PRESS RELEASE: The FCC Latest Inquiry Regarding 'Data Caps' Avoids Economics in Favor of Anecdotes

Regarding the FCC’s newly-initiated proceeding to examine so-called "data caps" imposed by broadband providers, Free State Foundation President Randolph May issued the following statement: 

If I were a cynic, I might think the FCC's newly launched inquiry into "data caps" is just a political ploy with an election looming. But I'll just deal with the issue on the merits. The FCC's news release announcing the inquiry contains snippets of “stories” related by persons claiming to be adversely impacted by the practices of some broadband providers who charge higher prices for heavier usage. But, tellingly, the release contains not one single word regarding the economics of building out and maintaining ever faster, more reliable broadband networks. There is no apparent recognition that the heaviest users impose greater costs on broadband networks, and that, in reality, so-called "data caps" are just a form of "usage-based pricing" common in many different market segments.

 

Of course, if broadband networks grew freely on trees, and the costs of building and maintaining them didn't have to be recovered primarily by the users of the networks, it would be far easier to indulge in the polemics of those who advocate for unlimited usage for all at the same low price. But that's not reality. The FCC can't be an "economics free zone" relying on stories it collects if it expects the private sector to continue to invest enormous amounts of capital — over $2 trillion - just in the last two decades to build out and maintain increasingly faster, more reliable broadband networks.

 

To be sure, there are those who will always need financial assistance to obtain Internet services. But there are ways to provide subsidies to those in need without destroying incentives that lead to economic efficiencies that benefit all consumers.

Report Highlights Link Between Spectrum Policy and National Security

A new report published by the Center for Strategic & International Studies (CSIS) warns that absent a heightened focus on our national spectrum policy, "[t]he security of the United States as a market democracy is at stake." In the simplest of terms, online activity is only as secure as the underlying apps and network infrastructure over which it occurs. If that software and hardware is to come from trusted sources, policymakers must foster an environment in which America's mobile marketplace maintains a powerful say in global technology development, "especially as autocratic nations seek to dominate."

In Part 1 of "Concrete National Security Benefits of Spectrum Allocation for Commercial 5G," CSIS Strategic Technologies Program Senior Fellow Clete Johnson identifies two "difficult technical feats" that the U.S. must and can accomplish if it is to achieve the scale necessary to drive technology development down a secure and trusted path. The first is to better harmonize frequency use, as "[t]he more that U.S. spectrum use is harmonized with that of allies and global markets, the more scale trusted suppliers have for secure technology development." The second is to allocate sufficient spectrum so that capacity does not constrain the economic might of American consumers.

Harmonizing the frequencies allocated to 5G (and successor standards) is essential to achieving economies of scale because technology development is frequency specific: equipment developed for one band typically cannot be used in other bands. As the report points out, however, "the United States is becoming a mid-band spectrum 'island,' operating largely outside the core globally harmonized spectrum bands. If this trajectory continues, the U.S. technology ecosystem will be confined to a U.S.-only spectrum 'dialect' that lacks global influence and scale."

Allocating sufficient spectrum to satisfy growing mobile broadband demand, meanwhile, maximizes the economic ability of 350 million American consumers to shape global technology decisions. As the report explains:

U.S. wireless companies need sufficient spectrum resources to collaborate with like-minded nations in innovating and manufacturing advanced wireless technologies and components – including chipsets, software, radios, and more – for use in both the commercial and federal sectors…. The existing disparity between U.S. licensed mid-band spectrum allocations as compared to the rest of the world has become a major national security challenge, as it has created a platform for China to shape the near-term and future technology environment to its strategic advantage.

The report proposes several ways to address this situation. They include:

• Reframing the spectrum deficit as "an optimization challenge, not a scarcity problem."
• Moving from a "zero-sum" mindset that pits government and commercial uses against each other to a collaborative environment that promotes "static" and, in the longer term, "dynamic" spectrum sharing solutions.
• Restoring the FCC's spectrum auction authority.
• Aggressively pursuing harmonization opportunities, which may include the 7/8 GHz band, so that America speaks the same "frequency 'language'" as its allies.

The report's forthcoming Part 2 primarily will focus "on the importance of agile spectrum management capabilities in the context of electronic warfare."

