Followup Story - Net Neutrality Rules Adopted - Will They Last?

On December 21, a divided U.S. Federal Communications Commission adopted Internet traffic rules that would ban Internet service providers from blocking or discriminating against traffic on their networks. The rules, expected to come into effect early this year, will also allow high-speed Internet providers to charge customers according to their level of usage and would give wireless carriers additional network management freedoms. However, it may be some time before the full impact is apparent, even if the rules survive any court challenge.

Following are the likely impacts on various companies, consumers and the FCC based on reports from analysts and industry insiders:

INTERNET PROVIDERS

* Cable companies like Comcast Corp, Time Warner Cable, Cablevision Systems Corp, and big landline providers like AT&T Inc. and Verizon Communications Inc. are banned from blocking or discriminating against lawful Internet content.

* The rules will not stand in the way of usage-based pricing, allowing cable and other fixed line companies that also serve as high-speed Internet providers to increase rates for subscribers that do bandwidth-heavy tasks.

* Cable subscribers considering dropping their TV service to watch television and movies online may think twice if new pricing schemes push up the cost of streaming content.

* Cable companies are better off than when the FCC was considering reclassifying broadband under the stricter regulatory regime of existing phone rules.

WIRELESS CARRIERS

* Verizon Wireless (joint venture of Verizon Communications and Vodafone Group Plc, AT&T, Sprint Nextel Corp, T-Mobile (U.S. unit of Deutsche Telekom AG) and others would be granted added flexibility under the rules, acknowledging tighter bandwidth-constraints.

* They would be subject to a looser version of the no-blocking policy - banning only the blocking of websites and competing voice and video services.

* Mobile broadband could still discriminate against bandwidth-heavy content.

* CTIA, the trade association for the wireless industry, continues to say the rules are unnecessary, but commended the FCC for recognizing the need to regulate mobile broadband differently from landline services.

CONTENT PROVIDERS

Google Inc, Microsoft Corp, Amazon.com, Facebook, Netflix Inc. and other content providers could lose some of the edge they were building over cable companies if downloading content becomes more expensive under usage-based pricing.

According to Reuters “The Federal Communications Commission approved the "Open Internet" order after FCC Chairman Julius Genachowski's plan got the support of fellow Democrats Michael Copps and Mignon Clyburn. Some industry analysts think a court challenge is still likely. At issue is whether regulators need to guarantee that all stakeholders continue to have reasonable access to the Internet ("net neutrality") or whether the Internet is best left to flourish unregulated. The FCC's ability to regulate the Internet has been in doubt since an appeals court in April said the agency lacked the authority to stop cable company Comcast Corp from blocking bandwidth-hogging applications. Senior FCC officials have said they will invoke new legal arguments not employed in the Comcast case. The two Republican commissioners at the agency opposed the latest rule-making effort, saying it was unnecessary and would stifle innovation. Robert McDowell and Meredith Attwell Baker told an FCC open meeting that they believed the rules would fail in court.

High-speed Internet providers like Comcast and Verizon Communications can "reasonably" manage their networks under the rules and perhaps charge consumers based on levels of Internet usage. The rules, to be somewhat looser for wireless Internet, could help cable companies in competition with plans by Microsoft Corp, Google Inc and Amazon.com to deliver competing video content over the same Internet lines the cable companies run to customers' homes. Adoption of the measure had been expected after Copps and Clyburn had issued statements saying they would support the proposal despite some misgivings. But McDowell warned that the FCC was defying the court and also circumventing the will of Congress. "Litigation will supplant innovation. Instead of investing in tomorrow's technologies, precious capital will be diverted to pay lawyers' fees," McDowell warned. Genachowski, spoke last at the meeting, and said the Internet currently was unprotected and invoked the names of his Republican predecessors to back adoption of the rules. "The rules of the road we adopt today are rooted in ideas first articulated by Republican Chairmen Michael Powell and Kevin Martin, and endorsed in a unanimous FCC policy statement in 2005," said Genachowski.”

