Friday, December 22, 2006

Issue Advocacy: The Real Loophole

Yesterday a federal court ruled that the Federal Election Commission erred in ruling that the Wisconsin Right to Life organization could be barred from running issue ads before an election that advocated stopping filibusters against President Bush's judicial nominees. Because Senator Russ Feingold was running for reelection at the time the ad ran and had opposed some of Bush's judicial nominees, the FEC had held the ads fell within the ban on "electioneering communications" which is part of the McCain-Feingold campaign finance regulation law. The court held that, as applied to these ads, which did not expressly advocate Senator Feingold's defeat, the FEC's ruling was an unconstitutional restriction on Wisconsin Right to Life's free speech.

The court struck a welcome blow for the First Amendment and against the speech regulation regime established by McCain-Feingold. But here is what struck me about the Washington Post report on the case: It says the ruling creates a "loophole" in the McCain-Feingold law. And it quotes a law professor opining that the ruling could "create a major loophole in which all groups have to do is say they are running advocacy-issue ads and they can avoid the statute."

Don't these people understand that the real "loophole" we're talking about here is the one created in the First Amendment by the McCain-Feingold law? The Supreme Court 's First Amendment campaign finance jurisprudence in the face of the free speech restrictions embodied in McCain-Feingold-type regulatory regimes has been disappointing to say the least. Muddle through McConnell v. FEC if you need convincing.

There is a good chance that the Wisconsin Right to Life case or a similar one will eventually make it to the Supreme Court for a ruling on the constitutionality of the FEC's application of the pre-election "electioneering communication" ban to issue ads that don't expressly advocate the election or defeat of a candidate. If the Supreme Court happens to uphold the right of groups to broadcast issue ads before an election that urge a position at odds with a candidate, wouldn't it be nice to see a headline, or even a storyline, to the effect that a "loophole" in the First Amendment opened by McCain-Feingold had been closed.

That would be "loophole" closing story of major import.

Monday, December 18, 2006

Robert McDowell and the Public Interest Standard

FCC Commissioner Robert McDowell has decided, based upon the terms of his Ethics Agreement, the independent view of the Office of Government Ethics, the Virginia State Bar ethics counsel and, most importantly, his "own personal sense of ethics," that he cannot participate in the consideration of the AT&T-BellSouth merger application. In the face of a present 2-2 deadlock among the remaining four commissioners concerning the merger, the FCC's General Counsel last week had authorized, but not required, McDowell's participation to break the current stalemate.

I happen to believe the merger should be approved promptly without resort to conditions, such as imposition of net neutrality mandates that have nothing to do with competitive concerns raised specifically by the merger. As I have written many times before, it is only because the Commission considers mergers under the indeterminate "public interest" standard that commissioners are able to range far afield from concerns related uniquely to the merger and consider matters much more appropriately considered in an industry-wide generic rulemaking. The Commission's handling of this case is Exhibit A (or more correctly probably X, Y, or Z) as to why the merger review process needs to be reformed.

While the public interest standard as a delegation of congressional authority to guide FCC decisionmaking is highly problematical, the public's interest in having public officials guided by the highest ethical standards ought always to be of paramount concern. Even though another individual in good conscience and good faith might well have reached the opposite determination, in its thoughtfulness and eloquence, Commissioner McDowell's statement explaining his decision to remain recused from participating in the AT&T-BellSouth merger decision is a shining example of the proper way for a public servant to approach public service.

Long past when this specific merger, as important as it is, is decided one way or the other, Robert McDowell's example will remain a public interest standard that ought to be embraced by all.

Friday, December 15, 2006

The 10% Telephone Tax

Each quarter the FCC recalculates the amount that consumers are taxed to support the "universal service fund". The FCC's most recent calculation shows the federal tax for the next three months will be 9.7% on every interstate and international call. (Yes, I know that, strictly speaking, this tax is called a "contribution" by the feds, but if it walks like a duck, and quacks like....well, you know. And I know this amount does not even include local telecom taxes imposed by many jurisdictions.)

