The Free State Foundation

Mr. Genachowski, Tear Down That Potemkin Village - Part II

2012-01-26T15:56:00.002-05:00

Yesterday I posted a blog suggesting that FCC Chairman Julius Genachowski's regulatory reform efforts were more of a Potemkin Village than real. I pointed out that he continues to cite the elimination from the FCC's books of the "dead letter" and Fairness Doctrine – a dead letter for a quarter century -- and other dead letter regulations as regulatory reform achievements, even though it is clear that these rules were not being enforced.

According to Communications Daily [subscription required], an FCC spokesman responded to the critique by stating: "Other reforms include the agency-wide transition from paper to electronic filing, a reduction in the FCC backlog and the closing of 999 dormant proceedings."

Exactly my point. Like eliminating dead letter rules, transitioning to electronic filings, reducing backlogs, and closing dormant proceedings is not an unworthy exercise. I give Mr. Genachowski credit for these matters. But there is no mistaking these "good housekeeping" reforms for tackling existing or proposed substantive regulations that have significant economic impacts and which do not pass cost-benefit muster.

It is meaningful substantive regulatory reform of this type that I had in mind when I said, "Mr. Genachowski, Tear Down That Potemkin Village."

Mr. Genachowski, Tear Down That Potemkin Village

2012-01-24T19:10:00.001-05:00

As Communications Daily reported in its January 19^th edition, President Obama recently gave the FCC a "shout out" for supposedly cutting 190 regulations, citing the FCC's efforts as a prime example of regulatory reform under his Administration. The same Communications Daily item reported that Cass Sunstein, head of the Administration's Office of Information and Regulatory Affairs (OIRA), credited the FCC with eliminating the Fairness Doctrine and other regulations.

Please! Hold the shout outs.

Truth be told, the FCC's regulatory reform efforts thus far are more a Potemkin Village than anything else.

First, the claim about eliminating the Fairness Doctrine. FCC Chairman Julius Genachowski has highlighted "purging the Fairness Doctrine from our books" as a regulatory reform achievement so many times it's become a bit old. Both Mr. Genachowski and Mr. Sunstein know better.

In May 2011, FCC Commissioner Robert McDowell pointed out in a speech, no doubt to the surprise of most FCC cognoscenti, that the Fairness Doctrine was still codified in the Commission's rules. Shortly thereafter, in a June 6 letter, Chairman Genachowski wrote to Rep. Fred Upton, Chairman of the House Energy and Commerce Committee, stating that the Fairness Doctrine "has been a dead letter at the Commission for more than two decades." In the same letter, Mr. Genachowski said the FCC General Counsel had advised that the Fairness Doctrine is "unenforceable."

Again, on August 22, 2011, Mr. Genachowski stated in a Commission release that striking the Fairness Doctrine "from our books ensures that there can be no mistake that what has long been a dead letter remains dead."

There are many other statements to the same effect.

I don't have a problem giving credit to Chairman Genachowski for striking the Fairness Doctrine rule from the FCC's books. But I do have a problem with using a rule that Mr. Genachowski admits is "unenforceable" and a "dead letter" -- indeed, a rule that has been a dead letter for a quarter of a century -- as an exemplar of regulatory reform.

Enough already with burying long dead dead letters.

As Communications Daily reported in a follow-on item on January 23, many of the other rules eliminated by the FCC fall into the category of Potemkin Village regulatory reform. Among those eliminated are the Broadcast Flag rule held unlawful years ago by the D.C. Circuit court, eight regulations relating to a no longer operative version of the Public Utility Holding Company Act of 1935, and thirteen relating to a no longer operative mechanism allowing a TV station to allege that a satellite operator unlawfully transmitted the television station's signal.

Excising rules from the FCC's books that are no longer operative is not an unworthy exercise. But it is not real regulatory reform. And it should not be touted as such.

Meanwhile, when presented with pleas to engage in meaningful reform, even of the modest variety, the Commission generally demurs. Even a casual review of the FCC's Public Notice, released on December 23, 2011, (the eve of Christmas Eve), shows how difficult it is to persuade the agency to reduce or eliminate outdated regulations. The Public Notice contains the recommendations from the Commission's various bureaus and offices regarding the biennial review of telecommunications regulations required by Section 11(a) of the Communications Act, added by the Telecommunications Act of 1996. This section requires the FCC to review every two years regulations that apply to any provider of telecommunications service to determine whether any such regulation "is no longer necessary in the public interest as the result of meaningful economic competition between providers of such [telecommunications] service."

While the FCC staff recommended the Commission consider repealing a few regulations that no longer have any relevance in today's environment, such as Computer III CEI/ONA requirements, for the most part it demurred. And, with respect to various regulations relating to wireless providers, it declined to recommend the repeal or modification of any rules at all, despite the competitive marketplace in which wireless providers operate. And despite the fact that Section 11(b) of the Communications Act states that the Commission "shall" repeal or modify any regulation it determines not to be in the public interest. Not "may" repeal or modify.

So, in the interest of fairness, it's time for Chairman Genachowski (and President Obama and Administrator Sunstein) to stop citing elimination of the Fairness Doctrine as an example of regulatory reform accomplishment. You can't keep killing and counting "unenforceable, dead letters" over and over again.

It's time for the FCC to get serious about meaningful regulatory reform. There are plenty of existing regulations that no longer make sense in today's competitive marketplace environment, but which nevertheless impose significant economic burdens. They should be eliminated, or at least cut back.

And there are others, which the Commission is proposing to adopt, even now, which it should not adopt. For example, the Commission should scuttle its proposed video navigation device design mandates, the proposed expansion of program carriage rules, any further actions regarding special access regulation, and the extension of network outage reporting requirements to Internet providers.

A little over a month ago, I wrote an essay that ended this way: "Mr. Genachowski, build back that wall." There I urged resurrection of the policy, especially after adoption of net neutrality mandates, that digital broadband services should be walled off from regulation.

In a similar vein, and with all respect, my plea here is: "Mr. Genachowski, tear down that Potemkin Village."

Happy Birthday, Everett

2012-01-17T12:20:00.003-05:00

By Deborah Taylor Tate

Happy Birthday to my dear friend and fellow MMTC Board member, Everett Parker, born today, January, 17, 2012. Not many of us will ever reach our 99th birthday. Even fewer will have the generational impact upon vital and complex communications policy discussions that Everett has had – and continues to have. But most importantly, Everett also translated thoughts into action: strategically, energetically, and effectively. Thank you for your years of public service – most often for the poor, the voiceless, and the forgotten.

Happy Birthday, Everett, and I am honored to have had the opportunity to know and work with you at the FCC and beyond!

Implementing Spectrum Incentive Auctions

2012-01-16T16:08:00.000-05:00

FCC Chairman Julius Genachowski deserves credit forespousing spectrum incentive auctions as a means of freeing up additionalspectrum for fast-growing wireless and other services, and I am happy to giveit to him. But he is wrong to assert, as he did at last week's Consumer ElectronicsShow, that Congress should not make certain high-level policy decisionsconcerning the auctions.

In Las Vegas, Mr. Genachowski said that it would be wise forCongress not "to prejudge or micromanageFCC auction design and band plans." And back at the FCC, Rick Kaplan,chief of the FCC's Wireless Telecommunications Bureau, released a statementasserting that "[s]ince the dawn of spectrum auctions, Congress hasrightly recognized the need for the FCC to have appropriate flexibility to conduct them."

It is one thing to say that Congress should not"micromanage" FCC auction design, or "inappropriately"restrict the FCC's flexibility. But it is another thing entirely to say that itis improper for Congress to make certain high-level policy decisions about theconduct of the auctions.

It is most certainly within Congress's prerogative, and,indeed, perhaps even within its responsibility, to make such high-level policydecisions in authorizing the incentive auctions. While Mr. Genachowski suggeststhat Congress should delegate absolute discretion to the FCC with respect to conductof the auctions, after all, it is Congress, not the FCC, which ultimately is accountableto the people.

Now I understand the distinction between Congress"micromanaging" and "inappropriately" restricting the FCC'sauction flexibility is not a bright line to be found in some biblicalinjunction. But surely matters such as preventing the FCC from imposing new netneutrality restrictions or from restricting eligibility to participate in theauction to certain bidders – the very matters Mr. Genachowski wants to reserveto the FCC – fall into the category of high-level policy decisions that are appropriate for Congress to make.

This is not to say that Congress must decide to restrict the FCC's discretion regarding such matters,only that it is perfectly proper for it to do so. And, given the FCC's past andpresent predilections, it certainly would be reasonable for Congress, with an eyetowards maximizing consumer welfare and protecting taxpayers, to choose to makehigh-level policy decisions that prevent the FCC from exercising completelyunfettered discretion.

After all, the FCC's previous forays into establishingauction rules imposing conditions or encumbering participation have not turnedout well. It is commonly agreed, for example, that the net neutrality conditionimposed by the FCC on the 700 MHz "C" block auction decreased thevalue of the spectrum auctioned by 60% based on a comparison of the winning bidprices for the "A" and "B" 700 MHz blocks and the"C" block. Taxpayers were the losers. And so were consumers, who lostthe opportunity to benefit from participation by those who may have wished toput the spectrum to higher-value uses unencumbered by the net neutralityrestriction.

A final word: Note that I am not advocating that, inauthorizing spectrum auctions, Congress micromanage them. For instance, I thinkit would be unwise for Congress to prescribe auction design details, say, withrespect to matters relating to bidding sequences, the size of the licenseareas, number of rounds, reserve bid levels, repacking requirements, and thelike. These are not the kind of high-level policy matters I suggest it isappropriate for Congress to address.

So, Congress and the FCC each have their appropriate rolesto play in authorizing, designing, and implementing spectrum incentiveauctions. They should play them.

FCC Should Act Against Unreasonable Satellite Dish Restrictions

2012-01-12T16:08:00.007-05:00

The FCC is now considering a petition asking it to declare that Philadelphia's city ordinances restricting satellite dishes on family dwellings are preempted by federal rules. Those ordinances may place unreasonable burdens on direct broadcast satellite (DBS) dish installation, both for DBS consumers and dish installers, and, if so, they should be preempted.

But the significance of the petition extends far beyond Philadelphia. If other cities were to follow with their own unreasonably cumbersome dish restrictions, this could undermine the attractiveness and competitiveness of DBS service and thereby harm all consumers of video services. Moreover, the FCC's authority under the Commerce Clause to prevent states and localities from adopting unreasonable restrictions that interfere with the siting and construction of cell towers, microwave facilities, and other radio frequency devices may be weakened if the agency fails to act when localities impose unreasonable restrictions.

In today's video marketplace, DBS provides a vital role as a competing provider of video services. But in order for satellite TV providers to compete with cable, telco video providers, and online-delivered video, consumers of DBS services need to be able to install dishes on their property without unreasonable restrictions. So in Section 207 of the Communications Act, Congress granted the FCC authority to preempt county, city, or even landlord restrictions, on video-receiving devices like TV antennas and satellite dishes.

The FCC's "over-the-air-reception-device" (OTARD) rule preempts restrictions on the installation of dishes that "impairs the installation, maintenance, or use" of antennas or dishes that are one meter in diameter or less and located in areas within the exclusive use or control of the consumer. OTARD defines an impairing restriction as one that: "(i) Unreasonably delays or prevents installation, maintenance, or use; (ii) Unreasonably increases the cost of installation, maintenance, or use; or (iii) Precludes reception or transmission of an acceptable quality signal." Non-impairing restrictions must be applied in a non-discriminatory manner. Also, FCC precedents put the burden of satisfying OTARD on the enforcing entity.

In November 2011, Philadelphia imposed a thicket of restrictions on dish installations that, in several respects, appear to conflict with OTARD and undermine federal policy. The ordinances, for instance, would restrict placement of dishes on certain balconies and patio areas – areas most certainly within home dwellers' exclusive control – where the city believes that better alternative locations are available.

Furthermore, ordinance restrictions on placement of dishes on exterior walls of buildings in effect treat exterior walls as categorically beyond the exclusive control of the consumer. But many landlords and condo associations consent to tenants' control over exterior walls for dish installation in lease agreements and condo bylaws. And in several aspects, Philadelphia's ordinances appear to shift the burden of proving that dish placement and registration requirements are satisfied to DBS consumers or dish installers to demonstrate the material delay, signal reduction, and significant additional cost considerations. But OTARD puts the burden on the restricting entity, not the consumer.

Federal preemption of state and local police power regulations always involves delicacies and should be handled with care so as to respect legitimate state and local authority, especially with respect to public safety concerns. Yet, in important respects, Congress has authorized the FCC to preempt local restrictions that have the effect of impairing interstate commerce in competitive technology markets. In November 2009, for instance, the FCC exercised its authority under Section 332(c) to preempt local restrictions responsible for blocking or unreasonably delaying cell tower permit approvals to the detriment of the interstate commercial market in wireless services.

Congress also recognized the interstate commercial nature of nationwide DBS services. Congress sought to protect the rights of consumers to engage in interstate transactions with DBS providers, entrusting the FCC with exclusive regulatory authority over DBS. And Congress expressly empowered the FCC to prohibit local restrictions on dish installation that could otherwise pose barriers to DBS offering consumers an attractive competing video service. So it is incumbent on the FCC to take decisive measures to carry out Congress's objectives.

Onerous and intrusive local restrictions on satellite dish installation and their use interfere with the federal scheme for regulating DBS service. Restrictions that unreasonably burden dish installers and DBS consumers make DBS service a less attractive video service option. In order to protect the existing competitive market for the provision of video services, the FCC should act to ensure dish installation – and therefore DBS services – remains free from excessive and unwarranted restrictions imposed by localities. In particular, the FCC should address the kinds of problems exemplified by Philadelphia’s ordinances, lest it permit unreasonably burdensome restrictions in one major city to be replicated in cities across the nation.

A declaratory ruling by the FCC will clarify what kinds of local restrictions on dish installation are prohibited and what kinds of protections property owners and DBS consumers enjoy. In so doing, the agency will help protect consumer choice and a competitive video market. And, more broadly, the FCC will show its willingness to exercise agency authority under the Communications Act and the Commerce Clause to ensure that the channels of interstate commerce remain open to competitive technologies.

New Burden on Public Participation

2012-01-11T11:23:00.000-05:00

There is a very good piece by Cary Coglianese, noted administrative law scholar and founder of the site RegBlog, critiquing the FCC's weird proposal to require commenters to include in their filings "full copies" of materials they cite. Professor Coglianese's has focused a good deal of his scholarly work on increasing public participation in agency rulemaking proceedings, especially with respect to the opportunities enabled by e-rulemaking. He argues persuasively that the FCC's proposal doesn't make sense.

You should read his piece in its entirety, but here is his conclusion in the last paragraph:

"[B]y considering a requirement that public comments be accompanied by cited materials, the FCC deflects attention from the underlying concerns. The Commission’s suggested requirement, imposing a new burden on public participation, has things fundamentally backwards."

A Vital Lifeline

2012-01-10T12:23:00.004-05:00

By Deborah Taylor Tate

Probably only telecom groupies realize the monumental efforts of the FCC over the past year to reform the $7 billion dollar Universal Service Fund (USF). The effort culminated in a voluminous order focused on the High Cost Fund that was adopted on November 18, 2011. And, while there will certainly be legal challenges to the USF order, it is no less an important step for the agency.

The FCC commissioners and staff should be proud of taking a stand and finally curtailing what has been one of the least efficient and certainly overly costly subsidy programs funded by taxpayers. The USF program has been a poster child for corporate welfare, and it has needed reform for decades.

On the other hand, the FCC now has the last piece of overall USF reform to finalize: the portion of the fund that supports qualified Low Income persons. And while I have been a vociferous supporter of reforming universal service for years, I hope that the Commission doesn't throw the baby out with the bathwater. While many have criticized the Low Income Fund for "waste, fraud and abuse" – indeed, I agree all government programs should constantly improve their efficiencies and implement procedures to prevent fraud – the industry has stepped forward with numerous solutions which already have solved most of these criticisms, and more reforms can be implemented.

But the bottom line is that low income Americans are still facing extremely high levels of unemployment and the longest recession since the Depression.

The low income fund is just that: a fund only for low income persons; only for the poorest of the poor.

In many ways, it is the part of the fund that most embodies what Congress intended by creating a fund that ensures all Americans have the opportunities available in a nationwide communications network. Congress indeed foresaw that communications would connect people to jobs, healthcare, schools, and, of course, their families. Today that connectivity should include broadband, and the Lifeline could again be the safety net to insure that no American – no matter how poor – is left behind in the Digital Age.

And here's an important point about the Lifeline program that should be emphasized: The fact that the program exists, as a means of targeting subsidies to those truly in need, makes it easier to argue convincingly that those parts of the overall USF program which distribute subsidies in a much more indiscriminate fashion, such as the high-cost program, should be subject to hard caps and gradual reductions.

In other words, the existence of the Lifeline program ought to be persuasive in arguing that subsidies that support service to the wealthy residents of Aspen and Jackson Hole should continue to be phased out.

My hope for the New Year is that the FCC recognizes the important – indeed, the critical – role that the Lifeline program plays in helping to ensure communications access for the truly poor. Rather than capping the low income program, we should be ensuring that those in need have access to this vital lifeline.

Internet Access as a Human Right

2012-01-05T14:58:00.003-05:00

I particularly liked Vint Cerf's op-ed in the New York Times entitled, "Internet Access Is Not a Human Right."

It is tempting to succumb to the notion that Internet access, along with access to a bunch of other things, are human rights, but Cerf makes a persuasive argument that this is the wrong way to think about rights and the technologies that enable facilitate the exercise of some rights.

Here is the way Cerf, Google's chief Internet evangelist, put it:

"The best way to characterize human rights is to identify the outcomes that we are trying to ensure. These include critical freedoms like freedom of speech and freedom of access to information — and those are not necessarily bound to any particular technology at any particular time. Indeed, even the United Nations report, which was widely hailed as declaring Internet access a human right, acknowledged that the Internet was valuable as a means to an end, not as an end in itself."

I say, well put.

North Carolina's Broadband Battle

2012-01-05T12:54:00.000-05:00

Just read a good article in Inside ALEC, the bimonthly publication of the American Legislative Exchange Council. The article is "North Carolina's Broadband Battle," by N.C. Representative Marilyn Avila. Rep. Avila authored the bill that became N.C.'s "Level Playing Field Law," which imposed restrictions on municipalities that wish to provide phone, cable TV, or broadband services in competition with existing private providers.

The bill resulted from the experience of municipalities in North Carolina getting into the telecom business in cities and towns in which the same services already were being provided by Time Warner Cable, AT&T, and CenturyLink.

Rep. Avila details the municipalities' money losing experiences -- really the taxpayers' money losing experiences since it is the taxpayers that ultimately foot the bill when the city-owned telecom businesses fail.

As Rep. Avila recounts the experiences of the N.C. towns, she sums up: "The facts were not pretty."

I don't have a link to the article, but if you get the Insider ALEC, Rep. Avila's piece is well-worth reading.

Tom Friedman on the Gig-U Project

2012-01-04T15:28:00.001-05:00

NY Times columnist Tom Friedman gives a shout-out to Blair Levin's Gig-U project Gig. U project, a consortium of 37 university communities working to promote private investment in next-generation ecosystems, in his January 3 column.

When it was launched, I said I thought that the collaborative, seed-bed concept behind Gig. U was very promising and innovative, and I still think so.

Hopefully, 2012 will be a year in which Gig. U moves further along the continuum from conception to implementation to results.

New Year's 2012: Hayek, Liberty, and the Communications Policy Reform Agenda

2012-01-02T10:05:00.015-05:00

I spent part of the holidays re-reading Friedrich A. Hayek's The Constitution of Liberty. (I know. Not exactly light reading like, for instance, The Girl with the Dragon Tattoo!)

During the holiday period, I also devoted considerable time to thinking about the Free State Foundation's ongoing efforts to spur reform of the nation's communications laws and policies. (I know. Not exactly light thinking, like, for instance, thinking about whether to go see Meryl Streep in The Iron Lady before catching up on missed episodes of Glee).

In Hayek's famous work, The Use of Knowledge in Society, he explains the important role that dispersed bits of incomplete and frequently contradictory knowledge -- that is, information possessed by individuals acting on their own in response to price signals – play in the working of free markets.

The Constitution of Liberty, on the other hand, is not a work of economics, but rather of political economy. Here Hayek explains why a system of government based on certain foundational rule of law principles is a predicate not only for the functioning of a rational, efficient economic order but, just as importantly, for a government that both preserves liberty and promotes prosperity.

I acknowledge that when Hayek wrote The Constitution of Liberty, published in 1960, he was not focused on reforming communications law and policy. I understand this. Nevertheless, the fundamental principles he espoused have much relevance in thinking about that topic today.

To show why this is so, first, I want to set forth a few key excerpts from The Constitution of Liberty that fairly capture overarching central themes of Hayek's work:

"[T]here are two reasons why all control of prices and quantities are incompatible with a free system: one is that all such controls must be arbitrary, and the other that it is impossible to exercise them in such a manner as to allow the market to function adequately."

"If there is to be an efficient adjustment of the different activities in the market, certain minimum requirements must be met; the more important of these are, as we have seen, the prevention of violence and fraud, the protection of property and the enforcement of contracts, and the recognition of equal rights of all individuals to produce in whatever quantities and sell at whatever prices they choose."

