Thursday, March 23, 2017

Senate Passes Resolution to Repeal FCC’s Problematic Privacy Rules

The U.S. Senate has now passed legislation to repeal the FCC’s flawed broadband privacy rules. S.J.R. 34 is based on the Congressional Review Act, and sponsored by Sen. Jeff Flake. The Senate’s passage of S.J.R. 34 is a welcome step toward establishing a single set of sound standards for online privacy that would apply to all online service providers.
The Commission arbitrarily imposed its intrusive privacy rules on broadband Internet broadband service providers, but not on other online service providers that collect personal information. Its rules include a problematic opt-in mandate only for ISPs seeking access to consumer information. That onerous opt-in mandate will confuse consumers and restrict the choices and amount of information that would otherwise be made available to them. Under the rules, the Commission also retains authority to review discounts and other so-called “pay for privacy” offers – but with no clear set of factors to guide its review. Such an open-ended review authority will also discourage new offerings that could benefit consumers. And the Commission’s broadband privacy rules far exceed the agency’s lawful authority under Section 222.  
These significant policy and legal shortcomings of the FCC’s broadband privacy rules were described more extensively in Reply Comments submitted to the Commission by Free State President Randolph May and I on March 16. Our Reply Comments were filed in response to Petitions for Reconsideration of the Broadband Privacy Order (2016) – which the Commission is now evaluating. Of course, reconsideration of the Order by the Commission would be a moot point if S.J.R. 34 is passed by Congress and signed by the President.

Hopefully, the U.S. House of Representatives will follow the Senate’s lead and promptly consider repealing the FCC’s broadband privacy rules under the CRA. Repeal of the FCC’s broadband privacy rules is a necessary first step toward establishing a sound policy for online privacy. Ultimately, the FTC should become the common enforcer of online privacy, applying the same basic standards to all online service providers.  

Free Market Orientation Spurs Unlimited Data Plans

Unlimited data plans are back with all four major mobile providers in the United States. In my view, it is no coincidence that announcements regarding such unlimited plans were made shortly after FCC Chairman Ajit Pai indicated his disposition for relying on free market-oriented communications policy approaches.
On February 3, 2017, Chairman Pai announced that the FCC would close its investigation into mobile providers’ free data offerings. On February 12, 2017, Verizon announced that it was launching a number of unlimited data plans. A day later, T-Mobile updated its existing unlimited plan to include high-definition video streaming. A day after T-Mobile’s announcement, Sprint announced very similar updates to its existing unlimited plan. And then two days after Sprint’s updates, AT&T expanded the reach of its unlimited data plan to all consumers, which was previously available to only U-Verse and DirecTV subscribers.
During his keynote speech at the Mobile World Congress on February 28, 2017, Chairman Pai summed up the mobile market’s response to his decision to end the FCC’s investigation:
Earlier this month, for example, we ended the FCC’s investigation into so-called “zero-rating,” or free data offerings. Free data plans have proven to be popular among consumers, particularly those with low incomes, because they allow consumers to enjoy content without data limits or charges. They have also enhanced competition. Nonetheless, the FCC had put these plans under the regulatory microscope. It claimed that they were anti-competitive, would lead to the end of unlimited data plans, or otherwise limit online access. But the truth is that consumers like getting something for free, and they want their providers to compete by introducing innovative offerings. Our recent decision simply respected consumers’ preference.
The best evidence of the wisdom of our new approach is what happened afterward. In the days following our decision, all four national wireless providers in the United States announced new unlimited data plans or expanded their existing ones. Consumers are now benefiting from these offers—offers made possible by a competitive marketplace. And remember: Preemptive government regulation did not produce that result. The free market did.
Some critics of Chairman Pai’s policies say that the recent announcements regarding unlimited data plans are not related to the FCC’s decision to end the investigation of free data programs. Instead, they claim that competition is responsible for the emergence of these plans. But I think it is both.
In this instance, the emergence of free data programs and unlimited data plans are direct results of dynamic competition and permissionless innovation. Unlimited data plans are only profitable when mobile providers are able to effectively manage their networks and efficiently deliver data to consumers. The reestablishment of unlimited data plans over the last month is an indication that mobile providers recognize that the FCC, under Chairman Pai’s leadership, will not be monitoring and second-guessing every decision they make experimenting with new business models as they seek to be responsive to consumer demands.
The use of unlimited data plans will increase significantly the amount of data consumers use. And while mobile providers are updating their networks constantly to improve the speeds and quality of connections, the emergence of these plans does not improve automatically the capacity of mobile networks. So as long as there is a shortage between the amount of data consumers demand and the amount of spectrum allocated for private use, mobile providers will need to engage in network management techniques in order to allocate data efficiently to all consumers. (See this February 2017 blog regarding the projected growth in consumer demand and mobile data traffic.)
Unfortunately, network management practices could violate the Network Neutrality rules established in the Open Internet Order. Before the adoption of the Open Internet Order and soon thereafter when the Order was under appeal, the uncertainty of its imposition discouraged broadband providers from making major network investments. Chairman Pai opposed the adoption of the Open Internet Order while he was Commissioner in February 2015 and recently reiterated that the Order had a direct negative impact on broadband capital investment. Preemptive regulations often have unintended consequences that increase the costs of performing day-to-day business practices, like network management. While the Open Internet Order includes an allowance of “reasonable network management,” if the FCC construes the scope of its review for reasonableness too broadly, and divorces from marketplace realities, then innovative business models like unlimited data plans will be chilled.
But despite that the Open Internet Order is still in effect, Chairman Pai’s statements and actions have created more certainty among broadband providers that the new Commission will not burden ISPs unnecessarily with more costly regulations. As a result, providers are willing to bear the costs of network management that come with offering unlimited data plans because they are less concerned about being hit with enforcement actions for performing such day-to-day business practices.
Free data offerings and unlimited data plans give consumers multiple cost-effective options for accessing more mobile data and online content. But these innovative offerings would not have emerged if not for permissionless innovation and dynamic competition in the mobile broadband market. Of course, the Open Internet Order still needs to be curtailed substantially to avoid further uncertainty and to lessen the regulatory costs that may discourage providers from creating new and innovative services. Also, regulatory barriers at the state and local levels should be reduced or eliminated to encourage additional broadband investment.
All that said, in my view, it is no coincidence that mobile broadband providers now are willing to offer consumers unlimited data plans as Chairman Pai leads the new FCC toward a free market-oriented approach to communications policy.

