Wednesday, June 30, 2010

Independence Day 2010

In July 1776, when John Hancock and the other fifty-five signatories to the Declaration of Independence mutually pledged their "Lives, Fortunes and sacred Honor," the pledge was not to be taken lightly. By their act, their lives and fortunes were, indeed, put at risk.

Later that year, with the battlefield situation confronting Washington's army looking dire, Thomas Paine stirred his fellow revolutionaries with these words from his broadside, The Crisis:

"These are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph."

The triumph was indeed glorious. And the Declaration of Independence was a gift, not only to us, but to freedom-loving peoples across the globe.

There is nothing confronting we Americans today comparable to the crisis of 1776. It is folly to suggest otherwise. Nevertheless, as before, we do confront serious challenges at home and abroad. In facing those challenges, it is certainly not unhelpful to invoke the spirit of '76.

In the run-up to this Independence Day, I keep thinking about an encounter I had with an airline seatmate last fall. After changing planes in Charlotte for a trip back to D.C., I found myself seated next to a middle-aged woman traveling from Florida to attend a Tea Party demonstration on Washington's Mall. Yes, a Tea Partier. She told me that, despite the expense of the plane ticket and accommodations, this was the second time within a few months that she had flown to Washington to participate in a Tea Party rally. She was motivated mainly, but not exclusively, by what she saw as the overreaching of the ObamaCare proposal.

I don't want to debate the merits of ObamaCare, or of any particular policy issue. What struck me most about our conversation, and the reason I recall it today, is that, in addition to explaining what she saw as ObamaCare's policy ills, she spoke as passionately about what she saw as its constitutional infirmities. She spoke of her understanding of the Commerce Clause's limits, the Tenth Amendment's reservation of power to the States and to the people, and the purpose of the Fifth Amendment's Takings Clause. All the while, she held in her hand a pocket-sized copy of the Constitution.

My seatmate, ever courteous and soft-spoken, was not a lawyer. Her constitutional understanding doesn't square with that of the majority of this country's law professors. It might not comport with the existing body of constitutional jurisprudence. So, she may well be "wrong" in that sense.

But for my purposes this Independence Day, she was "right" in an important sense: She was right to be thinking about how the large issues of the day square with our constitutional charter.

I think most of the mainstream press, perhaps not surprisingly, did a real disservice early on in its attempts, at best, to ignore, or at worst, to denigrate, the rise of the Tea Party. In my view, the Tea Party movement is a quintessentially American phenomenon fueled primarily by legitimate concerns over the size and scope of government. But regardless of how one feels generally about the movement, the heightened interest it has spurred among its followers, and others, concerning our Constitution's meaning ought to be seen by everyone as positive. A cause for celebration, not fear.

Of course, the meaning of many of the Constitution's most important provisions, including those provisions cited by my seatmate, is subject to differences in interpretation. In other words, the meaning of particular clauses, regardless of the interpretive theory employed, is contestable. Particular cases and controversies will be decided by the Supreme Court -- now an often closely-divided Court -- based on the Justices' own understanding of their meaning.

While the Supreme Court decides particular controversies, it does so, at least over time, in the context of the American public's broader understanding of constitutional law. And elections inevitably influence the direction of the Court, both with respect to the choice of President who nominates the Justices, and the choice of Senators who advise and consent. This is as it should be in our democratic republic.

Like my chance discussion with the Tea Partier, the confirmation hearings of Elena Kagan, as scripted as they are, nevertheless provide yet another opportunity for education concerning the Constitution's meaning, the Court's interpretive role, and conflicting modes of interpretation.

At bottom, this educational process, amidst what appears to be a period of elevated interest in the Constitution, is an essential prerequisite to a widespread appreciation by the American public of the crucial distinction between "law" and "politics." Unless there is at least a shared understanding of the importance of the law/politics distinction to proper constitutional interpretation, the individual rights which the Founders intended to be protected by our Constitution will be that much less secure.

I leave you with two quotes on this July 4th holiday.

Thomas Jefferson, the Declaration's principal author, said: "Our peculiar security is in the possession of a written Constitution. Let us not make it a blank paper by construction."

And Tom Paine, towards the end of The Crisis, after depicting in especially stark terms the difficult days ahead, wrote: "I thank God, that I fear not. I see no real cause for fear. I know our situation well, and can see the way out of it."

As long as we hold true to our constitutional principles, I too see no cause to fear.

Best wishes from those of us at the Free State Foundation for a happy Independence Day.

Tuesday, June 29, 2010

The Third Way’s Fundamental Disconnect

The FCC's Third Way Notice of Inquiry ("NOI") is problematic in a number of ways. But I want to focus here on a fundamental disconnect in the NOI presented right in Paragraph 1. The disconnect is not resolved, or even openly acknowledged, in the remaining 110 paragraphs.

Paragraph 1 states: "Until a recent decision of the United States Court of Appeals for the District of Columbia Circuit, there was a settled approach to facilities-based broadband Internet services, which combined minimal regulation with meaningful Commission oversight." The Commission is referring, of course, to the Comcast v. FCC decision handed down on April 6. The emphasis on "there was a settled approach" is mine.

