US Policy Changes Vol.43 (Hospitality Vol.2 – Tourism, Gig economy, Merger)

Here are articles on tourism in Cuba, gig economy in the rides and rooms industries, AT&T-Time Warner merger, and FCC’s spectrum auction. Excerpts are on our own.

Tourism in Cuba: Riding the wave toward sustainable prosperity (12/2/2016) | @rfeinberg2012 and Richard S. Newfarmer @BrookingsEcon
… One shock was negative: Cuba’s main international commercial partners—Venezuela, Brazil, China—have lost their appetites for subsidizing the anemic Cuban economy…
The second shock was positive:…tourist arrivals jumped by over 16 percent in 2015 to 3.5 million. U.S. travelers, including those from the Cuban diaspora, now amount to roughly 14 percent of new arrivals, and are expected to nearly double in 2016.
With lovely beaches, several U.N. historic sites, and a vibrant culture, the industry has enormous potential. Moreover, Cuba still has a relatively low volume of tourists, and if properly managed could readily accommodate planned expansion and become a driver of rising incomes for the whole nation. … Because of government-imposed restrictions on foreign trade, labor markets, and local purchases of inputs, Cuban earnings from the industry as a share of GDP are roughly half that of its Caribbean Basin neighbors, the Dominican Republic and Costa Rica.
…Cuba would have to invest roughly $33 billion over 15 years to 2030 to achieve these targets—a massive sum in comparison to the overall size of the Cuban economy ($87 billion according to official sources). …
Three state-owned enterprises dominate the sector. The largest conglomerate, Gaviota, reports to the Ministry of Defense (MINFAR), and is responsible for about 25 percent of total rooms available to international tourists. While fully two-thirds of hotel rooms operate with foreign collaboration, most take the form of management contracts. Joint ventures with foreign equity are the exception rather than the rule.
At the same time, private bed and breakfasts are rapidly growing, and now offer nearly one-quarter of available rooms. B&Bs have attracted sizeable foreign savings—by all accounts, mainly through remittances from relatives and friends—all the while maintaining legal ownership by domestic Cubans. …we estimate now amounts to about 30 percent of the tourism industry.
POLICY RECOMMENDATIONS
CUBAN POLICIES TO PROMOTE SUSTAINABLE GROWTH
-…establishing clearer rules to attract foreign investment and streamlining the overly discretionary approval processes…
-… Simplifying the tax structure facing private firms and property owners…
-… New taxes could include a value-added tax (VAT) on hotels and tourist services, a property tax on assets, and corporate income taxes.
-… Gradually phasing in market prices in food production, while retaining state stores to serve subsidized low-income groups, would provide incentives for farmers to expand supply…
-…Cuba might do better to also dot the island with smaller, more customized facilities, offering an eco-friendly and authentic experience.
-…new air links…internet connectivity…financial transactions…
U.S. POLICIES TO PROMOTE THE INDUSTRY
-…continue its willingness to support economic reform in Cuba…
-…provide a general license for U.S. firms to engage in the tourism sector…
-…encourage Cuba to engage with the international financial institutions…
-…encourage U.S. hotel chains and investors to follow high-quality corporate social responsibility practices. …
WHAT NEXT?
First…accelerating the development of individual and family entrepreneurs that comprise the vibrant private tourism cluster—whose expansion is clearly in the U.S. national interest—…
Second…while the MINFAR-owned Gaviota tourism firm holds significant market share, the majority of hotel rooms are owned either by non-MINFAR state-owned enterprises or private B&Bs; and even in the case of Gaviota hotels, most of the revenues are paid out in salaries to ordinary Cubans, private or cooperative suppliers, or to other state firms that also employ common citizens. …
Third…

