California Opts For More Competition

The California legislature has sent the Terminator (aka "the Guv") a bill that would provide a big spur to video competition in the Golden State. The bill, which last night passed the State Senate overwhelmingly, provides for statewide franchises for multichannel video providers. This allows telephone companies, like AT&T and Verizon in California, to get into the video business in competition with the cable and satellite television providers much more quickly than if they are required to obtain franchises on a locality-by-locality basis. Importantly, according to the LA Times story, the bill will allow the cable companies to opt into the statewide franchise system so they are treated the same for regulatory purposes as the telephone company competitors.

The LA Times story contains this statement: "AT&T Inc., California's dominant phone company, would be the biggest beneficiary of the legislation." It is true that AT&T is a "beneficiary" of this legislation in the sense that it will be able to enter a market that it wants to serve much more quickly than it otherwise could, and it won't be subjected to locality-by-locality rent-seeking hold-ups. It may even be a big beneficiary in that it will make money at the business, although there are no guarantees in the fast-changing communications marketplace. But the "biggest" beneficiaries are California's consumers. They will benefit from the lower prices and better service quality that additional competition brings.

There are a lot of ideas that originate in California that I pray never make it eastward over the Rockies, or even the Sierra Nevada. But, especially the way that Montgomery County, Maryland thus far has held up Verizon's bid to provide video service, the Maryland General Assembly might want to look westward for a model for jump-starting video competition. My earlier post, "Montgomery County Impedes Video Competition," is here.

More Education Policy

Yesterday in a post in this space I said that if Maryland gubernatorial candidate Martin O'Malley's plan to pay big signing bonuses to school principals to take assignments in the most troubled schools was tied to past achievement than it warranted serious consideration as a worthwhile proposal. I added: "It will be interesting to see whether O'Malley pushes this or other new ideas in the face of union opposition."

Now, according to a story in today's Washington Post, Governor Robert Ehrlich is putting forward a plan to tie teachers' compensation, at least to some extent, to merit. He's including a request for modest funding in the state's fiscal 2008 budget proposal for planning what he calls a "Quality Compensation Initiative." According to the Post report on Ehrlich's merit pay proposal, O'Malley said "he believes that the state should focus on ensuring that teacher salaries and benefits, including pensions, are competitive."

It's not entirely clear, but that sounds like it may be a cop-out. Sure, the teachers' pay should be "competitive" in order to attract good people to the profession. But, in my view, some form of merit pay system, which ties compensation to performance, should be initiated for both teachers and principals, even if on a limited and experimental basis in order to get a program in place quickly. As I said yesterday, the teachers' and principals' unions, and maybe even the city administrators' unions, will oppose the notion of merit pay. All the more reason to have a good debate about the issue to see where our political leaders--and wanna-be leaders--stand on an important issue of education policy.

Education and the Public Sector Unions

There is a story in today's Washington Post about Baltimore Mayor Martin O'Malley's plan to pay signing bonuses of $200,000 to principals hired to lead dozens of Maryland's lowest performing schools. There are enough serious problems with Maryland's K-12 schools, and especially those in Baltimore, that it is good that the "education issue" is moving front and center in the gubernatorial race. And the notion of paying big signing bonuses to have seasoned principals go in and try to turn around the most troubled schools has a certain appeal, especially if the bonus award is tied to a demonstration of prior achievement as a principal. (It is not clear the extent to which O'Malley's proposal would actually tie the bonus to past demonstrated achievement.) Anything that acknowledges the value of tying the compensation of educators to past meritorious achievements and willingness to undertake difficult future challenges is an idea worth serious consideration.

But read the story closely and you might be struck by something that perhaps is now so embedded in our government that it often goes unremarked: The extent to which most all of our public servants are unionized. Putting aside the teachers' union, the story refers to the "National Association of Secondary School Principals," "the principals union in Prince George's," and the "city administrators union." While no definitive rejection-at-all-costs reactions were reported, the implication of the reporting is that all of these groups would find O'Malley's plan problematical.

