked daily by the Secret Service. Several agents rotated the seemingly mundane duty of swapping out full recordings with blank tapes, and making sure that all the machines were operating properly. Tapes were labelled by hand, and placed into cardboard boxes or on shelves. Shortly after Nixon became President, newer Sony and Uher recorders were installed to replace the older gear, and by some reports as many as ten recording mechanisms—using scores of small lavalier mics in eight different rooms—were in operation by 1972. In addition, Nixon asked that phone recording systems be expanded and upgraded as well. The President’s secretary, Rose Mary Woods, had an expensive, top-of-the-line Uher 5000 machine near her desk, available for playback and transcription. The essential fact of Nixon’s role in the taping system was his suggestion, probably in 1971, that all taping mechanisms activate automatically upon the start of conversation in any of the monitored offices. No longer would someone have to manually—and emphatically—press a button to begin recording what was being said. Soon after Butterfield revealed the existence of the previously secret taping system, members of both the House and the Senate were determined to gain access. If Congress and the courts could find evidence that Nixon had been ordering his loyal lieutenants to interfere with the investigations or to destroy evidence, then Nixon could be charged with obstruction of justice. Seeking to verify some of what John Dean had told investigators, the special prosecutor, then Archibald Cox, wanted access to specific tapes. The White House stonewalled. Cox asked District Court Judge John Sirica to send subpoenas to the White House requesting eight of those tapes. Nixon still refused to release any tapes, citing executive privilege. His reasoning had some legal basis, and though it was apparent he was simply dodging having to take direct responsibility for any wrongdoing, Nixon and his lawyers argued that the separation of powers meant that Congress had no blanket authority to reach into the president’s personal conversations, many of which may involve matters of national security or international relations. But the Democratically-controlled House and Senate were having none of that, and Sirica confirmed that he too would not budge—the White House would have to relinquish those eight tapes. Nixon offered what became known as the Stennis Compromise, whereby Nixon would loan the tapes to U.S. Senator John Stennis. Stennis could, acting separately and independently, produce his own executive summary and analysis of the tapes to confirm or refute accusations that the President had acted illegally. Cox refused to agree to this arrangement, as did Judge Sirica. Angry that Cox would not budge, late that night, Nixon asked Attorney General Elliot Richardson to fire Cox from his job. Richardson refused to fire Cox, and instead resigned on the spot. Within the hour, Richardson’s second-in-command, William Ruckelshaus, also resigned when the task fell to him to fire Cox. Next in the line-of-succession came Robert Bork, then Solicitor General. Bork acquiesced to Nixon’s demand and fired Archibald Cox. The event became known as the Saturday Night Massacre. Eventually, after various legal tactics collapsed and several delaying tacks failed, and under extreme political pressure, Nixon and his team released heavily edited transcripts of more than one hundred conversations. Nixon never conceded that Congress had the right to listen to the tapes, but he was willing to produce dozens of ring binder notebooks filled with 1200 pages of edited versions of those office encounters. The transcripts were rushed into print, and bookstores from San Diego to Seattle, from Manchester to Miami, built Vokswagen-sized displays of the paperback versions. For a brief moment in 1974, those thick paperbacks became the biggest-selling non-hardback book on the best seller lists. Nixon was embarrassed for the nation to see the kind of language and tone being used in the Oval Office, and he ordered his staff to expurgate the dozen or more offensive words so liberally peppered throughout the transcripts. Also exorcised were the racial epithets and religious slurs, only one part of the pattern of talk often employed by Nixon and his closest aides, Bob Haldeman, John Erlichman, John Dean, John Mitchell, Charles Colson and others. Notable writers and columnists decried the lowball synergy inside Nixon’s inner circle—small talk, cheap talk, backbiting gossip, coarse