"All experience confirms what is 'clear enough from American as well as from English experience, that the zeal of the administrative agencies to achieve the immediate ends they see before them leads them to see their function out of focus and to assume that constitutional limitations and guaranteed individual rights must give way before their zealous efforts to achieve what they see as a paramount purpose of government.' It would scarcely be an exaggeration to say that the greatest danger to liberty today comes from the men who are most needed and most powerful in modern government, the efficient expert administrators exclusively concerned with what they regard as the public good."

"[T]here is a strong presumption against such [general regulations of economic activity] because their over-all cost is almost always underestimated and because one disadvantage in particular – namely, the prevention of new developments – can never be fully taken into account."

Next, with the above excerpts in mind, I want to extract from these themes several key principles that are relevant to establishing welfare-enhancing communications policies in today's competitive, fast-changing, technologically dynamic marketplace, and also to understanding the FCC's proper role and stance. These principles are:

A proper role for government is the protection of property and the enforcement of contracts.

The free market, not government officials, should dictate the quantities of goods and services produced and the prices at which they are sold because the decisions of government officials necessarily will be arbitrary in relation to those of the market.

Even if they are well-intentioned, administrative agencies are, by definition, almost always overzealous in pursuing what they claim as the public good at the expense of individual freedom.

The costs imposed by new regulations almost always are underestimated, while new developments are not fully anticipated.

Finally, I want to suggest, what should be obvious: Communications law and policy, as it stands today, is far from grounded in Hayekian principles. And the FCC, as the administrative agency charged with implementing the communications laws, regularly acts just in the way Hayek suggested such an agency would act – by overzealously and arbitrarily regulating in the name of the "public good," while downplaying the costs imposed by its regulations and failing to anticipate new developments.

So, as we continue our efforts at the Free State Foundation to spur free market-oriented reform of our nation's communications law and policies, we will do so with Hayek's themes and principles in mind.

This is true, for example, with respect to our efforts over the coming year to:

Prevent broadband services from being subjected to public utility-style regulation and rolling back such regulation where it already has occurred, for example, with respect to the FCC's imposition of net neutrality mandates. See my recent commentary, "Build Back That Broadband Wall."

Free up additional spectrum through authorization of incentive auctions and removal of current FCC rules that unnecessarily restrict licensees' freedom to use their spectrum more flexibly and to dispose of their spectrum more easily through workable, transparent secondary markets.

Eliminate or curtail outdated video regulations such as the FCC's program carriage rules. In a recent FCC administrative law judge's decision, the program carriage regulations were (mis)used by the judge to arbitrarily abrogate negotiated contract rights in mid-term, and substitute the government's judgment concerning program carriage for that of a private business operator's, all the while disregarding First Amendment free speech rights regarding program content selection. See my recent commentary, "The Tennis Channel Case: No Mere Foot Fault."

Eliminate, as contemplated by the newly-introduced "Next Generation Television Marketplace Act," the obsolete regulatory regime in which the government requires that multichannel video operators "must carry" certain kinds of channels with particular kinds of program content, restricts the number and kinds of media outlets that may be commonly owned, and establishes a compulsory license regarding retransmission of certain kinds programming by cable operators, all the while offending free market and free speech principles. For a good short primer on why the "Next Generation Television Marketplace Act" warrants a positive reception, see the paper, "The FCC and the Unfree Market for TV Program Rights," by Free State Foundation Academic Advisory Board Member Bruce Owen.

Reform the FCC's broken merger (transaction) review process in which the agency frequently exercises its largely unfettered discretion under the indeterminate public interest standard to impose conditions on the merging parties that are unrelated to the transaction before the Commission and which are not justified by competition analysis. Nothing has changed to improve this "regulation by condition" process of coerced volunteerism since I first wrote about the problem in "Any Volunteers" in 2000.

Oppose efforts to get the International Telecommunications Union's World Congress on Information Technology (WCIT–2012), to be held in October 2012, to adopt policies that, under cover of the ITU, sanction control and regulation of the Internet in various ways, including regulation of transmissions and content that governments deem offensive. See FCC Commissioner Robert McDowell's recent speech warning about those advocating at the WCIT for a new regime that "would create a new overarching layer of international regulation."

I understand there are other communications policy topics that could be highlighted, and that there are issues within issues in the topics listed above. The listing is not intended to be exhaustive. What I intend to show is that, running through the compilation, is a Hayekian approach that respects contracts and private property, constrains otherwise unbridled administrative discretion, and promotes free markets and the rule of law.

This is the surest – and, in the end -- the only sure way to advance prosperity and protect liberty at the same time.

"A Call for a Radical New Communications Policy" and OIRA

2011-12-30T12:47:00.003-05:00

The Administrative Law Review, published by the ABA's Section of Administrative Law and Regulatory Practice, has just published an issue commemorating the thirtieth anniversary of OIRA. The volume contains a number of excellent articles prepared by participants at a conference on OIRA sponsored by The George Washington University Regulatory Studies Center.

Many of the articles, written by OIRA Administrators and Deputy Administrators, provide useful insights concerning the way OIRA has operated over the years – showing patterns of both continuity and change. For an especially rich history of the formative years of OIRA, tracing its roots back much earlier than commonly assumed, I commend Jim Tozzi's article, entitled "OIRA's Formative Years: The Historical Record of Centralized Regulatory Review Preceding OIRA's Founding."

Of special interest to me are the articles, and there are a number of them, in which the former OIRA officials all make the same point: The so-called independent regulatory agencies should be subject to the same OIRA review process as the executive branch agencies. In other words, the independent agencies should be subject to more presidential control than they are presently.

In my new book, A Call for a Radical New Communications Policy: Proposals for Free Market Reform, the Federal Communications Commission's status as an independent agency plays a significant role. In one chapter I recommend that Congress consider transferring the policymaking functions of the FCC, usually carried out through rulemaking proceedings, to the executive branch, while retaining the current multimember commission format for deciding adjudicatory matters. Restructuring along these lines would give the President more control over policymaking functions, while continuing to insulate adjudicatory decisions from political control.

And in two other chapters I explain why, in the absence of a restructuring of the FCC along the lines I recommend, the agency should receive less Chevron deference upon judicial review than do executive agencies. I argue that the principal rationale of Chevron dictates this result. (By the way, so has Elena Kagan, when she was dean of Harvard Law School.)

I don't won't to spoil your fun by saying more here. But you can buy my new book, A Call for a Radical New Communications Policy: Proposals for Free Market Reform, from Amazon here, and from Barnes & Noble here. And then you can decide for yourself.

New Book: A Call for a Radical New Communications Policy

2011-12-29T09:41:00.003-05:00

I know my new book arrives too late for an on-time Christmas stocking-stuffer. But not too late to fulfill your New Year's resolution that this is the year you are going to think seriously about reforming communications law and policy.

My book, A Call for a Radical New Communications Policy: Proposals for Free Market Reform, consists of eight of my law review articles, with a Foreword placing all of them in the context of a free market-oriented communications policy reform framework that is consistent with fundamental constitutional principles.

You may order the book from Amazon here, and from Barnes & Noble here.

Here are a few excerpts from the Foreword which will give you a good sense of the book's scope and tenor:

"When Congress passed the Telecommunications Act of 1996, the most significant change to the Communications Act since its adoption in 1934, it was thought by many that enactment of the new statute meant there would be a meaningful deregulatory shift in communications policymaking in light of the developing marketplace competition. But, unfortunately, there has been no such paradigm shift - which means there is still much work to do to reform our nation's communications laws and policies."

"So, a full fifteen years after the 1996 Act's passage, what should be done now? The answer can be stated quite simply: Communications law and policy needs to be radically reformed in a free market direction that is consistent with fundamental constitutional principles. Communications policy at present cannot fairly be characterized as free market-oriented and conforming comfortably with the Constitution, especially separation of powers and First Amendment strictures. This book consists of a collection of eight articles and essays I have published in law journals over the past decade, beginning in 2001. In part they are descriptive. They explain what is wrong - from both a public policy and constitutional perspective - with the current regime. And in part they are normative in suggesting prescriptions for reform."

"Of course, had major shifts occurred in communications law and policy over the last decade, there might be a legitimate concern that the articles are dated, or at least less useful than otherwise as a path to reform. But even as the communications marketplace and technology have continued evolving rapidly, leading to more competition and more consumer choice, the law and policy paradigm has remained largely unchanged from the twentieth century regulatory model. Therefore, the articles in this book remain as relevant as ever. Indeed, I would argue they are more relevant than ever, given the increasing mismatch, as time goes by, between competitive marketplace realities on the one hand and law and policy on the other."

"This brings me back full circle to this volume's principal purpose: To convince the reader that it is time - past time, really - for Congress to adopt a radical new communications law and policy paradigm grounded firmly in free market and constitutionalist principles. Replacing the current regime with one that is market-oriented and respectful of constitutional strictures would achieve Congress' presently unfulfilled intent, declared in the preamble to the Telecommunications Act of 1996, that our nation's communications laws be pro-competitive and deregulatory."

Each year one of my New Year's resolutions is to continue working hard to achieve much needed communications policy reform. If this is one of yours too, or if you are willing to join in the fight, or simply want to better understand what the fight is all about, I think you will find A Call for a Radical New Communications Policy: Proposals for Free Market Reform informative and useful.

Again, you may order the book from Amazon here, and from Barnes & Noble here.

The Tennis Channel Ruling: No Mere Foot Fault

2011-12-21T13:10:00.012-05:00

This was no mere foot fault. A Federal Communications Commission Administrative Law Judge (ALJ) issued a decision yesterday that was far enough out of bounds that perhaps it will be a game-changer that persuades policymakers that outdated legacy communications laws and policies no longer make sense.

The ALJ ruled in favor of the Tennis Channel in its "program carriage" complaint against Comcast. In essence, the ALJ ruled that Comcast discriminated against the Tennis Channel, which is not affiliated with Comcast, by not acceding to the Tennis Channel's request that it be moved, in the midst of its contract term, to the same program tier as two of Comcast's affiliated sports channels. The ALJ finds the Tennis Channel is sufficiently similar to the Golf Channel and Versus channels that they must all be located in the same program neighborhood for Comcast to avoid running afoul of the anti-discrimination prohibitions in the agency's carriage regulations.

In today's dynamic broadband world, including the broadband video world, the FCC inflicts much marketplace damage in the name of preventing or rectifying "discrimination." Just witness last year's promulgation of net neutrality mandates. Net neutrality mandates are based on public utility-style regulation that has, at its core, a prohibition on discrimination. This discrimination regulation may have been appropriate in the monopolistic Ma Bell-era but it is not proper in today's competitive multi-platform broadband environment.

In the Tennis Channel case, the ALJ purports to be enforcing the Commission's program carriage regulations promulgated under Section 616 of the Communications Act which gives the FCC authority to prevent multichannel video programming distributors (MVPDs) like Comcast from restraining the ability of unaffiliated video program vendors from competing "fairly by discriminating."

"Fairly by discriminating." Aha. There's a lot of room for the exercise of unbridled administrative discretion encompassed in those three words.

In my "Build Back That Broadband Wall" commentary, published just last week in the Washington Times, I highlighted four examples to show how the FCC is extending, or proposing to extend, legacy analog-era regulations developed in last century's monopolistic narrowband environment into today's competitive broadband world. One example, somewhat prescient in light of the ALJ's decision, was the FCC's program carriage regulations.

Here is what I said in my commentary:

"The commission proposes to expand existing program carriage rules intended to prevent cable operators and other video programming distributors from discriminating against unaffiliated programming vendors. The existing rules, adopted in the early 1990s when cable operators still possessed market power and when vertical integration was more pronounced, no longer serve any useful purpose. Today, only two of the 25 most-viewed cable networks are wholly owned by cable operators. With two nationwide satellite television operators and a broadband telecommunications provider competing vigorously in most locales - not to mention a growing number of popular Internet video sites - cable operators lack the incentive and ability to discriminate against unaffiliated programmers. So there is a good argument the existing program carriage requirements should be eliminated, especially in light of free speech concerns raised by the government mandating carriage of particular programs. At the very least, however, the regulations should not be expanded as the commission now proposes. Contrary to the First Amendment, the expanded regulations would have the government injecting itself even further into decisions about what programming video providers must carry and where in their channel lineups such programming must appear."

To understand what is wrong with the ALJ's decision, in a very fundamental sense, please carefully consider what I wrote above – before the issuance of the ruling in favor of the Tennis Channel.

And, now also consider this:

· In this instance, the Tennis Channel's placement in Comcast's program lineup was in accordance with a contract between the parties in which the Tennis Channel had agreed to its lineup placement. The amount of compensation negotiated under the contract was, of course, related to the agreed-upon tier placement.

· Several other MVPDs simply made a decision not to carry the Tennis Channel at all, thus obviating any need to bargain about placement of the channel.

· If Comcast is required to move the Tennis Channel from its present location, it almost certainly will be required, due to channel capacity limitations, to displace another program channel that Comcast has determined, based on its business judgment, either is more popular with its customers, or one that at least deserves an opportunity to try to build audience support.

· In rendering his decision on "discrimination," the ALJ was required to make determinations concerning the similarity of the programming among program channels. It is true, I suppose, that tennis and golf are both "sports." But to make the type of determination rendered in this instance, the government regulator is required to examine the intricacies of program genres, program ratings, target audiences, and the like. This type of examination into programming decisions raises obvious free speech concerns.

So, in sum, the ALJ's decision in the Tennis Channel case was a ball hit out of bounds. The Free State Foundation's mission, proclaimed on our website, is to promote understanding of "free market, limited government, and rule of law principles." By ignoring the competition that exists in today's video marketplace, by, in effect, abrogating the negotiated contract in mid-term, and by deciding to substitute his judgment concerning the carriage and placement of programs based on an examination of the contents of the programming, the ALJ has managed to offend free market, limited government, and rule of law principles in one fell swoop.

In the not too much longer-term, taking account of today's competitive video marketplace in which cable operators, satellite operators, and telephone companies – and, increasingly, popular Internet video sites -- all compete for viewers, Congress should repeal the provision in the Communications Act authorizing the FCC to promulgate and enforce program carriage regulations.

A proper understanding of the First Amendment demands no less.
In the near-term, the FCC commissioners should reverse the ALJ's decision.

Robert A. Anthony, RIP

2011-12-15T18:51:00.005-05:00

Last December, the Free State Foundation lost an esteemed member of its Board of Academic Advisors, when Alfred E. Kahn passed way. Fred was a distinguished public servant and one of the nation's leading scholars on regulation, especially regulatory economics.

Now, FSF has lost another distinguished member of its Board of Academic Advisors. In November, Robert A. Anthony passed away after a lengthy, valiant battle against cancer. At the time of his passing, Bob was GMU Foundation Professor Emeritus at the George Mason University School of Law.

He received his undergraduate degree from Yale, a degree in jurisprudence from Oxford on a Rhodes Scholarship, and his law degree from Stanford. Then he set about on a remarkable career as a professor, law practitioner, and public servant.

Without doubt, Professor Anthony was one of the most preeminent – and oft-cited – administrative law scholars of his generation. Taking a leave from his teaching, he served during its formative years as one of the early Chairs of the Administrative Conference of the United States.

For a more complete appreciation of Professor Anthony's life and accomplishments, please see this memorial resolution adopted by the ABA Section of Administrative Law and Regulatory Practice shortly after his death.

Here I want to call special attention to just one part of the resolution, the part recognizing that Professor Anthony was "one of the foremost authorities on agency rulemaking and the use and misuse by agencies of policy statements and guidance documents." Bob was, indeed, the nation's leading authority on the use by administrative agencies of interpretive rules, policy statements, and guidance documents. His central concern was that agencies not abuse their authority by attempting to legally bind the public without adhering to proper process.

In one of his most oft-cited law review articles – cited in both Supreme Court and D.C. Circuit opinions – Professor Anthony explained:

"An agency may not make binding law except in accordance with the authorities and procedures established by Congress. To make binding law through actions in the nature of rulemaking, the agency must use legislative rules, which ordinarily must be made in accordance with the notice-and-comment procedures specified by section 553 of the APA." Interpretive Rules, Policy Statements, Guidances, Manuals, and the Like – Should Federal Agencies Use Them to Bind the Public, 41 Duke L. J. 1311 (1992).

So, a significant part of Professor Anthony's scholarship was devoted to explaining why, if America is to remain a nation subject to the rule of law and not to the whims of men, it is necessary – before purporting to bind our citizens – for unelected agency officials to be required to adhere to process required by law. With the seemingly intractable growth of the administrative state, this is a matter of no small importance.

On the Free State Foundation's homepage, we proclaim that our mission is "to promote, through research and educational activities, understanding of free market, limited government, and rule of law principles." My understanding of the rule of law principles that FSF aspires to promote owes much to Bob's teaching.

For me, Bob was a mentor, a scholarly colleague, and a helpful member of FSF's academic advisory board. And, above all, a good and caring friend.

So, Robert A. Anthony, RIP.

Stopping Regulatory Encroachment on Broadband

2011-12-07T14:11:00.001-05:00

It's nearing year-end. Near enough in fact that I find myself already beginning to think hard about 2012, and next year's communications policy agenda.

As I look forward, it is becoming more apparent than ever that the Federal Communications Commission's pro-regulatory proclivities threaten to burden digital broadband services with public utility-style regulation that may have been appropriate in the analog age but which is not so today. Fighting to prevent broadband services from becoming engulfed in the still-prevalent legacy regulatory morass, and rolling back broadband regulation where it already has occurred, looks to dominate the communications policy agenda during 2012.

When the FCC concluded, beginning in 2002 under then-FCC Chairman Michael Powell's leadership, that broadband services are "information services" not subject to common carrier regulation, and when the agency successfully defended this determination in the Supreme Court's Brand X decision in 2005, I was somewhat hopeful that a fence had been erected that would allow newly-competitive broadband services to continue to flourish on an unregulated basis.

Alas, for the most part, the demarcation between analog telecom services and broadband information services has proved to be more a porous Maginot-like line than an effective regulatory barrier. While I may have been hopeful after Brand X, it would be wrong to say I have been totally surprised at developments over the last few years. This is because the FCC, more so even than many other administrative agencies, possesses a strong institutional bias favoring activist regulatory solutions rather than free market solutions – a bureaucratic imperative, if you will. And the current FCC majority has proven itself receptive to seeking new regulations based on highly anecdotal evidence of potential consumer harm.

The regulation of broadband services about which I am concerned comes in many forms, some more onerous than others, and some couched in rhetoric that seeks to minimize, or even conceal, the extent of the regulatory intrusiveness and burdens. Here I want to identify just a few diverse regulations or proposed regulations that show the FCC's proclivity to extend analog-era regulatory regimes into today's broadband marketplace. In each instance, such extension is unnecessary and, indeed, generally harmful to overall consumer welfare.

· Net Neutrality Mandates. Although couched as sweet-sounding "open Internet" regulations, in essence net neutrality mandates resemble traditional common carrier regulation that prevailed in the telecom marketplace throughout the 20^th Century. With its prohibition against discrimination and unreasonable rates, the common carrier regime may have been suited to the monopolistic Ma Bell circuit-switched era, but it is ill-suited to an IP world in which operators of cable, telephone, wireless and satellite digital broadband platforms compete to provide variously-configured services or bundles of services and constantly evolving applications. In this digital multi-platform marketplace, discrimination prohibitions and rate regulation put operators in a straight-jacket that inevitably inhibits the development of innovative new service offerings and new network infrastructure investment. After all, "discrimination" is the means by which providers normally seek to differentiate their services from their competitors' services in response to what they perceive to be changes in consumer demand. Most troubling of all, the Commission adopted the net neutrality mandates without a showing of demonstrable market failure or consumer harm.

· Network Outage Reporting Regulations. For a different type of regulation -- indeed, perhaps a seemingly benign one – in which the FCC may extend analog-era mandates into the broadband world, take, for example, the agency's network outage reporting requirements. The FCC proposes largely to extend the old circuit-switched requirements to Voice Over Internet Protocol (VoIP) and broadband Internet services providers. As my colleague, Seth Cooper, explains in detail in his just-released FSF Perspectives: "At bottom, the FCC's proposed rulemaking is a monopoly-era legacy regulatory measure. It would carry over rules initially created to address problems pertinent to analog circuit-switched telephone calls to today's diverse and competitive digital communications services marketplace. Technological innovation, including the unique characteristics of digital broadband networks, limit the occurrence and scope of outages experienced by end users in a way that renders such a carry-over ill-advised." He explains that "when it comes to 911 and e911 services, however, the FCC has not made any showing that the VoIP and broadband Internet access and backbone markets are failing to deliver reliable 911 or e911 services, or that those markets are failing to incentivize reliable provision of these services."