Hence the disconnect. If there was a satisfactory settled approach on April 5 – the day before the Comcast decision -- as the Commission now suggests, what was all the sturm and drang about last fall? In other words, what did the FCC have in mind in October 2009 when it issued the Open Internet Notice of Proposed Rulemaking ("Open Internet NPRM") proposing a set of new net neutrality regulations?

I understand that post-Comcast, the NOI's Third Way proposal to reclassify broadband Internet providers as common carriers is premised on the claimed need for the FCC to be certain it has the legal authority to carry out proposed policies relating to matters other than net neutrality regulation. Indeed, the Commission now emphasizes matters such as universal service and privacy. I do not want to discuss here whether or not common carrier reclassification really is necessary to ensure that the agency possesses authority to address these various non-neutrality matters, or whether the proposed means of proceeding to accomplish this objective is legally sustainable. (I have grave doubts.)

What I want to highlight, if you haven't already noticed yourself, is that the Open Internet NPRM is barely mentioned in the Third Way NOI. There are only five very tangential references, all but one in footnotes. Under the Commission majority's new mantra that "there was a settled approach" before the Comcast decision, the NOI's silence in this regard is more than passing strange.

Before proceeding any further, shouldn't the Commission explain why it proposed new net neutrality regulations in the Open Internet NPRM if a settled approach, now represented to be the consensus broadband approach, already existed? And, significantly, recall from the NOI's Paragraph 1 that this settled approach is described as combining "minimal regulation with meaningful Commission oversight."

Here's the rub, and it is an important one: There was, indeed, a fairly widespread consensus in favor of a policy of minimal broadband regulation (but not unanimity, of course) before the new Obama Administration-FCC initiated last fall's net neutrality rulemaking. But the Open Internet NPRM, despite any latter-day disclaimers to the contrary, disrupted this settled approach in a significant way. (If you don't believe the October 2009 NPRM disrupted the consensus in a significant way, just count the trees that were sacrificed to provide the paper to file the comments to try to persuade the FCC not to adopt new Internet regulations!)

Why was the issuance of the NPRM so disruptive? Because adding a new nondiscrimination prohibition to the four "openness" principles made the proposed regime significantly more susceptible to investment-stifling and innovation-inhibiting regulatory overreach. More than anything else, the proposed new nondiscrimination prohibition – one of the core obligations of common carrier regimes generally applicable only in monopolistic situations -- upset the applecart. Even putting aside the NPRM's other proposed regulations, the new nondiscrimination mandate necessarily would convert an existing minimally regulatory Internet environment into a considerably more regulatory regime.

I suppose the reason why the NOI so completely downplays the Open Internet NPRM is that the Commission majority now understands the NPRM's disruption of the settled consensus met with much more widespread disfavor than it anticipated. There was a broad understanding, among the public, that the NPRM's proposals, especially the nondiscrimination prohibition, would create a heavy-handed regulatory environment for Internet providers.

Thus, it is factually inaccurate to now place the disruption of the "settled approach" of minimal Internet regulation on the Comcast decision. One way to look at the Comcast decision – the way I look at it -- is that, by calling into question the FCC's jurisdiction to impose net neutrality regulation on Internet providers, the decision disrupted the Commission majority's plans to impose a considerably more regulatory Internet environment than that which existed before the agency's current Democratic majority assumed power. This particular "disruption" was positive, not negative.

In short, the FCC's majority bears significant responsibility for whatever disruption that is now claimed to exist. And until the Commission's majority acknowledges this responsibility forthrightly, and suspends its effort to implement its ill-conceived reclassification/forbearance scheme, it will be more difficult for all parties to move forward in a constructive way that best serves the public.

So, it's time for some straight talk from the FCC. The Commission needs to admit that the minimal regulatory regime that existed before issuance of the October 2009 NPRM served the public well. If it does so, the agency could more readily work constructively with Congress and others to fashion narrowly drawn legislation granting it circumscribed authority over Internet providers. And to the extent that such legislation truly is narrowly drawn, along the lines of the proposal I have suggested, its chances of passage ought to be good.

Maryland Should Look to the New Jersey Way

The Mercatus Center at George Mason University recently released a new working paper entitled: The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey, aimed at helping state legislators try to address the pension underfunding crisis, which tallies a whopping $173 Billion in New Jersey. Some of the lessons that New Jersey could learn are also applicable in the Free State, since Maryland’s pension system lost a reported $10 billion in the last half of 2008, and Maryland’s unfunded health and pension liabilities exceeds $32 billion. So while, in absolute terms, Maryland isn’t in the position that New Jersey is, the core problem is as serious: Benefits the state promised to its employees aren't funded at acceptable levels, and with continuing economic uncertainty, the chance of the problem solving itself (through generous stock market returns) is slim to none.

So what should states do to help solve this problem? Generally, states need to move away from defined benefit plans, which pay a set amount (with a periodic cost of living adjustment) to defined contribution plans, where the state contributes a set amount every year to an employee’s retirement account. In a defined benefit plan, the state must absorb market volatility, no matter how bad it gets. In a defined contribution plan, employees must plan for market uncertainty, in the same way as anyone that relies on a 401(k) account must.

More specifically, the authors of the study recommend three things for New Jersey: 1. Extend define contribution plans to all state employees; 2. Reduce, or freeze, cost of living adjustments to reduce state liability; and 3. Transition non-vested workers to defined contribution plans. These three steps should be examined seriously by any state with outsized pension liabilities in order to get back on to the road to pension solvency.