I know you know the teachers are unionized. But did you know the principals had their own union? And the city administrators too? I understand that as union membership in the private sector has continued to shrink, the principal target of organized labor for several decades has been the growing public sector. The notion of public sector employees organizing unions to negotiate with the government of which, as citizens, they are part and parcel--in other words, to negotiate with themselves--continues to strike me as an ill-conceived oddity.

In any event, it is not surprising that these public sector unions are wary of any idea that shakes up the status quo, even one that might improve the educational prospects of public school children. It will be interesting to see if O'Malley pushes this or other new ideas in the face of union opposition.

The FCC's Adelphia Order, Mergers, and Free Speech

I confess that only in the heat of late summer's dog days was I able to muddle through the nearly 200 pages of the FCC's order approving the transfer of control of Adelphia's cable systems to Comcast and Time Warner.

Over the years, I have written much concerning how the FCC's merger review process could be improved by having the agency defer to the Department of Justice or the Federal Trade Commission's review of the competitive impact of the proposed transaction. That would eliminate a lot of the unnecessary duplication of government resources (yes, the FCC and the DOJ and FTC are all part of the same government) that takes place now. And, of course, at the same time it would minimize the tangible and intangible costs incurred by the parties to the transaction resulting from the duplicative effort. In essence, the merger review process should be reformed so that the authority of the FCC is confined to ensuring that the proposed merger does not create any violation of the Communications Act or of an FCC rule. A couple of my essays on the subject are here and here, the first from 2000 and the second from last year. So I have been at this merger review reform effort for a long time. The Digital Age Communications Act (DACA) project's Regulatory Framework Working Group recommends embodies this approach. And Senator DeMint's DACA bill, S. 2113, adopts the merger reform recommendation.

One of the major problems with the FCC's current review process is that the indeterminate "public interest" standard allows the agency practically unbridled discretion to impose conditions on the merger that are not be required to bring the merged entity into compliance with existing Communications Act provisions or rules. In the Adelphia case, the agency used that public interest authority to impose conditions mandating the "nondiscriminatory" availability of Comcast and Time Warner-affiliated "regional sports network" (RSN) programming to unaffiliated video distributors. The primary reason the FCC imposed the RSN conditions, even though they are beyond the scope of existing regulations, is that the agency deems RSNs to be "must have" programming without which competitors will be unable effectively to compete. According to the FCC, RSNs are "must have" programming because "sports fans believe there is no good substitute for watching their local and/or favorite team play an important game."

Now there is much to question about the economic analysis concerning the Commission's judgment that, in today's competitive broadband marketplace, RSN programming is "must have" programming (see paragraphs 217-218 on the competitiveness of the broadband marketplace). And you can question the wisdom, as a policy matter, of the remedies imposed by way of condition. But here I want to highlight why, apart from whether the agency's economic analysis may be questionable, the FCC's decision is problematical. Anytime the Commission imposes consequential regulatory judgments based on the content of programming, it is on shaky First Amendment ground. And in this instance it made some pretty fine-tuned cuts denominating "must have" RSN programming. For example, it defines RSNs to include Major League Baseball, the NBA, NFL, and NHL, NASCAR, and NCAA (but only Division 1) programming. (In his separate statement, FCC Chairman states that in North Carolina, "there is no substitute for Tarheel basketball." Surely, a slip of the tongue. In my heart, I know he meant to refer to the "Duke Blue Devils"!)

The problematical nature of the agency making such content-based regulatory decisions is illustrated by Commissioner Michael Copps' dissenting statement. He agrees RSN programming is "must have" but asks if it is the only such programming. "What if you only speak Spanish? Wouldn't a Spanish language channel be 'must have'? How about local news? Children's programming?" Copps says "[w]e ought to be careful before starting down the slippery slope of determining what is and isn't 'must have' cable content." He's right about that, of course. But, unfortunately Commissioner Copps' preferred remedy apparently would be to impose common carrier-like "non-discrimination" requirements on cable operators and other broadband service providers as well. Right about the slippery slope. Terribly wrong remedy.