· Program Carriage Regulation. For yet another type of unwarranted extension of regulation, consider the Commission's pending proposal to further expand the program carriage rules developed in the analog-era to prevent cable operators and other multichannel video programming distributors ("MVPDs") from discriminating against unaffiliated programming vendors. The existing rules, which implement Section 616 of the Communications Act, no longer make sense today. Section 616 was added in 1992 when cable operators generally still possessed market power in the multichannel video program distributor marketplace and when vertical integration was more pronounced. For example, in 1992, only 68 national programming networks existed, and 57% of those were vertically integrated with cable operators. Today, there are over 500 national programming networks, and only about 15% are vertically integrated with a cable operator. According to a recent Comcast filing, of the 25 most viewed cable networks, only two are wholly owned by cable operators. With two nationwide satellite television providers and broadband "telco" providers competing vigorously in most MVPD markets, not to mention popular Internet video sites, cable operators (and the other MVPDs) lack the incentive and the ability to discriminate against unaffiliated program providers. In the current competitive environment, with consumers having a choice of multiple providers, and with more and more video programming available on the Internet, MVPDs cannot afford to favor their own programming over that provided by unaffiliated providers. So, in reality, there is a persuasive argument the existing program carriage requirements should be eliminated, especially in light of First Amendment concerns raised by the government mandating carriage of particular programming. But rather than curtailing them, the FCC is currently proposing to expand the scope of the program carriage mandates in ways that would make the rules even more intrusive and costly, and even more problematic under the First Amendment than they already are. The Commission would be called on to make determinations regarding program genres, target audiences, program ratings, and the like, which necessarily involve judgments concerning program content.

· Set-Top Box Regulation. In 1996, when cable operators still retained market power, Congress included a provision in the Communications Act, requiring the FCC to adopt regulations governing the availability of set-top navigation devices from unaffiliated vendors. Anyone familiar with the history of set-top box regulation after 1996 knows it is a particularly sorry saga in which very little has been accomplished at great expense. In this instance, Congress, somewhat presciently, actually directed the agency to sunset the set-top regulations when the MVPD market and the market for set-top boxes became competitive. Both are, and they have been for some time now. Yet, rather than getting out of the business of regulating video navigation devices, the FCC is proposing to double-down on this form of regulation in the IP world. It is proposing to mandate for all broadband multichannel video providers certain standardized navigation functionalities (such as access, provision, decoding, and reception features). In other words, despite the fact that MVPDs must compete against each other to satisfy and retain customers, including in the provision of navigation features, the FCC is proposing to design a set-top box that embodies the search and display capabilities it thinks are necessary to promote independent provision of these features. As with the program carriage requirements, the proposal implicates free speech interests, which we have explained here. But the FCC apparently ignores the First Amendment concerns raised by a mandate that would dictate particular content by prescribing uniform search and display functionalities.

Each of these examples, as diverse as they are, has this in common. They are instances where the FCC has either extended, or is proposing to extend, a form of legacy regulation from the analog into the broadband world. And in each instance the agency is not compelled to do so by statute, but rather it is choosing to do so as a matter of administrative discretion. And, wholly aside from the costs and burdens imposed by the new regulations, it is doing so in the face of serious legal questions concerning its statutory authority (net neutrality) and even its constitutional authority (program carriage and AllVid).

While there is no gain in giving up hope, or in failing to advocate vigorously for the adoption of market-oriented policies by the agency, it is unlikely that the FCC will meaningfully reform itself. Unfortunately, it is instead more likely that the Commission will continue on the road of attempting to impose on broadband Internet services regulations developed for narrowband analog-era services.

I have some ideas that I'll be discussing in the weeks and months to come concerning ways to stop this regulatory encroachment on broadband. In the meantime, if you have ideas too, I'd welcome hearing about them.

Thanksgiving Day - 2011

2011-11-22T18:36:00.004-05:00

If calendars weren't so infallible, and I didn't smell the turkey roasting in the oven, I wouldn't believe it is already Thanksgiving.

But it is. And long-time readers know that I always – well, almost always – try to offer some special thoughts on Memorial Day, Independence Day, Thanksgiving, and New Year's.

Most every day of the year, including often weekend days, here at the Free State Foundation we're focused on espousing free market, property rights, and rule of the law principles. And in order for our work to be impactful, oftentimes we're focused on the nitty-gritty of thinking hard about how to translate those broad principles into sound policy recommendations that enhance the nation's welfare.

There aren't too many days that go by that I don't think, at least for a moment, about how fortunate I am to live in a country where I have the freedom to do what we do at FSF – advocate fundamental principles in which we believe. Too many people around the globe still lack this basic freedom.

So, I am thankful for this First Amendment freedom I have, and I am thankful for our Constitution that guarantees it.

And I am thankful for the opportunity to play a part in the ongoing American experiment in democratic republicanism (note the lower case) that has provided the American people with so much bounty and continuing promise.

Nevertheless, it would be foolish on this Thanksgiving, while rightly giving thanks for America's bounty and its promise, to ignore the serious challenges confronting our country in the months ahead. I especially have in mind today the severe fiscal straits in which we find ourselves, with an ever-rising $15 trillion national debt, the result of years of profligate overspending.

It is not the time today to ascribe blame or to push policy proposals. Instead, I want to share one of my favorite poems. There is something in the simplicity of it, and its simple meaning, that comports with the Thanksgiving spirit. And which does so in a way that makes us think anew about how one person extending a hand to another can make our communities and our nation stronger.

The Bridge Builder

Will Allen Dromgoole

An old man, going a lone highway,

Came, at the evening, cold and gray,

To a chasm, vast, and deep, and wide.

Through which was flowing a sullen tide.

The old man crossed in the twilight dim;

The sullen stream had no fear for him;

But he turned, when safe on the other side,

And built a bridge to span the tide.

“Old man,” said a fellow pilgrim, near,

“You are wasting your strength with building here;

Your journey will end with the ending day;

You never again must pass this way;

You’ve crossed the chasm, deep and wide --

Why build this bridge at the eventide?”

The builder lifted his old gray head:

“Good friend, in the path I have come,” he said,

“There followeth after me today

A youth, whose feet must pass this way.

This chasm, that has been as naught to me

To that fair-haired youth may a pitfall be.

He, too, must cross in the twilight dim;

Good friend, I am building this bridge for him!”

So, best wishes from those of us at the Free State Foundation for a Happy Thanksgiving and safe travels. And may the bridges you build be many and strong.

Report Examines the Present and Future of the Internet "Exacloud"

2011-11-22T15:14:00.006-05:00

For the latest on Internet traffic trends look no further than "Into the Exacloud," a report just released by Entropy Economics' Bret Swanson. The report summarizes from and succinctly analyzes a number of recent studies and estimates on Internet traffic growth. It also looks at the latest advancements in network capabilities as well as applications and content demands. Not surprising, "online video is the driver of network traffic." In addition, the report includes forecasts for Internet traffic growth and related innovation along with some basic policy prescriptions to best accommodate what he calls the growing Internet-era "exaflood." Below is a liberal quotation of the report's executive summary:

Very large investments in info-tech infrastructure – including wireless – will need to continue for years to come.

Wireless capacity, coverage, and flexibility is the chief bottleneck that must be addressed – and is today’s chief public policy concern.

Driven largely by Web video, network traffic continues to grow rapidly and may have accelerated in the last year or so.

Networks are increasing in capacity, reach, and complexity, and content companies have become Internet infrastructure companies.

Broadband connectivity enabled the rise of the cloud, and now the cloud requires ever more broadband – both wired and wireless.

Enormous troves of data, both structured and unstructured, are piling up all over the world.

The digital ecosystem, comprised of networks, devices, software, services, and the cloud is changing fast. Innovations are improving and disrupting most sectors of life and the economy, including entertainment, education, health, finance, retail, and government, not to mention our social fabric.

The next generation of exacloud services will deliver unprecedented real-time content and software experiences and impose severe new demands on network capacity and speed.

On the public policy front, the report points to the importance of spectrum and deems wireless capacity to be a "crucial scarcity":

Part of this scarcity can be relieved through investment in new 4G networks and femtocells. A substantial portion of the scarcity, however, is due to a lack of available clean radio spectrum – the type of spectrum that can support 4G networks and the volumes and diversity of future traffic… Unleashing this spectrum through auctions and allowing greater flexibility to use, buy, and sell existing private spectrum is a paramount concern – if vive and thrive in the exaflood era.

This emphasis on spectrum for wireless services provides a timely reminder of the significance of NTIA's much-anticipated and hopefully soon-to-be-released report on the 1755-1850MHz. That spectrum band is a potentially rich resource for serving consumers' growing demands for next-generation wireless services.

FCC Should Pursue Solutions to Make Lifeline an Effcient Job Line

2011-11-21T14:45:00.001-05:00

Posted for Deborah Taylor Tate

Over the years, I've written a lot about the Lifeline-Linkup program which -- thankfully and finally -- is part of the overall USF Reform being undertaken by the FCC. As a former FCC Commissioner and Federal Joint Board Chair, I had really hoped to start the "reform" back in December 2009; however, better late than never. And sometimes I wish I were still at the FCC so I could put out a statement whenever companies step forward with creative, positive solutions to real problems.

This past weekend, two of the leading Lifeline providers -- Nexus and TracFone -- announced a plan to help resolve a "bumper sticker" issue of "waste, fraud and abuse," specifically as it relates to any duplication of Lifeline. By law, Lifeline is restricted to one subsidy per household. Nexus and TracFone "plan to engage a third party vendor to develop and implement a database which will enable all ETCs [eligible telecommunications carriers] to determine whether applicants for enrollment in their Lifeline programs are enrolled in other ETCs' Lifeline programs." The two providers intend to "reach out to other Lifeline providers to participate in this cooperative effort" to prevent and reduce incidences of duplicative enrollment in Lifeline.

The FCC has an opportunity to adopt an industry-led, voluntary, resolution that will be cost-saving -- i.e., paid for by the companies themselves. It can certainly be implemented much more quickly than a burdensome bureaucratic government scheme. And, most importantly, it will resolve the problem.

With 44 million Americans in poverty -- not to mention that a recent report recognized those communities are "predominantly of people of color" -- I have never understood why Lifeline was not being championed as a "job line." Even though the FCC and this Administration say they are intent upon getting broadband deployed to every American, how incredible that huge segments of our population still do not have access to a simple phone. (And how odd that we often applaud developing countries for connecting their poor to cell phones while we still can do more to help our own citizens to gain access to communications in the 21st Century!).

We all agree that any fraud should be investigated, waste reduced, and abuse stopped. And, in the abstract, more regulatory oversight, stiffer eligibility rules and additional hoops to get Lifeline make for a terrific sound bite. However, with unemployment continuing at an all time high and Americans facing ongoing tough times, we should utilize a program that could actually help solve larger societal problems: helping link up someone who is jobless to a job, or accessing necessary health care, or just finding out your child is sick.

Lifeline was created during the Reagan Administration. As President Reagan so eloquently put it: "Welfare's purpose should be to eliminate, as far as possible, the need for its own existence." Lifeline-Linkup is one of the few government programs that does precisely that.

And by the way: Just try leaving your cell phone at home for a day and see what its like to be without your lifeline.

Congressional Subcommittee Passes Cost-Benefit and Other FCC Process Reforms

2011-11-18T12:52:00.010-05:00

As covered in recent news accounts, the House Communications Subcommittee passed a pair of FCC process reform bills on November 16. In a November 3 blog post titled "Reforming the FCC's Regulatory Process," FSF President Randolph May discussed both bills: H.R. 3309 and H.R. 3310.

The FCC is an independent agency and not subject to existing Presidential Executive Orders regarding regulatory processes. So among its many provisions, H.R. 3309 incorporates some key language contained in Executive Order 12866 (1993) and Executive Order 13563 (2011) regarding identification harm and cost-benefit analysis.

H.R. 3309 contains requirement that must be met by the FCC in conducting rulemakings that will have an "economically significant impact"—i.e., will cost $100 million or more annually or have "a material adverse effect on the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities." In particular, the FCC must identify and offer an analysis of "the specific market failure, actual consumer harm, burden of existing regulation, or failure of public institutions that warrants the adoption or amendment." The FCC must also provide:

Cost-benefit analysis is receiving increasing attention as a method for bringing more discipline to administrative agencies and for halting or perhaps even turn the tide against escalating numbers of new federal regulations. Taking reasoned steps to curb unnecessary costs and restrictions imposed by federal regulations is particularly important in light of our existing economic travails.

Also on November 16, Dr. Jerry Ellig and Sherzod Abdukadirov of the Mercatus Center published a short primer on "Regulatory Analysis and Regulatory Reform." Ellig and Abdukadirov sketch out a useful framework for assessing the quality of regulatory impact analysis and offer some prescriptions for improving such analysis. It should come as no surprise that they recommend that "[r]egulatory analysis must be legislatively required for all agencies, including independent agencies."

a reasoned determination that the benefits of the adopted rule or the amendment of an existing rule justify its costs (recognizing that some benefits and costs are difficult to quantify), taking into account alternative forms of regulation and the need to tailor regulation to impose the least burden on society, consistent with obtaining regulatory objectives.

Supreme Court Terminates Review of Early Termination Fees Case

2011-11-17T16:38:00.007-05:00

Do early termination fees (ETFs) included in wireless service contracts fall under the category of wireless "rates" or under "other terms and conditions"? That's the question that was presented to the U.S. Supreme Court in Sprint v. Ayyad, a class-action lawsuit involving California customers charged ETFs for terminating their wireless service contracts. But the Supreme Court took a pass on answering that question, issuing an order denying certiorari on November 7.

The case was an appeal of a decision by the California Court of Appeals that held that, at least under the facts of the case, non-prorated ETFs charged by Sprint were not intended to be an element of the rates charged by the carrier for service but were instead intended as a liquidated damages clause to reduce churn. The California Appeals Court applied a presumption against preemption and found that, as a liquidated damages clause, the ETFs constituted "other terms and conditions" subject to California common-law remedies. As one may recall, in 1993 Congress amended the Communications Act by providing in Section 332(c)(3)(A) that states are preempted from regulating the entry of or rates charged by wireless carriers while states can continue to regulate other terms and conditions of wireless services.

The class action plaintiffs' attorneys were confident enough in their position in Sprint v. Ayyad that they waived their right to respond to Sprint's petition to the Supreme Court. However, there are weighty arguments to me made on both sides. Without addressing them in detail, it's worth recognizing that the handful of trial courts across the country that have considered the question of whether Section 332(c)(3)(A) have reached contrary conclusions. Even the California Court of Appeals acknowledged that:

It is certainly possible that elimination of ETF's may indirectly affect Sprint's rates to the extent that Sprint incurs costs in pursuing alternative remedies for contractual breach or that it would reserve for losses attributable to a potentially higher level of customer defaults. Sprint would presumably factor actual or projected lost revenue into its rate structure.

By declining to hear Sprint v. Ayyad, lower courts will likely continue to make contrary rulings as to whether or under what circumstances federal law preempts ETFs. And for its part, even the California Court of Appeals' decision left standing may offer lower courts little guidance due to the facts of that case. As a general matter, wireless carriers now universally include grace periods and prorated ETFs in their wireless services contracts.

The Supreme Court's order denying review might have been influenced by pending petitions seeking an FCC declaratory ruling that ETFs are "rates charged" under federal law. However, as the California Appeals Court noted in its ruling, "[i]t appears safe to say that any action by the FCC on this issue is not imminent."

Willful Denial and First Amendment Jurisprudence

2011-11-16T14:58:00.001-05:00

With the submission of briefs to the Supreme Court in FCC v. Fox Television Stations (a.k.a. "the FCC indecency case"), I have been thinking, as I often do, about the Federal Communications Commission and the First Amendment.

The issue in the Fox Television case is whether the FCC's determination that three different broadcasts violated the agency's indecency policy is consistent with the First Amendment. Two of the broadcasts concern the use of "fleeting" expletives, and the other, "fleeting" nudity. If you want more graphic details, you can go to the briefs, or to the original broadcasts.

For my purposes here it is unnecessary to dwell on the specifics of the broadcasts, or my sense as to whether or not the broadcasts comport with my own standards of decency. What I want to do instead is to use the occasion to once again call attention to the need for a new First Amendment jurisprudence that treats all media the same. By that, I mean a First Amendment jurisprudence that accords all media, including broadcasters and cable television and satellite operators, the same robust First Amendment protection accorded to the print media.

In the case now before the Supreme Court, the Court of Appeals for the Second Circuit held unconstitutional the FCC's new context-based indecency policy on the basis that it is impermissibly vague. "Void for vagueness," as the constitutional doctrine goes. It is quite possible, perhaps more likely than not, that the Supreme Court will decide the case on this vagueness point.

But Fox and other broadcasters explicitly are asking the Court more broadly "to overrule Pacifica and recognize that broadcasters have the same First Amendment protections as other media." To the same effect, a distinguished group of former FCC commissioners and staff officials filed a brief declaring:

In today’s media environment, the distinctions drawn by Pacifica between broadcast and other electronic media are unsustainable. Viewers can access the same content across broadcast, cable, satellite, and the internet or can subvert the Commission’s enforcement efforts by simply switching channels or turning on a computer. This reality makes plain that the Commission’s efforts to impose a separate standard on broadcasters is woefully under-inclusive. The First Amendment cannot tolerate discrimination against one of several like speakers. It is time for this Court to declare that the same First Amendment principles apply to all media.

And I have long argued the same point. In a 2009 law review article published in the Charleston Law Review, I ended this way:

Hopefully sooner rather than later, the Court will revisit Red Lion, Pacifica, and Turner in order to establish a new First Amendment paradigm for the electronic media, one that is much more in keeping with the founders’ First Amendment vision. It may even move in this direction this Term upon its Fox Television decision. Perhaps it was predictable, maybe even likely, that the First Amendment’s protections would be limited substantially during the twentieth century’s Analog Age that tended towards a monopolistic or oligopolistic communications marketplace. But now, in the face of proliferating competitive alternatives attributable to profound marketplace and technological changes, it ought to be considered predictable and yes, even likely, for the Court to establish a new First Amendment jurisprudence befitting the media abundance of the twenty-first century’s Digital Age.

Of course, on the first trip up to the Supreme Court for the FCC's indecency decisions now on review, the Court did not confront the constitutional issues now before it. Instead, in Fox Television Stations, Inc. v. FCC (2009), it remanded the case to the appeals court, sustaining the FCC's actions on administrative law grounds, thereby avoiding a decision on the broadcasters' First Amendment claims. Notably, Justice Thomas, in a concurring opinion citing my Charleston Law Review article, invited reconsideration of Red Lion and Pacifica, the two principal cases that provide the foundational sanction for according broadcasters less First Amendment protection than other media. Justice Thomas stated: "The extant facts that drove this Court to subject broadcasters to unique disfavor under the First Amendment simply do not exist today."

Many, if not most, of the readers of this space are familiar with the posture of the Fox Television Stations II case now before the Court and with the First Amendment jurisprudence to which I have alluded. But many may not be familiar with one of the more eloquent calls ever for a new First Amendment jurisprudence, certainly one of the most eloquent delivered by an FCC commissioner. An FCC commissioner who suggested the FCC ought to relinquish, as a matter of constitutional duty, authority to regulate broadcast content. I have in mind then-commissioner Michael Powell's June 1998 address entitled, "Willful Denial and First Amendment Jurisprudence."

At the time I first read it, I found Mr. Powell's address a stirring, prescient declaration of free speech principles, with which I was in full sympathy. I pull out the speech from a ragged old folder to re-read from time to time. As the Supreme Court prepares to hear argument on, and decide, Fox Television Stations II this term, I suggest you too may find the address by Mr. Powell, now President and CEO of NCTA, worth reading, or re-reading.

Here are a few excerpts to whet your appetite:

This leads me to the heart of my remarks today. Though I consider the constitutionality of proposed broadcast regulation last when I work through such issues under the public interest standard, at least I do work through it. I have observed that while changes in technology, the law, markets and consumer preferences often ignite discussion about the impact of changed circumstances on broadcaster's public interest obligations, such changes rarely initiate an equally serious examination of their constitutional protections. I believe that any attempt to consider how changes in technology and the regulatory environment affect public interest obligations, necessarily must include a review of the underpinnings of current First Amendment jurisprudence. There is a symbiotic relationship between the scope and content of public interest duties and the Constitution. The greater the protection afforded by the latter the less intrusive the government can be with respect to the former.

***

I submit that the time has come to reexamine First Amendment jurisprudence as it has been applied to broadcast media and bring it into line with the realities of today's communications marketplace. As far back as 1984, the Supreme Court indicated in the League of Women Voter's case, that it would await "some signal from Congress or the FCC that technological developments have advanced so far that some revision of the system of broadcast regulation may be required."I believe we should be getting those signal fires ready.

***

With scarcity and the uniqueness of broadcasting such demonstrably faulty premises for broadcast regulation, one is left with the undeniable conclusion that the government has been engaged for too long in willful denial in order to subvert the Constitution so that it can impose its speech preferences on the public -- exactly the sort of infringement of individual freedom the Constitution was masterfully designed to prevent.

***

In sum, I submit that it is time to reexamine the defensibility of maintaining a separate First Amendment jurisprudence. We must take the truth about scarcity for broadcast media out of the closet. Rather than continuing to engage in willful denial of reality, the time has come to move toward a single standard of First Amendment analysis that recognizes the reality of the media marketplace and respects the intelligence of American consumers.

Recall that these excerpts are from a speech delivered in 1998, more than twelve years ago. Surely, it is time for the "willful denial" of First Amendment rights, of which the then-FCC commissioner Michael Powell so eloquently spoke, to end. It is time, as I said in my 2009 Charleston Law Review article, for the Supreme Court "to establish a new First Amendment jurisprudence befitting the media abundance of the twenty-first century’s Digital Age." This means a jurisprudence that willfully provides full First Amendment protection to broadcasters, cable and satellite operators, Internet service providers, print purveyors, and other media alike.