PRESS RELEASE: FSF Continues to Oppose the FCC's Proposal to Regulate Political Ads Using AI

Free State Foundation President Randolph May and Director of Policy Studies Seth Cooper submitted reply comments today to the FCC continuing to oppose the agency’s proposal to require broadcasters, cable, and satellite operators to include a disclaimer in all political ads using AI. Below are the first two paragraphs from the Free State Foundation reply comments:

"In these reply comments, we emphasize two primary points. First, even comments filed by parties sympathetic to the proposed rulemaking acknowledge that the Notice’s definitions of terms are ambiguous and easily misunderstood. The key definition of 'AI-generated content,' on which the whole proposal depends, is especially problematic because it seemingly is so vague and overly broad that it would require a disclaimer for virtually all political ads.

 

Second, commenters rightly recognize that the Commission’s proposal to rely on a 'credible third party' to trigger FCC action for an alleged failure to comply with its rules is susceptible to political manipulation, or at least the appearance of it. It is naïve to suggest that, during heated political campaigns, and in today’s charged political environment, that there will be agreement regarding the true independence, dispassionate judgement, and expertise of ‘credible' third parties. Any proposal to rely on such supposed credible third parties almost certainly would not find widespread public acceptance.”

TMT with Mike O'Rielly – Ep 12: First Amendment & Media Environment

Episode 12 of "TMT with Mike O'Rielly," a videocast featuring former FCC Commissioner and Adjunct Senior Fellow at the Free State Foundation Michael O'Rielly, was released on October 9. This episode, titled "The First Amendment and Today's Media Environment," features a conversation between Mr. O'Rielly and guest Richard T. Kaplar, President & CEO of the Media Institute. Their discussion includes topics such as media consolidation and media ownership rules, the Net Vitality 3.0 report on global Internet ecosystem leaders, and the Madison Project.

MT with Mike O'Rielly – Ep 11: Wireless Broadband & BEAD

Episode 11 of "TMT with Mike O'Rielly," a videocast featuring former FCC Commissioner and Adjunct Senior Fellow at the Free State Foundation Michael O'Rielly, was released on September 26. In the episode, titled "WISPs' Wireless Broadband Offerings & BEAD Funding," Mr. O'Rielly is joined by guest David Zumwalt, President and CEO of WISPA – The Association for Broadband Without Boundaries. The conversation touches on matters such as spectrum, concerns about the Biden Administration’s favoritism for fiber in implementing the Broadband Equity, Access and Deployment (BEAD) Program and the subsequent change to that policy, concerns about federal subsidies being used to overbuild in areas already being served by small wireless providers, and more. 

Competition and Federal Law Preclude COLR Regulation of Wireless

The California Public Utilities Commission (PUC) has an open rulemaking proceeding in which it is considering whether to impose "carrier of last resort" (COLR) regulation on wireless voice providers. COLR rules are outdated and unjustifiable in today’s competitive market environment. And federal law preempts state COLR regulation of wireless voice providers.

A voice services carrier designated as a COLR typically is required to serve all customers within a territory, even if that means requiring them to build out their networks. COLRs must obtain permission from regulators before exiting the market. Also, COLRs typically are required to charge rates that are limited to what the regulating authority deems “just and reasonable.” 

COLR obligations are premised upon the existence of local monopoly conditions for voice telephone services. But those conditions do not exist anymore. Instead, today's voice market gives consumers choices among competing providers. As comments filed by CTIA on September 30 with the California PUC observed: 

Wireless providers in California operate in an intensely competitive market where “there are multiple providers that compete for wireless subscribers” and “consumers have the ability to switch providers” if they wish to do so. Due to this fierce competition, wireless providers in California experience customer switching rates between 9% and 34%.

FSF President Randolph May made a similar point about the competitive landscape for voice services and the outdatedness of COLR obligations in a blog post from June of this year:

In an era before consumers in almost all areas of the country, including California, had more than a single option from which to choose for the provision of basic voice telephone service, it may have made sense for the government to have the power to require that a service provider be designated as the Carrier of Last Resort. Needless to say, nowadays, consumers in most all areas have several options for acquiring voice telephone service from various providers that employ different technologies – copper wires, coaxial cable, fiber, cellular, satellite, and hybrid networks combining these facilities.

Additionally, Section 332(c)(3)(A) of the Communications Act contains a state preemption provision that effectively precludes states from imposing COLR obligations on wireless providers. The statute provides, in relevant part, that “no State or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service.” CTIA’s comments correctly point out that “[r]ate regulation has always been a key element of COLR regulation” and point out various ways that the California PUC regulates the rates of COLRs. Any attempt by California regulators to control the basic rate for wireless service would be preempted by federal law. 

