Thursday, July 31, 2008

Hard Cases Make Bad Law: On Regulatory Bits and Torrents--Part II

Back on July 17, when I first became aware that FCC Chairman Kevin Martin wanted to get a Commission majority to issue an order holding unlawful Comcast’s actions in last November’s BitTorrent affair, I wrote this piece, “Hard Cases Make Bad Law: On Regulatory Bits and Torrents.” My view hasn’t changed since then, and now we’re a day away, to steal a phrase, from Day One -- as in the first day the FCC, with a Bush-appointed chairman leading the way, may take a major step towards regulating the Internet.

The arguments that I made in the July 17 piece have been echoed in pieces in recent days by FCC Commissioner Robert McDowell, “Who Should Solve This Internet Crisis,” and the Wall Street Journal editorial board, “” And I just saw this July 31 letter to Chairman Martin from Republican Leader John Boehner.

Upon reflection, I think what is most disturbing about what Chairman Martin apparently is about to do is the way it is the anti-thesis of conservative, not “conservative” in a partisan political sense, but in the Burkean sense of little “c” conservatism. It is true that President Bush and many of his appointees could never fairly be accused of being Burkean conservatives, but that is too bad. And it is especially too bad when it comes to taking a step that likely will be used as a precedent for much greater regulation of the broadband Internet than even Chairman Martin likely envisions, or with which he would claim to be comfortable.

Now Chairman Martin’s allies in this matter, Move.on, Free Press, Public Knowledge, and Google, are anything but Burkean conservatives. They will freely and proudly admit that they want to radically alter the FCC’s existing general posture of creating a minimal regulatory environment for the Internet. (It must be pointed out that, under Chairman Martin’s rein, this general deregulatory posture, announced in 2002 under his predecessor, increasingly has been honored in the breach.) More and more Chairman Martin has allied himself with Move.on, Free Press, and others who want much more broadband regulation.

Now, to be clear: Unlike some, I have not taken the position that the FCC definitely is without legal authority to sanction Comcast for the Internet service provider’s actions regarding BitTorrent. It may have such “ancillary” authority, but it may well not. To my mind, the agency’s authority is questionable, especially after it proclaimed it was adopting net neutrality “principles,” not “rules.” And the courts have not been at all reticent about holding – frequently – that the FCC has exceeded its regulatory authority. This being the case, the prudent course would be for the FCC not to take what amounts to a radical step towards Internet regulation in a matter that, for all practical purposes, has been resolved. As far as I can tell, BitTorrent, supposedly the offended party, is not urging the Commission to proceed to sanction Comcast, but rather working with Comcast and others in engineering forums to develop mutually-satisfactory network management techniques. We would have a different case for the FCC to consider if Comcast had not changed its disclosure practices and then proceeded to work with others in the Internet community to address network management issues that, with today's exploding P2P traffic, are of common concern to all.

So, the reason I find Chairman Martin’s proposed action the anti-thesis of conservative in the Burkean sense, is that it is simply imprudent. For an official to exercise the government’s authority just because he or she may possess the raw power, when there is no longer a sound reason or pressing consumer or other need for such exercise, is imprudent. Indeed, in this instance, not only is there not a present need to exercise such power in light of what has transpired since last November’s BitTorrent affair, its exercise in the service of delving into what are almost universally recognized to be difficult technical network management issues, is likely affirmatively to cause harm. Taking regulatory action, likely to cause future harm in the absence of present need, on the basis on uncertain legal authority, is unconservative.

Thursday, July 24, 2008

The Dangerous World of "Deemed Granted"

As regular readers of this space know, I have written a lot about the FCC’s forbearance process this year because it has seemed to me that the agency has not availed itself sufficiently of what Congress clearly intended to be a deregulatory tool. Won’t repeat it here. For those coming to the subject late, I’ll just explain that “forbearance” refers to a provision, added to the Communications Act in 1996, giving the FCC the authority to decline to apply existing regulations when certain conditions relating to consumer protection and competitive developments are met. Apart from anything else, the fact that the FCC’s forbearance authority is well-nigh unique among regulatory statutes ought to indicate forbearance was not included in the Communications Act as window dressing.