Internet Political Speech Should Be Reclaimed from Regulation, Not Disclaimed

2011-11-09T11:29:00.004-05:00

The Federal Election Commission (FEC) is receiving public comments through November 14 on aspects of its Internet speech regulations. The FEC's request for comments stems from recent requests by Google and Facebook for exemptions from federal campaign speech disclaimer regulations for limited-character online text ads. Specifically, the FEC is deciding whether and how it should revise – and possibly make exceptions to – its regulations regarding disclaimers on online advertisements, such as banners, popups, and short text ads.

The short answer to the FEC is that it should, at minimum, adopt an exception for character-limited ads. If anything should qualify for "small items or impracticable" exceptions, it's online ads containing less than 160 characters. But the FEC's prospective action also provides occasion to reflect more generally on the regulation of political speech on the Internet. Do we need federal regulation of political speech on social networks, blogs, and other Web sites? The interactive and information-rich nature of the Internet as well as the fact that such disclaimer statements directly burden online speech suggests that the federal government should consider retreating from regulating Internet communications.

As explained in its Advance Notice of Proposed Rulemaking, published in the Federal Register, the Bipartisan Campaign Reform Act of 2002 ("BCRA") expanded and made more specific disclaimer requirements for certain "public communications." Disclaimers are required for public communications that: (1) are made by a political committee; (2) expressly advocate election or defeat of a clearly identified federal candidate; or (3) solicit a contribution. Under BCRA and FEC regulations, a "disclaimer" statement must appear on such communications, identifying who paid for it and whether a candidate authorized it.

The FEC "adopted its current rules governing Internet communications in 2006 in response to the decision of the U.S. District Court for the District of Columbia in Shays v. FEC [2004] ("Shays I"). There the District Court ruled, among other things, that "[w]hile all Internet communications do not fall within [the scope of 'any other form of general public political advertising'], some clearly do." The District Court left it to the Commission to determine "what constitutes 'general public political advertising' in the world of the Internet," and thus should be treated as a "public communication."

Disagreement among FEC Commissioners resulted in the FEC not appealing the District Court's ruling regarding the FEC's prior exclusion of all Internet communications from the definition of "public communication." Instead, following Shays I, the FEC added "Internet communications placed on another person's Web site for a fee" to the regulatory definition of "public communication." This definition swept in all potential forms of Internet advertising, such as banners, streaming videos, popups, and directed search results. And by including Internet communications placed for a fee on another person's Web site in the definition of "public communication," those Internet communications became subject to BCRA's disclaimer requirement.

As mentioned earlier, Google and Facebook recently requested exemptions from FEC regulations relating to disclaimers for short-character text ads. Google asked the FEC if it could sell search engine-generated text ads of around 95 characters to candidates and political committees if those ads didn't include disclaimers. The FEC issued an Advisory Opinion, concluding such ads were not in violation of BCRA, although the Commissioners could not reach agreement on the grounds of their ruling. Facebook subsequently asked the FEC if its ads limited to 160 characters qualified for either the "small items" or "impracticable" exceptions to the disclaimer requirements. But FEC Commissioners could not reach agreement and never issued an advisory opinion in response to Facebook's request.

That the FEC could not even agree to exempt Facebook ads and that its Notice suggests imposing alternative disclaimer requirements on small online ads through the use of required hyperlinks, micro bars, or buttons, suggests the agency might favor a pro-regulatory approach for dealing with online political ads in the future. At this point, a FEC general exemption for character-limited online ads is no sure thing.

Hopefully, the FEC will recognize that disclaimer requirements are especially burdensome when it comes to online advertising along the lines of Facebook updates, Tweets, and other social networking services. Space and character length come at a premium in such cases, increasing the likelihood that disclaimer messages will interfere with ad purchaser messages. To the extent that disclaimer restrictions make innovative kinds of online advertising less attractive to ad buyers, it can also lessen the ability of online content companies to rely on ad sales to monetize their services and be able to offer them to the public for free. After all, typical online services from Google, Facebook, Twitter, and the like are ad-supported and cost nothing for regular consumers to sign up for and use.

Moreover, nothing in Shays I expressly or impliedly requires limited character ads on the Internet to be swept into the FEC's regulatory sweep. So the FEC has reason enough to grant an exemption.

Yet for those who appreciate the transformative effect of the Internet on media and speech communications, the FEC's dabbling with online ads and disclaimer requirements brings to the surface broader questions about whether the federal government should even be regulating Internet communications.

For starters, a regulatory approach to online political speech fails to appreciate the Internet's low barriers to entry. Users can offer ideas and counter other ideas without having to own a complex media empire, let alone a broadcast station, channel, or program. Blogs, streaming video such as YouTube, and social networking services have made increasingly simple and inexpensive the avenues for public participation in the marketplace of ideas, political debates, and political elections.

Federal regulation of online political speech also has a paternalistic cast to it, as if Internet users are too easily taken in by online ads advocating a particular political viewpoint or somehow insufficiently able to exercise independent judgment, seek verification, or consult contrary viewpoints. Internet users have near total control over the kinds of content they wish to access or receive. And Internet users enjoy the benefit of easy access to further sources of information concerning the contents of online ads, political or otherwise.

Much more could be said regarding regulation of political speech online – or regulation of political speech made through all other modern media platforms, for that matter. But disclaimer requirements for political speech in modern media platforms, such as the Internet, burden speakers' ability to convey their own message. In particular, this aspect of disclaimer requirements renders them more burdensome than filing periodic reports with the FEC pursuant to campaign finance disclosure requirements.

In the years since BCRA and Shays I, legislation has percolated through Congress – such as the proposed Online Freedom of Speech Act – that would exclude all Internet communications from BCRA's definition of "public communication" and hence from its disclaimer requirements. The idea of subjecting short-character Internet ads to disclaimer requirements, now before the FEC, should cause the Congress and the general public to be concerned about the whole idea of regulating Internet communications.

Striking the Right Balance on Licensed and Unlicensed Spectrum

2011-11-07T17:28:00.008-05:00

FCC Commissioner Robert McDowell provides a timely take on spectrum issues in his November 7 remarks to the Global Fund in Brussels, "The Promise of Unlicensed Cognitive Networks." In his remarks, Commissioner Robert McDowell offers insight into the interplay between licensed and unlicensed spectrum use and also offers up a sensible policy perspective on spectrum allocation and auction.

New and emerging utilization of TV white spaces with unlicensed cognitive network technologies has the potential to repeat or even surpass the success of the FCC's 1995 allocation of the 2.4GHz band for unlicensed use in 1995. As Commissioner McDowell recounts: "Among other ubiquitous devices such as digital cordless telephones, utility metering devices, fire and security alarm systems, wireless bar code readers, wireless local area networks and baby monitors, entrepreneurs deployed 'wireless fidelity' or 'Wi-Fi' in the 2.4 GHz band."

Importantly, Commissioner McDowell makes clear the the conditions that make unlicensed use of spectrum desirable. As he explains with regard to the TV white spaces:

Permitting use of the TV white spaces on an unlicensed basis maximizes the efficiency of these smaller scraps of spectrum, which would be difficult, if not impossible to auction. Why? Because the rights to these small patches are not clearly defined, exclusive or easily transferable. Given these parameters, potential bidders would lack the incentive to spend the money necessary to invest in a license and construct a network, comply with FCC regulations, or offer commercial service.

Commissioner McDowell describes the complementary role that unlicensed spectrum can provide to licensed spectrum in delivering and enhancing innovative services:

Unlicensed use provides today's entrepreneurs with a means to develop new and exciting products without the high barrier to entry posed by licensed spectrum use. In addition, unlicensed Wi-Fi has become an important tool for licensed carriers. Cisco recently reported that IP traffic carried over Wi-Fi alone is expected to surpass the amount of traffic carried over wired networks by 2015. A 2011 Juniper Research report states that, by 2015, 63 percent of traffic generated by mobile devices will transfer onto the fixed network via unlicensed Wi-Fi and femtocell technologies. Furthermore, unlicensed networks will pick up 90 percent of this offloaded data at some point in transit.

In addition to calling for the allocation of additional spectrum for commercial use, Commissioner McDowell touches on the ongoing debates over consolidating TV channels and using a voluntary auction process to make more spectrum available for auction. His opposition to the idea "that Congress or the FCC should set aside a large contiguous swath of spectrum within the 700 MHz Band for exclusive unlicensed use" is based on the following considerations:

"At this early stage, it is not apparent that we should stop the progress well under way in the white spaces arena to create a solution for a problem --an alleged shortage of unlicensed spectrum in the 700 MHz Band --that may never exist."

"[A] a contiguous swath of spectrum would be clearly defined, exclusive and easily transferable -- everything the white spaces are not."

"Given today's unprecedented budget deficits, I question whether the U.S. can afford not to auction any and all spectrum recovered in this band."

"[S]uch designation may jeopardize U.S. efforts to harmonize this band internationally and to reap the associated beneficial economies of scale."

Given the explosive growth in demand wireless services in the last several years and projections for future growth of wireless network traffic, making more spectrum available should be the top policymaking imperative. But it is auctioned, licensed spectrum that can and should serve as the anchor and primary driver of economic growth and technological innovation.

When considered in its complementary context, unlicensed spectrum can enhance wireless network performance and bring added benefits to consumers. The wiser course is to give unlicensed cognitive network use in the TV white spaces a chance to flourish rather than turn over auctionable spectrum for unlicensed purposes. Lead with licensed spectrum and let unlicensed use follow.

City's Misleading "Fact-Sheet" on Cell Phone Safety Fails Fact-Check and First Amendment

2011-11-04T14:24:00.006-04:00

On October 21, TRDaily reported on a Danish study published by the British Medical Journal that "found no link between long-term mobile phone use and tumors of the central nervous system." According to TRDaily, "[t]he study of 358,403 mobile phone subscription holders examined the prevalence of tumors between 1990 and 2007. And researchers concluded in the study that "there were no increased risks of tumours of the central nervous system, providing little evidence for a causal association." So the best evidence continues to confirm the safety of handset devices and undermine claims to the contrary.

Just a few days later, a federal district court in California ruled that a San Francisco ordinance mandating wireless retailers and carriers issue certain city-written health warnings to consumers about health risks posed by radio-frequency (RF) emissions from cell phones was almost entirely constitutional. On October 27, Judge William Alsup ruled that San Francisco's so-called "fact-sheet," poster and sticker requirements were unconstitutional under the First Amendment.

Judge Alsup bluntly called the fact sheet "misleading" for two reasons. First, the fact sheet falsely gave the impression that cell phones are dangerous and the FCC somehow failed to regulate in the area of radio frequency (RF) emissions from wireless devices. According to Judge Alsup, "[t]hat impression is untrue and misleading, for all of the cell phones sold in the United States must comply with safety limits set by the FCC." "[E]ven worse," the judge observed, "the poster and the fact-sheet cite to the FCC's own website as if, should it be consulted, the overall misimpression would be confirmed. Once consulted, however, the FCC's message is very much the opposite."

Second, the fact sheet hinged on a World Health Organization's (WHO) listing of wireless devices as a "possible carcinogen," without explaining that classification's significance—or lack thereof. To put things into perspective, WHO lists 107 substances as "Carcinogenic to humans," 59 substances as "Probably carcinogenic," and 267 substances as "Possibly carcinogenic." As Judge Alsup pointed out, the WHO lists things such coffee and pickled vegetables along with RF electromagnetic fields in its broad "Possibly carcinogenic" category. Judge Alsup also cited a WHO fact-sheet statement that: "A large number of studies have been performed over the last two decades to assess whether mobile phones pose a potential health risk. To date, no adverse health effects have been established as being caused by mobile phone use." "[I]t does not take much to list something as 'possible,' wroge Judge Alsup, but "[t]he uninitiated will tend to misunderstand this as more dangerous than it really is."

Regarding the city's poster requirement, Judge Alsup determined it to be similarly misleading but also "not reasonably necessary and would intrude on retailers' wall space." In addition, Judge ruled that "[t]he 'sticker' requirement is also unconstitutional," since "[t]he stickers would unduly intrude upon the retailers' own message." Judge Alsup therefore upheld "the retailers' own right to speak to customers."

Judge Alsup did give the city the chance to re-write its fact-sheet. But under the judge's ruling, the poster and the sticker are out.

For those interested in administrative law and regulatory policy, the judge's ruling was interesting with regard to the standard of scrutiny to be applied in these kinds of cases. Judge Alsup suggested the U.S. Supreme Court's decision in Industrial Union Department, AFL-CIO v. American Petroleum Institute (1980), an OSHA case, is "of interest because it is one of the few occasions a court has addressed the public policy rationale at issue." In Judge Alsup's words, the case "does suggest the question whether, before the government can burden the speech interests of commercial retailers in the way here proposed, should the government be required to find that it is more likely than not that the substance is harmful."

A commitment to data-driven policymaking, as well as common sense, should prompt regulators to at least find it more likely than not that a substance is harmful before imposing speech-burdening regulations. By contrast, precautionary principle approach would treats an unproven harm as a harm by default, putting the burden of proving a negative on commercial retailers.

Judge Alsup ultimately applied a highly deferential standard to the city's ordinance. The judge analyzed the ordinance "on the presumption that San Francisco may require disclosure of accurate and uncontroversial facts as long as the disclosure requirements are reasonably related to its interest in alerting the public to a possible public health risk and to its interest in suggesting precautionary steps to mitigate the risk." It turns out that the city's misleading cell phone health warning ordinance was almost entirely a flop under that highly deferential standard, for the reasons mentioned earlier.

The bottom line here is that the best evidence continues to show that cell phones are perfectly safe to use and local governments or citizens who still have concerns should direct them to the FCC, which has regulatory jurisdiction over RF emissions.

Reforming the FCC's Regulatory Process

2011-11-03T20:26:00.001-04:00

Representative Greg Walden, Chairman of the House Commerce Committee's Subcommittee on Communications and Technology, and Senator Dean Heller, a member of the Senate Commerce Committee's Subcommittee on Communications, Technology, and the Internet, have just introduced two bills that, in important ways, would reform the Federal Communications Commission's regulatory processes.

The bottom line is that, together, the two pieces of legislation would require the FCC to operate in a more transparent, more efficient, less reflexively regulatory, and more market-oriented manner. In today's dynamic, competitive communications environment, this will serve American consumers well.

The "Federal Communications Commission Process Reform Act of 2011" (H.R. 3309) contains various provisions that would, on the whole, improve the way the agency operates. The "Federal Communications Commission Consolidated Reporting Act of 2011" (H.R. 3310), as its name implies, would require consolidation of various separate annual reports the FCC is now required to produce. This consolidated biennial report would focus, in a comprehensive fashion, on the state of intermodal (cross-technology platform) competition, the deployment of communications to unserved communities, and the elimination of unnecessary regulatory barriers.

Testifying at a hearing before the House Subcommittee on Communications and Technology on June 22, 2011, on the draft bill upon which the two new bills are closely modeled, I supported most of the proposed reforms, while not necessarily endorsing all of them. I won't repeat here what I said in my testimony about all of the various aspects of the proposed reforms because you can read the testimony.

What I want to do instead is simply highlight a few points that may be worthy of note as the process moves forward.

· In answering post-hearing follow-up questions, I suggested consolidating the various reports identified in H.R. 3310 into one "marketplace report." The bill accomplishes this very nicely. The requirement that the Commission examine cross-platform marketplace developments and competitive alternatives in a comprehensive, holistic way should lead not only to less duplication of effort at the agency and by the private sector, but, more importantly, to sounder decisions. For example, the holistic approach ought to be more difficult for the agency to ignore the fact that wireless service is substitutable for wireline service, or that the video distribution market is highly competitive.

· H.R. 3309's provision ("Transaction Review Standards") reforming the agency's merger review process is certainly one of the bill's most important features. In acting on a transaction application, the FCC could impose a condition on its approval only if the condition is narrowly tailored to remedy a harm that arises as a result of the specific transaction on review and only if the Commission possesses authority to impose a similar requirement outside of the merger review context. This provision would limit, at least to some extent, the Commission's tendency to use the merger review process to adopt regulatory requirements unrelated to alleged transaction-specific harms and that should be imposed, if at all, only in a generic rulemaking proceeding. I first urged these same reforms to the merger review process – the elimination of "regulation by condition" – back in 2000 in this Legal Times piece.

· The provision in H.R. 3309 ("Nonpublic Collaborative Discussion") that would allow, notwithstanding the existing Sunshine Act strictures, a bipartisan group of FCC commissioners to meet collaboratively is another key reform. Allowing more than two commissioners to meet together, rather than relying on a series of ongoing round-robin meetings or staff gatherings for communication with each other, would be more efficient. But more importantly, it would foster greater collegiality and collaboration among the commissioners, increasing at least somewhat the likelihood of sounder decisions. I have been advocating reform of the Sunshine Act along these lines since shortly before Genesis. Here is my law review piece from 1997 reporting on an effort to revise the Sunshine Act by a special committee of the Administrative Conference of the United States that I chaired.

· There is much to commend several of the various other process reforms that would, for example, prevent last-minute data dumps in rulemaking proceedings, require "shot clocks" for certain proceedings so decisions are reached on a timely basis, and require release of draft orders before public meetings and final orders promptly thereafter.

· One of the most important parts of H.R. 3309 would require, for rules that may have an "economically significant impact," that the FCC's order identify and analyze the specific market failure, actual consumer harm, burden of existing regulation, or failure of public institutions, that warrants adoption of the rule. And for these major rules with an economically significant impact, the agency also would be required to conduct a form of cost-benefit analysis. Compliance with these analytical requirements should make it more difficult for the Commission to adopt regulations that are unnecessary or which are unduly costly or burdensome. The draft bill did not restrict the requirement to perform the specified analyses to any subset of rules. At the June hearing, I agreed with some of the draft bill's critics that it may be appropriate to narrow the application of the analytical requirements so they do not apply to all proposed rules, no matter how limited the projected economic impact. In my view, however, H.R. 3309 now goes too far in the other direction. This is because economically significant impact rules are defined in the bill generally as those with an annual effect on the economy of $100 million or more. In my post-hearing responses, I agreed it might be impractical and unnecessary to apply the analytical requirements to all proposed FCC rules, but I suggested they be applied to those with a projected annual economic impact, say, of $10 - $20 million or more. I said: "A relatively low threshold such as this will ensure that most economically significant rules are subject to cost-benefit analysis, but exclude those with little or no impact, including rules, such as those barring racial or religious discrimination, that do not lend themselves to cost-benefit analyses." I understand the $100 million figure has been used in the various executive orders governing regulatory review. But I still believe a threshold considerably less than a $100 million annual impact is appropriate for the FCC, an agency with an historic tendency to over-regulate in the face of the development of competition. After all, in 2010, according to the government's “Regulatory Plan and the Unified Agenda of Federal Regulatory and Deregulatory Actions,” the FCC had 147 rules in various stages of development. Only 7 of these 147, or approximately 5%, were considered in the "economically significant" category triggered by the $100 million annual impact threshold. These figures are generally in line with those from previous years. Thus, as proposed, the analytical requirements designed to lead to sounder, more rigorous, market-oriented decisions – by requiring consideration of specific market failure, actual consumer harm, the burden of existing regulation, and the costs and benefits of the proposed rule – would not apply to most of the rules considered for adoption by the agency. (For information concerning the FCC's rulemaking activities, as well as much useful information concerning the regulatory activities of agencies throughout the federal government, see the most recent edition of Wayne Crews' "Ten Thousand Commandments" series of reports.)

All things considered, both H.R. 3309 and H.R. 3310, if enacted, would substantially improve the FCC's processes. The reforms almost certainly would lead to FCC decisionmaking that is more transparent and efficient than at present. And the reforms likely would lead to adoption of regulations that are less costly and less burdensome than they otherwise would be, or, in some instances, to the rejection of regulations not shown to be justified. The constraints placed on the FCC's pro-regulatory bent, particularly the constraints imposed by the market-oriented analytical requirements, will help spur job and investment growth in a very important, dynamic sector of the economy.

Finally, Chairman Walden seems to have gone out of his way to draft the two reform bills in a moderate way in order to attract support from House and Senate Democrats. It remains to be seen whether his effort in this respect will bear fruit. And it also remains to be seen whether President Obama will be supportive, now that, even if belatedly, he is talking regularly about eliminating unnecessary and unduly burdensome regulations.

In truth, regulatory reform once was a bipartisan undertaking. Reforming the FCC regulatory process ought now to be a bipartisan effort. I hold out hope it will be.

More Spectrum: A Policy for Preventing 4G Wireless Traffic Jams

2011-11-03T10:00:00.005-04:00

"To keep up with demand, U.S. wireless networks have traditionally doubled their capacity every 30 months, but this trend may not keep up with future demand," considering that "the volume of data traffic on U.S. networks is expected to increase by 1,800 percent over the next four years." Such is the outlook for wireless networks and services according to Michael Kleeman of the University of California San Diego's Global Information Industry Center. In an October 2011 paper, "Point of View: Wireless Point of Disconnect," Mr. Kleeman insists that there is now a looming disconnect "between the capacity of wireless networks and the emerging needs of today's customers."