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C. Cohn

Cohn-Reilly Report

Wall St. Makes Fierce Return, as Main St. Remains Sluggish

Top 5 banks make a come-back with record returns expected according to published year-to-date earnings. Morgan Stanley, Goldman Sachs, Citigroup, JP Morgan Chase, and Bank of America, are all expected to end 2010 with hefty revenues. The first half of the year was dampened by market and investor uncertainly, but by the third quarter the market was able to find solid ground, and began building a fierce momentum.

Year-to-Date Record Returns:

- Bank of America: $83.8 billion
- JP Morgan Chase: $74.1 billion
- Citibank: $67.8 billion
- Goldman Sachs: $30 billion
- Morgan Stanley: $23.8 billion

Consumer spending is up this holiday season, as retailers saw pre-recession shopping levels. The preliminary holiday sales revenues are reported to be $451.5 billion, an increase of 5.5% over 2009. Online holiday sales were reported to be approximately $36 billion, a 15% increase over 2009. This should serve as a sign of what’s to come, yet we may still find ourselves waiting longer than we’d like.

Although the bank revenues and retail sales data is encouraging, you may be thinking that it is somewhat detached from the rest of the economy. I would be inclined to agree with you, as the housing market remains on life support, and national unemployment rate is still above 9 percent.

I am sure that millions of Americans who are currently unemployed (or underemployed) fail to see the silver lining - but we are beginning to see an increase in job growth. In fact, this year did actually produce net job growth amounting to 500,000 new jobs, but with over 10 million people unemployed, half a million jobs is simply not enough. With all the hope of better things to come, and the promise of "The American Dream" a faint recollection, 2011 could not come soon enough.

K. Reilly
Cohn-Reilly Report

________________________ RECOMENDATIONS

Also Check out: Socially responsible Investing site below:
SocialResponsibleInvest.com

-COMMENT HIGHLIGHTS-

________________Comment
Robert Ortega said......
Its great that the banks were able to bounce back to make record profits. The TARP money has apparently been paid back with lots of interest, so the government also made good money on the Bailouts. What I don't understand is how the Tea Party clowns manage to construe this as a bad thing. We made money on the bailouts, the banks are profitable again, and the economy is clawing out of the recession and gaining momentum. Makes you wonder what the issue really is for republicans? - January 9, 2011
________________Comment
K. Reilly said......
Rob, I happen to agree with you on some level. There are many positive economic factors that depict that the recovery is progressing. There are hidden agendas and racial overtones that seem to be the underbelly of the tea party movement, but it is hard to pin-point the real objective other than to "take back" America (whatever that means). Let's face it, Politics, as we have come to know it, is never about Truth, Transparency or Honesty, it is about money and power - Period.
With respect to your comment about how the Tea party “construed” the economic progress. The white house and the Democrats failed to effectively get the Positive message out to the public along the way. Although there was not much to cling to in the first 12 months of the Obama Administration, they did little to counter the negative, and aggressive propaganda coming from right wing politicians. Admittedly it would have been difficult to challenge the FOX News media monster, but certainly better than ducking criticism. Nevertheless, the Democrats and the Obama Administration were asleep at the wheel for the midterm elections, thus the republicans and the Tea party, who were on a serious mission (though separate agendas) have successfully lobbied and rallied themselves into back into power on Capital Hill. To be honest with you I think it is generally much better with the mixed majority than all Republican or all Democrat for house and senate. The law makers are forced to reason, discuss and compromise than when they are gloating and flaunting their power around. Thanks Rob, your comment is much appreciated- - January 9, 2011

EU Financial Crisis: Exotic Financial Maneuvers Likely Cause

Debt deals eyed as foundation of the problems emerging from Europe. For too long, investors took the “don’t ask don’t tell” position with the European governments hard line bookkeeping and accounting, which was aimed at meeting their fiscal ceiling regulations. To circumvent the regs, many Countries across the Continent have used complex financial transactions. These "transactions" were not fully disclosed as to the size of their debts or deficits.

