Tuesday, March 27, 2007

Remember When Cellphones Were Just for Calling

The "unbundle everything" crowd has made the highly successful competitive wireless industry its latest target. Before anyone at the FCC joins in the unbundling chorus for wireless, they should read the Wall Street Journal's March 26 Special Technology Report, "What's New in Wireless." [subscription required].

Here are the just first few paragraphs from the WSJ report:

Remember when cellphones were just for calling?

Over the past few years, cellphones have evolved from simple communication devices into multimedia powerhouses. First came cameras, then Web surfing, then music players. Now, get ready for a host of new features.

In the next two to three years, consumers will be able to get TV broadcasts on their cellphones with better picture quality than current video offerings -- and a greater range of live programming from major networks like NBC, FOX, ABC and Comedy Central.

Users will also get sophisticated software applications for surfing the mobile Web, and more services to connect with friends, share videos and exchange photos. And they'll likely see mobile devices that can roam seamlessly across Wi-Fi hot spots, cellular networks and new high-speed data networks, bringing a much faster and smoother surfing experience.

Does this sound like a market that needs more government regulation in order to give consumers the services and applications they want? Can the unbundling crowd really say with a straight face that there has been a lack of innovation and investment by the industry in the absence of public utility regulation? Before long the "cellphone" will be able to do everything but put on your pajamas and put you to bed. And if there is demand for that...well, who knows?

Yesterday, I wrote in "Net Neutrality, the NOI, and Unbundling" about how Commissioner Copps, guided by his own strong pro-regulatory instincts, is right in tying together the unbundling issue that lies at the heart of the net neutrality debate with the unbundling issues that are at the core of other of today's most important communications policy issues. The unbundling crowd knows that "unbundling" and enforcement of "non-discrimination" mandates ultimately leads to common carrier regulation because it will always be necessary, in order to determine whether alleged discrimination has occurred, for the regulators to finely parse sometimes subtle differences in the price of various kinds of offerings.

If you haven't read it, you should read Bruce Owen's FSF paper, The Net Neutrality Debate: Twenty Five Years after United States v. AT&T and 120 Years after the Act to Regulate Commerce. Oliver Wendell Holmes said: "When I want to understand what's happening today, to decide what to do tommorrow, I look back." Professor Owen's paper examines a lot of history concerning regulatory failures over the last hundred years. His paper ought to be required reading for today's policymakers.

In the case of wireless, and broadband more generally, unless regulators can identify specific instances of non-transitory market failures causing demonstrable consumer harm, they should rely on marketplace competition to continue to deliver the types of innovative communications and information services and applications we witness everyday when we turn on our "cellphones."

Sunday, March 25, 2007

Net Neutrality, the NOI, and Unbundling

So. The FCC has now initiated a “Notice of Inquiry” proceeding on net neutrality. When Jim Quello, the venerable former FCC Chairman and longest-serving FCC commissioner, reluctantly voted to have the FCC start inquiring into some matter or another he thought better left outside of the agency’s purview, I recall he was fond of saying, “Well, it‘s only an NOI.”

I understand that, on the one hand, the issuance of an information-gathering NOI rather than a Notice of Proposed Rulemaking is a step less likely to lead to regulation of broadband Internet providers—at least as soon as issuance of an NPRM might. And gathering information, of course, is generally not a bad thing. But on the other hand…as a long-time observer of the FCC, I know the other hand…NOIs sometimes have a way of leading to NPRMs much in the way that the adoption of non-binding net neutrality principles led to binding merger conditions. Certainly, if the political composition of the Commission changes after the next election giving the agency a more pro-regulatory philosophical and policy perspective in line with that of Commissioners Copps and Adelstein, the NOI may prove, as a procedural matter, to have put the Commission further along on the road to Internet regulation than the agency otherwise might have been.

But back to the first hand…I understand that Democratic Commissioners Copps and Adelstein would have preferred to issue an NPRM right now for the very reason that, in fact, an NPRM would put the Commission further along on the road to Internet regulation. So, in that sense, I can understand, and appreciate, what FCC Chairman Martin and his Republican colleagues have done. “It’s only an NOI” and it’s difficult to criticize on-the-record information-gathering. (To demonstrate the technological dynamism and fast-changing competitive environment of the broadband Internet marketplace, someone just needs to submit the last year’s worth of the business pages of the Wall Street Journal, New York Times, and Washington Post, or any one of them, for the NOI record. Case for new Internet regulation closed!)