USF funds are disbursed to subsidize communications service to school and libraries, "high-cost" areas, and low-income persons. Over the years the subsidies, especially those to high-cost areas, have grown exponentially, because there are no incentives built into the system to avoid wasteful expenditures or to use newer, more efficient, less costly technologies. In fact, under the current USF regime, the incentives are just the opposite.

This is not to say that the entire USF concept should be gutted. For example, there is widespread support for subsidies to low-income persons truly in need of discounted communications services. But it is to say the USF is in need of substantial reform. Congress passed up on the opportunity to make any progress on USF reform last year. But because new Internet-based communications services are disrupting the marketplace and do not fit comfortably with the existing USF scheme, the program is going to need to be reformed sooner rahter than later. And that reform, one way or the other, should include a substantial reduction in the total amount of subsidies disbursed each year and then a cap on any further growth from the reduced level.

A 10% telecommunications tax just doesn't make sense in today's communications-dependent environment.

Thursday, December 14, 2006

Video Franchise Reform, Net Neutrality, and a Dear Larry Letter

Michigan’s Governor Jennifer Granholm is poised to sign a new video franchise reform law just passed by the legislature. By establishing uniform requirements for local franchises, the new regime presumably will speed up the ability of telephone companies like AT&T and Verizon to obtain the authorization they need to begin offering video services in competition with cable and satellite operators. More competition is good for consumers. And the bill apparently allows incumbent cable providers to opt into the new, less burdensome regime. That makes sense as well. In today’s ever-more competitive broadband environment, as a matter of equity, cable operators should not be subjected to disparate regulatory burdens.

It is encouraging that Michigan is now the 11th state to enact a statewide video franchise reform law designed in one way or another to speed up the franchise process so that local authorities are not roadblocks to competition. Michigan joins Texas, Virginia, Indiana, Kansas, Oklahoma, Connecticut, South Carolina, North Carolina, New Jersey, and California. While I have advocated in congressional testimony adoption of federal legislation to amend the Communications Act to establish a national franchising regime as a means of reforming the franchising process, the prospects for such legislation now seem dim. So it is welcome news that the states have become leaders in this reform effort. As more states pass video reform legislation, the pressure will grow on still others to follow suit, so as not to be left behind. The laggards will be leery of losing out on the telcos’ investment—and the jobs that accompany the investment—in new networks in states where the opportunities for quick, less burdensome marketplace entry are most promising.

Now to the Dear Larry letter. Google and its allies attempted to use Michigan’s video franchise reform bill as a vehicle for adding net neutrality mandates to Michigan’s statue books. In a “Dear Larry” letter dated December 11, Governor Granholm thanks Larry Page, Google’s co-founder and president, for “all the expertise Google has brought to Michigan on the issue of net neutrality.” If only she had stopped with the thanks. Instead, there’s this: “I believe it may be more desirable to pursue stand-alone legislation to further extend consumer protections by enacting net neutrality next year, rather than as an amendment to this year’s legislation.”

So it is almost certain that Michigan will be a net neutrality battleground in 2007. Other states likely will be NN battlegrounds as well if Google comes paging. This is too bad, because even if these efforts to impose Internet regulation are repelled, as they should be, there will be a significant expenditure of time and resources dedicated to fights around the country. The time and resources could be put to more productive use by broadband ISPs—like building out new networks and developing innovative new services and applications.

If states do adopt net neutrality mandates that purport to regulate the rates, terms or conditions on which Internet access is offered by broadband Internet service providers, the FCC should be ready with an order specifically preempting such state actions. Such an order would follow along the lines of the Pulver Declaratory Ruling preempting state regulation of VoIP services, but would more broadly extend to all IP-enabled services. The FCC already has compiled a record to support such action in its long-pending IP-Enabled Services rulemaking proceeding. Without rehearsing here all of the preemption jurisprudence (which, by the way, will be done at a later date), there is a clearly-expressed national policy against regulation of Internet services by the federal government and the states as well. Section 230 of the 1996 Telecom Act states this plainly: “It is the policy of the United States…to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or state regulation.” This deregulatory national policy for Internet access service now has been embodied in the FCC’s broadband proceedings and affirmed by the Supreme Court in the landmark Brand X case. If exercised properly, the FCC possesses authority to preempt state net neutrality laws or regulations. In essence, imposing non-discrimination obligations, and the rate regulation that inevitably accompanies non-discrimination regulation, contravene clearly expressed national policy.

