Sunday, December 16, 2012

Looking Ahead to 2013!

As far as I know, Einstein's "Theory of Relativity" doesn't explain why each year seems to go by faster than the last. If I'm correct about this, perhaps someday "another Einstein," as my mother used to say, will come along to explain the phenomenon.
Until then, I'll just keep pinching myself and accept the fact that the holidays are here and 2012 is almost gone.
From my perspective, it's been another good year. What, you say? Another good year?
Yes, I understand that America faces very serious problems, major challenges at home and abroad, ranging from impending fiscal cliffs to continuing terrorist threats. But what I mean by "from my perspective" is that I am grateful that during 2012 the Free State Foundation has been able to continue to engage in the ongoing battle of ideas, and to engage from a stronger position than ever before.
After all, engaging in the battle of ideas is our raison d'être.
And, of course, the battle rages on, as it has throughout most of our history. There are different conceptions concerning the proper role and size of government and the proper balance between government regulation and marketplace competition.
Our own disposition at the Free State Foundation is not hidden. To the contrary, we proclaim our allegiance to free market, limited government, and rule of law principles at the federal level and in Maryland.
Most of our work involves communications law and policy at the federal and state level. Here too, for sure, the battle of conflicting ideas rages on. For despite the increased competition and technological dynamism that have dramatically altered the marketplace – giving consumers choices of providers and services hardly imaginable barely a decade ago – many still argue for more rather than less government regulation and control.
Even as competition and consumer choice increase, the pro-regulatory advocates suggest that today's major broadband providers, whether they employ wireline or wireless technologies, or whether they formerly were called "cable" or "telephone" companies, are "monopolies." They take this tack even though many consumers readily substitute one service for another, or one provider for another, or one technology for another, to get a better price, a different package of features and functions, or better quality. And the pro-regulatory advocates adhere to this "monopolistic" line of attack even as business models and consumer demand evolve and re-evolve at a dizzying pace.
I always try to be optimistic. But I am not so naïve as to suppose the battle concerning more or less regulation of communications and Internet markets will not go on well into 2013, and beyond. In the Free State Foundation's new book, Communications Law and Policy in the Digital Age: The Next Five Years, FSF Research Fellow Seth Cooper and I authored a chapter titled, "Placing Communications Law and Policy Under a Constitution of Liberty." The Constitution of Liberty to which we refer is Friedrich Hayek's famous volume. At the outset, we declare that "Hayek's work of political economy seeks to explain why a system of government based on certain foundational rule of law principles is a predicate for the functioning of an efficient economic order that both preserves liberty and promotes prosperity."
I commend the chapter to you for a more complete explanation. But we summed up this way:

Hayek’s minimal requirements for an effective market system in a society respecting individual freedom yield a set of basic insights for reforming communications law and policy for the digital age. These basic insights are: (1) a proper function of government is the protection of property and enforcement of contracts; (2) free markets, not government officials, should dictate the quantities of goods and services produced and the prices at which they are offered; (3) administrative agencies are very often overzealous in pursuing the public good, at the expense of individual freedom; and (4) costs imposed by new regulations almost always are underestimated, while new developments are not fully anticipated.