Wednesday, March 22, 2017

FCC Should Finally Close its Proceeding on Business Data Services

In late January, FCC Chairman Ajit Pai wisely withdrew the Commission’s proposal for subjecting certain business data services (BDS) to onerous price controls. As described in my Perspectives from FSF Scholars paper, “Proposed BDS Rate Controls Are Anti-Investment, Arbitrary, and Fact-Challenged,” the misguided proposal would have diverted financial resources of regulated BDS providers away from construction of new fiber facilities. Although withdrawal of the BDS price control proposal is highly commendable, the BDS proceeding remains open. A problematic recent order by the FCC’s Wireline Competition Bureau points to the need for the Commission to finally close its BDS dockets.
The March 15 order granted California Public Utility Commission (PUC) staff’s significantly-belated request for access to confidential proprietary data collected by the FCC in the proceeding. Previously, the FCC required BDS providers turn over massive amounts of information regarding their service locations and facilities. But now that the rate control proposal has been withdrawn and no new rounds of comments are scheduled, the FCC should at long last close the BDS proceeding. At the very least, the confidential data access request should be held in abeyance until such time as the FCC makes a more definitive decision about what to do next regarding BDS.

The request for confidential data is rather dubious given that the California PUC never requested access to that information during the proceeding’s comment periods. Nor did the California PUC file public comments with the FCC. Why seek such data now? The California PUC staff request for access to confidential BDS data is also odd given that California Public Utilities Code Section 710 provides that the state regulatory agency “shall not exercise regulatory jurisdiction or control over Voice over Internet Protocol and Internet Protocol enabled services,” except in certain limited circumstances.
FCC closure of its BDS proceeding will prevent future dubious requests from other parties for access to sensitive proprietary data. FSF President Randolph May and I have previously described how “The FCC’s Special Access Proposal Is Infected With Special Pleading.” The FCC should not expand opportunities for special pleading by prolonging other parties’ ability to access BDS providers’ confidential information.

Moreover, closure of the BDS dockets constitutes the soundest policy approach to promoting investment and competition in the market. As the Free State Foundation’s comments in the BDS proceeding explained:
Given market advancements and ongoing competitive entry and investment, the wisest and preferred course of action is for the Commission to refrain from imposing new regulatory burdens on BDS services. Cable operators are investing significant amounts of private capital to compete in the BDS marketplace. Such investments pose far better potential for enhancing BDS competition and consumer welfare than new regulation.

Prior FSF writings on the FCC's BDS regulatory proceeding:
Seth L. Cooper, “Proposed BDS Rate Controls Are Anti-Investment, Arbitrary, and Fact-Challenged,” Perspectives from FSF Scholars, Vol. 11, No. 40 (November 14, 2016). 
Reply Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (August 9, 2016). 
Randolph J. May and Seth L. Cooper, “The FCC’s Special Access Proposal Is Infected With Special Pleading,” Perspectives from FSF Scholars, Vol. 11, No. 26 (July 15, 2016). 
Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (June 28, 2016).