A final thought: From all of the above, and from my congressional testimony earlier this year, it ought to be clear that I am sympathetic to FCC Chairman Kevin Martin’s decision to explore whether the Communications Act, as it presently stands, authorizes the agency to promulgate federal rules that would ease telco entry into the video marketplace by imposing some form of national franchising standards. In light of the explicit role Title VI of the Communications Act gives the state and local franchising authorities in awarding cable franchises, along with the act’s provision of a judicial remedy for resolving claims that a franchising authority has denied an additional competitive franchise, the Commission’s authority to adopt national franchising rules is not as clear as the agency’s authority to preempt state-imposed Internet regulation. In any event, if the FCC does go forward and adopt national franchising rules, it is likely that the question of the extent of the agency’s authority under Section 621 will end up being resolved by the Supreme Court several years from now.

That’s why it is important, in the meantime, for more states to join Michigan and the other ten that have already enacted video franchise reform laws --for them to do so without adopting net neutrality mandates that regulate the Internet.

Wednesday, December 13, 2006

Video Reform Spurs Fiber to the Home Growth

There is a new study out commissioned by the Fiber to the Home Council indicating that since the passage of the Texas video franchise reform law last year video-enabled fiber to the home (FTTH) has grown faster in Texas than in other parts of the country. This should not be surprising. The report attributes the faster FTTH growth rate to "perceptions that the new law, by ending time-consuming and expensive negotiations with municipalities for franchises, is substantially decreasing the costs of entry and operation, by eliminating unreasonable and unrelated requests during negotiations, and lowering ongoing costs to administer franchise agreements."

The FCC is about to act in its proceeding considering measures it can take to speed up the local franchise process. The new report from the FTTH Council shows why the FCC's efforts in this regard are important, and why the states, in this digital era of broadband competition, should continue their own efforts to reform the franchising process.

Friday, December 08, 2006

Real Property and Real Competition

Two recent items got me thinking about buildings--real property--and telecom competition, and, ultimately, about how respect for private property rights ought to inform telecom policy.

First item: I've just skimmed the recently issued GAO report on so-called "special access" services, those high-capacity dedicated circuits used by large volume corporate business users and "non-incumbent" carriers to transport high volumes of communications traffic. These are not the circuits used by residential users or small "Mom and Pop" businesses, so for some number of years it has baffled me that the FCC has had to spend so much time and energy defending the regulatory flexibility it thus far has granted the LECs for these circuits subject to the most competitive pressures.

But here's what's bugging me: Running through the GAO report, and, frankly, some of the FCC's UNE orders of three or four years ago, seems to be the notion that special access competition should be assessed on a commercial building-by-building basis. The report presents extensive data on the number of buildings that have more than one provider of special access. This is an exceedingly narrow--and inappropriate--measure of the telecom marketplace. If there is demand to warrant, with the various technological platforms available and competitive providers ready to snatch business, it is economically feasible in many, if not most, commercial areas for a new entrant to put in its own dedicated circuit from a nearby collocation office to a building. The competitive provider may have existing facilities down the block or around the corner that could be connected to a building assuming demand for such a connection. Making every building its own market just doesn't make economic sense.

Second item: In FCC Chairman Martin's December 6 speech at the Phoenix Center conference, he made a number of points concerning broadband deployment and video competition, and some of them, especially those concerning reform of the local franchise process made eminent good sense. If the Commission has the authority to do so under the 1992 Cable Act, some of the remedies the Commission is contemplating, such as imposing deadlines for action by local franchise authorities and caps on franchise fees, would speed up the introduction of additional video competition to the benefit consumers. But one of the items Chairman Martin says he is asking the FCC staff to look at is whether new entrants are being "unreasonably foreclosed" from providing service to consumers living in apartments and, if so, what can be done about it.