This certainly includes Maryland.

Saturday, June 26, 2010

Defining Deference Down, Again: Independent Agencies, Chevron, Fox, Scalia, and Kagan

In 2006, I published an article in the Administrative Law Review entitled "Defining Deference Down: Independent Agencies and Chevron Deference." In that article I posed the question: “Should the statutory interpretations of independent regulatory agencies, such as the FCC’s determination at issue in Brand X, be accorded a lesser degree of judicial deference than those accorded to executive branch agencies?” In response, I suggested that “a reading of Chevron that accords less deference to independent agencies’ decisions than to those of executive branch agencies would be more consistent with our constitutional system and its values.”

Whether the decisions of independent agencies such as the FCC should receive less deference on judicial review than those of executive branch agencies is not only a matter of constitutional concern, but of significant practical import to those who are regulated by independent agencies or who otherwise are affected by their decisions.

In a follow-on article just published in the latest issue of the Administrative Law Review, I discuss the Supreme Court's decision last Term in FCC v. Fox Television Stations, Inc. The new article is entitled, "Defining Deference Down, Again: Independent Agencies, Chevron Deference, and Fox." In the Fox case, the Supreme Court affirmed a change of FCC policy to the effect that even isolated, non-repetitive incidents of indecent speech could be sanctioned. While the Court in Fox did not address Chevron deference directly, there were definitely Chevron-like echoes as the Justices debated the relevance of the FCC’s political accountability (or lack thereof) to determine whether the proper standard of review should be more or less searching.

With the original Defining Deference Down article, based on what I see as the principal political accountability rationale underpinning Chevron, my project was to begin a more robust dialogue concerning whether a less deferential judicial review standard of independent agency actions would be more consistent with core separation-of-powers values. While I expect Fox will be seen foremost through the lens of a more conventional administrative law “change of agency policy” case, I have hopes it will also be an impetus for the ongoing dialogue that I aim to further with this new article, "Defining Deference Down, Again."

An interesting aspect discussed in my new Administrative Law Review article relates to Justice Scalia's (somewhat misleading) citation of Solicitor General Elena Kagan's Presidential Administration law review article in support of his view that decisions of independent agencies should not be subject to more searching judicial scrutiny than those of executive agencies. In fact, in Presidential Administration, Kagan explicitly advocates that independent agencies should receive less Chevron deference than executive agencies because they are less politically accountable: "A Chevron-type doctrine attuned to the role of the President would respond to this disparity by giving greater deference to executive than to independent agencies."

In other words, put in terms of the Fox decision's juducial review debate, Elena Kagan has contended that decisions of independent agencies like the FCC should be subject to more searching judicial scrutiny than executive branch agency decisions.

Tuesday, June 22, 2010

Not Mao Zedong or a Communist...But a Socialist

In its June 10th edition, Communications Daily [subscription required] reported that FCC Commissioner Michael Copps, once again bemoaning the state of investigative journalism, said the FCC may conclude the only way for news to survive is to have more government support. Commissioner Copps said it is not productive for proposals for more government support for news and investigative journalism to be met with comments to the effect that "you're Mao Zedong" or "you're a Communist."

Fair enough, up to a point. It is generally more useful to debate directly the underlying merits of proposals than it is to debate labels attached to the proposals' proponents.

But when asked about ways for the government to support journalism, Communications Daily reports that Commissioner Copps referred to the proposals of Robert McChesney, the University of Illinois professor who is co-founder of Free Press. Now, as many who follow communications policy know, Professor McChesney is an avowed socialist.

There are many on the Left who take umbrage when those who criticize their policies characterize them as "socialist" – they might even huff and puff about McCarthyism. They apparently think the characterization harmful to their cause. Not Robert McChesney. I don't know whether he would or would not be pleased with being called Mao Zedong or a Communist. But I know he doesn't shy away from the Socialist label, or from advocating what he calls socialist policies.

Indeed, anyone having any doubts should read Professor McChesney's latest essay (with co-author John Bellamy Foster) entitled "Capitalism, the Absurd System," in the current edition of Monthly Review, a self-styled "Independent Socialist Magazine." You should read the long article for yourself if you want to take in Professor McChesney's full argument as to why capitalism should be replaced with socialism. Here I want only to provide three excerpts to give you the flavor:

"It seems clear that this need for a 'bursting asunder' is where the United States is now. Capitalism, viewed as a system of generalized commodity production motivated by the competitive pursuit of private gain without limits, and thus driven to the amassing of concentrated wealth, even at the expense of public welfare and environmental sustainability, is well past its productive era—during which it could make claims to some degree of rationality. We have reached 'The End of Rational Capitalism.' It survives now on bubbles, bloated debt, military spending that borders on suicidal, and a deadening hypercommercialism."

"Mere state ownership of key productive forces is not enough to create a socialist society; the people must exercise a sovereign rule over these productive forces and society as a whole, and the society must be organized to promote collective needs. Just as democracy is not an accomplished reality unless the vast majority of the people rule society, so socialism is not an accomplished reality unless the associated producers control the productive forms of society and use them rationally and sustainably in the collective interest."

"We were provoked to write this article because the possibilities in the United States for a genuine, free-wheeling discussion of capitalism’s defects, and the merits of socialism, are greater today than at any time in generations, and we must not let this historic moment pass."