Thursday, March 16, 2017

Open Letter Supports Strong Copyright System

On March 14, 2017, the Copyright Alliance and CreativeFuture sent an open letter to elected officials expressing the intrinsic need for a strong copyright system that promotes and rewards creativity. The letter has been signed by over 70,000 creators, organizations, and individuals who support a strong copyright system that protects the rights of creators and entrepreneurs.
The letter asserts that freedom of speech and freedom of expression are fundamental to strong intellectual property rights, stating that efforts to diminish the rights of creators in the name of “free speech” are cynical and dishonest. While the letter clearly recognizes that the Internet has launched many creative platforms and has eased the distribution of copyrighted works, it has also been used to harm creativity with acts of online piracy. The letter welcomes enforcement of existing copyright laws and voluntary industry initiatives to help combat online piracy, but unfortunately, some organizations have tried to block these efforts in order to serve their own agendas.
Lastly, the letter states: “The creative community stands united in support of a copyright system that will continue to make the United States the global leader in the creative arts and the global paradigm for free expression.” With core copyright industries adding more than $1.2 trillion in economic activity to the U.S. GDP in 2016, it is clear that a strong copyright system encourages investment and innovation in the economy, ultimately benefiting consumers who value creative content.
Copyright protection is a bipartisan issue. Elected officials from both parties should work to preserve the creative economy and diminish online activities that harm creativity.

Monday, March 13, 2017

Verizon Now Offering Zero-Rated FIOS Content

Last week, Verizon announced a new pro-consumer offering which would allow customers to stream content from the Verizon FIOS application without it counting towards their monthly data caps. Verizon’s offering is a direct response to AT&T’s zero-rated plan offering DIRECTV content and T-Mobile’s Binge On plan, which offers a variety of video applications that can be streamed without counting towards the consumer's mobile data.
With video content comprising 60% of all mobile data traffic in the United States, the emergence of these consumer-friendly offerings demonstrate a dynamically competitive mobile broadband market. Moreover, FCC Chairman Ajit Pai recently dropped the Commission’s investigation of zero-rated programs, encouraging more competition among mobile providers to offer these pro-consumer plans.

Saturday, March 11, 2017

Consolidated/FairPoint Merger Merits Proper and Prompt Review in States

The proposed merger between Consolidated Communications and FairPoint Communications, if approved by regulators, would likely enhance competition for broadband services. So far, the transaction has sailed through federal agency reviews. Yet the proposed Consolidated/FairPoint merger still faces parallel reviews by several state public utility commissions (PUCs). Surely, the transaction deserves state PUC reviews that are timely and focused on likely competitive effects.
In a transaction worth $1.5 billion, Consolidated Communications and FairPoint Communications would combine their fiber networks, thereby expanding their Ethernet footprint and serving multi-location enterprise broadband customers as well as wireless backhaul customers with faster speeds and better reliability. The proposed Consolidated/FairPoint merger poses no apparent downside for residential or business customers of voice or broadband services. The two providers do not compete head-to-head anywhere. And neither party to the merger ranked in the top 10 for Ethernet ports in the U.S. at mid-year 2016.
Not surprisingly, the transaction speedily received antitrust clearance by the Federal Trade Commission. A review by the Federal Communications Commission, which elicited only one public comment, will likely be concluded in short order. However, the proposed Consolidated/FairPoint must still undergo a multiplicity of regulatory reviews by state PUCs. It has been reported that the transaction must receive approval in 17 states.
Mergers that are pro-competitive on their face should not be slowed down by numerous and overlapping reviews by federal and state regulatory agencies. More particularly, parallel state PUC reviews of merging telecommunications providers ought to consider only merger-specific competitive effects and be conducted in a timely manner. State PUC merger reviews that fail to follow such a course are highly problematic. As I explained in a March 6 blog post regarding the proposed CenturyLink/Level 3 merger:
State PUC regulators can succumb in merger reviews to many of the temptations that have plagued FCC reviews. Regulators can become preoccupied with non-merger specific issues and use their leverage to impose regulatory conditions on their approval that are unrelated to the transaction or perhaps more fit for industry-wide rulemakings.

Going forward, state PUCs reviewing the proposed Consolidated/FairPoint merger should consider only the transaction’s competitive impact. State PUCs should not impose unnecessary conditions and they should conclude their reviews promptly.

Friday, March 10, 2017

A New Direction for Communications Policy

I get it. I understand that Yogi Berra is not a Plato or an Aristotle. But we all know that there’s considerable wisdom – you might even say, considerable philosophy – in many of Yogi’s famous sayings.

Here’s one of my favorite Yogisms: “When you come to a fork in the road, take it.” This one has been in my mind of late, because the newly constituted FCC, and the new Congress as well, shortly will be arriving at forks in the road on the way towards reforming communications law and policy. And they will be forced to choose which fork to take – the more free market, less regulatory path or the more interventionist, more regulatory one.