Tracking the gig economy: New numbers (w Appendix; 10/13/2016) | Ian Hathaway & @markmuro1 @BrookingsMetro
SUMMARY
The gig economy, as reflected by nonemployer firms, is significant and growing fast. Overall, there has been a clear surge in nonemployer firms’ — a measure of contractor and freelance individuals — business activity in the last decade, which almost certainly reflects, at least in part, the rise of online platforms.
Platform-based freelancing is not yet substantially displacing payroll employment—but that could change. Despite the uptick in nonemployer contractors, payroll employment in “rides and rooms” industries has not declined during the last five years. Instead, payroll employment has increased in these industries, particularly in the passenger ground transit sectors.
Online gigging in the rides and rooms industries is so far concentrated in large metropolitan areas. Gig economy activity is unevenly distributed in the rides and rooms industries. The spread of nonemployer firms between 2010 and 2014 occurred mostly in the largest metro areas. No less than 81 percent of the four-year net growth in nonemployer firms in the rides sector took place in the 25 largest metros, while 92 percent occurred in the largest 50 metros.

Under Trump, AT&T-Time Warner Merger Hangs in the Balance (1/11/2016) | Alex Walsh @RegBlog
… Now, however, Trump has reportedly reaffirmed his opposition to the deal…
… First… Jamison—an economics professor at the University of Florida—has suggested that merging AT&T and Time Warner is unlikely to pose a problem because combining their different industries seldom results in a monopoly. … Eisenach…is a staunch critic of policies pursued by the FCC under the Obama Administration.
Joshua Wright…recently wrote an editorial for The New York Times discussing whether skepticism about the AT&T merger was economically sound or just represented the belief that mega-mergers “are never…
Finally… Although the Department of Treasury is not responsible for regulatory merger review, it did effectively derail an unpopular merger under the Obama Administration by proposing and instituting new tax rules after the merger was announced.
… Senator Richard Blumenthal (D-Conn.) sharply criticized Trump’s campaign rhetoric. “For a public official to use the blunt heavy instrument of law enforcement to try to silence or change coverage by a news department of any company is for me absolutely abhorrent,” Senator Blumenthal stated. Despite this criticism…

The FCC’s Spectrum Auction: Can the System Be Gamed? (w Podcast; 5/21/2016) | @whartonknows
… Specifically, the FCC wants to reclaim so-called low band spectrum in the 600 MHz range — this is valuable spectrum that can travel over long distances and penetrate buildings better.
On March 29, the FCC will start…
There are about 8,500 operating TV stations that own spectrum licenses, and there are 2,166 broadcast licenses eligible for the auction. Each license is for a 6 MHz block of spectrum covering a particular geographic area for over-the-air TV signals. TV stations that choose to sell their licenses can do three things: go off the air, relocate or share spectrum with another station.
… While the FCC rolled out a very well-designed auction, there is a feature that could substantially benefit owners of multiple TV stations, such as private equity firms, according to the research paper, “Ownership Concentration and Strategic Supply Reduction.”
…Wharton professors Ulrich Doraszelski and Michael Sinkinson…
Michael Sinkinson:… Expectations are very high, in terms of the proceeds that can be generated. They think that there could be upwards of $45 billion paid in by the wireless carriers for this newly freed-up spectrum. …
The auction is very cleverly designed. …
… “Actually, I’m going to pull one of my licenses out of the auction, because that might raise the closing price and increase my total proceeds from this whole process.” …
Ulrich Doraszelski:… these higher prices are going to be paid for by wireless carriers.
Sinkinson:… They have about 43 broadcast licenses at this point. They spent hundreds of millions of dollars acquiring them. …
Sinkinson: …we’re assuming demand is inelastic. But at the same time, right now projections are that the forward auction to the wireless carriers will raise, say, about $45 billion. And the reverse auction, the payoff to the TV holders, is … around a third of that.
…licenses that are being acquired by these private equity firms were often affiliates of, say, MeTV, or MyNetworkTV… There was regulation to prevent you from accumulating market power in the business of broadcasting, but not in just pure spectrum holdings.
Sinkinson: …all of these TV license-holders know their true value, and the auctioneer does not. …
…your personal value of your own TV license should be correlated with things like how many people you can reach with your broadcast TV license. …
Sinkinson: …FCC is going to be paying zero for spectrum in large swaths of the country. At the same time, it will be reselling that spectrum for huge amounts of money to the wireless carriers. …