I deliberately highlighted above the significance of the philosophical and policy perspective of Commissioner Copps to make a point. I don’t for one moment question his good faith or good intentions. But, at this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, he has much more faith in the government’s ability (in this instance his ability) to manage the communications and information marketplace to achieve what he conceives to be in “public interest” than I think is justified.

In his NOI statement, Copps says: “[W]e still haven’t addressed important questions about such things as privacy, disabilities access and the future of the Internet.” It’s one thing for the FCC to use whatever authority it has been granted to address somewhat discrete issues such as privacy or disabilities access. But it worries me a lot when, at this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, FCC commissioners have in mind that they can devise a grand regulatory strategy to manage “the future of the Internet.” I prefer to trust the Internet’s future to the free marketplace.

And that brings me to another statement by Copps in his NOI concurrence: “[A]s the Commission already has recognized in a host of areas—such as Carterfone’s discussion of the PSTN, our 2005 Policy Statement’s discussion of the Internet, and our rules on cable set-top boxes—consumers generally benefit when they can select from among a range of network attachments, including devices not chosen for them by their service providers.” This really gets to the heart of the philosophical divide that permeates much of communications policymaking today: At this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, whether regulators or the marketplace should determine whether communications and information services and equipment must be offered on an “unbundled” basis. And it matters little whether the providers are labeled, in twentieth century fashion, “telephone”, “cable”, “satellite”, or “wireless” operators.

The forced imposition of unbundling mandates remains the central issue in communications policy today. Commissioner Copps rightly recognizes there is a common thread that runs through the issues of net neutrality, cable set-top box unbundling, a la carte programming mandates, multicast must carry mandates, wireless service and equipment unbundling, and so on. Sure, there are variations in the characteristics of each market segment that appropriately should be considered by policymakers. But, increasingly, in today’s fast-changing and converging digital broadband environment, these unbundling issues are of the same piece. In each instance, the relevant question is: At this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, will consumers be better off if we trust the marketplace, rather than the regulators, to decide how much bundling or not will occur. In my view, absent compelling evidence of anti-competitive abuses in particular situations, the balance now tilts clearly in favor of marketplace reliance to make that determination.

So. That brings me back to the NOI. Although presumably the FCC has been ready and willing to receive “net neutrality” complaints, the NOI will provide a new forum with a new docket number for gathering information on any alleged abuses. Fine. Who knows? Maybe we will discover that a lot of people are dissatisfied with Google’s search engine practices and demand to have a strict, common carrier non-discrimination mandate put in place for dominant search engines.

At bottom, when all the data is gathered and all is said and done—Oops! In today’s fast-changing digital environment, all the data will never be gathered and all will never be said and done—there is a certain point at which it is gut check time for the FCC commissioners, and, for that matter, legislators and other policymakers too: At this point in time, with the very different competitive environment that exists today than, say, fifteen, ten, or even three years ago, is it your philosophical and policy predilection to trust regulation to determine the extent to which there will be mandatory unbundling of services and equipment, or do you trust the marketplace to respond to consumers with the various bundles (or not) they prefer?

Commissioner Copps is right in seeing forced unbundling as today’s central communications policy issue. And he is right in seeing the common thread that links net neutrality, set-top box unbundling mandates, and the other so-called “Carterfone” issues. I just think his pro-regulatory philosophical and policy predilections lead him to the wrong outcomes.
It should not be too much to hope that at least Chairman Martin and his Republican colleagues, as proclaimed adherents to free market principles, also will understand there is a common philosophical thread running through all the issues in which unbundling mandates are sought, lately under the newly-unfurled Carterfone banner. While the 1968 Carterfone decision justifiably has a place of honor among the monopolistic narrowband age’s most significant decisions, invoking Carterfone as a talisman in the cause of mandatory unbundling in today’s vastly different, competitive broadband world is wrong. It will only tarnish Carterfone’s good name.