Kleeman's paper provides a concise summary and overview of recent research and estimates of wireless network data traffic trends. Among the various analysts' estimates and data points cited:

"U.S. mobile data traffic had grown at approximately 120 percent annual rate over the previous two years."

"[B]y 2014 voice is projected to represent only 2 percent of the total wireless traffic."

"The average amount of traffic per smartphone in 2010 was 79 MB per month, up from 35 MB per month in 2009."

"[T]oday 10 percent of mobile users are watching video content on their devices and consuming 38 percent of data volume on mobile networks. By the end of 2011, video content will jump to 60 percent of network data volume."

"[M]obile data traffic in the U.S. was approximately 6 petabytes per month in 2008, 40 petabytes per month in 2010, and it is expected to reach 451 petabytes per month in 2013."

"[T]he nation is running out of spectrum and will experience a spectrum deficit starting in 2013."

This last estimate comes from an October 2010 FCC staff technical paper on the need for making more spectrum available for commercial use. Accordingly, Kleeman concludes that "[a]dding new spectrum is the least expensive way to grow capacity because it can utilize much of the same infrastructure, e.g., no new towers, cell sites, generators, etc."

Two other "core strategies to manage this disconnect between wireless infrastructure and demand" are identified by Kleeman. One is active network management. According to Kleeman, "carriers will increasingly need to manage traffic and develop triage and prioritization protocols to ensure users are treated fairly and that users do not degrade the network experience for others."

To this end he also cites the potential for wireless carriers to use pricing-based mechanisms with real time customer feedback to help manage network load" – something that even the FCC recognized regarding wireless in its Open Internet Order (2010) imposing network neutrality regulations. (See also my September 2010 blog post: "FCC Should Take Broadband Pricing Flexibility Seriously.") Unfortunately, many proponents of net neutrality regulation would rather see wireless services subjected to the same controls as wireline broadband access services.

The other core strategy is to enable deployment of supporting infrastructure. Simply put, "[t]he more we consume wireless data, the higher the number of cell sites will be needed to increase the capacity and improve reliability…we must be willing to support this construction." Kleeman is exactly right in insisting "we must be willing to support this construction. This needs to be an explicit choice made by the community." As the FCC has acknowledged in its 2009 declaratory order establishing time-frames for state and local government processing of cell tower and collocation permit applications,"[i]n many cases, delays in the zoning process have hindered the deployment of new wireless infrastructure."

Michael Kleeman's paper sums up the trends in wireless growth and the corresponding need for policymakers to adopt policies to match. Policymakers need to enable the market to innovate and invest to meet the needs of the fast-approaching future. In particular, making additional spectrum available for commercial use should be a most urgent priority of Congress, NTIA, and the FCC.

Wireless Tax Moratorium

2011-11-02T12:55:00.001-04:00

Just saw that in a voice vote the House has passed the Wireless Tax Fairness Act.

This is good news. Senate should act soon.

LifeLine Service

2011-10-31T09:41:00.000-04:00

While I don't necessarily agree on all aspects of the Minority Media & Telecommunications Council's positions on the FCC's Universal Service subsidy programs, I do agree on the importance of a robust LifeLine program to help ensure that low-income persons have access to communications services, including broadband. So, I wanted to call your attention to this piece from MMTC's Kenneth Mallory. With the economy still in the dumps, the a well-functioning LifeLine program is especially important to ensure that low-income persons, including minorities, stay connected.

ICC Reform: Another Subsidy System that Needs a Sunset

2011-10-26T18:25:00.005-04:00

Anticipation is building for the FCC's upcoming public meeting on Thursday, October 26. The Commission is expected to finally vote on an order to comprehensively reform the universal service fund (USF) and intercarrier compensation (ICC) system. In a blog post from earlier this week, FSF President Randolph May restated the case for including a sunset date for all USF high-cost subsidies in the FCC's reforms. The outdated ICC system, for its part, deserves a sunset as well.

When FCC Chairman Julius Genachowski announced some of the basic components of the Commission's forthcoming reforms on October 6, he specifically mentioned three main elements for ICC reforms. One element is to phase down access charges over a multi-year period, "starting by bringing intrastate access rates to parity with interstate rates." This is a commendable reform proposal that, among other things, will help reduce direct transaction costs and reduce incentives for ICC-induced arbitrage. Establishing a low, uniform access charge rate would also establish a path to eventually sunset the ICC access charge regime.

In short, ICC is a system of payments between carriers to compensate each other for the origination, transport and termination of voice traffic. Professor Gerald W. Brock, a member of the Free State Foundation's Board of Academic Advisors, summarized the origins of the ICC/access charge regime in his September 6 FSF Perspectives paper "Abolish Access Charges Now":

Access charges were first implemented in 1984, and they were designed to maintain a portion of the pre-divestiture subsidy from long distance to local service for a temporary period while the industry adjusted to early competition. Access charges were created through a rigid cost allocation system for companies subject to rate of return regulation with an expected industry structure of competitive long distance companies and monopoly local exchange companies. Price discrimination was a fundamental feature of access charges from the beginning and the system has generated a long series of disputes and innovative ways to arbitrage between higher and lower rates for essentially the same service.

This system is supplemented by a system of differing and often high intrastate access charges over which state regulators have oversight. Another component of the ICC system is the subscriber line charge (SLC) that is assessed against consumers in their monthly phone bills.

But the nearly 30 year-old ICC system makes little sense in relation to today's advanced telecommunications market. American consumers no longer exclusively on the public switched telephone network (PSTN) to obtain plain old telephone service (POTS). Instead, consumers are increasingly subscribing to bundled services offering voice, text messaging, instant messaging, video, broadband Internet, and other data services—many of which are now delivered over IP-based networks.

One of those services is VoIP, typically offered by cable providers and over-the-top providers like Skype and Vonage. VoIP and other IP-enabled services are eroding the distinctions between local- and long-distance services and between intrastate and interstate telecommunications. The latter distinction historically relied on the ability to identify the two end points of every call. Yet as the FCC recognized in its Vonage Order (2004): "the inherent capability of IP-based services to enable subscribers to utilize multiple service features that access different websites or IP addresses during the same communication session and to perform different types of communications simultaneously, none of which the provider has a means to separately track or record."

Wireless services are flourishing when compared to wireline and have broken down the local/long-distance distinction, similarly making it more difficult to tell where a call starts and ends. And as Professor Brock pointed out, the FCC's rulings in the 1990s establishing wireless-wireline connection based on reciprocal compensation and prohibiting wireless carriers from filing access tariffs "made it feasible for cellular carriers to eliminate the earlier sharp distinction between rates charged for local and for long distance calls and to begin the now standard practice of distance insensitive rates for calls that begin on a wireless telephone."

Imposing interstate and intrastate access charges varying by technology or provider makes little sense in an increasingly data-centric, IP-based and wireless world. Calculating compensation payments according to the ICC system's per-minute rate structure – and based on whether the call is interstate or intrastate as well as on the type of technology used – create significant compliance costs.

Not surprisingly, the access charge regime is becoming an increasingly strained and poorly suited coping mechanism when it comes to dealing with the technological changes of the past 30 years. The growth of wireless and IP-enabled services such as VoIP has led to the steady decline in minutes of use (MOUs) for which local exchange carriers are to be compensated. This decline in MOUs has serious consequences because rate-of-return carriers' interstate access rates are designed to give such carriers opportunity to earn an 11.25% rate-of-return. Declining MOUs mean increasing access rates to offset demand reductions and help ensure their guaranteed rate-of-return.

Data cited in the Universal Service Monitoring Report (2010) show the steady but significant drop in MOUs over the last several years, with ILECs seeing the overall number of interstate access minutes declining every year since 2000. Those declines are roughly on the order of ten percent annually. Interstate access minutes for ILECs dropped from near 576 billion in 2000 down to approximately 401 billion in 2005, and down further to about 277 billion in 2009.

As the FCC's NPRM for comprehensive USF/ICC reform points out, "rate-of-return carriers' interstate switched access rates increased 9.4 percent in 2010, which follows similar increases during the last few years." High access rates have also inadvertently created incentives for arbitrage schemes such as phantom traffic and traffic pumping. The FCC is finally proposing to specifically address those abuses in its forthcoming reform order. A low, uniform access charge rate would also reduce arbitrage incentives.

Adoption of a low, uniform access charge rate amounts to a much more modest reform than the immediate abolition of all access charges that Professor Brock admirably urges. But streamlining and simplifying the ICC system could help reduce the misalignment between that system and today's technological realities. Meanwhile, the Chairman's reform proposal includes implementing a recovery mechanism to better ease carriers' transition away from ICC subsidies. And to the extent states find that local conditions require any further subsidies, they should address those concerns by enacting or reforming state USFs.

Reducing and bringing intrastate access charge rates into parity with interstate access charges could also help put us in a position to consider the next step: eventual sunset of the ICC regime. The ultimate end game should be an unregulated, free market in IP-based traffic exchange, similar to what prevails today with the Internet. The closer we can get to such a system and sooner we can get there the better.

NYT's Rash Call for Wireless Over-Regulation

2011-10-26T17:45:00.006-04:00

If you want an upside-down view of wireless competition, look no further than the New York Times' October 25 editorial. In the space of one short editorial, the NYT board manages to dismiss the dramatic innovation and choices that consumers now enjoy in the wireless market, call for bill shock regulation, demand extra regulatory conditions on future spectrum auctions, and even urge imposition of a Title II common carrier regime over wireless. Scott Cleland picks the editorial apart in a blog post titled "NYT's Uninformed War on Competition Policy."

House Judiciary Committee Passes REINS Act

2011-10-26T10:13:00.000-04:00

Yesterday the House Judiciary Committee passed the Regulations from the Executive in Need of Scrutiny Act ("REINS Act"). Specifically, the bill authorizes Congress to vote on regulations that will have an economic impact of at least $100 million or major increases in costs or prices for consumers. The bill passed along party lines by a vote of 22-14.

There are a number of efforts percolating in Congress now that are intended to subject federal rulemaking to more arduous requirements. While there are legitimate questions to be resolved about each, together they indicate a growing consensus that Congress ought to exert greater control over the promulgations of excessive agency regulations.

USF Reform: Peering into the Sunset

2011-10-24T19:36:00.004-04:00

When the ABC plan to reform the Universal Service regime was submitted to the FCC in late July by six telephone companies I wrote here and elsewhere that the plan represented "a major step forward in the effort to achieve a more efficient, technology-neutral, economically-sound universal service system." I still believe this to be true.

And I have said here and elsewhere that the ABC plan could be improved further by adopting some of the suggestions put forward by cable operators, such as modifying the "right of first refusal" component of the plan to transition more quickly to award all subsidies through a competitive bidding process.

No doubt the wireless and satellite companies have offered suggestions worthy of consideration as well.

With the FCC fast approaching a decision, even the most cursory review of the hundreds of "ex partes" filed in just the last few weeks demonstrates the intensity of the lobbying effort by all the various communications providers. This is not unexpected. Nor is it in any way a moral failing. With the FCC considering how to allocate high-cost subsidies amounting to $4.5 billion per year, it would be surprising if the various subsidy recipients, and potential recipients, didn't go "all out" to get as much subsidy funds as possible.

It is in the nature of government entitlements that recipients and potential recipients will not easily relinquish their "rights" to an entitlement without a real fight. Why would they?

This is why, along with a no-loopholes "hard cap" for the high-cost fund at $4.5 billion per year and a prohibition against subsidy payments to providers in areas already served, I have advocated a "sunset" date, say ten years, for whatever program the Commission adopts. Along with my FSF colleague, Seth Cooper, I filed comments with the Commission last May stating:

Announcing a sunset date for ending high-cost subsidies will signal the Commission's seriousness of purpose in transitioning the USF and ICC systems to greater reliance on market forces. And such an announcement will crystallize the expectations of high-cost area providers, particularly those subject to guaranteed rate-of-return regulation: they should not rely on such subsidies in perpetuity. A reasonable sunset date will allow them time to make adjustments as needed to transition operations to a more market-oriented approach to providing services.

Since then, I have often urged, for example, including recently in this piece, the adoption of a sliding reduction of high-cost subsidies until the sunset date is reached.

It is not necessary to question the present need for subsidies for broadband build-outs to unserved areas to also recognize it makes sense to put a sunset date on the new regime. There has been too little attention paid, especially by self-declared consumer advocates, to the overall adverse impact on consumers resulting from the current 15% tax added on top of the regular charges for all interstate and international calls. Along with many other authorities, these FCC comments submitted by the Mercatus Center reference the empirical research that documents the welfare losses to consumers and producers attributable to USF surcharges.

Of course, if money grew on trees, there for the picking, all of this would be merely academic. But it doesn't, not in Greece, and not even here in America.

Apart from what ought to be a general disinclination to establish expensive new entitlement programs that, by design, are never-ending, in this instance such an approach is especially foolhardy. The communications and information services marketplace environment is simply too dynamic and fast-changing to foresee what subsidies, if any, may be appropriate in ten years, and what form they should take.

A sunset in ten years, after a programmed phase-out, doesn't necessarily mean that high-cost subsidies could not be continued in some limited fashion after a thorough review of any demonstrated continuing needs. But it would mean that such subsidies would not just be continued willy-nilly absent such a thorough review.

TWC Research Program - Deadline Approaches

2011-10-24T09:32:00.039-04:00

Last January I put in a plug here for Time Warner Cable's research program on digital communications, and now it is timely for another plug for this worthwhile program. The program provides stipends for research dedicated to increasing understanding of the benefits and challenges facing the future of digital technologies in the home, office, classroom and community.

The deadline for new applications is November 1. All the details about the program and the application process may be found here. Time Warner Cable's program already has produced some very good scholarly work that helps us understand key issues surrounding the use of digital technologies. With continued participation by a wide range of qualified applicants, there is every reason to look forward to the publication of more useful research in the future.

So, take note of the calendar!

4G Wireless Future Requires Rapid Action to Make More Spectrum Available

2011-10-21T13:45:00.004-04:00

On October 17, NTIA issued its Second Interim Progress Report on the Ten-Year Plan and Timetable. NTIA is coordinating an interagency effort to meet the President's goal of making 500 MHz of spectrum available for commercial use by 2020. This effort includes the goal of making 115 MHZ available by 2015 through a fast track evaluation of certain priority spectrum bands.

More spectrum needs to be repurposed and auctioned by the FCC for commercial use to accommodate the continuing increase of mobile wireless and mobile broadband usage. With the ongoing roll-out of 4G wireless networks, data-rich mobile wireless traffic will continue to skyrocket. Prior history regarding FCC spectrum auctions suggests an inevitably lengthy turnaround in identifying spectrum preparing it for auction. Not to mention the additional time it takes for prospective auction-winning wireless carriers to construct and calibrate their networks for commercial wireless service. This means that time is not a luxury that Congress, NTIA, or the FCC can afford in implementing the plan.

I made many of these same points in discussing NTIA's spectrum identification and reallocation plan in a November 2010 blog post titled "Calling for Speedy and Purposeful Action on the Spectrum Plan." As I wrote in my prior post, "[i]t is critical that federal agencies — and NTIA and the FCC, in particular — act with seriousness of purpose and speed in reallocating and auctioning new spectrum for commercial use."

At the same time, I also observed that NTIA's initial "Fast Track Evaluation" of spectrum left out the 1755-1780 MHz band. NTIA acknowledged that the 1755-1780 MHz band "is harmonized internationally for mobile operations, wireless equipment already exists, and the band provides signal characteristics advantageous to mobile operations," making it highly sought after by wireless carriers. But NTIA also insisted there was not enough time to complete its analysis and transition plans regarding that spectrum in time for its October 2010 report. This led me to insist that "NTIA must live up to its word in treating that slice of spectrum as a priority" and "demonstrate its seriousness of purpose by getting its "Fast Track Evaluation" of the 1755-1780 MHz band completed, and fast."

Now with the release of the Second Interim Progress Report, the good news is that positive steps have been taken. As described in this latest Report, this year NTIA established a priority ranking for evaluating particular spectrum bands. And the agency "commenced a detailed analysis of the 1755-1850 MHz band," which it now considers "the highest ranked priority band for repurposing."

NTIA identifies sixteen different federal agencies utilizing over 3,000 frequency assignments in the 1755-1850 MHz band for a variety of functions. Those agencies have submitted information to NTIA regarding timelines and costs for their respective relocation that would free up that spectrum for future commercial use. NTIA now promises a separate report in November summarizing its study of the band and making recommendations regarding the reallocation of the spectrum.

Interagency reviews delayed the initial release of NTIA's "Ten-Year Plan and Timetable." Hopefully, those agencies' respective cost and timeframe estimates will not be unreasonable and will allow NTIA, for its part, to act expeditiously in preparing the 1755-1850 MHz band for commercial use. Persistence is imperative every step of the way.

Among other things, the Second Interim Progress Report points out that in June an advisory group to NTIA recommended consideration of the 5350-5470 MHz band for expanding unlicensed Wi-Fi access. As NTIA explains, "[u]nlicensed Wi-Fi has become a significant component of commercial wireless services by allowing the offloading of data, thus saving capacity on commercial wireless network[s]." Obviously, auctioning is not required in reallocating spectrum for unlicensed use. But preparatory work would nonetheless be required. According to the Report, to ensure compliance with existing spectrum use rules and to protect co-channel and adjacent use, "NTIA, FCC, federal agencies, and industry would need to determine the feasibility of expanding" unlicensed Wi-Fi into the 5350-5470 MHz band.

NTIA doesn't specifically identify agency or interagency action on the 5350-5470 MHz band in the Second Interim Progress Report's table of planned and ongoing actions. One must hope, however, that that work is already underway. Given the current state of technology, it is generally preferable to license and auction spectrum to better ensure such spectrum is put to its best and highest use. However, the unique characteristics of certain bands can make unlicensed spectrum a helpful compliment to existing wireless services using existing licensed spectrum. Making more unlicensed spectrum available for Wi-Fi access to help relieve network congestion and improve capacity is an excellent idea and must be pursued for feasibility.

A vibrant 4G wireless future depends upon the availability of more spectrum to handle the growing demands of wireless consumers. Once again, when it comes to identifying and reallocating additional spectrum for commercial use, NTIA, the FCC, and all federal agencies involved must act with a renewed sense of urgency and purpose in implementing the spectrum "Plan and Timetable." Leading the way, NTIA must continue to act promptly in reallocating the 1755-1850 MHz band and other spectrum bands for licensed commercial use. And all agencies involved should likewise act with speed in examining and potentially reallocating the 5350-5470 MHz band for unlicensed Wi-Fi use.

New Wireless Industry Alert Standards Stave Off FCC "Bill Shock" Regulation

2011-10-19T18:05:00.013-04:00

On October 17 the wireless industry and the FCC jointly announced that most wireless carriers will begin sending free alerts to consumers to help them avoid overage charges. As a result, the FCC will hold off from imposing proposed wireless "bill shock" regulations—at least for now.

This is a positive outcome, all things considered. Wireless has thrived in a light-touch regulatory environment established in the 1990s. New "bill shock" regulation, however, risked saddling wireless services with unnecessary regulatory controls and—more importantly—would have provided a precedent for the FCC to regulate other facets of wireless service. To the extent wireless carriers can keep wireless free from new and unnecessary regulatory controls by placating the FCC through industry-wide self-policing, so much the better. Marketplace freedom is the environment most conducive to continued wireless investment, innovation, and competition.

The "Wireless Consumer Usage Notification Guidelines" constitute an industry-wide, voluntary plan for carriers to provide a slate of automatic overage alerts to wireless consumers who near and exceed their monthly plans' allowance for voice, video, or data services. The Guidelines will be incorporated into CTIA's "Consumer Code for Wireless Service" that provides disclosures and practices for wireless service to consumers. Implementation of the Guidelines by wireless carriers will take place between now and April 2013.

Most wireless carriers already provide a set of optional alert tools that consumers can use to monitor and receive updates regarding their monthly usage levels. So the Guidelines will result in a supplemental and more standardized set of opt-out alerts.

On their own terms, voluntarily-adopted industry standards regarding consumer overage alert messaging are a reasonable and commendable thing. However, "voluntary" takes on a qualified meaning when industry self-policing takes place in the shadow of looming agency rulemaking. In this instance, the standards adopted by the wireless industry are made in direct response to the FCC leveraging its consumer protection power to prompt the industry into action. As Amy Schatz reports in the Wall Street Journal, "[a]n FCC official said the agency would keep that rule-making process open in case any wireless carriers don't adopt the new industry standards."

Now, it's not unheard of for an agency to demand that an industry self-regulate or face government regulation. But the premises of the FCC's proposed "bill shock" regulations render the agency's leveraging of its consumer protection regulatory powers at least slightly less reasonable and commendable in this instance.
In November 2010 FSF Perspectives paper and in an April blog post, I described some dubious aspects of proposals for FCC "bill shock" regulation. Among other things, I suggested:

There isn't a clearly established "bill shock" problem requiring FCC regulation;

The FCC's proposed regulations exceed normal consumer protection concerns about fraud or unfair and deceptive trade practices since the overage charges are triggered by consumers using more services than they signed up for and such charges are part of their service contract terms;

Aspects of the FCC's proposed regulations involving non-overage alerts and alerts regarding pre-paid service extending even beyond alleged "bill shock" problems would instead codify the FCC's second-guessing of business decisions and responsible and optimum usage by consumers; and

Certain regulatory proposals advocated in public comments posed First Amendment problems by dictating certain mandatory icons and messages to be included in usage alerts and billing.