 

Moreover, any COLR obligation that required a wireless provider to build out its network to serve customers surely would be preempted as a regulation of entry under Section 332(c)(3)(A). Indeed, any state COLR regulation regarding wireless providers exit likely would clash with the FCC’s decision, in its 1994 CMRS Order, to forbear from exit approval requirements for wireless providers. As CTIA’s comments described that order:

The FCC specifically elected to forbear from exercising its statutory authority to require CMRS providers to obtain approval for market exit for specific policy reasons, including that “barriers to exit may also deter potential entrants from entering the marketplace” and “the time involved in the decertification process can impose additional losses on a carrier after competitive circumstances have made a particular service uneconomic,” such that “forbearance will better serve the public interest by avoiding the social costs identified in this paragraph.”

COLR obligations impose costs on voice providers, and those costs can undermine a provider’s competitiveness. For the California PUC, the better policy for voice consumers, and the lawful one, would be to promote competition and not undermine it with outdated COLR regulations. 

DIRECTV, DISH to Join Forces in Battle for Video Subscribers

Today DIRECTV announced its plans to acquire EchoStar's video programming distribution platforms – the DISH TV direct broadcast satellite (DBS) service and the Sling TV virtual multichannel video programming distributor – to more effectively compete in a rapidly evolving marketplace increasingly dominated by streaming alternatives.

This is not the first time that the two DBS operators have attempted to combine. In October 2002, the FCC effectively blocked their proposed merger by designating their application for a full evidentiary hearing, concluding that "the likelihood of the merger harming competition in the multichannel video program distribution ("MVPD") market outweighs any merger-specific public interest benefits."

Source: directv.com

But over the last 22 years, the widespread deployment of broadband Internet access has turned the video distribution competitive landscape on its head. As I have documented, most recently in a July 2024 post to the FSF Blog, for many years traditional MVPDs – cable operators and DBS providers – have been losing subscribers, financial quarter after quarter, while streaming competitors have been growing by leaps and bounds. By contrast, back in 2002, Netflix – which reported 278 million global streaming subscribers at the end of the second quarter of this year – was still solely in the business of mailing out DVDs. And Hulu, Amazon Prime Video, Disney+, Apple TV+, and Paramount+ did not exist at all.

Given the undisputable dramatic changes that have occurred in the marketplace since DIRECTV and DISH TV first sought to combine, this transaction must be evaluated in an entirely new context. Specifically, by providing DIRECTV with the additional scale needed to compete effectively, it seems that it will generate undeniable pro-consumer benefits. And given the relatively dominant position of streaming alternatives, it certainly doesn't appear to present any competition concerns.

In all, DIRECTV enumerates three specific benefits that will result:

• It "will allow DIRECTV to better meet consumers' demands for smaller packages at lower price points"
• It "[p]ositions DIRECTV to provide better integration of direct-to-consumer services"
• It "[i]mproves EchoStar's financial profile to continue the deployment of its 5G Open RAN wireless network"

With regard to "smaller packages at lower price points," an August 21, 2024, open letter written by DIRECTV Chief Content Office Rob Thun argued that, absent "fundamental change" to the way that traditional MVPDs are able to package their services, "costs will continue to soar, consumer satisfaction will erode, and the entire ecosystem will suffer."

In today's press release, DIRECTV Chief Executive Officer Bill Morrow is quoted as saying that "[w]ith greater scale, we expect a combined DIRECTV and DISH will be better able to work with programmers to realize our vision for the future of TV, which is to aggregate, curate, and distribute content tailored to customers' interests."

Jim Tozzi and the Center for Regulatory Effectiveness

 Over the past couple of years there's been much change in administrative law, and much of it positive in my view. The Supreme Court's adoption of the Major Questions Doctrine in West Virginia v. EPA, the overturning of the Chevron deference doctrine in Loper Bright Enterprises v. Raimondo, and the limitation on the SEC's ability to seek civil penalties in SEC v. Jarkesy are examples of recent decisions reorienting administrative law to check overly aggressive administrative agencies.

Periodically I like to remind readers of the sometimes overlooked contributions of Jim Tozzi. Among other accomplishments, Jim played a leading role in the 1970s and 1980s as a senior official of the Office of Management and Budget in establishing centralized review of proposed regulations of the executive agencies and requiring cost-benefit analyses. These were early steps in the direction of formalizing processes intended to promote increased efficiency, effectiveness, transparency, and accountability in agency policymaking initiatives.

If you want to learn more about Jim Tozzi -- one of the more interesting, but lesser known Washington legends  -- and Jim's contributions of the development of administrative law, along with his take on some current issues, I recommend a visit to his Center for Regulatory Effectiveness website. Or if you happen to encounter Jim, just ask him about the "early days" of regulatory reform and you'll be in for a treat!