Again, if you are inclined, read the entire article. In any event, I do not think that Professor McChesney would object that I have unfairly characterized his views. And he would not disagree that his project is to further the cause of socialism in the U.S.

If I were back in college, I would enjoy debating the full range of Professor McChesney's ideas for days on end. But what I want to highlight here are McChesney's ideas concerning media policy, and the way these ideas relate to advancing his socialist project in the U.S. And, of course, I am interested in the appeal of Professor McChesney's ideas to Michael Copps because, as a commissioner at the agency that exercises great power over communications and media companies, Commissioner Copps' views matter.

To my way of thinking, it is disturbing that Commissioner Copps is sympathetic to Professor McChesney's views.

PFF's Adam Thierer has done very good work critiquing Professor McChesney's suggestions for "saving" journalism and news. For present purposes, I want to refer to just one of Adam's many pieces on the subject, which you may find here. (You may find several others to similar effect on the PFF blog.) Here are some of McChesney's quotes highlighted in Adam's piece, "Free Press, Robert McChesney & the 'Struggle' for Media":

"Instead of waiting for the revolution to happen, we learned that unless you make significant changes in the media, it will be vastly more difficult to have a revolution. While the media is not the single most important issue in the world, it is one of the core issues that any successful Left project needs to integrate into its strategic program."

"Many say that corporate journalism, based on profit maximization, best serves a free and democratic society. The position is incorrect. The connection of capitalism to journalism, which has always been fraught with problems, has always been unstable...Corporations are not in a position to generate and pay for quality journalism. The news is not a commercial product. It is a public good, necessary for a self-governing society."

"Once we accept this [the supposed "public goods" nature of all media], we can talk about the kind of media policies and subsidies we want. What are the best ones? How should they be implemented? We are now trying to answer those questions and organize around them."

Interestingly, Howard Kurtz's column in the June 21st Washington Post is all about a revival or reenergizing of investigative journalism, with the likes of new organizations such as ProPublica and Internet companies such as AOL playing a leading role. Kurtz reports:

"After years of feeling unloved and unwanted, some fortunate journalists are again finding their services in demand. While most print newsrooms remain shrunken and some major newspapers are mired in bankruptcy, new media incarnations are giving the restless and the jobless a second lease on life. AOL says it plans to add hundreds of journalists to its stable over the next year. Yahoo has opened a Washington bureau. The Wall Street Journal just created a New York section. And TBD, owned by Politico's corporate parent, is recruiting for its online effort to cover the Washington area."

There is no doubt, as I noted in my testimony in April at an FCC forum on "public media," that the news operations of newspapers and broadcasters have been hobbled due to the emergence of new media competitors (and due in no small measure to antiquated media regulatory policies steadfastly championed by Commissioner Copps.) But there is much evidence, as reported in the Kurtz piece and elsewhere, that innovative news and investigative journalism enterprises, in a variety of for-profit and non-profit forms, are arising to meet the needs of the American people. Witness the plans of Yahoo and AOL, ProPublica, and so forth.

But none of these efforts will make a bit of difference to Robert McChesney. And the extent of today's media abundance, or the diversity of views available, won't make any difference either. For, as I have set forth above in his own words, what he wants is for the government to reshape the media to his liking, away from what he sees as a media that promotes capitalism to one that promotes socialist ideals. As he puts it plainly, the connection between capitalism and journalism must be broken by eliminating the profit motive.

Integral to all Professor McChesney's proposals is the notion that the government must subsidize journalists and news organizations. This necessarily involves the government in making determinations concerning what constitutes real "news" or "journalism" and/or what constitutes an eligible "news organization" To be sure, in McChesney's world, a news organization with "capitalistic" sympathies would be unlikely to receive government subsidies. Aside from everything else I have already told you, how do we know this? Because Professor McChesney states forthrightly, in a recent edition of the Socialist Project's magazine, The Bullet, that “the ultimate goal is to get rid of the media capitalists.” You can't get rid of the "media capitalists" without the government controlling the media.

Now all of this is not to suggest that Commissioner Copps agrees with all of Professor McChesney's views, even as he says he would look to McChesney's proposals regarding expanding support for public media. But given what many Americans would surely regard as McChesney's extreme anti-capitalist socialist philosophy, it would be useful to know in what ways, if any, Commissioner Copps disagrees with Professor McChesney's views.

It would be useful, but I think I already have a sense. There is a fundamental difference between the perspective of Professor McChesney and Commissioner Copps, on the one hand, and me, on the other. Putting their views in the very best light, I think it is fair to say that they fear private (corporate, if you will) control of the media far more than they worry about the dangers arising from government control. Certainly Professor McChesney wants more government media control in order to promote views that are consistent his own vision of what America should be.

My perspective is just the opposite. I certainly do not wish to see a media environment in which a few voices, corporate or otherwise, dominate. This would not be healthy for the vitality of American democracy. But, thankfully, we do not live in such a media environment. Indeed, due to technological developments over the past thirty or so years, we have more media abundance, and more diversity of views readily available to the American people, than at any time in our country's history.

In our Bill of Rights, our Founders made a clear choice. The First Amendment stands for the proposition that we have more to fear from government control of the media than we do from private control. Our Founders understood it is only human nature for government officials to want to promote views sympathetic to their interests and to suppress those that are not. Referring to the safeguards to rights established by the Constitution, James Madison wrote in Federalist No. 51: "It may be a reflection on human nature that such devices should be necessary to control the abuses of government."