language. To those entering his office, Nixon would often offer disparaging remarks or insults about the person who had just left the room. In place of the ship’s boiler-room language and the crass insults and the ethnic slurs, phrases like “expletive deleted” or “characterization deleted” were employed. Instead of providing delicacy, the self-censorship only heightened the lack of intellectual debate and the absence of broad-minded governance—the leaders of the free world cursing and back-stabbing. But the tapes also generated a strange ambiguity. In the press and among his many adversaries in a Democratically-controlled Congress, there had been a previously naïve narrative that the tapes would produce unambiguous gotcha moments—instances where those in the room with Nixon agree out loud and in clear language that they intend to commit a crime. But Nixon’s obsession with driving the conversations, along with his well-known tendency to think out loud—bouncing ideas, testing reactions, sizing-up outcomes, vetting and venting, even pulling back from some of the more absurd discussions—meant that for every occasion where Nixon seemed to be crossing the threshold into illegality, there was an instance moments later when he withdraws, demurs, or changes his mind. The transcripts became 800 pages of Rorschach testing. Nixon’s closest allies in Washington, while appalled at the lowball comedy of what was on those tapes, could also find a man in an innocent state of mind even as he manipulated and maneuvered.  One could read into some of the passages what one expected to find, and a nation already deeply-divided by the scandal grew more divided. Those big selling paperback books also made for strange reading. The men around Nixon used a kind of shorthand or coded language, at times filled with a mishmash of Army and Navy lingo, advertising jargon, football vernacular, and political Pig Latin, all of which which required contextual translation. There was “go the hang-out route” and “get it in the neck” and “deep six” and “beating the rap.” There was “over the hill” and “twisting in the wind.” There was “the long ball” and there were “Hail Mary Passes.” Accompanying the “expletives” were thousands of “inaudible” and “unintelligible” insertions. When hashed together with frequency, some passages become theater of the absurd, like reading Waiting for Godot backwards and with every fifth word deleted. The books became the brunt of ten thousand jokes, the grist for hundreds of political cartoons, and the source of endless hours of reading for the millions who bought the book. It became history’s most unlikely political best seller, and a strange, jarring look inside the White House and into the siege-mentality thought processes of Nixon. The transcripts, more importantly, showed a President and a top staff increasingly consumed by Watergate. Over time, weeks and months later, Nixon slowly defers much-needed work on hundreds of crucial issues—from Vietnam to the Soviets to China, from oil prices to wages to inflation. Even Nixon’s most savvy and thoughtfully-crafted endeavors in foreign policy begin to suffer, and the transcripts show the slow deterioration of Nixon’s focus and the growing isolation he felt. Most critically, the book still reads in places like tragedy—Shakespearean in the certainty the heroes will all fall, either on their own sword, or by the sword of another. Each man (and in those days Nixon’s White House was all men) eventually must save his own skin, or take the fall to protect the next in the line of succession—protagonists and antagonists alike angling to the last. The release of the transcripts was, to use one of Nixon’s office phrases, a Hail Mary Pass. He was betting that those binders would sate the hunger of a hostile Congress and assuage an irritated court. He was also placing his chips on the court of public opinion. In his address to the American people the night he released the transcripts, Nixon said he knew the tapes would show him to be some who was trying to find the right path. He hoped that most Americans would see his actions as being honorable, though he knew it would be painful for his place in the history books. “Never before in the history of the Presidency,” Nixon said that night, “have records that are so private been made so public. In giving you these records—blemishes and all—I am placing my trust in the basic fairness of the American people.” – See more at: http://www.thursdayreview.com/WhiteHouseTranscripts.html#sthash.2XZIprvE.dpuf