Even assuming good intentions, government agency “experts” characteristically are guided by various political or bureaucratic incentives and goals rather than market incentives.
With these Hayekian insights in mind, we discussed current problems with communications policy – and proposed reforms – in the areas of broadband policy, video services, and spectrum policy. What I want to do now, simply to highlight some of the important issues that lie ahead in 2013, is to very briefly point out instances of failed policy in these three areas – and suggest what should be done.
            Broadband Policy
Plainly put, absent market failure, it was wrong for the FCC to adopt net neutrality regulations that, in practical effect, impose a common carrier-like regime on broadband services. The FCC's net neutrality mandates are inconsistent with the Hayekian principles in fundamental ways. A proper broadband policy – essentially the policy that was in place before adoption of net neutrality regulations – would be to "wall off" broadband services from the public utility-like economic regulation to which last century's narrowband voice services were subjected. This does not mean that all regulation is improper. For example, even in the context of the Commission's net neutrality proceeding, I have supported regulation to require transparency so consumers can make informed choices. And certainly regulations relating to certain public safety functions are appropriate.
Christopher Yoo, in his chapter, "Internet Policy Going Forward," in FSF's new book, concludes: "On a broader level, policymakers would benefit from taking seriously the possibility that the days of a 'one size fits all' approach to Internet regulation may well be over and that looking backwards may not always be the best way to promote future success."
Looking backwards is the wrong policy, indeed.
            Video Services
With the proliferation of choices for consumers to receive video services – from cable and satellite operators, to broadcast stations, to telephone companies, to wireless companies, to over-the-top Internet providers, the laws and regulations governing video service providers are woefully out-of-date and constitutionally suspect. Take just one example. Invoking its two-decade old program carriage rules, the FCC has ruled that Comcast discriminated against the Tennis Channel by virtue of its channel placement on Comcast's cable system.
In ruling against Comcast, the Commission abrogated, in mid-term, provisions of a contractual agreement entered into voluntarily between Comcast and the Tennis Channel. In our book chapter, Seth Cooper and I more fully analyze the FCC's Tennis Channel case to show why, especially in today's competitive video environment, it is improper as a matter of policy for the government to substitute its judgment concerning program placement for that of the cable operator and the consumers who choose to subscribe to the operator's services.
And there is this too. In order to find Comcast "discriminated" against the Tennis Channel vis-à-vis placement of two Comcast-affiliated channels, the Commission had to take a deep dive into examining the extent of the overlap between the respective channels in terms of their programming genres, target audiences, advertisers, and ratings. In this day and age, it is difficult to see how such intrusion into program content by the government is compatible with the First Amendment's free speech guarantee.
There are many other examples of legacy video regulations that, on policy and constitutional grounds, should have been jettisoned long ago – say, for example, many of the media ownership restrictions and "must carry" cable and satellite TV mandates – and this work lies ahead. I am hopeful that the D.C. Circuit's forthcoming review of the FCC's Tennis Channel ruling will result in progress on this front. But, in any event, the fight must continue.
            Spectrum Policy
A word about spectrum policy is in order in light of its importance in the coming year, and surely for years to come. The Commission has a difficult, even unenviable, task ahead in designing the coming incentive auctions so that the goals Congress established will be achieved. In her FSF book chapter,
"Proposed FCC Incentive Spectrum Auctions: The Importance of Re-Optimizing Spectrum Use," former (twice, no less!) FCC Chief Economist Michelle Connolly explains why the auctions, if successful, portend such important economic and social benefits. And then she examines the factors that are relevant to sound auction design in order to achieve the most beneficial societal results.
Here I will just highlight Michelle's firm advice that the Commission should refrain from adopting use and eligibility restrictions in designing the auction. As she puts it, "such constraints would only lead to a loss of economic efficiency and would not necessarily guarantee a more competitive wireless market." This is true, of course, and the point applies across-the-board to so much more of the Commission's spectrum policy. Whatever its intentions, the agency's tendency to assume it can micro-manage outcomes to achieve "optimal" competitive results, rather than relying on rules promoting flexibility of use and marketplace freedom, is ultimately counterproductive, costly, and harmful to consumers.
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Of course, there are many other important legal and policy issues confronting the Commission in 2013 (and beyond) in which the outcome of the clash of ideas ultimately will be determinative. In the areas of wireless regulation, special access regulation, and merger and transaction review regulation, for example, the pro-regulatory forces will be pressing for more regulation and less marketplace freedom. In each instance, the case for less regulation and more marketplace freedom must be presented effectively and persuasively. And on the international front, the disturbing outcome of last week's World Conference on International Telecommunications (WCIT-12) in Dubai means that the fight against multi-faceted government control of the Internet will continue for years.
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So, as I look ahead to 2013, I do so with eagerness and with much appreciation that the Free State Foundation is able to continue to engage in the ongoing battle of ideas, consistent with our guiding free market, free speech, and rule of law principles. We are always grateful for your support in this endeavor, and for your friendship.
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If you're looking for a last-minute stocking-stuffer, or planning to use the holiday period to do some serious, enlightening reading to get ready for 2013, here are the links for ordering the Free State Foundation's new book from Amazon and Barnes & Noble. You may order the book from Carolina Academic Press here. If you order from CAP before December 31, 2012, and use the special discount code MAYFSF12, you will save 20%!
And, speaking of links, we certainly would be grateful for your donation, in whatever amount, to support our work. The Free State Foundation link to PayPal for making a year-end tax-deductible contribution using your favorite credit card is here, or you may send a check to the Free State Foundation, P. O. Box 60680, Potomac, MD 20859.
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Above all, our very best wishes for the holidays and for a healthy and happy 2013!