The First Amendment's intent is to prevent government officials from exercising control over the media, not to facilitate the exercise of such control through the handout of government funds with the inevitable strings attached. The strings necessarily will always have to do with deciding what journalistic content is or is not worthy of government support.

It doesn't matter much to me, for purposes of debating his ideas, that Robert McChesney calls himself a socialist. It wouldn't matter much to me if, going back to Commissioner Copps' statement, he calls himself Mao Zedong or a Communist.

What matters to me is fighting Professor McChesney's ideas, and those of Commissioner Copps to the extent he shares McChesney's views. In that fight, I am happy to stand with the Founders, and with my understanding of what they meant when they wrote the First Amendment.

Monday, June 14, 2010

Broadband Internet Regulatory Authority: Some Suggested Legislative Language

At a meeting this Thursday, the FCC is expected to vote to solicit comment on Chairman Genachowski's proposal to reclassify broadband Internet service providers as telecommunications carriers. This reclassification will subject the IPSs to the Communications Act's Title II common carrier provisions. The proposal also envisions the Commission simultaneously forbearing from applying some of the Communications Act's Title II provisions, but not the key rate regulation and non-discrimination provisions. These rate regulation and non-discrimination provisions are at the core of traditional common carrier regulation as such regulation was applied throughout the twentieth century to Ma Bell and other monopolistic providers of ordinary telephone services.

A majority of the House of Representatives, including 73 Democrats, have objected to Chairman Genachowski's plan to classify broadband Internet service providers as common carriers. These Democrats stated that: "The uncertainty this proposal creates will jeopardize jobs and deter needed investment for years to come. The significant regulatory impact of reclassifying broadband service is not something that should be taken lightly and should not be done without additional direction from Congress. We urge you not to move forward with a proposal that undermines critically important investment in broadband and the jobs that come with it." Rep. John Dingell, the immediate past chairman of the House Commerce Committee, wrote a separate letter to the same effect, urging the FCC "to seek the authority it needs by asking the Congress to enact a statute that delegates it."

As reflected in the letters referred to above, and there are others as well from Republicans, there is a growing consensus that Chairman Genachowski's reclassification proposal is unwise and ill-conceived on both policy and legal grounds. I understand the D.C. Circuit's April 6th decision in Comcast Corporation v. FCC has called into question the agency's exercise of so-called "ancillary" jurisdiction over broadband ISPs. In my view, given the increasing competitiveness of the broadband Internet marketplace and the lack of any proven market failure or any existing pattern of consumer abuses, there is no pressing need for the FCC to possess express jurisdiction over Internet providers for purposes of imposing net neutrality regulation. This is especially so in light of the recent development concerning the establishment of the Broadband Internet Technical Advisory Group made up of a diverse group of companies, including Google, "to develop a consensus on broadband network management practices or other related technical issues that can affect users' Internet experience, including the impact to and from applications, content and devices that utilize the Internet." This new body – and other existing ones like it – holds significant promise for facilitating self-regulatory mechanisms that, through the employment of technical and other specialized expertise, are equipped to protect consumers while avoiding the pitfalls and costs of inflexible, static anticipatory regulatory regimes.

Nevertheless, I appreciate that others may believe it is important that the FCC possess authority over broadband ISPs. And, as a majority of House members recognize, it is certainly preferable for Congress to enact legislation granting such express authority than having the FCC proceed to adopt a reclassification proposal so fraught with problems. There is no profit for the agency itself, or for consumers, in having the FCC adopt a course that, on its face, appears so jerry-rigged -- all in the cause of avoiding the import of a court decision holding the agency lacks jurisdiction to impose net neutrality mandates.

With that in mind, it is useful to consider what such legislation should look like. Since the Comcast decision, I have advocated that such legislation should be narrowly-circumscribed. A prerequisite to the Commission's exercise of regulatory authority over broadband Internet providers should be that the provider possess market power and abuse it in a way that causes consumer harm. And I have long advocated a regime under which the Commission's exercise of authority over Internet providers would be on a post hoc adjudicatory basis upon a complaint filed. This approach would require the agency to employ economic analysis that focuses on the particular market in which an abuse is alleged to have occurred. Under this regime, the Commission's rulemaking authority would be limited, but not eliminated.

There are obviously different ways such legislation might be drafted consistent with achieving a narrowly-circumscribed legislative fix. And, in any event, the specific legislative language depends upon technical matters such as where in the Communications Act amendments are inserted, whether new definitions of terms are needed, and so forth. That said, below are provisions that embody the targeted, market-oriented legislative approach that I submit would be in order and might win widespread congressional acceptance. The provisions grant the Commission the authority to protect consumers, while, at the same time, circumscribing such authority in a way that prevents the agency from overreaching and stifling investment and innovation in the dynamic environment that characterizes the Internet.

I welcome feedback on these draft provisions, or on others that might accomplish the desired objective.

Section 1. Complaints Against Broadband Internet Service Providers

Except as expressly provided in this section and Section 2, the Commission shall have no authority to impose sanctions on or otherwise regulate, either through the adjudication of complaints or resolution of complaints by other means, or through the adoption of rules, broadband Internet service providers.