The members of the EU are required to comply with rules concerning debt levels, capped at 60% of their gross domestic product. The members are also required to abide by the strict mandate concerning their annual budget deficits, which should be no more than 3%. According to the Wall Street Journal, these restrictions explain why the Continent has the rich history of exotic financial maneuvers practiced by the EU members. The complex financial transactions were essentially used to camouflage borrowing over the past decade. Making matters worse is the fact that governments were not required to report their Country's military spending, which is not be included in debt-to-GDP ratio calculations. For example: in ‘2000 Greece reported that they spent the equivalent of $1.13 billion on their military, but later admitted that it was closer to 4 billion. Under pressure, Greece disclosed that they under-reported military spending between 1997 and 2003 by €8.7 billion (that's $11.4 billion USD). The European leaders deemed these practices acceptable during the time they were planning the currency union, but of course hindsight is 20/20. Thus the proliferation of Euro-zone countries in crisis is staggering.

Although the United States' financial troubles are not completely behind us, and our economic forecast is still a question mark, the worst appears to be over. I cannot say the same for the European Union, as it is difficult to determine were the bottom actually is.


K. Reilly
Cohn-Reilly Report

Recommended reading: Article by Geoffrey R D Underhill provides an Interesting perspective on Europes Financial Crisis

___________Comments

C. Nireth said...

Yeah, this Eurozone crisis is pretty gloomy, but it puts our troubles in perspective. Wow...I get it! This is a global crisis which seems to escape most people in the US - especially the republicans and the misguided teaparty, who are using the economy as a platform to discredit the democrats and Obama.

Katherine said...

You are exactly right. One of the reasons I think it's important to write about the financial concerns overseas is to broaden our perspective on what's going on domestically. There is certainly enough blame to go around, but for some reason the Obama administration and the democrats are unfairly targeted. We have had over a decade of out-of-control hedge funds, insider trading, portfolios with over-the-limit derivative/high risk securities, sub-prime loans, and ponzo schemes, rancid mortgage-back securities, Hide-and-seek accounting practices ....I could go on and on
Thanks for your coment




K. Reilly
Cohn-Reilly Report

Spain: To Big to Bailout?

This year has been a rude awakening for the European Union, with emergency bailouts for Greece, Ireland, as Belgium and Portugal await a similar fate. The debate is now focused on Spain; to bailout or not to bailout, that is the question. Ted Scott, Director of UK Strategies at F&C Investments, was reported as saying “Spain is too big to bailout”(CityWire, 2010). Now that’s a switch - in this country we’ve heard the phrase “Too big to fail” more often than we wanted to. So what are the factors that render Spain too far gone, or is it? Well for starters, Spain’s economy is the fourth largest in the Union, larger than Greece, Portugal and Ireland put together, representing 11.5 percent of the European Union’s GDP. It has the third largest deficit in the Union, estimated at over 400 billion Euros. which is significant. Increasing fears of instability is reflected in the upward spiraling interest rates investors have imposed on Spain's bonds. Unlike Ireland’s debt crisis, 50% of Spain’s debt is held by international investors, so although the impact of defaulting will send trimmers across the globe, the domestic investors will be more forgiving, and continue to purchase Spain’s bonds.

Surprisingly, the government of Spain believes that there will be no need for external assistance. Spain’s Prime Minister, Jose Luis Rodriguez Zapatero, warns international investors that they will lose money betting against his nation’s debt. To his credit, the Prime Minister has implemented aggressive austerity measures in an effort to avoid the need for a bailout, through tax hikes and spending cuts for this year and 2011. Unfortunately analysts are not as confident as the Jose Luis Rodriguez Zapatero, that these measures will be sufficient to ward off IMF intervention.