2014: The Year of Merger Mania

IMGP2564

By Thursday Review staff

It’s been about seven years since the last M&A binge, but the merger itch is back. And this year the need for big corporations to scratch that itch has reached an all-time high.

The year had barely started—and indeed, Americans in at least 45 states were deeply frozen—when news of Comcast’s huge merger to cable giant Time Warner was announced. When Comcast CEO Brian Roberts explained the $45.2 billion deal to reporters in February, it was already the largest merger in history. If finally approved and completed later this year, it would wed the two biggest providers of cable, phone and internet, and put—by some estimates—35% of U.S. households within the Comcast ecosystem.

But then came the AT&T marriage to DirecTV, as large in terms of value as the Comcast deal, and an obvious retort by two other communications giants seeking to remain relevant and competitive in the delivery of content. Both sets of partners told regulators and Congress basically the same thing: competition from a variety of aggressive and technologically fluid content providers—Google, Amazon, Apple, Aereo—means that traditional, even antiquated, views of “monopoly” no longer apply. Each set of participants will likely win the day with regulators and with Congress, in part because of masterful lobbying efforts, and in part because some in Washington agree that the new tech giants pose their own, potentially more pervasive threat to competition.

General Electric has joined the Society of Big Mergers with its recent proposal to buy the energy components of Alstom, a French industrial and energy conglomerate, but only after the French government bought its own stake in the company from a previous shareholder, Bouygues. The French government will own about 20%, but GE will hold the majority stake. GE will pay Alstom shareholders between $8 billion and $10 billion, give or take a billion and pending the final tally of assets. Among other products, Alstom manufactures parts for nuclear reactors, oil well heads, precision military hardware, and turbines.

Then there was that big West Coast-East Coast marriage. Just weeks ago Oracle announced its intention to purchase Micros Systems for an estimated $5.3 billion. The Redwood City, California-based Oracle wanted the Maryland-based maker of retail and restaurant software and applications in their team, and it was willing to shell out the cash to make that happen. Micros has been a developer of software for restaurants and hotels for decades, and has expanded neatly into sports and musical performance venues, resorts and spas, government agencies, cruise ships, and even theme parks. Micros Systems was Oracle’s biggest acquisition since it purchased Sun Microsystems for $5.6 billion four years ago.

And Verizon recently finally resolved its complex arrangements with Vodafone, in essence liberating some European operations but largely folding others under the Verizon label. The Verizon-Vodafone deal is too complicated to explain here, but we refer you to Earl Perkins’ examination of the ups and downs of that arrangement in his May 20 article (Mega Mergers Lead to More Unemployment; Thursday Review).

And this week Wisconsin Energy agreed to pay $5.7 billion for Integrys Energy. The deal would merge two of the largest Midwestern energy firms into one giant, and the newly created behemoth would serve 4.3 million customers spread out across several states, including Illinois, Michigan, Minnesota and WE’s home of Wisconsin. The merged corporation will shed it former names and become WEC Energy. Both companies had previously acquired dozens of other energy firms—oil and gas producers, electric transmission groups, and pipeline construction firms—prior to arriving at this merger. Integrys is based in Chicago, and Wisconsin Energy is based in Milwaukee. The new company will maintain operations centers in Green Bay, Milwaukee and Chicago.

Then there was the much-talked-about deal between Facebook and WhatsApp, a $16 billion deal that folded WhatsApp’s alternative texting tools and apps into Facebook’s multi-billion dollar empire. Many computer and tech industry analysts say that Facebook paid too much for simple control of an app, considering WhatsApp’s tiny workforce and relatively small assets. Still, Mr. Zuckerberg was not to be outdone by a little startup with an app not under his dominion, and $16 billion—some have joked—may be chump change for Facebook.

Even clothing stores got in on the action, as Jos. A. Bank agreed to buy Eddie Bauer—this after many months of open speculation and rumor-mongering about a Men’s Wearhouse deal. Jos. A Bank shelled out a hefty $825 million for Eddie Bauer, small change, perhaps, when compared to the big communications and cable mergers, but substantial among the high end men’s clothing makers. Jos. A. Bank will buy Eddie Bauer directly from Eddie B’s parent company, Everest Holdings. Everest Holdings, which also invests in land, hotels, apartments and commercial real estate, is based in Scottsdale, Arizona.

All told, these and another dozen major mergers have made 2014 the biggest year for acquisitions and mergers in history, and a good way to top 2007, the last year we saw this much itch to merge.

– See more at: http://www.thursdayreview.com/MergerMania2014.html#sthash.HuMegbTJ.dpuf

Taxis, Drivers & Digital Disruptors

ubervscab

By R. Alan Clanton, Thursday Review editor

(Originally published June 23, 2014) There are hardly any venues in which the term “digital disruption” applies more than in the worlds of cab drivers and delivery folk. Digital disruption, in case you’ve been asleep during recent years, are words to describe how technology shatters conventional business models and up-ends time-honored processes.

For example, Amazon has disrupted the book store and music shop model; in fact, some have argued, those disruptions have become lethal—killing Waldenbooks, B. Dalton, Borders and infecting Barnes & Noble with an inevitable slow death. The newspaper business, to cite another easy-to-digest case, has been disrupted to the point of no return. Journalism has evolved so dramatically—or has been battered so relentlessly—in recent years, that it has faced a hurricane-like existential threat.