(a) The Commission shall have the authority, upon a complaint filed and after an on-the-record adjudication, to prohibit broadband Internet service providers from engaging in acts or practices that are determined to constitute an abuse of substantial, non-transitory market power and which cause harm to consumers.

(b) The Commission shall have the authority, upon complaint filed and after an on-the-record adjudication, to require interconnection between and among Internet service providers if the Commission determines that failure to order such interconnection poses a substantial, non-transitory risk to consumer welfare by materially impeding the interconnection of public communications facilities and services in circumstances in which marketplace competition is not sufficient adequately to protect consumer welfare, provided that in making any such determination the Commission must consider whether requiring interconnection will affect adversely investment in facilities and innovation in services.

(c) Before filing a complaint with the Commission under this subsection (a) or (b) of this section, a subscriber to an offering of an Internet service provider or an Internet service provider requesting interconnection must first engage in an informal dispute resolution process that has been recognized by the Commission as a forum for attempting to resolve such disputes in a fair and expeditious manner.

Section 2. Rules Governing Acts or Practices of Internet Service Providers

(a) The Commission shall have no authority under this section to prescribe rules that declare unlawful an act or practice on the grounds that such act or practice is harmful to consumers unless the Commission determines, based on a showing of clear and convincing evidence presented in a rulemaking proceeding in which the public is afforded notice and an opportunity to comment, that marketplace competition is not sufficient adequately to protect consumer welfare and that such act or practice causes or is likely to cause injury to consumers and is not avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.

(b): Any rule promulgated under this section shall terminate automatically by operation of law five years from the date it becomes effective unless the Commission, in a proceeding in which the public is afforded notice and an opportunity to comment, makes an affirmative determination, based on a showing of clear and convincing evidence presented in such proceeding, that the rule continues to be necessary because marketplace competition is not sufficient adequately to protect consumers from substantial injury which is not avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.

Note: As many know, while at the Progress and Freedom Foundation, I led a project in 2005, in which a large number of prominent scholars collaborated, to draft a model Digital Age Communications Act (DACA). That project's objective was to draft a comprehensive rewrite of the Communications Act to bring it up to date. There is still much to commend the DACA approach, and I would welcome the adoption of legislation embodying such a radical overhaul of the act. But my sense is that, for now, in order to prevent harmful regulation in the near-term of the type being pursued by the current FCC majority, a narrower, targeted approach such as that suggested above has a much better chance of passage. This does not mean that the Communications Act does not need a comprehensive overhaul along the lines suggested by DACA. It just may mean that the time is not yet ripe for such an overhaul that likely would require a very time-consuming legislative process. So, in the meantime, I have drawn on some of the work we did on DACA here, while deviating in some material respects. I commend to you the DACA materials on the PFF website, including S. 2113, the "Digital Age Communications Act of 2005", which was introduced by Senator Jim DeMint, and which embodied the work of the DACA project.

Friday, June 11, 2010

Third Way Theory Meets Forbearance Reality

The clock will soon run out on the FCC's deadline for ruling on Qwest's forbearance petition regarding the Phoenix Metropolitan Statistical Area (MSA). There are recent hints that the FCC will deny the petition and set up a new kind of "market power" standard for applying the Section 10 forbearance provision. In other words, the FCC reportedly will issue an order establishing a new standard making it more difficult for petitioners to satisfy the statutory forbearance test, and in that same order deny the petition under consideration on that basis.

This new standard that is said to be forthcoming in the Qwest Phoenix MSA forbearance proceeding would, of course, impact pending and future forbearance proceedings. But any new "market power" standard governing grants of forbearance raises an interesting set of questions about its possible impact on Chairman Genachowski's so-called "Third Way" Internet regulation proposal. How will such a standard fit in with the FCC's "third way" plans to adopt net neutrality regulation that relies so heavily on regulatory forbearance? Could adding new requirements to the forbearance process complicate the agency's plans to successfully adopt new rules? Might a more stringent standard set by the FCC for granting forbearance give added ammunition to a future legal challenge if the FCC does decide to adopt the "Third Way" reclassification proposal which is tied so intimately to the exercise of the Commission's forbearance authority?

Recall that the FCC's "third way" plan for imposing net neutrality regulation on the Internet is premised on an agency declaration to change broadband Internet from a lightly regulated Title I "information service" to a heavily regulated common carrier Title II "telecommunications service." According to the FCC's "third way" theory, this reclassification will give the Commission the jurisdictional prerequisite to adopt network neutrality rules that the D.C. Circuit recently ruled the Commission lacked under the Title I ancillary jurisdiction theory and facts set out in the Comcast/BitTorrent Order.

But the FCC's "third way" simultaneously seeks to stave off some of the consequences that would come from burdening broadband Internet service with the full panoply of last-century monopoly-era regulations for telephone networks under Title II. The plan calls for the FCC to grant regulatory forbearance to reclassified broadband Internet from all but six statutory sections governing Title II telecommunications services (albeit these retained sections contain the heart of traditional common carrier regulation). More specific details will be revealed if the FCC decides to issue its anticipated Title II reclassification Notice of Inquiry at its upcoming June public meeting.