To stay afloat the government of Spain and its banks have to raise upwards of 300 billion euros. Given the recent Moody’s rating downgrade, prompting steep interest rate increases on Spain's bonds, many analyst believe it’s simply too late for Spain to successfully climb out of the hole. Defiant and independent, Spain is conducting a series of bond auctions, while counting on budget cuts and the continued domestic appetite for its bonds as a firewall against external intervention from the IMF. That sounds good, all tied up into a neat little financial bow, but is it realistic? Given Cohn-Reilly Report's "EU Financial Crisis" article addressing the European Union members' exotic accounting maneuvers to hide borrowing, it is hard to keep a positive outlook on Spain’s ability to emerge from this crisis without external financial help. I wont bet against Spain, but I'm not looking to purchase their bonds either. Nevertheless, I do hope the Prime Minster achieves his objective - against all odds

K. Reilly
Cohn-Reilly Report

___________Comments

sinaj norrab said...

It seem that the eurpoean union have their work cut out them. This is like waht we have been going through for the past two years. One thing after another, with the Bank and auto makers bailouts, followed by housing crisis and foreclosure fallout. it did not help that the finance fraud and scams seemed to be the icing on the cake. Gloabally, we are all in trouble. Is there any hope that 5 years from now everything will be okay?

The State of Unemployment and the Economy

This past week we found that the published unemployment rate rose to 9.8%, while continuous unemployment benefit claims rose 53,000. Especially hard hit were the goods producing areas, manufacturing and the battered construction industry. Overall, there was a jump in unemployment of 276,000 for the month – a significant and substantial number.

How did the market react to this on Friday? It actually ended up for the day. What does this tell you? It is obvious that the Fed is propping up the markets no matter what happens. By pouring money into the economy and purchasing treasuries, and I believe securities - although not publicized, we have a highly manipulated environment. In reality the Dow should be at least 1,000 points lower at this point in time. Bernanke’s risk is to create wealth by increasing share prices, hoping that this will psychologically make people feel better and spend more money on consumer goods. Also, he hopes that employers, feeling good about their company’s stock rising, will hire more people. Well obviously that is not case if the unemployment rate rose to 9.8; probably the real rate is more like 1 ½ to 2 times higher than the reported rate.

Also, as I have said before, the printing presses of the Fed are destroying the dollar. This week it dropped to a three-week low versus the yen and fell against all of its other most-traded counterparts, except the Mexican peso and Canadian dollar. Could inflation be far behind as the Fed pumps more money into the economy?

Another important event to mention was the expiration of unemployment benefits for nearly 2 million people on November 30. It seems likely that the political parties will work out an agreement, as of this writing, to temporarily extend the benefits. But what about the chronically unemployed who have been out of work for two years or more, since the crisis began? The over 50 category, commercial construction and teachers come to mind, as groups who will have a tough time getting jobs in the future. After all, there will be a time when the unemployment benefits will cease and with little hope for jobs, it will become a nightmare for some people.

C. Cohn
Cohn-Reilly Report

___________Comments

Melisa Connelly said...
yes, there does seem to be a disconnect where the market is concerned. The market is ranging on, while jobs are still not coming. The Bush taxes were extended and so were the unemployment benefits -that's good I guess. Enthusiastic holiday shopping showed that consumers were feeling more confident, therefore the feds did manage to manipulate public perception of economic stability to a small degree.

Charlie said...
Although some hiring has occurred in different sectors,unemployment is still high - we may never get back to the pre-crisis numbers; companies are operating under a different model, taking a lean/mean approach. Resource productivity is up because staff is putting in more hours than ever to compensate for lack of personnel. I think there is definitely a disconnect here. We ended the year with the Dow overbought at levels not seen since the summer of 2008; up almost 80% since the March 2009 low. Will we have a correction early this year, as technical analysis indicates, or will the Fed override that and continue to prop up the markets? We should know very soon.