My former colleague, PFF's Adam Thierer, recently posted a good essay on how people have come to view themselves as having entitlement to an expanding array of "rights" to cable television programming, and how the government, in one way or another, has catered to what Adam called this "rights inflation". Towards the end of his essay, Adam turns to the real "rights" at stake--the cable operators' First and Fifth Amendment rights. With respect to the First Amendment, he says: "When the FCC starts intervening in private contractual disputes over channel carriage, it is interfering with the editorial function played by cable programmers."

Bottom line: There has been far too little attention paid to the way in which the FCC's conditioning of the Adelphia transaction to mandate special access to regional sports programming raises serious free speech issues. And, as I wrote recently in a National Law Journal article, there has been too little attention paid as well to the way in which net neutrality mandates would impinge on the free speech rights of all broadband Internet access providers.

Don't get me wrong. I like to watch Blue Devil basketball games as much as Chairman Martin likes to watch the Tarheels. But especially in today's competitive communications environment, with all the various video choices available, I "must not have" this "must have" programming at the expense of an infringement of anyone's First Amendment rights.

State Legislators Against Net Neutrality

At its just concluded meeting in Music City, aka Nashville, the National Conference of State Legislatures sang the right tune on net neutrality. By a wide margin, NCSL's Executive Council adopted an anti-net neutrality mandate resolution formulated by NCSL's Communications, Technology & Interstate Commerce Committee.

The state legislators' resolution displayed a keen understanding of how the Internet is already changing society in many positive ways and contributing to the nation's economic growth, and how proposed net neutrality regulations put all this at risk. You should read the entire resolution, but the following excerpts capture much of the reasoning why net neutrality mandates should not be adopted:

"The exponential growth of the Internet has flourished as a result of both the government’s ‘hand’s off’ approach, ever increasing competition, as well as fierce consumer interest."

"Regulation of the Internet may interfere with future investment and innovations benefiting the health and well-being of its end user customers."

"Companies that invest in broadband and broadband-related applications should be afforded the flexibility to explore fair and competitive business models and pricing plans for their products and services."

"Mandated net neutrality regulations that go beyond the FCC’s broadband policy statement would impede future capital investments in the U.S.’ broadband infrastructure."

"The National Conference of State Legislatures calls upon the Congress of the United States of America to maintain today’s approach that allows the competitive marketplace to drive broadband and broadband-related applications development and deployment."

This is good free market-oriented advice from the state legislators. Congress should take it. Or the Nashville musicmakers will have cause for a sad but true new "somebody done somebody wrong song"....

Net Neutrality Unreality

There is an article in today's Wall Street Journal [subscription required] concerning a Cable Labs report that asserts cable operators may have to sharply boost capital spending in the future to keep up with their broadband rivals and to meet the increasing demand for high-speed Internet connections. Since the passage of the 1996 Telecom Act, cable operators already have spent upwards of $100 to upgrade their facilities to deliver digital broadband. In the WSJ article, officials from Time Warner and Comcast dispute the notion that they will need to sharply increase spending on their networks in order to compete effectively, even as Verizon is expected to spend $20 billion over the next 10 to 15 years laying fiber to homes across the U.S.

I don't know whether Verizon's major investment in fiber to the home or AT&T's sizeable capital investment on its own advanced broadband platform will pay off or not, or whether the cable operators will, in turn, have to spend additional billions on top of what they have already spent to keep up. I only know that, going forward, these are decisions that the marketplace can sort out far better than me. But what I do know is this: The WSJ article doesn't mention the skunk in the closet--net neutrality. Does anyone really believe that either the telephone companies or the cable operators are going to continue to invest the huge sums required to build and operate ever faster, higher capacity broadband networks if they are mandated to essentially operate as common carriers subject to anti-discrimination and "reasonable" rate regulation?

Google, Yahoo, Amazon and the other net neutrality proponents like to talk breezily about the "monopolistic" power of the telcos and cable to support their pro-regulation argument. But here are a couple of excerpts from the WSJ article: "Cable and telephone companies are battling fiercely to consumers they're the best provider of these and other services." And "Cable and phone companies have been in a technological arms race since the late 1990s when both began rolling out high-speed Internet connections. More recently, they have been getting into each other's primary businesses, with cable operators launching phone service, and phone companies offering TV."