So given that the FCC's "third way" relies so heavily on a single act of "superforbearance" by agency declaration, what does a new "market power” standard governing forbearance mean for the "third way"? If reports are accurate that the FCC's new standard will rely on HHI market concentration criteria set out in the DOJ-FTC horizontal merger guidelines, wouldn't "third way" forbearance first require an HHI-like analysis of the nation's broadband market?

Perhaps the Commission might attempt to apply its new "market standard" for forbearance only to voice telecommunications services but not to reclassified broadband Internet telecommunications services. This approach would seem to require the FCC to give some kind of reasoned explanation for the disparate treatment of Title II services. At least, such an approach would require explanation if the FCC hopes to survive a prospective legal challenge to "third way" reclassification and forbearance for broadband Internet. But subjecting voice telecommunications services and broadband Internet telecommunications services to different standards would make reclassification of broadband look stranger and stranger still. After all, the need for disparate treatment of voice and broadband was precisely the point behind the FCC's classification of broadband as a Title I information service that should be free from outdated and burdensome regulation.

Then again, the FCC could insist on subjecting only forbearance petitions submitted by private parties to its new "market power" standard and thereby leave undisturbed agency sua sponte grants of forbearance. But nothing in the statute suggests that disparate treatment of agency grants of forbearance arising from petitions or sua sponte action could be justified. The FCC would have a difficult time justifying such a twisted approach in the courts on administrative procedural grounds.

Regulatory and legal complications of this kind are inevitable if the FCC insists on going forward with a "third way" plan for force-fitting antiquated monopoly-era regulations on a dynamic modern service like broadband Internet. In light of the crucial importance of implementing (some modest) regulatory forbearance to the FCC's plans for adopting net neutrality regulation through its "third way," one wonders whether the Commission's continued placement of obstacles in the path of forbearance could come back to haunt it. Or, more to the point, might such obstacles cause the FCC to rethink its current plans for Internet regulation without further direction from Congress?

Wednesday, June 09, 2010

Memos to Rep. Waters and OMB Director Orzag

I noticed that, according to a report in Communications Daily, Rep. Maxine Waters (D-CA) said earlier this week that the FCC's consideration of the Comcast-NBCU merger proposal "should not be rushed through an expedited review process." This was at the public hearing in LA on the proposed merger.

Memo to Rep. Waters: You can relax. There is absolutely no chance the FCC's review will be "expedited" within the ordinary meaning of that word. Comcast and NBCU filed the application seeking FCC approval of their proposed merger on January 28, 2010. No one expects the FCC to act on the application before the end of the year, if then. Action sometime after the one year filing mark is much more likely. Acting on a merger proposal one year after the parties file the application seeking approval will not put the FCC at risk of having its action misconstrued as rushing through the review process.

My worry is just the opposite of Rep.Waters.' In today's fast-paced technological and disruptive marketplace environment, a review that takes over a year to complete risks rendering the business rationale for the merger outdated by the time the Commission acts. (I'm not opining whether whatever business rationale is offered makes sense. I know not - but I do know that some of the biggest media mergers that have drawn fire from those "consumer" groups worried about too much concentration of control have not worked out in the marketplace. See, for example, the saga concerning the unhappy marriage and divorce of AOL and Time Warner, which drew such "concentration of control" fire, and then some.)

Some related observations.

There is a story in yesterday's Washington Post to the effect that Peter Orzag, President Obama's budget director, wants agencies to trim 5% from their upcoming budgets, especially focusing the green eyeshades on eliminating programs that duplicate the functions performed by other agencies. Not a new idea, but nevertheless a sound one. Orzag is quoted as saying "redundancy waste resources." Duh!

Putting aside whether OMB's directive to the agencies to come up with 5% savings technically applies to so-called independent agencies like the FCC, wouldn't it be nice for the FCC to take the message to heart? After all, we're all in debt together. There is no doubt that much of the FCC's review of proposed mergers duplicates the work of the antitrust agencies, the Department of Justice and the Federal Trade Commission. As I have argued for a decade now (for two examples, see here and here), even assuming the FCC is going to continue to review mergers under its vague "public interest" authority, the agency nevertheless could avoid wasting a lot of resources -- that's lots of time and money -- by relying on the analysis of the expert antitrust agencies to assess potential competitive harms. Now it spends lots of those resources to which Mr. Orzag is referring duplicating the effort of DOJ and the FTC, the government agencies with the most expertise and experience evaluating competition issues. Why can't the FCC, in the cause of government efficiency and as a matter of self-reform, act to eliminate this duplication?

I note the FCC already has hired yet another outside person specifically to oversee the Comcast-NBCU merger review. Didn't the Commission's Media Bureau have the requisite expertise? And I also note that Chairman Genachowski  has just submitted a budget request for fiscal 2011 that seeks almost $20 million above the 2010 appropriation, with the funding increase attributable primarily to hiring additional employees. It recites the requisite "with each passing day, communications has become increasingly essential to the daily lives of all Americans" mantra -- as have all such budget requests seeking increased funding over the passed decade. It may be true that communications has become increasingly important in our daily lives. But does it necessarily follow, as night follows day, that the FCC therefore must become increasingly big and more regulatory?

Memo to Peter Orzag: Please send a copy of your directive concerning agencies identifying 5% savings in their budgets, especially through the elimination of wasteful duplication, over to FCC headquarters, 445 12th Street, SW, Washington,DC.