When the existence of an actual problem is in doubt and when the proposed regulatory measure extends beyond the scope of the alleged problem, an agency's leveraging of its regulatory powers over an industry to induce it to self-regulate approaches unseemliness. The better approach is for an agency to first clearly establish an existing consumer harm or problem, ascertain whether regulation is necessary to address the matter, and then target any needed regulation directly to the harm or problem.

Here, the wireless industry's voluntary adoption of usage alert messaging standards doesn't prove there is a real "bill shock" problem—let alone a problem commensurate with the scope of regulations initially proposed by the FCC. What it does prove is that the FCC wanted either new regulations or at least some changes in the industry's usual course of business dealings. The wireless industry took the FCC up on the latter course, understandably.

The end result is a net positive: wireless carriers will be providing extra reminders to consumers who approach or surpass their respective plan's voice, video, or data service usage levels, and doing so free from any new FCC rules. But given the problems besetting the FCC's proposed "bill shock" regulations that induced the new voluntary industry standards, the process leading up to this result isn't a model of agency action worth trumpeting. So the joint announcement by CTIA and the FCC deserves approval, but with an asterisk.

Another Bill to Bog Down 4G Wireless With Regulatory Burdens

2011-10-18T17:05:00.001-04:00

On October 12, TR Daily's Paul Kirby reported on the introduction of a new wireless regulation bill in the U.S. Senate. S.1695, the "Next Generation Wireless Disclosure Act," is the companion bill to H.R. 2281. The House bill was subjected to critical examination in my June 29 blog post "In Congress, More Spectrum and Less Regulation is Key to 4G." Those criticisms apply with equal force to the Senate bill.

Both bills would burden one of our economy's best growth-engines with unnecessary regulations in a time when our economy needs all of the job-creating investments it can get. Congress should instead take immediate and decisive action to make new spectrum available for commercial use, and do so on flexible terms that would for enable continued innovation and investment in the wireless marketplace. As I described in more detail in my blog post from August 30, "More Spectrum Will Make 4G an Economic Force Multiplier."

Voluntary "Bill Shock" Agreement

2011-10-18T10:37:00.000-04:00

The FCC, CTIA, and Consumers Union yesterday jointly announced a plan whereby the wireless providers will provide their customers with notifications when they are about to incur extra charges for exceeding the monthly allowances.

Here is my reaction which appeared in the trade press:

"The voluntary plan by industry to offer free consumer alerts is preferable to the FCC going ahead with its rulemaking proceeding. It is in the nature of FCC's rulemakings that they often result in over-inclusive and unnecessarily costly regulations. So if this voluntary plan - and I use 'voluntary' advisedly - avoids that result, it is preferable to the alternative."

And here is FCC Chairman Julius Genachowski's statement.

In Case You Missed It: The Quiet Demise of Cable A La Carte

2011-10-11T16:57:00.005-04:00

With the flurry of FCC activities taking place since May—including ongoing USF reform efforts, the AT&T/T-Mobile merger review, the 706 Report, and the Fifteenth Wireless Competition Report—one might easily have missed the quiet and anticlimactic demise of the cable a la carte regulation-through-litigation in Brantley v. NBC Universal (2011). In June, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit dismissed a nationwide class action antitrust lawsuit that sought to override marketplace business practices regarding video programming distribution by obtaining a judicial order imposing a la carte mandates. The Court dismissed the lawsuit for failure to state a valid antitrust claim.

Some background on Brantley v. NBC Universal can be found in a 2007 blog post, "Classless Class Action Against Cable." In short, the litigation sought to prohibit video programmers and video programming distributors such as cable and DBS providers from only offering multi-channel bundles and instead require separate channels be offered for purchase on a stand-alone basis. Soon after it was filed, the lawsuit picked up an effective endorsement of the then-Chairman of the FCC. But the litigation ran into trouble in the district court, where the trial lawyers were unsuccessful in making their Sherman Act claims through three complaint filings. So they appealed to the Ninth Circuit, and lost again.

The Ninth Circuit's opinion in Brantley observed that "[a]lthough plaintiffs may be required to purchase bundles that include unwanted channels in lieu of purchasing individual cable channels, antitrust law recognizes the ability of businesses to choose the manner in which they do business absent an injury to competition." For this proposition the Ninth Circuit relied on AT&T v. linkLine (2009) – a case I blogged about at the end of the Supreme Court's 2008-09 term.

The bundling of service offerings is a common feature of competitive markets, as discussed in an FSF Perspectives paper by Stan J. Leibowitz titled "Bundles of Joy: The Ubiquity and Efficiency of Bundles in New Technology Markets." Not to mention the First Amendment problems that plague cable a la carte regulatory schemes that FSF President Randolph J. May pointed out in "The Constitution, A La Carte."

Thankfully, the Ninth Circuit's ruling in Brantley put a baseless regulation-through-litigation claim to rest. But since the lawsuit commenced, a la carte mandates have been superseded by other regulatory threats to video marketplace freedom. The FCC's "AllVid" proposal and Comcast-NBCU merger order conditions regarding video navigation devices and online video content, for instance, foreshadow future regulatory actions regarding video services. So when it comes to the video market, proponents of pro-market policies still have their work cut out for them.

Communications Law and Policy in the Digital Age: The Next Five Years

2011-10-09T18:00:00.001-04:00

While I certainly didn't agree with all that he did, readers of this space know that I have great respect for former FCC Chairman William Kennard, now the U.S. Ambassador to the European Union. Kennard was appointed FCC chair by President Clinton and served in that capacity from November 1997 – January 2001.

One of the FCC's most significant decisions under Bill Kennard's leadership was to resist pleas in the late '90s to regulate then-emerging cable broadband services like telephone common carriers. In 1999, Kennard declared: "So, if we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America."

This was an important milestone in keeping broadband Internet services free from legacy common carrier regulation. The current FCC, under the leadership of FCC Chairman Julius Genachowski, unfortunately took a step backwards last December when it adopted net neutrality regulations governing broadband Internet providers. A backwards step that, unless reversed, thrusts Internet providers, at least somewhat, back into the morass of the "telephone world."

Before he left the agency, Chairman Kennard released a "Strategic Plan: A New FCC for the 21^st Century." Again, because I have often quoted from the plan, readers must know by heart the August 1999 document's first sentence: "In five years, we expect U.S. communications markets to be characterized predominately by vigorous competition that will greatly reduce the need for direct regulation."

Bill Kennard had that right, and I often think about his strategic plan for transitioning within five years – that is, by 2004 -- to a vigorously competitive marketplace environment with a greatly reduced need for regulation. I have this vision in mind today as I think about the Free State Foundation's upcoming fifth anniversary celebration. For the theme of the event is: "Communications Law and Policy in the Digital Age: The Next Five Years."

The simple truth, in my view, is that the FCC has been much too slow to reduce outdated regulations. And, what's worse, it has gone merrily about adopting new ones – net neutrality mandates, for example – that are entirely unsuited to the digital age competitive environment.

Today, and especially with the economy in such difficult straits, the FCC's default position should be "no new regulations" without a compelling showing of existing market failure and consumer harm. In other words, the default position should be not to regulate absent a compelling showing of need. Too often today, the presumption is the other way around. In addition to net neutrality, the agency's proposed "bill shock" and All-Vid" rules come to mind as examples of costly new regulations that don't pass the compelling need test.

By suggesting a change in the FCC's pro-regulatory mindset – that is, a change in its default position – I don't mean to suggest there is not some important work for the agency to do. There is, and, if done properly, this work can make a contribution to the nation's economic recovery. Done improperly, vice versa.

Here is a short-hand version of a brief list of what I have in mind.

· USF/ICC Reform: In the next few weeks, the FCC will consider reform of what FCC Chairman Julius Genachowski on October 6 called the "wasteful," "inefficient," and "unfair" Universal Service/Intercarrier Compensation regimes. Reform of these outdated legacy regimes, so that at least they would be meaningfully less wasteful, less inefficient, and less unfair than today, will require the agency to adopt a hard cap, without loopholes, for $4.5 billion per year for the high-cost subsidy fund, along with a transition plan to sunset the high-cost fund in, say, ten years. The need for further subsidies can be evaluated at that time. There is no justification, in light of the rapidly changing technological and marketplace environment, to adopt a brand new "universal service" regime, funded by America's consumers, with ongoing, interminable subsidies. And the Commission should ensure subsidies only go to support unserved areas.

· Spectrum Policy: Most immediately, the spectrum ball is in Congress's court, and Congress should act promptly to grant the FCC authority to conduct incentive auctions as a means of getting underutilized spectrum into the hands of those who value it more highly. Obviously, the FCC will have an important role to play in implementing the auctions. In the past, imposed auction conditions that supposedly furthered one of another pet social policies. The FCC's 700 MHz auction, in which the agency under FCC Chairman Kevin Martin's leadership imposed a net neutrality condition, is a case study in how the FCC should not conduct an auction. For the benefit of both consumers and taxpayers, auctions should not be burdened with extraneous conditions.

· Merger Reviews: I've written very often about the need for the FCC to reform its merger review process. The agency should focus only on alleged transaction-specific anticompetitive harms, rather than using the review process as an opportunity to impose far-afield conditions that should be considered, if at all, in a generic rulemaking. Over time, the Commission's merger reviews increasingly have come to resemble, as I put in several years ago, a "bizarre bazaar," at which special pleaders, competitors and others, beseech the agency to impose conditions unrelated to any credible transaction-specific harms.

· Internet Regulation: And, yes, if Congress or the courts do not overturn the Commission's net neutrality regulations, much will depend on the extent to which the agency implements them. Assuming the regulations remain on the books, it will be incumbent on the FCC to interpret and enforce them with sufficient flexibility and reasonableness that Internet providers retain incentives to invest in new facilities and continue to innovate.

As I said above, this is intended only to be a short-hand description of a short list of work confronting the Commission over the next months and years.

Well, to be candid, it is intended also as a bit of a teaser for the Free State Foundation's Fifth Anniversary Celebration Lunch this Wednesday, October 12, at the Mayflower. The event's theme is: "Communications Law and Policy in the Digital Age: The Next Five Years." We have a great line-up of speakers: Senator Jim DeMint, Ranking Member, Senate Subcommittee on Communications, Technology, and the Internet; Rep. Marsha Blackburn, Vice-Chair, House Energy and Commerce Committee's Subcommittee on Commerce, Manufacturing, and Trade; and Rep. Cliff Stearns, Chairman, House Commerce Committee's Subcommittee on Oversight and Investigations. Each of these members of Congress is an acknowledged leader on communications policy and regulation. Also, five members of FSF's distinguished Board of Academic Advisors – Michelle Connolly, Ellen Goodman, Daniel Lyons, Steven Wildman, and Christopher Yoo – will offer their thoughts about the next five years, and probably the next five weeks as well.

I am very excited to hear what they all have to say, and I hope you are as well. If you haven't already registered, you may still do so by rsvp-ing to Kathee Baker at: kbaker@freestatefoundation.org. Space is limited, however, so please don't come without registering first.

Sign-in is at 10:45 AM.

Super-Committee Sets Sights on Underutilized Government Spectrum

2011-10-07T13:09:00.001-04:00

It's pretty rare these days for any bipartisan agreement on budget issues, but this letter from Senators Kerry and Toomey and Representatives Upton and Becerra is a hopeful sign. They are all members of the so-called Super-Committee, tasked with coming up with solutions to make a dent in our national debt.

The letter is short, so you can read it yourself. But, in essence, it urges President Obama "specifically, to make more efficient use of federal government spectrum and reallocate some of it for commercial broadband use. In particular, we should put every effort into making available paired, internationally-harmonized spectrum below 3 GHz in sufficient block sizes to support mobile broadband services within the next 10 years."

In truth, this should have been done by now. But better late than never. President Obama ought to get the government moving on this spectrum initiative that has bipartisan support. Reallocation of underutilized government spectrum would be good for the nation's economy in two macro ways: Private sector wireless broadband providers need the spectrum to be in a position to grow and offer innovative new services, and America's taxpayers would benefit from the reduction in the national debt attributable to the auction proceeds.

Super Speedy DC Circuit

2011-10-06T18:49:00.000-04:00

The DC Circuit's decision late this afternoon announcing it would take jurisdiction over the appeal of the FCC's net neutrality order is good news for net neutrality opponents -- like myself. Obviously, this doesn't necessarily mean that the court will vacate the FCC's order. But the court, having slapped down the agency only a year ago for exceeding its authority with respect to net neutrality, must have been especially eager to grab hold of this case.

I don't think the net neuters will be happy about this development.

D.C. Circuit to Decide Fate of FCC's Net Neutrality Regulations, Again

2011-10-06T18:29:00.003-04:00

News outlets are now reporting that lawsuits challenging the legality of the FCC's order imposing network neutrality regulations will go to the U.S. Court of Appeals for the District of Columbia Circuit. It was the D.C. Circuit that hammered the agency a year ago April in Comcast v. FCC (2010) in its prior attempt to impose net neutrality mandates. As I blogged in "Comcast v. FCC: A Game Changer For Net Neutrality Regulation," the D.C. Circuit thoroughly and forcefully repudiated the agency's alleged jurisdictional basis for imposing net neutrality mandates.

For starters, it is highly probable the D.C. Circuit will strike down the FCC's net neutrality regulations once again on jurisdictional grounds. FSF's public comments to the FCC in its Section 706 Inquiry, for instance, point out that Section 706 is a directive that the agency exercise regulatory forbearance and other means to accelerate deployment "by reducing barriers to infrastructure investment" – operative term being "reducing" – and not an independent grant of regulating authority, as the FCC has recently re-interpreted it.

There are equally strong reasons for regarding the FCC's net neutrality regulations as "contrary to constitutional right." Much of FSF's writings regarding net neutrality have concentrated on the significant First Amendment problems posed by such regulations.

With the FCC's net neutrality regulations only recently published in the Federal Register and going into effect on November 20, this D.C. Circuit sequel case could spell a short life for the FCC's new rules.

Issue Analysis Urges Reforms to Roll Back Regulation's Heavy, Hidden Tax

2011-10-05T10:56:00.006-04:00

CEI has just released the latest in its Issue Analysis series that draws important parallels between runaway growth in federal spending and runaway growth in federal agency regulation. In "The Other National Debt Crisis: How and Why Congress Must Quatify Federal Regulation," CEI Vice President for Policy Wayne Crews takes the starting point that "[i]n order to restrain the impulse to regulate everything, Washington must measure regulation as it measures spending." This Issue Analysis provides an overview of the continuing staggering growth of federal regulations and the enormous compliance costs that those rules impose. (In an study from earlier this year, "Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State," Crews cited an estimate that 2008 regulatory compliance costs were more than $1.7 trillion). "Reforms must become a priority for the administration and Congress," writes Crews, "because no viable mechanism exists for measuring or disciplining regulation comparable to even the limited control applied to spending."

Here are some of the reforms recommended by Crews:

The President should extend his January 2011 Executive Order to all regulations – not just ones described as "out-dated."
The President should issue new executive orders lowering the threshold at which a rule qualifies as “economically significant” from $100 million in annual costs to perhaps $25 million annually in order to "increase the number of rules brought to public attention each year."
Congress should require that "summary regulatory data— classified by type of regulation and by agency—be published in the annual federal budget, the Economic Report of the President, a stand-alone document, or some other accessible venue."
Congress should establish an Office of Regulatory Analysis to examine and analyze rules in detail, similar to how Congressional Budget Office examines and analyzes fiscal and budgetary matters.
Congress should enact the Regulations from the Executive In Need of Scrutiny (REINS) Act or similar legislation that make Congress directly accountable for "economically significant" regulations by requiring congressional approval of new rules.

CEI is at the forefront in fighting the runaway regulatory state on both the policy and legal fronts. So it's no surprise that this latest issue analysis is a worthy read on a timely topic deserving of much more attention. Particularly, in an economy so desperate for job growth, curbing the rising tide of federal regulation is as important as putting responsible limits on out-of-control federal spending. As Crews reminds us, "[r]egulation does not control itself, and agencies will not apply the brakes. We have to do it, through our elected representatives."

Supreme Court Sends Spurious Cell Phone Suits Packing

2011-10-04T15:40:00.003-04:00

On October 3, the U.S. Supreme Court declined to review the Third Circuit's decision in Farina v. Nokia (2011). By denying to hear the case, the Supreme Court leaves standing the Third Circuit's rejection of various state law-based claims raised against wireless manufacturers and carriers. Farina v. Nokia is multi-state class action lawsuit based on allegations that wireless devices contain unsafe levels of radiation. The Third Circuit ruled that the FCC's regulations of radio frequency (RF) radiation levels in wireless devices preempt the state law claims. Those state claims conflict with the purposes of the FCC's regulations in ensuring an efficient nationwide wireless service subject to uniform standards and the agency's balancing of those concerns with public health and safety.

As I mentioned in a July blog post, the evidence continues to contradict the far-fetched claims of those who say that cell phones operating within the FCC's current RF standards are somehow unsafe. But as Farina v. Nokia reaffirms, the FCC is the proper place to bring those types of concerns, not state courts or city councils.

U.S. House to Take Action Against Discriminatory Wireless Taxes

2011-10-03T17:06:00.003-04:00

CommDaily reports that the U.S. House of Representatives is expected to soon pass the Wireless Tax Fairness Act (HR-1002). This is encouraging news.

We have previously described the economic dislocations and consumer burdens as well as inequities resulting from heavy and often discriminatory taxation of wireless. As I mentioned in my blog post "Calling for a Moratorium on New Discriminatory Taxes," the legislation would impose a five-year moratorium on any new discriminatory taxes imposed on wireless services by state and local governments.

The House bill is sponsored by Rep. Zoe Lofgren. CommDaily also reports that a Senate Finance Committee hearing has been requested for its companion bill (S-543).

A Regulatory Time-Out

2011-10-03T15:30:00.000-04:00

I love Sen. Susan Collins new bill that would that would impose a "regulatory time-out." The “time out” would be a year-long moratorium on “significant” rules, typically defined as those expected to cost $100 million annually. There are a lot of good regulatory reform proposals percolating in Congress.

You don't have to like all aspects of each one to appreciate the fact that there is a growing consensus -- even President Obama seems to want to be part of it, at least in theory -- that Congress should act to halt the over-regulation that now is putting a damper on jobs and investment.

New Supreme Court Term Holds Promise for Media Speech Equality

2011-10-03T09:39:00.003-04:00

Today's abundance of media content choices and competing media outlets calls for equal treatment of all types of media speech under the First Amendment, which also means a more limited role for government regulation of media speech. Nevertheless, aspects of today's media marketplace are still subject to government speech restrictions based on decades-old assumptions about spectrum or other scarcities and their effects. Continued reliance on those old assumptions means that broadcast outlets as well as cable operators continue to receive a lesser degree of First Amendment protection than other types of media, while government assumes a larger degree of regulatory control than it ought.

Now with the opening today of the new term at the U.S. Supreme Court comes renewed optimism that those outdated assumptions will begin to be peeled away. In its new term, the Supreme Court will yet again be considering FCC v. Fox – the now famous "fleeting expletives" case. Last time around, the Court confined its ruling to Administrative Procedure Act (APA) issues raised by the litigation. This time, the Court is set to address First Amendment issues. In particular, FCC v. Fox II provides the Court the perfect opportunity to finally jettison the old spectrum scarcity doctrine and thereby end broadcast media's unequal First Amendment treatment.

The Supreme Court firmly enshrined the so-called "scarcity doctrine" into its jurisprudence in Red Lion Broadcasting Co. v. FCC (1969), and further expounded on it in FCC v. Pacifica (1978). The doctrine supplies the rationale for subjecting broadcast media to a lesser degree of protection, as broadcast media regulations are subjected only to intermediate-level scrutiny by courts instead of strict scrutiny.

The scarcity doctrine received its most recent judicial sanction from the U.S. Court of Appeals for the Third Circuit in its July 7 ruling in Prometheus v. FCC (2011). In Prometheus, the Third Circuit ruled that the FCC's 2008 order changing its newspaper/broadcast cross ownership rule failed to satisfy notice and comment requirements of the APA. But it upheld most other media cross-ownership rule changes adopted in the FCC's order. In regard to First Amendment questions raised by the FCC's media ownership rules, the Third Circuit's rationale for upholding government regulation of media that uses or involves electromagnetic spectrum rested squarely on the scarcity doctrine. In the Third Circuit's words, the scarcity doctrine "establishes that '[i]n light of [their] physical scarcity, Government allocation and regulation of broadcast frequencies are essential…'"

Consider also the following pronouncement by the Third Circuit in Prometheus: "The Supreme Court's justification for the scarcity doctrine remains as true today as it was in 2004 — indeed, in 1975 — 'many more people would like to access the [broadcast spectrum] than can be accommodated.'"