I should hasten to add here that Ajit Pai, the new FCC Chairman, already has demonstrated in his short tenure, commendably in my view, his intent to lead the Commission down the less regulatory path. For example, Chairman Pai promptly closed the staff’s investigation into various “free data” offerings of Internet service providers that had been initiated by his predecessor. There had been no real evidence that these popular programs harmed consumers, only hypothesizing about conjectured harms unlikely to materialize in the currently competitive market.

Another fork in the road already taken by the Pai Commission involves the stay of the data security requirements in the privacy rules adopted late last year under then-Chairman Tom Wheeler’s leadership. The FCC agreed that the agency’s new data security requirements, without adequate justification, imposed unique compliance burdens and costs on Internet service providers beyond those imposed on other Internet market participants by the FTC. The Commission determined it possesses adequate authority under Section 222 of the Communications Act to prevent consumer harm, not to mention other federal and state laws in place to protect consumers.

And Chairman Pai already has taken significant steps to reform the Commission’s own processes, not least of which is the trial regarding the public release of Commission draft agenda items at the time they are circulated among the commissioners. This is a major step in the direction of increasing transparency regarding the agency’s work. Commissioner Michael O’Rielly, from the beginning of his tenure, has evidenced a keen interest in FCC process reform, and along with Chairman Pai, he deserves much credit for pointing the way.

Of course, it is not surprising that so early in Chairman Pai’s tenure the Commission has yet to confront some major challenges that are on the horizon.
  •      Example: Curtailing the overreach of Net Neutrality rules and eliminating the Title II legal foundation of FCC’s order.
  •      Example: Curtailing outdated video service and device regulations fashioned two or more decades ago in an arguably monopolistic environment that bear little or no relationship to today’s competitive environment.
  •      Example: Making available sufficient spectrum to ensure that next-generation, advanced 5G wireless networks can be deployed on a timely basis.

Tackling these and other issues will not be easy for the FCC, or, for that matter, for Congress to the extent it addresses them. To be sure, there are significant philosophical differences regarding the proper approach. Of course, good-faith attempts to bridge differences, whether partisan or otherwise, are almost always worthwhile. Nevertheless, there will be forks in the road…paths to be chosen.

Another Yogism comes to mind: “If you don’t know where you are going, you might wind up someplace else.” In other words, when you reach that fork in the road, as least when it comes to making policy, you don’t want just to flip a coin. You want to know in which direction you are going. If you don’t, you might wind up in the wrong place.

I have no doubt that Chairman Pai knows that, in order to enhance consumer welfare, we need a “A New Direction in Communications Policy,” one that involves “Less Regulation, More Investment and Innovation.”

Okay, okay. Right about now perhaps you’ve figured out that this piece is not only about the relationship between Yogi Berra’s deep philosophical principles and communications policymaking – although surely it is. It’s also a bit of a promo for our Ninth Annual Telecom Policy Conference this coming Tuesday, March 14, at the National Press Club. The theme of the Conference is “A New Direction in Communications Policy: Less Regulation, More Investment and Innovation.”

We’ll be discussing and debating the important communications law and policy issues of the day, identifying the forks in the road, the proper way forward, and how to avoid winding up in the wrong place. The agenda for Tuesday’s conference is here. I know you will agree we’ve got an excellent lineup of speakers, including the aforementioned Chairman Pai in the traditional lunch Conversation. I welcome your attendance, but if you haven’t already done so, you must register here to attend.

PS – Finally, in keeping with the “new direction” theme, and the Free State Foundations’ own free market, rule of law-orientation, my colleague Seth and I already have published six papers since the beginning of the year with new ideas for the new Commission’s consideration. We are confident that, if adopted, they will lead to “less regulation, more investment and innovation.” Here they are:

·         Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC’s Regulatory Reviews,” Perspectives from FSF Scholars, Vol. 12, No. 1 (January 3, 2017).

·         Randolph J. May, A Proposal for Trialing FCC Process Reforms , FSF Blog, January 9, 2017.
·         Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC’s Forbearance Process,” Perspectives from FSF Scholars, Vol. 12, No.4 (January 17, 2017).

·         Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC’s Video Competition Policy,” Perspectives from FSF Scholars, Vol. 12, No. 5 (February 8, 2017).

·         Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC’s Regulations Impacting Small Businesses,” Perspectives from FSF Scholars, Vol. 12, No. 6 (February 13, 2017).

·         Randolph J. May and Seth L. Cooper, A Proposal for Spurring New Technologies and Communications Services, Perspectives from FSF Scholars, Vol. 12, No. 7 (February 21, 2017).