January 2, 2011 1:34 PM

Ireland Beats Spain to the Bailout Line

Ireland is the latest to lose its financial bearings in the European Union. This comes with distinction, as the government adamantly denied that they had any difficulty this past Summer. With their tail between their legs, the Irish Government is forced to accept the largest international bailout to date. Last Thursday was the first time the finance minister acknowledged needing help. It is widely believed that the sour loans lead to the huge financial losses that nearly toppled the Island.
Much needed help is on the way, amid fierce concerns for the impact it will have on the EU, and Spain in particular. The IMF is prepared to package over €110 billion Euros as bailout for Ireland. Where does that leave Spain? Spain has a greater need for the financial bailout than Ireland or Greece. Here is the dilemma, once the IMF bails out Ireland, the €350 billion Euros needed to salvage Spain’s debt and deficits will exceed what is available. There must be some way to avoid this train wreck. Perhaps the IMF could come up with an alternative; for instance; The bailout could be done on a drawdown schedule. The IMF could provide Ireland with bailout installments over time. This might give them a chance to help Spain, and work toward soliciting additional funds to meet Ireland's bailout installments that are due later in the payment schedule. Just a thought.

In the meantime, in anticipation of the Ireland bailout, Portugal and Spain’s bond yields have increased nearly 12 basis points. That is only the beginning. The list below serves as a reminder as to just how steep these bailouts are for the EU.

-Greece bailout: €110 billion Euro Greece bailout
-Ireland’s bailout: €113 billion Euros
-Spain Needs: €350-billion Euros

Portugal is reportedly the next in line for a bailout, while the IMF is looking at Belgium as another EU member in financial distress. Although, an official from one of the leading EU countries pointed out that Belgium’s debt is largely internal, so it's not at all in the same boat as Ireland or Spain. Belgium’s financial problems will not have as much of an impact on international investors.

The Euro has declined to a two-month low against the dollar, as crisis continues to unfold. I will be closely watching to see what solutions are put forth from the authorities at IMF, and how the EU will wiggles out of this one. America's economic stability is still at large, while economies around globe also struggle to climb out of the valley of a deep recession.

K. Reilly
Cohn-Reilly Report

Greece Recovery: 6-Months After Bailout

Greece’s recovery is likely going to be a long time coming. Last August the jobless rate jumped to 12.2% up 2% from July. With all the Prime Minister’s efforts to reduce the deficit, the government data illustrates slow progress. Reuters reportedly anticipates a contraction of Greece’s GDP by at least 5% over last year. As Greece is expected to report their 3rd quarter GDP on Friday, the Greek Finance Ministry warns that the Country's unemployment could reach 14.5% by next year.

Though a cloud still looms over Greece’s deficit, the Finance Ministry stated that their deficit has declined 30% since last year, which represents $23.8 billion in U.S. dollars, or €17 billion in Euros. This was achieved through drastic spending cuts. Admittedly, 30% off their debt is a substantial chunk off Greece’s deficit, but unfortunately it still came in below the 36.9% target. To compound the disappointment, the Finance Ministry's revenue projections were also thwarted as a result of rebellious tax evaders and weakening demand. As part of this Spring’s €110 billion bailout, agreement the government of Greece pledged to reduce the deficit by 5.5 of the GDP, which would bring the deficit down to 9.5% of the GDP, as opposed to the estimated 15% in 2009. Nevertheless the Prime Minister, George Papandreou confidently expressed that the deficit will be 5.5% lower by year’s end

At the moment the Greece’s quarterly economic hiccups have minimal impact on the European Union in the short-term, since their borrowing needs have been met by the bailout. The European Union will now have to shift it attention to financial problems mounting in Spain.

K. Reilly
The Cohn-Reilly Report

___________Comments


Erin Thak said...
From what I'm reading, there are so many more members of the European Union that are in need of Financial help that Spain may not be the next country to get the attention of the IMF. like the article