In reaching its decision, the Third Circuit's characterization of the scarcity doctrine's validity was certainly unnecessary. It is also entirely unconvincing. Whatever validity the factual assumptions supporting the doctrine may have once held, they have long since evaporated. In Prometheus, the Third Circuit compared the amount of spectrum to persons who it claims want broadcasting licenses. But if one compares that supposed scarcity with media channel substitutes now available, one should conclude that abundance exists, not scarcity.

The U.S. Court of Appeals for the Second Circuit seemed to get this point in its remand consideration of Fox v. FCC. The Second Circuit considered itself bound to follow Red Lion and Pacifica until the Supreme Court changes the law. It ultimately decided the First Amendment questions at issue on vagueness grounds, rather than scarcity doctrine. Nonetheless, the Second Circuit saw fit to observe:

The past thirty years has seen an explosion of media sources, and broadcast television has become only one voice in the chorus. Cable television is almost as pervasive as broadcast – almost 87 percent of households subscribe to a cable or satellite service – and most viewers can alternate between broadcast and non-broadcast channels with a click of their remote control... The internet, too, has become omnipresent, offering access to everything from viral videos to feature films and, yes, even broadcast television programs… As the FCC itself acknowledges, "[c]hildren today live in a media environment that is dramatically different from the one in which their parents and grandparents grew up decades ago."...Moreover, technological changes have given parents the ability to decide which programs they will permit their children to watch.

A hint that the Supreme Court may take the Second Circuit's observations into consideration and throw out the scarcity doctrine was provided in Fox v. FCC I by Justice Clarence Thomas's concurrence. In that opinion, Justice Thomas insisted that "[t]he extant facts that drove this Court to subject broadcasters to unique disfavor under the First Amendment simply do not exist today," citing, among others, FSF President Randolph May's 2009 Charleston Law Review article, "Charting a New Constitutional Jurisprudence for the Digital Age."

Given the extent of video competition provided by cable and DBS and the myriad of news outlets now provided through such video services, the Internet, and other alternatives – the Supreme Court should replace the scarcity doctrine with a media abundance doctrine and thereby subject media regulation to the same First Amendment standards that it subjects other restrictions on free speech.

And in a future case, the next step for the Supreme Court would be to revisit and revoke the so-called cable "bottleneck" rationale, thereby eliminating cable's unequal treatment under the First Amendment. As I've explained in blog posts from May and July, and on several prior occasions, subjecting cable providers in today's competitive media market to intermediate-level scrutiny because of early and mid-1990s perceptions about cable bottlenecks makes no sense from a factual or First Amendment standpoint.

At the outset of the Supreme Court's 2011-2012 term, here's hoping that Fox v. FCC II will mark the beginning of a constitutional reckoning for free speech in the digital age.

Contrary to Constitutional Right

2011-10-02T17:07:00.000-04:00

To no one's surprise, Verizon has appealed the FCC's misguided net neutrality rules. In its petition for review in the DC Circuit, among the other reasons for vacating the FCC's rules, Verizon asserts, in the words of the APA's judicial review provision, that the regulations are "contrary to constitutional right."

By this, I assume that Verizon means that the rules violate the First Amendment. I was one of the first, if not the first, to argue that net neutrality mandates are inconsistent with the First Amendment. You can find my law review article, "Net Neutrality Mandates: Neutering the First Amendment in the Digital Age," here.

I hope Verizon presses this argument on appeal.

Regulation Hypocrisy

2011-10-02T14:54:00.002-04:00

Michael Powell, President of the National Cable & Telecommunications Association, and former FCC Chairman, has a good blog exposing the hypocrisy of CEA's Gary Shapiro in continuing to urge the FCC to adopt "AllVid" technical mandates governing set-top boxes. Well worth reading.

For well over a year, the Free State Foundation has argued, in its Perspectives and blogs way too numerous to recount here, that the Commission's proposed "AllVid" regulations are completely unnecessary and counterproductive. We have also explained, for example here in "AllVid's First Amendment Problem," that such mandates prescribing video content are likely inconsistent with the First Amendment.

Here's a piece by FSF's Seth Cooper, published just last week, that once again convincingly makes the case that not only should the proposed All-Vid regulations not be adopted but that the entire set-top box regulatory regime should be sunset. Again, many more pieces are on our website, going back many years.

Michael Powell was right to call Gary Shapiro on Gary's hypocritical stand -- opposing regulations and espousing marketplace freedom, except when he thinks such regulations will give his members some ill-gotten regulatory advantage. Of course, it is the consumers who suffer from this pro-regulatory gamesmanship.

Study: Stop the Vicious Circle of USF Subsidies and RUS Loans

2011-09-26T19:05:00.007-04:00

In a blog post on September 14 titled New USF Tax Hike Adds Urgency to Reform Effort, I called attention to the USF fourth quarter contribution rate increase to 15.3%. The contribution factor translates into the line-item surcharge added to the interstate long-distance portion of consumers' monthly phone bills. That USF surcharge (a tax, in effect) pays for subsidies to telephone companies in rural or high-cost areas, as well as schools, libraries, some health care facilities. In the last ten years, the USF subsidy system has also grown exponentially, with subsidies for service in high-cost areas climbing from $2.6 billion in 2001 to $4.3 billion in 2010. As explained in that post, reforms are urgently needed to reverse this costly upward trend in USF subsidies.

A recent study now points to problematical aspects of government loans to carriers receiving USF subsidies. "The Rural Utilities Service Should Reassess Its Reliance on Universal Service High-Cost Support to Leverage Broadband Loans," a study released earlier this month by Jeffrey Eisenach of Navigant Economics and commissioned by NCTA, asserts that "current RUS rules create a self-reinforcing multiplier effect, in which USF subsidies not only support inefficient investments, but provide the financial basis for RUS loans to support still more inefficient investments (which, in turn beget more USF subsidies, and so forth)."

RUS operates three major programs to subsidize construction of telecommunications infrastructure through below-market rate loans: the Broadband Initiatives Program (BIP), the Rural Broadband Loan Program (BLP), and the Telecommunications Infrastructure Loan Program (TIP). Between 2008 and 2010 the programs approved some $2.23 billion in loans to carriers to build telecommunications infrastructure, particularly for broadband services.

The study provides an interesting overview of how RUS rules for its loan programs and how they relate to USF subsidies. In short, RUS has historically assumed that USF subsidies constitute a stable revenue source during the terms of long-term loans, thereby providing security for such loans. Moreover, "RUS effectively assumes that the increased USF subsidies that will result from the investment indicate the project is deserving of public support." As the study explains:

[R]ather than signaling the social value of a particular infrastructure project, [high-cost fund] subsidies under the current system may instead indicate nothing more than an individual firm's success in making investments – however unjustified or inappropriate – solely to increase its USF support. By tying RUS loans directly to USF support, RUS effectively creates a vicious circle: The more a firm invests in inefficient infrastructure, the more it gets in USF support; the more it gets in USF support, the more it can qualify for in RUS loans; the more it can qualify for in RUS loans, the more it can invest; and, the more it invests, the more it gets in USF support.

The study includes an estimate that increased USF subsidies procured by RUS-financed investments "leav[e] borrowers themselves responsible for less than 25 percent of the payments, even though they earn 100 percent of the resulting profits." This means that taxpayers, by funding the RUS loan programs, are "in the fundamentally unsound fiscal position of being the primary source of repayment on their own outstanding loans."

Along the way, the study challenges RUS claims that USF reforms would result in financial calamity for loan-receiving carriers that are dependent on future high-cost subsidies. USF reform has been a long time in the making, and for that reason it is not an unexpected event that should blindside recipients of high-cost subsidies. Moreover, the FCC has made clear in its NPRM for comprehensive USF and ICC reform that it will avoid "flash cuts" and implement its reforms incrementally.

In the end, the study calls for RUS to:

implement an immediate moratorium on further loans to USF-supported entities, or require such entities to qualify for any further loans without relying on USF subsidies. After the FCC concludes its proceeding and new rules are in place, Congress and RUS can reassess whether a loan program continues to be needed and if so, how that program can be better coordinated with the USF program to eliminate the problems inherent in the current RUS regime.

That is a sensible policy recommendation worthy of consideration, as is the study.

FCC Should Let the Sun Set on Its Set-Top Box Regulations

2011-09-21T23:05:00.007-04:00

On September 7, the FCC's Media Bureau released an order granting TiVo a waiver from its set-top box rules requiring "digital cable ready" devices be capable of accessing analog cable channels and receiving over-the-air broadcast service. The Commission concluded that waiving its rules should reduce "by $80 to $100" the cost of TiVo's Premier Elite all-digital, CableCARD-enabled DVR.

The TiVo waiver order follows close behind the FCC Media Bureau's release of two other waiver orders on August 25. Those orders extended waivers of the FCC's set-top box integration ban for two small cable operators. The integration ban prohibits set-top boxes provided by cable operators from being self-sufficient in order to create and manage a niche market for independently manufactured set-top boxes. The ban forcibly separates conditional access (or video content navigation) from security functionalities, prohibiting both from being performed by a single device.

In one integration ban waiver order, the FCC concluded that James Cable, LLC, demonstrated financial hardship justifying a partial extension of its waiver. And in the other order the FCC concluded that a waiver extension should be granted to Choice Cable T.V. Rico since the record demonstrated that "the integration ban would make HD service prohibitively expensive for rural Puerto Rico residents and could potentially eliminate the availability of HD/DVR service for the few residents who can afford it."

The FCC has granted waivers from its set-top box rules before. And these orders are welcome as far as they go. One can appreciate the Commission's willingness to provide the requesting parties at least some relief from the agency's self-imposed device design requirements. But limited waivers from set-top box regulations aren't enough.

Given the costs of its set-top box regulations – recognized in part through its granting the waiver orders – and the dynamic growth of the video marketplace since late last century, the agency should – even if belatedly – consider a course change for this century. The FCC should exercise its powers under the sunset provision of Section 629 and waive all set-top box regulations. Permanently.

The FCC's integration ban rests on a conceptually counterintuitive and counterproductive regulatory policy. By disintegrating those set-top box functionalities, the FCC seeks to make independently manufactured set-top boxes and set-top boxes leased to subscribers by cable operators both rely on the same security solution. This is meant to make it more attractive for cable customers to purchase independently manufactured set-top boxes at electronics retail outlets.

However, the FCC's integration ban has never created the niche market that the agency first imagined back in the 1990s. In a FSF Perspectives paper from last year titled "The FCC's Continuing, Costly Video Navigation Device Regulation," I wrote that:

The costs of the integration ban — ultimately leading to more expensive devices for consumers — should have lead the Commission to jettison its ban. But the Commission instead tries to cabin its concession by insisting that the exemption can still work 'without undermining the effectiveness of the integration ban.' This despite the Commission's own admission that since the ban went into effect: 'most manufacturers have abandoned the [CableCARD] technology. Indeed, since July 1, 2007, cable operators have deployed more than 22.75 million leased devices pre-equipped with CableCARDs, compared to only 531,000 CableCARDs installed in retail devices connected to their networks.'

Those numbers suggest that consumers usually prefer to lease set-top boxes from cable operators (and trade them in for more advanced devices) over making trips to the store and fronting the cash to purchase devices that will become outdated after a few years.

Nevertheless, the FCC stubbornly persists in enforcing its set-top box regulations, including its CableCARD rules. The FCC amended those rules in part in 2010, and further tweaked them in early 2011, with the most recent set of changes not going into effect until year's end. The end game of FCC's propping up of the CableCARD regime is to eventually install an expansive set of video device navigation regulations called "AllVid."

In a blog post this spring titled "Video Competition Should Lead FCC to End Old Regulation," I pointed out how the landscape of the video marketplace has dramatically altered since the 1990s. For instance, where so-called cable bottlenecks once existed, consumers now enjoy competition from two national DBS providers, and in some places telco entrants into the video services market. Consumers are also experiencing broadband-delivered video content through a variety of devices, including PCs, video game consoles, Internet-connected HD TVs, and even wirelessly-connected tablets and smartphones.

These dynamic video market developments suggest that government regulation of set-top boxes or other video navigation devices is wrong-headed. If anything, video device regulation should be the exception rather than the rule. In other words, in today's competitive video market, aggrieved competitors or consumers should first demonstrate an abusive exercise of market power or anticompetitive conduct before regulatory restrictions on video devices should be imposed. But the system we have still takes the opposite approach: set-top box regulation is the rule unless special waivers can be obtained from the regulators. Unfortunately, that approach relies on 1990s assumptions about the marketplace.

Through its waiver orders and its recent amendments carving out new exceptions from its CableCARD rules, the FCC's recognizes at least some of the costs imposed by its set top box regulations. But a broader view of the history of its set-top box regulations shows that the promised benefits of the FCC's integration ban and CableCARD regulatory regime have never materialized.

It's undesirable and an overreach to have government controlling video device designs in a competitive market. And developments in the video market that have led to new services and platforms for video delivery suggest a market that is effectively competitive, making existing or any future set-top box or video navigation device regulation unnecessary and outdated.

Fortuitously, Congress gave the FCC a unique "sunset" power under Section 629 to eliminate such regulation when it determines the market is effectively competitive.

The FCC should let the sun set on its set-top box regulation.

Constitution Day at the FCC - Daily Caller

2011-09-21T16:26:00.000-04:00

The Daily Caller has my piece, "Constitution Day at the FCC", which ends by urging that "everyday should be Constitution Day at the Federal Communications Commission."

Would that it were so.

Before it is, "the agency needs to understand the First Amendment was included in the Constitution to prevent government interference with private speech, not to authorize the government to interfere with private speech on the premise that it is enabling more important, balanced, or fairer speech."

Mr. Copps and the First Amendment

2011-09-20T16:06:00.001-04:00

I have no hesitancy in congratulating FCC Commissioner Michael Copps on receiving the Four Freedoms Award from the Roosevelt Institute the other day. I have never questioned Commissioner Copps' good faith. I just have profound a difference of opinion regarding his regulatory philosophy and his understanding of the Constitution.

For example, in accepting the award, Mr. Copps used the occasion to expound on the most persistent theme of his long tenure as a commissioner -- that the agency has failed in ensuring that the public receives through the media the type of content that Mr. Copps believes it should receive. I know Mr. Copps doesn't put the point so boldly.

But what else can he really mean when, in an era of media abundance heretofore unimaginable, he continually rails against the lack of what he calls "quality news" and "dumbed-down civic dialogue."

It's become clear over time that Commissioner Copps just wishes the news and dialogue was more to his liking. He insists the FCC should ensure that "the people's airwaves serve the people's interest."

In an era with so much media, and so much competition, presumably they already do.

It's a pretty scary proposition when an FCC commissioner really wants to define what constitutes "quality news".

Again, I am happy to offer my congratulations on Mr. Copps' award. But, I wish, in return, he'd read, and take to heart, my piece in today's Daily Caller, "Constitution Day at the FCC." I have a profoundly different view of the First Amendment's free speech guarantee than Commissioner Copps.

New USF Tax Hike Adds Urgency to Reform Effort

2011-09-14T18:24:00.012-04:00

On September 13 the FCC issued a public notice announcing that for the fourth quarter of 2011 the universal service contribution factor will be climbing back up to 15.3%. The contribution factor translates into the line-item surcharge amount that is added to the interstate long-distance portion of consumer’s monthly phone bills. So, in essence, for the last few months of this year consumers will get hit with a 15.3% surcharge (a tax, in effect) on the long-distance part of their bills.

The USF system subsidizes telephone companies in rural or high-cost areas, as well as schools, libraries, and some health care facilities. And, in some instances, it subsidizes providers serving qualified low-income consumers. The USF subsidy system has also grown exponentially over the last decade, with the program subsidies for telecommunications service in high-cost areas growing from $2.6 billion in 2001 to $4.3 billion in 2010.

Below is a chart that shows the decade-long trend of steady increases in the USF contribution factor that is resulting in surging surcharges hitting consumers to fund the system:

This dramatic growth of the USF system, as reflected above in the dramatic growth in the USF contribution factor, highlights the urgency of USF reform.

Earlier this year, FSF submitted comments and reply comments to the FCC in its comprehensive USF and intercarrier compensation reform proceeding. In those comments we emphasized the need to impose a cap on the overall size of the USF high-cost fund. We also urged the FCC to set a goal of eventually eliminating subsidies for telecommunications providers altogether by establishing a ten-year sunset on USF high-cost subsidies.

In comments submitted by FSF in the Lifeline and Link Up Reform and Modernization proceeding, we recommended the FCC implement reforms to control waste, fraud, and abuse. Just as important, we urged the FCC to treat Lifeline and Link Up as the exclusive, or at least the near-exclusive, mechanism for distributing USF support once the high-cost fund is sunset. Lifeline and Link Up are targeted to low-income individuals who can choose a communications service that best fits their needs. Such targeted subsidies are more efficient and can be more reliably monitored for accountability than subsidies targeted more broadly to service providers.

And in FSF's comments in response to the FCC's Further Inquiry regarding comprehensive USF and ICC reform, FSF President Randolph May commended the FCC for its urgency in finally undertaking such reforms. And he called the ABC plan offered by six price cap companies "a major step forward." But he also offered points for the FCC to consider for improving on the ABC plan. Reiterating the position FSF staked out in earlier comments, the FCC should "explicitly and immediately impose a hard cap on the high-cost fund at $4.5 billion per year, without any loopholes for overall subsidy increases above that cap." The FCC should also establish a sunset date for rate-of-return ("ROR") regulation.

As Mr. May further explained:

"Rate of return regulation provides all the wrong economic incentives – incentives that inevitably lead to an inefficient, wasteful allocation of societal resources. In most areas of the country, incumbent wireline telcos are subject increasingly to intense competition from wireless, cable, and satellite operators. Under these circumstances, it is difficult to understand why these providers are subject to ongoing rate regulation at all, much less ROR regulation. In any event, however, at this stage in the development of marketplace competition, it makes sense for the Commission to establish a firm – and not unduly long – transition for ending all ROR regulation. If any rate regulation is deemed necessary,it should be in the form of price cap (incentive-based) regulation."

Many of these USF and ICC reform issues were discussed and debated at FSF's July 13 seminar "Universal Service and Intercarrier Compensation Reform: Will the FCC Finally Bite the Reform Bullet?" And Professor Gerald Brock, a member of FSF's Board of Academic Advisors, recently wrote a Perspectives paper urging the FCC to "Abolish Access Charges Now."

By imposing a cap on the USF high-cost fund and eventually eliminating subsidies to carriers resulting from high-cost service, ROR, and outdated access charges, the FCC can reduce waste and inefficiencies, limit subsidies and target them to those who actually need them. And, of course, it would give consumers much-deserved relief from a USF surcharge now exceeding 15%.

And in so doing, the FCC can transform the outdated system we are still stuck with into a more disciplined system that fits the intermodal competition and broadband-centric world that exists today.

Rep. Blackburn's Privacy Roundtable - Tomorrow

2011-09-13T14:55:00.000-04:00

Tomorrow I am participating in an Online Privacy Roundtable discussion from 8:00 - 9:30 AM in the Capital Visitors Center Meeting Room North. The roundtable is hosted by Rep. Marsha Blackburn, a member of the House Energy and Commerce Subcommittee on Telecommunications and vice chair of the Subcommittee on Commerce, Manufacturing, and Trade.

Rep. Blackburn is one of the leading free market thinkers -- and doers -- in Congress, and she is especially knowledgable on communications, Internet, and high-tech issues. So, the roundtable, with a number of other free market think tankers participating, is sure to be informative and interesting.

Details, including a listing of the other participants, is here. All are welcome to attend!

9.11.11

2011-09-10T09:15:00.001-04:00

9.11.01.

9.11.11.

Ten years later, above all, we should reaffirm that we will never forget those innocent Americans who died in a wanton Islamic terrorist attack – the worst attack by a foreign adversary on American soil in our nation's history.

We must never forget to remain vigilant against future attacks, while at the same time remaining faithful to our Constitution and the liberties it guarantees.

I have no hesitancy in proclaiming today, or any other, that America is an "exceptional" country. I do so proudly.

At the Free State Foundation, we strive, through our research and educational activities, to promote free market, limited government, and rule of law principles. In our view, adherence to these foundational principles is central to restoring and maintaining America's economic prosperity, including marketplace dynamism in the communications, Internet, and high tech sectors in which we principally toil. And adherence to these principles is central not only to promoting the general welfare here at home, but also to providing the basis for ensuring we possess the strength to remain secure in a dangerous world.

While we will never be shy about trying to influence the direction of law and policy in a free market, limited government, and rule of law direction based on our understanding of the proper application of these principles, we recognize others have different views and understandings. And we respect their right to hold and advocate them. Indeed, a considerable body of our work promotes the defense of First Amendment free speech rights against government interference.

Right after the 9.11.01 attacks, the French newspaper of record, Le Monde, ran a front-page headline reading "Nous sommes tous Américains," or "We are all Americans."

This expression of solidarity from a foreign quarter was especially comforting at the time. But on 9.11.11, regardless of our political or philosophical persuasions, it is we Americans who should remember, "We are all Americans."

And, above all, on 9.11.11, we should remember that we should never forget.

Labor Day 2011

2011-09-02T10:29:00.004-04:00

I am an optimist by nature, but it is difficult to be optimistic about the nation's economy this Labor Day. Indeed, as he prepares to address the nation next week on the dire jobs situation, President Obama acknowledged on August 31 that the nation faces "unprecedented economic challenges."