But who would have thought that the simple, straightforward business of calling a cab, hitching a ride or getting directions could turn contentious?

Drivers of cabs and shuttles say that they are under assault, and it’s not from low tips or complaints of speeding. They are under attack from digital tools available on your smart phone and in your car.

A tech start-up company called Uber, which is also the name of the app, offers mobile applications which allow drivers and riders to find the fastest possible way to get from point A to point B. Uber also enables average Joes and Janes to arrange to pick up extra cash by sharing their rides with other people going in the same direction. Uber, which is based in San Francisco, is backed by several venture capitalists and investors who liked the idea of crowd-sourced driving and ride-sharing. Uber acts as an intermediary—linking drivers who are tied into its system with anyone who needs a ride. And there is no cash transaction, making it painless and risk-free: riders pay based on a formula which uses mileage and speed (generally, time) to bill the customer by credit card. Tipping is not required, and is—in fact—largely discouraged (the credit or debit card transaction doesn’t even allow for a tip; and if a rider insists on tipping it must be in cash). Drivers who work with Uber touch no cash and never see your credit card.

Popular from the very start, Uber has moved its low-cost operations into hundreds of cities in the United States, Europe and the British Isles. Uber faces only one small drawback in its model—it is pricey: in some U.S. cities is compares modestly to traditional cab services, but in some cities it costs more. But Uber promotes its service as more flexible, more comfortable and infinitely more user-friendly. Uber streamlines its business model to reduce cost, and incorporates a dazzling battery of high-tech tools and web-based applications to make the pick-up and drop-off package fast and seamless.

For riders and ride-sharing advocates with a penchant for nimble mobile phone technology, Uber is a no-brainer. And it has become a cash cow for Uber’s quiet investors. Uber’s pricing is demand-based: during slack times, the cost drops; during peak days or hours, it rises slightly. Market purists see this as street-level capitalism at its best: a driver has something to offer, and you have a need; in between there is a price, negotiated by algorithms, Google, and supply and demand. What’s not to like?

But hold on a minute. Ask a cab driver in London, San Francisco, New York or Paris what he or she thinks of Uber—or any of its aggressive new competitors, like Lyft and SideCar—and you are likely to get an earful. Blood pressures will rise, and the expletives will fly. To those in the cabbie world, these web-based start-ups with all their mobile technologies and crowd-sourcing magic are little more than another assault on the working man. Uber destroys jobs, renders a noble profession useless and may be illegal to boot!

In several countries, Uber is under direct attack from the traditional cabbies and their supporters among traffic and highway regulatory agencies. Uber, in their view, lets hundreds of non-licensed, non-accredited individuals act in the place of highly trained, business-licensed cab companies. There are legal fights in Australia, France, Canada and Britain, and protests have taken place in several European cities. In London, Mayor Boris Johnson—under pressure to declare Uber and its kindred competitors illegal—said recently he doubted any such blanket declaration or outright ban would stand up in a courtroom. In Toronto, city officials and police charged Uber with a long list of crimes—from operating unlicensed taxis, to operating a business without appropriate safety standards in place.

In San Francisco, Uber was charged with similar crimes, including infringement against California laws meant to regulate and tax limo services. In several U.S. states, Uber and its competitors have been hit with class action lawsuits; the charges—unsanctioned, amateur drivers stealing tips, thereby undermining an industry pay-scale based on gratuity. Just weeks ago, Virginia issued a blanket cease-and-desist order against Uber for its violation of state laws regarding the appropriate background check of drivers. In Massachusetts, the state declared Uber to be operating illegally because Uber’s use of Google and GPS system technology did not meet the state criteria for measurement or highway guidance (even though State Police now routinely use the same technologies in almost all of their patrol cars).

But the bottom line for cabbies in hundreds of cities is…well…the bottom line. Cabbies say that Uber is an economic threat, not merely a tool for disruption. If Uber is allowed to operate with few—if any restrictions—cab and limo drivers say, then dozens of other start-ups will eventually so flood into the marketplace of street transport as to render an entire profession useless. In tourism-based cities—London, Paris, Berlin, Sydney—where fragile economies still stagger under heavy post-recession conditions, cabbies may lose their livelihoods entirely.