There is my longer paper, “Why Forbearance History Matters,” explaining the history that led to adoption of the forbearance provision, and there are three blogs here, here, and here discussing various aspects of forbearance authority. The sum and substance of my view is that the forbearance provision, from the beginning, has suffered from a severe case of desuetude.

There was a House Commerce Committee hearing on forbearance this week. The particular focus was on section of the statute which says a petition filed with the FCC seeking forbearance “shall be deemed granted” if the Commission does not deny the petition within a fifteen month decisional window. Commerce Committee Chairman John Dingell is quoted in the July 23rd Communications Daily as declaring that the “deemed granted” provision “is dangerous and bad policy because it allows agency action to take effect without any formal vote or supporting records.”

Put aside that Chairman Dingell voted for the 1996 Act with the “deemed granted” forbearance provision. It may be that he now feels it is “dangerous,” and that the act ought to be changed. That is his prerogative. But taking the statute as written, consider this: The “deemed granted” language surely is another indication, and a pretty strong one, that Congress intended for the forbearance provision to embody a presumptive deregulatory tilt. After all, Congress just as easily could have said, if the Commission fails to act by the statutory deadline, forbearance petitions are “deemed denied.” It didn’t. The choice made is reflective of an intent to incorporate in the statute a deliberate deregulatory presumption. The point of the forbearance provision was to allow the FCC to adjust its regulatory regime to what Congress in 1996 understood to be fast-changing marketplace conditions.

To my mind, the congressional hearing more productively could have focused on whether the fifteen month statutory deadline for acting on forbearance petitions is too long, and whether, even if such a lengthy period makes sense in order to give the FCC the ability to take account of especially difficult cases, whether the Commission’s history of acting on the petitions reflects dilatoriness. With marketplace changes occurring so rapidly, a year or more is a long time for the Commission to have to decide whether regulatory relief is granted.

I could stand corrected, but it is my impression that the Commission, and I don’t just mean the one as presently constituted, rarely has decided a forbearance petition much short of the statutory deadline. The more usual course is for the FCC to act on petitions on the last day. It just shouldn’t be the case that the agency always needs the full amount of time to act on almost all forbearance petitions. I would have preferred to see the hearing focus on spurring a more timely decisional process when the Commission does act, rather than on whether the deregulatory default in the case of exceedingly rare failures to act should be changed.

A final thought, a footnote if you will: So, as I write this, the Commission is faced with yet another last-minute forbearance decision, this time on the pending Qwest petition. My understanding is the agency must act tomorrow, or Qwest’s pending petition for regulatory relief in four urban markets will be “deemed granted.” I wrote about the Qwest petition last week in “Forbearance Relief: More on Rearview Mirror Regulation.” One issue that apparently has contributed to another last minute decision is wrangling over whether the agency ought to consider, in its required competition analysis, evidence concerning the number of consumers who have “cut-the-cord.” All I will say is this. Having in mind that the world is a really dangerous place (as in really dangerous) in many venues beyond the doors of the Portals, it does strike me that the notion the agency may decide not to consider the extent of the cut-the-cord phenomenon in Phoenix or elsewhere is more “dangerous” (in context) than the operation of the “deemed granted” provision. Maybe Chairman Dingell would even agree with me on this point!

Thursday, July 17, 2008

Forbearance Relief: More on Rearview Mirror Regulation

In a blog yesterday, I said that all too often, when the FCC acts, it appears to be looking through a regulatory rearview mirror, rather than looking forward. I had in mind then reports that the Commission may be considering adopting an enforcement action against Comcast regarding its past network management practices. Today, the rearview mirror regulatory phenomenon comes to mind with respect to reports the Commission plans to deny Qwest's forbearance requests for regulatory relief in four urban markets, even in the Phoenix market, which appears the most competitive.

I have said many times that, in my view, the Commission errs in taking a much too static view, rather than a more dynamic one, when it considers forbearance requests. It too easily retreats into this mode, even though at other times it recognizes that, indeed, the telecommunications marketplace is anything but static. For example, in an order issued last year granting AT&T's forbearance request for regulatory relief for certain broadband serivces, the Commission considered potential competition and "the emerging and evolving nature of this market." It concluded that in light of these factors, it "would not give significant weight to static market share information in any event."