Tuesday, June 01, 2010

Notes on the Right Way

Yesterday's program, "After Comcast: What's Next for Next Neutrality?", jointly sponsored by the Free State Foundation and the Information Technology & Innovation Foundation, was, in my view, a very educational discussion concerning where we are now and where we should go next after the Comcast v. FCC decision. There was a general consensus that FCC Chairman Julius Genachowski's "Third Way" proposal is problematic as a way forward for both policy and legal reasons. There were, of course, differences of emphasis among the panelists. But there was fairly widespread agreement that the Commission ought to rely much more heavily than it presently is disposed to do on self-regulatory mechanisms as a means of addressing concerns sounding in "net neutrality," and that if the agency believes additional regulatory authority is necessary it should work with Congress to achieve enactment of such legislation.

The video will be available on ITIF's and FSF's website shortly, so you can see for yourself. And a transcript will follow after that.

What follows in the numbered paragraphs immediately below is simply a cutting and pasting of the notes I prepared for myself as a guide for my opening brief remarks. The notes were written as just such a guide, so they are, by design, somewhat sketchy and unpolished. But my actual remarks stuck pretty closely to this script, and the notes reflect aspects of my current thinking relevant to Chairman Genachowski's Third Way proposal and to my preferred course of congressional action. I offer them here in their raw form to continue to provoke discussion and, perhaps, the development of a further consensus that the Third Way proposal, as formulated by Chairman Genachowski, is the wrong way. But there is a Right Way.

1. After watching the FCC for over 30 thirty years, I've seen some pretty strange things. But as time goes by, this case of the Third Way, nee the Open Internet, nee Net Neutrality, nee Open Access, gets "curiouser" and "curiouser." It makes me want to put a big sign on the wall as you get off the elevator on the 8th floor of the Portals that reads: "When you're in a hole, the first thing to do is to stop digging!"

2. Here are just some of the more fundamentally problematic aspects of Chairman Genachowski's Third Way proposal. And I have to say, with respect, that in articulating the Third Way proposal, I do think the Chairman has abused, somewhat, the ordinary usage of the English language.

3. Foremost, perhaps, the Chairman describes his approach as embodying a bipartisan consensus for what he calls "a restrained approach" or "light touch approach" to broadband regulation. It is true, in my view, that there is considerably more of a consensus for light-handed regulation than heavy-handed regulation. But it is wrong to characterize his approach as restrained or light-handed. If nothing else, the insistence on adopting a broad new nondiscrimination mandate would convert the existing regime into one that cannot fairly be characterized as light touch regulation. Enforcement of a nondiscrimination mandate has always been at the heart of common carrier regulation, and in the past it has never been thought characteristic of light-handed regulation. Indeed, it is pursuant to the proposed nondiscrimination rule that the agency would prohibit ISPs from charging content providers differential fees for prioritization or favored access.

4. As he has done for some time now, the Chairman suggests his proposal would not regulate "the Internet." It is wrong, as a matter of statutory interpretation, precedent, common sense, and the ordinary usage of the English language, to suggest that Internet service providers are not part of the Internet. They are, so the Chairman's proposal would regulate the Internet.

5. The Chairman says he wants to resolve the "current uncertainty" – and Commissioner Copps says this all the time as well – as if whatever current uncertainty that exists is not, to a large extent, the result of the very proposal the Chairman initiated, soon after taking office, to adopt a new net neutrality regime. Commissioner Copps freely acknowledges he has been trying to reverse the agency's information services classification determination since Day One, that is, since 2002. How has this relentless campaign to overturn a Commission precedent that was affirmed on a 6-3 vote by the Supreme Court at the FCC's urging contributed to regulatory certainty?

6. At the heart of the Chairman's proposal is the requirement that the transmission component of Internet service be unbundled and regulated as common carriage, but that the remainder of what comprises the totality of Internet service, such as applications or content, not be regulated. The Commission says it is not requiring "unbundling" – but what is separation of the transmission component from everything else if not unbundling. And unbundling often leads to rate regulation. FCC General Counsel Austin Schlick in his statement says: "There is no reason to anticipate" the Commission would regulate Internet rates. This non-Sherman-like statement sounds somewhat like the remark of a politician to the effect: "I have no present intention to run for XYZ office." We know what often follows.

7. It is striking there is no reference to any market failure or any linking of the need for net neutrality regulation to the status of marketplace competition in either the Chairman's or the General Counsel's statements. The assumption is that "we just need to do it," whatever the costs may be in terms of legal jeopardy, jeopardy to broadband investment or to the overall economy -- or jeopardy to the ordinary usage of the English language.

8. If there is a determination there needs to be some authority for FCC oversight of broadband Internet service providers, Congress should adopt a new narrowly-circumscribed legislative framework.

9. The core of a new legislative framework should be a provision granting the FCC authority, upon a complaint filed and after an on-the-record adjudication, to act to prohibit broadband Internet Service Providers from engaging in practices determined to constitute an abuse of substantial, non-transitory market power and that cause demonstrable harm to consumers. Such a circumscribed market-oriented rule would provide the FCC with a principled basis for adjudicating fact-based complaints alleging that ISPs are acting anti-competitively and, at the same time, causing consumer harm. Using antitrust-like jurisprudence that incorporates rigorous economic analysis, the Commission would focus, post hoc, on specific allegations of consumer harm in the context of a particular marketplace situation.