Tuesday, March 13, 2007

Net Neutrality Tidbits

Two net neutrality items worthy of note:

Public Knowledge's Art Brodsky here bemoans the demise of the Maryland net neutrality bill. I testified in Annapolis against adoption of the bill, so I am obviously pleased the legislation will not be moving forward. My testimony is here and my Washington Times op-ed opposing the bill is here.

Brodsky is upset that the bill's opponents paid any attention at all to the first provision that said broadband providers "should not" (rather than "shall not") degrade or prioritize any content. He maintains that the entire import of the bill related to the second provision establishing regular reporting requirements for broadband providers concerning deployment, speed and types of service, and the like.

First, anyone that knows anything about American jurisprudence understands that it is not a stretch to imagine a court interpreting what may seem to be a hortatory legislative "suggestion" or "recommendation", as Brodsky characterizes the first provision, into a binding mandate. And, apart from that, once "principles" get embodied in legislation, it is much easier, and more likely, for these principles to be imported as mandates in administrative decisions. See the conditions imposed on AT&T in the FCC's merger approval order.

If legislators want to make suggestions or recommendations to broadband providers--or, for that matter, other regulated entities--a far better way is to simply write a letter, pen an op-ed, or give a speech. This form of making suggestions is far less likely to cause unintended mischief, if the intent is truly not to cause mischief.

And, speaking of problems caused by net neutrality regulation, the Free State Foundation released a paper yesterday by Bruce Owen, one of the nation's leading regulatory economists. Based on his long study of the history of communications regulation since its inception--and the regulation of the railroads back to adoption of the Interstate Commerce Act in 1887-- Professor Owen's concludes: "Net neutrality policies could only be implemented through detailed price regulation, an approach that generally has failed, in the past, to improve consumer welfare relative to what might have been expected under a regulated monopoly."

Of course, in today's competitive broadband environment, we are a long, long way from the "regulated monopoly" communications environment that prevailed during a good part of the twentieth century. That surely counsels against adoption of net neutrality regulation.

Thursday, March 01, 2007

Google, Microsoft, and Yahoo Win Right To Discriminate

Did you see the item in the February 28 edition of the WSJ headlined "Search Engines Can Decline Ads"? [Subscription required]. If you are interested in the so-called net neutrality debate, you won't want to miss it, and it might leave you shaking your head.

According to the WSJ story, a federal judge in Wilmington, Delaware ruled that Google, Microsoft and Yahoo may refuse ads submitted by Stephen Langdon, a Florida resident, "who operates Web sites that purport to expose fraud by North Carolina government officials and alleged atrocities committed by the Chinese government."

The court ruled that the three search engines are not bound by the First Amendment to take the ads. Well, I agree with that. Not only should the First Amendment not require these dominant search engines to accept Mr. Langdon's ads, the First Amendment should protect them from government mandates that would purport to require them to do so.

In their zeal for advocating net neutrality mandates that would turn the broadband providers into common carriers, Google, MS, and Yahoo don't seem much concerned about the First Amendment rights of the providers. Putting aside their commitment, or lack thereof, to fundamental constitutional rights, what about their own commitment to net neutrality?

Here is what the WSJ reported about why the dominant search engines refused to run Mr. Langdon's ads: "Google declined to run Mr. Langdon's ads, telling him that it was a matter of policy. The company says it doesn't run ads advocating against groups or individuals. Microsoft's MSN ignored his ad request, and Yahoo refused because Mr. Langdon's sites weren't part of its ad network." A policy against ads that advocate against groups or individuals? Ignoring a request for access? Not part of an ad network? It all begins to sound a lot like discrimination and prioritization--indeed, outright suppression of speech--to me. With respect to Google, it certainly sounds like the discrimination is based on content. If MS doesn't even respond to the ad request, it's hard to know the basis of its choice to discriminate.

Anyway, if I were a "net neutrality" supporter, I'd be downright worried about the policies of the dominant search engines that are keeping Mr. Langdon's ads off their popular sites. If, better yet, I owned the three search engines, I might be worried about how my policies relating to picking and choosing content squared with my endorsement and promotion of net neutrality laws. Since I am not either one of the above, but rather a believer that the First Amendment generally would prevent the government from dictating how the search engines choose to display content, discriminatory or not, I'm going to go on worrying about other things right now.

But, as they say, someone ought to "worry this one through."