President Obama has a certain special way of exaggerating – does he recall the Great Depression? – but there is no doubt the economy is in serious straits.

It is sad to take note, on this Labor Day, that the most recent report shows the nationwide unemployment rate at 9.1%. Yesterday the Obama Administration announced that it expects the rate to remain around 9% well into 2012. When President Obama took office in January 2009, the unemployment rate was 7.6%. The latest report indicates there are13.9 million unemployed persons in the U.S., with 6.2 million of those classified as long-term unemployed.

President Obama's policies are not solely responsible for the current poor economy and jobs situation. But they must bear significant blame for the sorry state of economic affairs.

And surely President Obama's regulatory policies are a substantial contributor to the economic malaise. Despite recent rhetoric to the contrary, however welcome, the Administration has been on a regulatory binge, apparently oblivious to the costs imposed by unnecessary regulations. These costs raise prices to consumers, and they dampen incentives to invest in new plant and equipment – and, importantly, in new job hires.

There are many research reports tracking the Obama Administration's increased regulatory activity and the costs imposed. Here is a relevant excerpt from a recent Heritage Foundation research report:

The cost of new regulations, however, can be tracked, and it is growing substantially. Following record increases in fiscal year (FY) 2010, regulatory burdens have continued to increase in 2011. Overall, from the beginning of the Obama Administration to mid-FY 2011, regulators have imposed $38 billion in new costs on the American people, more than any comparable period on record.

In total, according to the Government Accountability Office, 1,827 rulemaking proceedings were completed during the first six months of FY 2011 (between October 1, 2010, and March 31, 2011). Of these, 37 were classified as “significant/substantive” or “major,” meaning they each had an expected economic impact of at least $100 million per year.

Fifteen of those rulemakings increased regulatory burdens (defined as imposing new limits or mandates on private-sector activity). No major rulemaking actions decreased regulatory burdens during the first half of fiscal 2011.

The annual costs of the 15 new major regulations total more than $5.8 billion, according to estimates by the regulatory agencies. In addition, the regulations impose nearly $6.5 billion in one-time implementation costs.

The Free State Foundation focuses primarily on communications and Internet law and policy, and related high-tech issues. Here the Obama Administration's FCC record mirrors that in other areas – adopting and proposing new regulations that are not necessary to protect consumers or the public, and the failure to repeal costly, outdated regulations that are no longer needed.

The FCC's adoption of new "net neutrality" regulations to control the business practices of Internet providers, which the agency pursued doggedly for a year-and-a-half in the face of the expenditure of significant public and private resources, is a prime example. The FCC never presented any persuasive evidence of existing market failure or consumer abuse. Yet it adopted the Internet regulations before it even attempted to quantify their costs and weigh the costs against the claimed benefits.

Even now, more than eight months after the FCC majority voted to adopt them, the new Internet mandates (thankfully) have yet to become effective as the Administration's Office of Management and Budget conducts an after-the-fact proceeding to try to quantify just the information collection costs associated with the new regulations. CTIA, the association representing wireless operators, has told OMB that the transparency prong of the new Internet regulations specifies over 30 different topics an Internet provider may be required to disclose in order to offer service.

As for proposed regulations, the FCC's so-called "bill shock" regulation, which would require wireless operators to provide a range of new usage notifications and additional information disclosures, is another case of regulatory overkill. A review of the Commission's rulemaking notice indicates this proposal is driven primarily by anecdotal evidence of a small number of claimed abusive incidents without regard to the substantial overall costs that would be imposed.

There are other examples, of course. The FCC's current so-called "AllVid" proposal to mandate, despite the fierce competition among providers in the video marketplace, uniform technical standards for the delivery of video through set-top video boxes, comes readily to mind as another example of a costly, unnecessary regulation. And like other FCC regulations affecting media companies, this one raises serious First Amendment concerns, as my colleague Seth Cooper explains here. The same is true for the FCC's outdated media ownership regulations, which were adopted over three decades ago when most Americans got the news from a daily newspaper and three television networks.

Most importantly for present purposes, aside from the impact of unnecessary regulation in other market sectors, the adverse economic impact caused by such unnecessary regulation in the communications, Internet, and high-tech market sector is likely to be especially acute – and unfortunate. This is because the communications/Internet/high-tech sector is one of the few bright spots in the nation's economy, one of the few sectors that has experienced increased investment and job growth.

Again, there is much evidence for this. But an August 16 report in USA Today, entitled "IT Jobs Thrive Despite Lackluster Economy," captures the point well:

"Even in a tough labor market, IT is where the jobs are. The unemployment rate for technology jobs was 3.3% in June, compared with a 9.2% unemployment rate overall that month, according to the Bureau of Labor Statistics. In the most recent edition of its Occupational Outlook Handbook, the BLS said it expects IT employment to grow 'much faster than the average' of all occupations through 2018."

According to Dice's Spring 2011 report, "The Rising Demand for Tech Talent," "the unemployment rate for technology professionals has been generally half the rate of the overall labor market in the U.S."

The long and short of it is that, confronted with an increasingly competitive and dynamic communications and Internet marketplace, the FCC should be aggressively seeking to reduce unnecessary regulations, not seeking to impose new ones. Following the lead of President Obama's recent rhetoric and Executive Order on Regulation for Independent Agencies, FCC Chairman Julius Genachowski has now begun to talk the talk. On August 22, as the FCC announced in a news release that the agency was eliminating outdated rules, Mr. Genachowski stated: “Our extensive efforts to eliminate outdated regulations are rooted in our commitment to ensure that FCC rules and policies promote a healthy climate for private investment and job creation." Good.

It's one thing, however, to talk the talk. As they say on the streets, Mr. Genachowski now needs to walk the walk. For while he touted the elimination of the Fairness Doctrine rule, which hasn't been enforced for a quarter century, and the Broadcast Flag rule, which hasn't been enforced for many years, taking these and other outdated non-enforced rules off the books has no practical impact, except perhaps to make the Code of Federal Regulations volumes a slight bit slimmer. Mr. Genachowski's FCC has yet to seriously engage in a review of the multitude of outdated regulations that do remain on the books and that do have a practical – and costly -- impact.

President Obama's Executive Order No. 13563 ["Improving Regulation and Regulatory Review"], issued on January 18, 2011, directs agencies to review existing regulations to determine whether they are "outmoded, ineffective, insufficient, or excessively burdensome." This order was issued to carry out President Obama's injunction, as he put it in his January 2011 "Towards a 21st Century Regulatory System," Wall Street Journal commentary, to initiate a government-wide review to "remove outdated regulations that stifle job creation and make our economy less competitive."

As I write this, we have just learned that the Department of Justice will go to court to block the proposed AT&T/T-Mobile merger. Without delving into the merits of that decision here from a strict antitrust perspective, I have little doubt that in the high-tech, communications, and Internet venues in which executives are making day-to-day decisions, the Administration's action will be viewed more negatively that positively with regard to future hiring and investing. After all, the wireless sector is one of the economy's most dynamic – with a consistent record of declining prices and increasingly innovative product offerings.

It is way past time for the Obama Administration generally, and the FCC specifically, to forget the rhetoric. It is time to get serious about the elimination of unnecessary regulations.

On this Labor Day, the country desperately needs more job creation and more investment that elimination of unnecessary regulations would bring. Period.

As I said at the outset, I am an optimist by nature. It is in that spirit that I wish you all a happy and safe Labor Day.

More Spectrum Will Make 4G an Economic Force Multiplier

2011-08-30T17:48:00.001-04:00

Deloitte's new report, "The Impact of 4G Technology on Commercial Interactions, Economic Growth and U.S. Competitiveness," previews many of the technological, economic, and social benefits that we should expect from 4G mobile broadband. According to the report, "U.S. investment in 4G networks could fall in the range of $25-$53 billion during 2012-2016." Applying industry-specific multipliers, the report cites estimates that "conservatively, these investments could account for $73-$151 billion in GDP growth and 371,000-771,000 new jobs."

Moreover, "the GDP and job estimates do not take into account the wider effects of applying 4G technology, such as the production of new devices and applications; the creation of new companies; and better ways of working, living, and learning. Any attempt to quantify those effects confronts the difficulty of anticipating the way entrepreneurs will make use of the new platform — just as in the early days of 3G mobile broadband it was impossible to foretell how social networks, smartphones, and tablets would emerge." But given the improved performance characteristics of 4G, it’s a safe bet that 4G will lay the foundation for another generation of breakthrough innovations.

In terms of enhanced capabilities, the report points out that, "[f]rom a technical standpoint, 4G promises three benefits over 3G: increased throughput, lower latency, and stronger security.One result is a reduced cost per megabit." Moreover, "4G networks combined with cloud computing and other advanced technologies have the potential to facilitate interactions among all components of the ecosystem, and thereby accelerate the process through which supply and demand signals interact and create new economic activity."

We have been consistently urging Congress, NTIA, and the FCC on in their efforts to locate and auction more unencumbered spectrum for flexible commercial use. And the report similarly deems it a U.S. policymaking priority to ensure sufficient spectrum supply allocated by free market mechanisms. The report gives a nod to the NTIA/FCC joint effort to free up 500MHz of additional spectrum in the next decade. But it warns that even if that goal is achieved, it could be difficult to keep U.S. commercial wireless spectrum supply and demand in balance as interest in new 4G offerings grows." Thus, "there is a need to find additional ways to make better use of available spectrum and to unlock more."

Report: U.S. Wireless Consumers Enjoying Better Services with Lower Bills

2011-08-26T17:17:00.002-04:00

"Americans get more value from wireless communications than anywhere else." That's the takeaway from a report released on August 24 Future and Roger Entner of Recon Analytics. "What's It Worth To You? Comparing Wireless Pricing in 14 Countries" analyzes recent trends in wireless prices and services in the U.S. and provides an international comparison. The numbers and analysis contained in the report reveal how Americans wireless consumers are reaping increasing value from wireless services and enjoying a comparative advantage than their counterparts in several other nations

As the report points out, in recent years, U.S. wireless consumers are getting more while paying less. For starters, prices for wireless voice services have dropped. "From 2007 to 2010, in the United States," says the report, "wireless voice spending per customer has declined by more than $12 per month and total spending on wireless services has declined by more than $4 per month."

Meanwhile, U.S. consumers are increasingly enjoying wireless data services, such as text messaging and wireless Internet. Although the average American spend approximately $7 more per month on wireless data services in 2010 than in 2007, all told their dollars are stretching even further than a few years ago: "Combining wireless voice and data spend, Americans are spending $4.38 less a month on mobile communications than they did three years ago, while the ability and opportunity to do more with their minutes and their bytes has expanded in an unprecedented way."

Taking the wireless markets in several foreign countries into account, the report provides an interesting comparison by "considering how long the average person has to work for their gross income to equal what they spend on a wireless subscription." And the report concludes that "[w]hen it comes to affordability, Americans lead the world: they can talk more than 19 minutes for every work minute." By contrast, consumers in Canada can only talk 4.6 minutes for every work minute, consumers in the U.K. can only talk for 2.4 minutes for every work minute, and consumers in Japan can only talk 1.6 minutes for every work minute.

The report also provides some interesting insight regarding wireless consumer surplus; that is, "the difference between what people actually spend versus what they are willing to spend," or "the amount that consumers are able to spend on other goods and services and are therefore better off by that amount." According to the report, "[t]he 2010 wireless voice consumer surplus in the U.S. was at least $448 billion per year or $1,480 per wireless subscriber in the United States per year." That's a near tripling of the consumer surplus since 2004.

Developments in the dynamic U.S. wireless market continue to enhance wireless consumer welfare. That's the hallmark of a free market characterized by competition. Numbers contained in the report on advanced wireless services and prices present striking evidence of the U.S. wireless market being "effectively competitive."

Address Problems with Wireless Applications, Not Regulations

2011-08-25T11:23:00.002-04:00

News outlets have recently covered New York Senator Charles Schumer's urging wireless providers to deactivate stolen cellphones. The Senator is also reported to have sent letters urging the FCC and DOJ to study the United Kingdom's policies for deactivating stolen cellphones.

It's one thing for policymakers to merely urge wireless providers to take certain concerns into account in their business practices. But it's quite another thing to impose new regulations. Urging the FCC and DOJ to consider UK policies sounds like setting the groundwork for new regulations.

Considering the dramatic and dynamic innovation and growth of wireless in recent years has taken place in a light-touch regulatory environment, one should always think twice before imposing new regulations on wireless. When markets are characterized by rapidly changing technology, even well-meaning regulation has the potential to stifle innovative and impose costly controls.

And when it comes to wireless, the lesson for policymakers is that they should never underestimate the app. Wireless apps offer consumers countless ways to obtain functionalities for their own needs. As the FCC's latest Wireless Competition Report points out, "several application stores have launched within the last three years, with each offering thousands of applications for download." The total number of apps downloaded from the Apple App Store surpassed 6.5 billion by September 2010, and by that same time, "the Android Market had over 80,000 available applications and had passed one billion downloads." Ubiquitous, creative, and customizable wireless apps thus provide useful tools as well as ready solutions to problems, rendering well-intentioned regulatory mandates pointless, if not harmful.

Prior calls for FM chipset mandates in wireless devices or "bill shock" regulations miss the fact that wireless apps can deliver many of the same functionalities in an individualized manner that proposed regulations supposedly promise. Similarly, while advanced wireless devices may be attractive items to thieves, those devices also provide their own capabilities to for wireless consumers to protect themselves. There are a number of wireless apps available for consumers to password protect their devices and data, to lock down their devices remotely, and to track the location of their devices.

It's also worth remembering that once a wireless device is reported stolen, typically wireless providers terminate the customer's service to that device. That protects the consumer from incurring charges on the stolen device and sharply reduces the value to the thief who then has a device lacking service though the customer’s account.

When a wireless app can do the job, regulation becomes redundant and perhaps even irresponsible. So in the case of stolen cellphones, policymakers should always consider the ready consumer protections offered by wireless applications before taking a more heavy-handed approach by imposing new regulations.

Eliminating Unnecessary Regulation

2011-08-23T15:09:00.002-04:00

The Obama Administration's Regulatory Czar, Cass Sunstein, has an op-ed in today's Wall Street Journal touting the Administration's newfound interest in eliminating unnecessary regulation. This is welcome, because if Administration officials talk enough about reducing unnecessary regulations – regulations for which the costs outweigh the , they may start believing it actually needs to be done. And, to his credit, OIRA Administrator Sunstein seems intent on following through.

Over at the FCC, Chairman Genachowski, following the Administration's lead, is also talking about eliminating unnecessary regulations. In other words, he's talking the talk. Just yesterday, the FCC announced in a news release its intent to eliminate 83 outdated rules. They include the Fairness Doctrine rule, which hasn't been enforced for a quarter-century, and others, like the "broadcast flag" rule, which have not been subject to enforcement for years.

All well and good to get outdated rules off the books that have no practical effect. It will make the CFR books thinner.

But when the FCC starts eliminating outdated rules that are still being enforced, and, therefore, which do impose ongoing unnecessary burdens, then we'll know that Mr. Genachowski is actually walking the walk, not just talking the talk.

Saying No to Merger Review Regulation by Arbitration

2011-08-15T16:00:00.005-04:00

The latest and most far-fetched attempt to bog down the proposed AT&T/T-Mobile merger is the subject of a handful of recent press reports. A law firm has been recruiting customers and filed arbitration claims on their behalf against AT&T in a number of jurisdictions across the country in an attempt to try to get arbitrators to tie up the deal.

Apparently, the law firm argues that AT&T customer contracts regarding individual billing disputes gives arbitrators the ability to decide antitrust claims under the Clayton Act. On the face of things, it seems bizarre to suggest that arbitrators are empowered to decide antitrust issues concerning AT&T/T-Mobile. Not surprisingly, AT&T has now filed lawsuits in those same jurisdictions to put a stop to the ploy.

AT&T/T-Mobile is already subject to review by two federal agencies – the U.S. Department of Justice as well as the FCC. DOJ's merger review, in fact, includes an antitrust analysis, focusing on anticompetitive concerns. Regardless of one's views of the competitive merits of the AT&T/T-Mobile merger, those merits are best assessed through the federal regulatory process we have in place. And antitrust issues, in particular, are here best left to DOJ.

We've previously raised concerns about unnecessary duplication of federal merger review processes, as well as the drawbacks from saddling telecom mergers – including wireless mergers – with assorted state regulatory reviews. Now we see yet another unhelpful and most likely harmful obstacle to a sound merger review process, this time through a misuse of the arbitration process to disrupt AT&T/T-Mobile.

Tying up proposed mergers by ginning up lawsuits premised on strange notions of arbitrator activism is bad policy. And it's hardly the best approach to ensuring careful market analysis and promoting overall consumer welfare. In the end, the only good that could come of this legal excursion would be an eventual court appeal and definitive precedent to stand in the way of any similar future attempt to roadblock proposed telecom mergers.

Prices and Profits in the Broadband Marketplace

2011-08-11T13:50:00.001-04:00

I read this morning in the trade press that Free Press's Research Director Derek Turner is criticizing FCC Chairman Julius Genachowski for saying some kind words about usage-based pricing for broadband services.

According to yesterday's TR Daily [subscription required], Chairman Genachowski said on Tuesday that consumption-based pricing “can allow consumers that use less to be charged less,” and that it can “encourage efficiency and investment in networks.” And Communications Daily [subscription required] reports today that Mr. Genachowski said usage caps such as those adopted by AT&T and Verizon “fundamentally” may “provide consumers more choice."

Mr. Genachowski's comments follow on the heels of FTC Chairman Jon Leibowitz's endorsement of usage-based pricing for broadband services this past June at the Cable Show. The FTC Chairman expressed surprise that more usage-based pricing plans had not already been adopted, pointing out that most other products on the market are priced based on the volume consumed by customers. According to Chairman Leibowitz, it is only rational that broadband would be treated the same way.

So, according to Communications Daily, here is what Mr. Turner said: “While the rest of the world is moving away from this type of price-gouging, it is puzzling why the FCC chairman would endorse a practice that in the long run will relegate the United States to an Internet backwater.” While acknowledging that adoption of usage-based pricing could help low-volume users “in theory," Mr. Turner said, "doing so would not help [the broadband providers] achieve their primary goal — continued explosive growth of profits."

I suppose, in theory, it is nice that Mr. Turner at least recognizes, in theory, that usage-based pricing may be beneficial to low-volume users. But, unfortunately, his utter disdain for corporate "profits," and his unremitting fondness for accusations of "price-gouging," blind him from recognizing that, in the real world, usage-based pricing promotes economic efficiency in a way that not only benefits low-volume users, but also enhances overall consumer welfare.

By generally railing against "profits" and "pricing gouging" as Free Press does consistently, Mr. Turner makes his intentions – once again – crystal-clear. What he really prefers is government-owned and operated communications networks, or at the very least, private sector communications networks whose rates and service terms are closely regulated under traditional public utility principles. In Mr. Turner's world, with government-owned broadband networks, there would be no need to worry about profits because we don't expect governments to turn a profit. Quite the contrary – deficits and debt are what we expect and what we get.

And with broadband providers regulated as public utilities, Mr. Turner would look to regulators to prevent what he calls "price gouging." I understand that Mr. Turner always prefers a lower price to a higher one. But the only way to determine a "reasonable" price – even though Mr. Turner nevertheless might never agree it is not a "gouging" price – is to conduct full-blown rate cases. Having lived through many of them back in the Ma Bell era of the 70s and 80s, I am absolutely certain that, in today's competitive marketplace, we don't want to turn the clock back to those drawn-out, usually inconclusive affairs.

Mr. Turner's preference for a world without profits or prices is one way to go – but it is completely the wrong way. Indeed, it was tried in the Soviet Union for seventy years with disastrous results before being abandoned.

There is no dispute that in the past five years, private sector broadband providers have invested over $300 billion in private capital to build-out and upgrade high-speed broadband networks that now provide access to over 95% of the nation's households. And, there is no dispute that, even so, with Internet usage continuing to explode, and especially for wireless, there will be a continuing need to invest at least $30-$40 billion per year to expand and upgrade capacity-constrained broadband networks in order to meet consumer demand and expectations.

The notion that the private sector will continue to invest hundreds of billions of dollars in broadband networks, as it has over the past decade, without the prospect of profits, however Mr. Turner chooses to characterize them, is fanciful.

And the notion that broadband providers, in a competitive market, should not be allowed to employ price signals so consumers can avail themselves of choices is fanciful too. Indeed, in the context of today's broadband marketplace, it is downright mischievous. For what "all you can eat" pricing means in this context is that either low-volume users will be required to subsidize the usage of high-volume users, which raises equity issues. Or that all – repeat, all -- users will be required to pay more for the build-out of additional network capacity than they otherwise would absent the adoption of usage-based pricing. It is either/or.

In other words, usage-based plans, by giving consumers choices related to pricing signals, promote both fairness and efficiency.

Neither FTC Chairman Leibowitz nor FCC Chairman Genachowski, both Obama Administration picks, can possibly be characterized as corporate stooges or anti-regulation. I certainly don't always agree with them. Indeed, I think often they are too quick to look to impose new regulations. But I am happy to come to their defense when they take positions that are consistent with enhancing overall consumer welfare.

That is manifestly the case here – and I happily rise in their defense.