So both GAO's assessment of special access competitiveness and Chairman Martin's focus on the video marketplace spotlight the actions of particular building owners. That being so, it is useful to remember that there may be many reasons, from avoidance of disruption to the building's physical plant to the desire of the building owner to reap certain benefits in exchange for exclusivity, for the building not to allow multiple providers access to its building. But one reason is surely not to displease the building's tenants, who after all are free to relocate if they prefer a location with more choice in communications providers. If enough tenants value more communications choices above whatever other combination of price and amenities brought them to the building in the first place, they will move--and the building owner will get the message.

I understand that GAO did not suggest in its report that the government should mandate access to buildings in contravention to a building owners wishes. Neither did Chairman Martin in his speech. But with the focus on particular buildings, it is probably useful to remember that both instances represent cases in which respect for the right of a property owner to manage and use its real property as it pleases almost certainly outweigh any countervailing government interest in interfering with the owner's choices. This is especially so in an environment in which, due to technological and marketplace developments, consumers are steadily being treated to more communications choices.

Tuesday, December 05, 2006

From Cellphones to TV: This Convergence Thing Ain't No Joke

Yesterday's Wall Street Journal had a story about Comedy Central's plans to air on prime time TV a show first produced by start-up wireless carrier Amp'd Mobile Inc. Supposedly this is the first time a show originally produced for cellphone distribution will be aired on broadcast television. If you are a WSJ subscriber, you can read "Comedy Central Thinks Show Produced First for Phones Is Ready for Prime Time" here. Of course, it's common now for shows originally produced for broadcast TV to be "broadcast" soon thereafter on cell networks. The latest I read about is the hit "Ugly Betty". I understand on a cellphone Betty looks more like one of the "Desperate Housewives," another cellphone network TV favorite. But who even knew there were shows originally produced for cellphones?

As Richard Nixon was wont to say: "Let me be abundantly clear": Isn't it time to recognize that we live in an age of video abundance? Isn't it time to stop applying different regulatory regimes to different technological platforms based on the name we give the platform over which the video is delivered or the screen on which we watch the content? More abundantly clearly: Isn't it time to get rid of all the regulations applicable to video content and delivery that were developed in an age when consumers had much less choice?

Here's just one paragraph from the WSJ article: "The Comedy Central deal raises to a new level the nascent business of developing TV shows for cellphones, demonstrating that it has potential to become a breeding ground for TV content. It's the latest case of cross-pollination between technologies, with other examples being videogames morphing into movies, like "Lara Croft: Tomb Raider" and Internet videos winding up on cable networks like Current."

The import of this "cross-pollination between technologies" is that the American people have available an ever-increasing amount of content from an ever-increasing number of diverse sources to view or access whenever and wherever they wish on whatever screen they prefer. (Did you hear the one with the punch line, "You can call me 'TV', you can call me 'cable', you can call me 'the Internet', you can call me 'IPTV, or you can call me 'cellphone-cellvideo-cellweb' or 'VOPL-video over powerline' or whatever....? Just don't call the FCC!")

The reality of what's happening in the marketplace today, largely due to rapid technological advances in digital broadband networks and applications, ought to convince policymakers and regulators that media ownership and other remaining video regulations devised in the analog era are woefully outdated. With competition among broadband platform providers for delivery of differentiated content and applications, policymakers ought to understand that so-called "network neutrality" mandates, intended to prohibit differentiation, are completely unnecessary and very counter-productive. Consumers will vote with their eyeballs, eardrums, and mouse clicks when they are dissatisfied.

If the policymakers and regulators don't understand this marketplace reality at a time when content, such as that produced by Comedy Central, jumps quickly from cellphone to TV to the web to cable to satellite and back, the joke will be on us, and the First Amendment too.