Uber, which is the more formally arranged of the ride-sharing start-ups, faces its own intense pressure on its flanks. Lyft, for example, offers what is usually described as democratic-driving, or peer-to-peer ridesharing. Already operating in nearly 100 U.S. cities, Lyft is designed to link up drivers with riders, with little more than that as its function. Riders can simply donate using cash or credit card, or kick in a few bucks at a routine gasoline stop. In some cities, Lyft has become a ridesharing program of great popularity and ease-of-use. And its small cost is most easily offset by more riders. A vehicle with a driver and three passengers, for example, would be the most efficient way for the driver to defray costs of a trip from Point A to Point B. Within the Lyft community, riders are encouraged to “donate” appropriately based on time and distance. Lyft began as a small-distance spin-off of Zimride, founded in 2007, which facilitated ride-shares over longer distances and encouraged its users to network and build trust through social media. Using references online—and factoring-in things like reliability, friendliness, cleanliness, and timeliness—other users could establish ratings for other drivers and riders.

And like Uber, Lyft incorporates dozens of rapidly-evolving tech tools into its arsenal. Green advocates see Lyft as the ultimate ride-share program. Cabbies see it as a way to undermine their very existence: lots of amateurs simply hauling extra passengers for the cost of gas or the price of a latte. Cities and states continue to debate the complex mosaic of questions and issues: safety, security, insurance and liability, taxes and fees, even the appropriateness of tools being used. And a combination of city, state, and law enforcement see Uber and Lyft as mechanisms for dodging regulation and accountability.

Technologists ask the question: how do these apps and start-ups differ from street level negotiation of a simple trade? For example, when I was a student a Florida State University (this was many years ago, before the popularity of the internet or the advent of mobile apps), students would routinely post little notecards on “travel boards” in places like the student center or the campus post office. On any given Friday, one could simply go to that board—either to offer to share your car with another student and their luggage, or as a way to hook up with a driver. With one phone call, a driver traveling from Tallahassee to Tampa could link up with a student who wanted a ride in that same direction, and voila, the cost of gas could be instantly cut in half. An editor and author like Tom Standage, author of Writing on the Wall: Social Media the First 2000 Years, would agree that those ride-share bulletin boards were simply a rudimentary form of social media, which, in this case, expedited a basic transaction.

Uber originally promoted itself as a luxury service (thus the high-end price point), but the intense competition from crowd-sourcing services has forced Uber into more flexible products. Largely gone are the Lincoln Town Cars and the Cadillac Escalades, and it their place have come mainstream and intermediate-grade cars of every make and style.

As informal and democratic as Lyft seems, there is some structure. The service requires two to three hours of training, and mandates that its participants meet certain minimum standards: background check, criminal background search, vehicle inspections, no drugs or alcohol. Lyft also advertises that it insures its drivers up to $1 million for any serious incident, and its participants must maintain a minimum rating among all users. Drivers whose rating falls below the threshold are terminated.

Meanwhile, cabbies and their allies have become enraged in the face of dozens of start-ups—tech-based, crowd-sourced entities which threaten the very existence of the driver of vans, shuttles, limos and cabs. Protests in London, Paris, Madrid and New York have gridlocked traffic and brought attention to the economic struggle between the Old School and the New School. But some of the protests, despite the fact that some in local politics support the cabbies, has directed invaluable attention to Uber, Lyft and SideCar—free publicity that millions of dollars in marketing and advertising money could not have bought.

The cab drivers may, in fact, be curmudgeonly and gruff in the adherence to their time-warp business model, but some market analysts argue that the problem is not so much the fault of slow-to-react cabbies, but rather antiquated regulations and statutes. Laws written and approved in 1965 or 1973 have little relevance to either the streets or the dynamic possibility of technologies now been deployed on a daily basis. Editorial writers across the U.S. and Europe are suggesting that the only way to break through the ugly impasse is to rethink what is now possible—without sacrificing customer safety, or the safety of others on the road.

Uber, which owns not a single car or SUV, says its business model represents merely a way to connect people with data and information. Lyft says much the same thing, and even tosses in the money-saving aspect and the green benefits.

In the end, it is Old School versus New. If the newspaper and the bookstore are to serve as examples of the outcome, we invite you to place your bets now how this struggle will end.

– See more at: http://www.thursdayreview.com/UberVersusTaxis.html#sthash.xk6DLS2O.dpuf