The article points out that popular bandwidth-hogging sites such as Google and You-Tube are driving the need for ever more investment in broadband networks. I can understand why Google and its allies want to do whatever they can, through the imposition of regulatory shackles, to avoid paying for the increased costs they cause the broadband operators to incur. If the industry web giants like Google can enlist the government in putting in place a regime that requires others to subsidize the costs they cause to be incurred, it is a good gravy train. But, in the rivalrous environment described in today's WSJ article, I can't understand why Congress and other policymakers would seriously entertain the notion. I'd call doing so net neutrality unreality.

Early Voting Goes Down (For Now)

As the Washington Post reported on August 12, Ronald Silkworth, a Democrat-appointed Anne Arundel County Circuit Court judge, has ruled that the Democrat-controlled General Assembly measure that would open the polls a week before election day violates Maryland's Constitution. And Judge Silkworth decided that it is unlawful as well to allow voters to cast ballots outside of their home precincts. Curiously, the judge stayed his decision pending appeal. It seems to me that having found the Assembly's radical election law changes unconstitutional, it would have been wiser to put an immediate halt to the notion that such far-reaching changes in polling procedures should continue to be implemented. But at least Judge Silkworth has made a decision that appears to uphold the rule of law in the face of often overheated populist rhetoric that demeans the sacredness and sanctity of the right to vote.

In an editorial today, the Post does point out that "Democrats used their upper hand in the General Assembly to write legislation that unfairly favored their party...." But the Post, while not disputing the constitutional infirmities of the current measure, nevertheless holds out hope that they can be remedied. Of course, voting should not be made difficult for those who are eligible to exercise the franchise, and participation by all those eligible should be encouraged, not discouraged. Period.

But Maryland has a virtual "no excuses" absentee ballot policy for those who cannot--or simply do not want--to make it to the polls in person. With radical new changes in polling such as early voting and voting outside of home precincts, there is necessarily an increased risk of fraud. In light of Maryland's very liberal absentee ballot policy, even apart from the constitutional infirmities, Maryland lawmakers should have acted with much more prudence before enacting radical changes to the election law.

Putting aside any partisan motivations, behind all so-called "liberal" election law changes such as those rammed through by the Maryland Assembly is the notion that every single person should vote, no matter what. No matter if we have to bring the ballot to them on a silver platter wrapped in white linen with a fresh red rose astride. The Post captures some of this vote-at-all-costs sentiment in today's editorial when it says that giving Maryland voters four extra days to vote "would dilute the effectiveness of perennial excuses for voter laziness--such as the classic 'I forgot today was Election Day.'"

Excuse me. But "I forgot today was Election Day" --or voter laziness-- is not a reason to make elections an ongoing running affair, or to allow voters to show up to vote wherever it may suit their fancy. Once we make sure that those who want to vote, but can't make it to their local precinct on election day, find it easy to do so through absentee ballots, why can't we acknowledge that those who "forget" it is election day, or who just won't go to one extra bit of trouble or sacrifice to exercise the sacred privilege, probably shouldn't be voting at all? After all, elections don't come along every day--unless the Maryland General Assembly has its way. It is not too much to ask citizens to be sufficiently motivated to do a little extra to get to the polls on election day.

The old Soviet Union always boasted, and today's Iran, North Korea, and Cuba all boast, about election turnouts approaching 100%. No one would assert--I hope--that such ubiquitous turnouts are a sign of a healthy democracy.

The Examiner Eyes Earmarks

The Examiner newspaper is engaging in a useful exercise of "citizen journalism." In an article titled, "Is Congress Spending Your Money in Secret?," the newspaper points out that Congress is considering a Labor, Health and Human Services appropriations measure that presently contains 1,867 special earmarks that represent more than a half billion tax dollars.

The Examiner has created a database listing the earmarks for each state. Here are the earmarks for Maryland. While there don't appear to be any "bridges to nowhere," they are certainly worth eyeing closely. And here's where the "citizen journalism" exercise comes in: The Examiner is asking readers to check out the earmarks by calling their own congressperson and also the recipient institutions and asking pointed questions about sponsorship of the mark and its purpose.