In the event of considering all forbearance requests, the Commission should not give undue weight to static market share information. Thanks largely to the rapid pace of technological change facilitating new market entry, the communications marketplace is characterized by dynamism. According to trade press reports, the Commission staff's draft analysis of the Qwest petition doesn't take into account wireless subscribers who have "cut the cord." Apart from any other aspect of the staff's analysis, this doesn't seem to make any sense. Surely, the rapidly growing number of those who are discontinuing landline service is one important indication that non-Qwest competitive alternatives are now available. There are other indications as well, of course.

All the evidence must be considered. But to ignore the cord-cutters seems akin to the railroad regulators ignoring competition for freight carriage from the trucking industry and the airplanes when they came on the scene. Come to think of it, thanks in large part to Jimmy Carter's efforts, the railroads, truckers, and airlines have all been deregulated for nearly three decades.

The FCC needs to check itself --constantly -- to avoid the rearview mirror regulatory phenomenon, especially when it is considering forbearance requests. As I explained in a recent paper, "Why Forbearance History Matters," when Congress included the unique forbearance authority in the Telecom Act of 1996, alongside the periodic regulatory review requirments, it meant for forbearance to be used by the FCC as a deregulatory tool to address changing market conditions.

Hard Cases Make Bad Law: On Regulatory Bits and Torrents

An item in today’s trade press caught my eye, and in a way that makes me think the FCC itself needs to do some rethinking before again moving in an unduly and unnecessarily regulatory direction. Sometimes regulation from the FCC comes in bits and sometimes in torrents. Either way, all too often, as economist Dennis Weisman, a member of the FSF Board of Academic Advisors, put it in a paper released earlier this year: “The FCC seems perennially to be regulating through the rearview mirror - time and again failing to grasp the manner in which the pace of technological change is so thoroughly and irreversibly transforming the telecommunications marketplace.”

Communications Daily says that FCC Chairman Kevin Martin has scheduled a vote for August 1 on a draft order he has circulated that would find that Comcast violated the agency’s network neutrality principles last November with respect to Comcast’s network management practices. Free Press filed a complaint with the Commission after it came to light that Comcast had -- in Free Press’s view -- taken improper steps to degrade BitTorrent’s enabling of peer-to-peer traffic. The core of the Free Press complaint seeking FCC enforcement action is that the broadband provider’s actions did not constitute “reasonable” network management practices, a category of practices which the Commission clearly exempted from the purview of the network neutrality principles. Free Press claims Comcast violated the strict no-discrimination mandate which the organization reads into the principles.

It might be, simply as a matter of sound business practice, that Comcast should have more adequately disclosed its peer-to-peer network management practices. Indeed, Comcast has acknowledged as much, enhancing its information disclosures concerning network management shortly after the BitTorrent practices came to light. But sound business practices and FCC legal enforcement actions are two entirely different things.

Although it might have been different had Comcast and BitTorrent, and for that matter most parties interested in the dispute (other than Free Press and its network neutrality allies), proceeded in a “take-no-prisoners” fashion to force the Commission to decide what, at best, would be described as a classic “hard case” -- as in the proverbial “hard cases make bad law” dictum. But the parties didn’t proceed that way. And looking at where we are today rather than last November, argues in favor of the FCC now dismissing the complaint.

Here’s why. Comcast has changed its practices and announced that by the end of this year it will have implemented system-wide a protocol-agnostic network management technique that addresses the very real network management issues in a way that does not single out certain peer-to-peer traffic. Indeed, in March, Comcast and BitTorrent announced they are now collaborating to address network management issues attributable to congestion caused by peer-to-peer traffic. And in April, Comcast and Pando Networks, a firm specializing in peer-to-peer content delivery, announced they would lead an industry-wide effort to develop a P2P Users’ Bill of Rights. Then, in May, Comcast and many other industry participants, representing the various perspectives, began meeting as part of an Internet Engineering Task Force P2P Infrastructure Workshop to discuss technical traffic management issues.
I do not doubt that the filing of the Free Press complaint and the threat of a potential enforcement effort spurred on the cooperation between Comcast and BitTorrent and the industry-wide efforts described above. All well and good.