Sounds like a worthwhile endeavor in citizen oversight of Congress. Since it is the taxpayers who foot the bill, there are a lot worse ways to spend the dog days of August than dogging Congress on its undisciplined spending habits.

The Stevens Bill Moves Towards Internet Regulation

In the first version of what is now called the "Advanced Telecommunications and Opportunities Reform Act," Senator Stevens sensibly proposed that the FCC study the net neutrality issue and report back to the Committee after a year. Unfortunately, the latest draft version recently circulated contains very problematical Net Neutrality mandates in Title IX, beguilingly titled, "Consumer Internet Bill of Rights." A study is a much better idea.

A couple of obvious problems. Although not yet much appreciated, Senator Stevens' draft bill, along with all of the other similar bills, tramples on the real Bill of the Rights, the one containing the First Amendment. That's the First Amendment that says rather plainly: "Congress shall make no law...abridging the freedom of speech, or of the press...." Yet the bill mandates that each service provider shall allow each subscriber to "post any lawful content of that subscriber's choosing...." Of course, it goes on to mandate that each service provider must allow each subscriber to access any content of the subscriber's choosing. Simply put, unless all of these ISPs are common carriers, which they have not been declared to be and should not be, it is a violation of the ISPs' free speech rights to be required to post any message of any subscriber's choosing or to be prohibited from selecting content which subscribers will not be allowed to access. I prefer that we put a higher priority on preserving freedoms in the Bill of Rights than creating new feel-good "consumer rights" that contravene these precious freedoms. I'll have more to say about this First Amendment argument fairly shortly.

Of course, it is unlikely that in the current increasingly competitive Internet access environment that any subscriber will be denied access to any content. If one ISP decides to restrict access to certain content, it is most likely that a competitor will see a market opportunity to stake out another position.

That brings me to a final point (for now): The draft has a new provision, Section 905, that mandates that ISPs must provide "any Internet service" without requiring a potential subscriber to purchase or use "any telecommunications service, information service, IP-enabled voice service, video service, or other service offered by such Internet service provider." There almost certainly will be enormous difficulties encountered trying to distinquish between the bare-bones "any Internet service" and these other usually integrated service offerings. This provision is an handsome and no doubt welcome invitation to the lawyers to enter litigation metaphysicsland. Remember the "Metaphysics of VoIP" from way back in January 2004!

What's more, putting aside the likelihood of ISPs being tied up in litigation knots for years to come, there is no consumer welfare reason, in the current competitive marketplace environment, for any anti-bundling prohibition. The draft bill, Section 902 (3), actually refers to "the vibrant and competitive free market that presently exists for the Internet and other interactive computer services." That being so, to paraphrase John Lennon, the Senator Stevens and his colleagues ought "to give markets a chance."

Wal-Mart, Health Benefits, and the Minimum Wage

In today's WSJ [subscription required], there is a good piece, "If Only Most Americans Understood," by David Henderson that recounts the arguments and evidence as to why raising the minimum wage law mostly hurts those it purports to help. Henderson explains most economists understand that raising the minimum wage "will help only a subset of the people it is thought to help, and will help them only a little--while hurting some of them a lot."

If the weight of evidence shows that mandating an increase in the minimum wage costs jobs and hurts those workers it purports to help, what is the impetus for the current federal increase proposal and the slew of state proposals? Henderson explains that quite nicely: "The focused support for the minimum wage comes mainly from the labor unions, all of whose members earn more than the minimum. This isn't benevolence at work, but greed. Their leaders understand that the minimum wage prices out their low-wage competition: it acts like an internal tariff. If only most Americans understood."

Of course, the adverse overall impact on the number of available jobs is the very same when the Maryland General Assembly mandates a minimum wage increase or mandates payment of a higher level of employee health insurance costs by Wal-Mart. (See the essay by FSF's Trevor Bothwell.) And the source the impetus for such new mandates is the same: from those who want to eliminate low-wage competition. Apart from hurting those whose jobs disappear, it is hard to see how this benefits consumers.