In light of what has transpired, however, it would not be well and good for the Commission now to proceed further. When it adopted the network neutrality principles in 2005 in a document it clearly labeled a Policy Statement, it stressed “we are not adopting rules in this policy statement.” Thus, under relevant administrative law precedent, the principles are not binding in a way that creates enforceable legal obligations. Rather, they are in the nature of guidance to the Commission’s staff and interested parties as to how the Commission might choose to interpret provisions of the Communications Act or its own legislative regulations that do create binging legal obligations. But in this instance, there are no other provisions of the statute or regulations that clearly create a legal obligation that Comcast allegedly violated.

I say “clearly” because I understand that Free Press and others, now apparently abandoning the claim that the network neutrality principles announced in the policy statement are enforceable, contend the Commission has “ancillary” jurisdiction to take an enforcement action. Absent the adoption of a pertinent Commission rule or precedent dealing with network management practices of the type at issue here, I find the claim problematic. But the main point I want to make is that, by almost all accounts, the Commission’s ancillary authority to grant the relief on the Free Press complaint is quite uncertain.

In the face of this legal uncertainty -- and the facts that Comcast has changed its practices, that most of the industry players have moved on to grapple in a collaborative way with the very real network management issues brought about by the explosion of peer-to-peer traffic, and that the industry is in a much better position than the FCC to do the grappling -- there is no good reason for the FCC now to do anything other than dismiss the Free Press complaint. To do otherwise would be regulating while looking through the rearview mirror. The telecommunications landscape, and especially that part of it involving broadband and the Internet developments, is changing quickly enough, that the agency always needs to be looking forward, not backwards.

Hard cases make bad law, not only at common law, but in agency adjudications. This is an instance that calls for a good dose of prudential regulatory self-restraint.

Friday, July 11, 2008

We're Number One

Nielsen, the independent market research firm, just released a report that shows the U.S. ranks first out of sixteen countries surveyed with respect to mobile Internet usage penetration. Over 15% of the wireless subscribers in the U.S. surveyed were identified as active users of the mobile Internet. Among others, the U.S. ranked ahead of the UK (No. 2); Italy (No. 3); France (No. 7); Germany (No. 8); and China (No. 9). The Nielsen report, with many other statistics, is here.

Ah, statistics. I have no doubt, if not carefully analyzed, that they can be abused and misused for rhetorical purposes. This certainly has been the case with respect to the OECD broadband reports, which purports to show the U.S. far behind other countries in broadband penetration. There are many reasons which have been widely discussed why these OECD reports don’t present an accurate account of the remarkably rapid growth in the ubiquitous availability and usage of broadband in this country.

So without at this point vouching for all of Nielsen’s statistics, it does seem hard to gainsay the conclusion that, “[i]n the U.S., Mobile Internet has become a mass medium.” This is a very positive development from a competitive and economic standpoint. The U.S.’s lead in the Nielsen rankings should be taken as an indication that this country’s generally free market-oriented wireless and broadband policies are working.

Where we have run into trouble with regard to broadband and wireless is when our policymakers have been seduced by notions that government regulation or intervention is needed “to make the market work better” or to solve, in an anticipatory fashion, some “marketplace abuse” that doesn’t yet exist and may never do so. Forays into net neutrality regulation, such as the FCC’s ill-fated 700 MHz auction for the C Block, have not turned out well. Without imposing new regulatory mandates, wireless providers are moving towards implementing more open platforms in response to marketplace demands.

The pace of innovation in the wireless world is almost dizzying, especially if you are past a certain age -- say, thirty. But it’s real, and today’s release of Apple’s latest IPhone, running on AT&T’s 3G network, will operate at faster speed and incorporate even more new features and functions. And it’s cheaper still. This latest phone, along with those of AT&T’s competitors, are sure to spur even more mobile Internet usage that will be reflected in Nielsen’s next report.

The FCC should not be thinking of ways to intervene in the market, but rather ways to promote additional facilities-based entry so there will be even more marketplace competition. Two current matters before the Commission come immediately to mind. The agency is considering imposing a mandate requiring the winner of the next auction for Advanced Wireless Spectrum (“AWS”) to provide the public with “free” access to the proposed national wireless broadband network. This mandate to encumber the auction in this way will decrease substantially the revenues realized to the detriment of America’s taxpayers. As I said above, the rapid growth in broadband availability and usage in this country has been remarkable. The FCC’s own data shows that broadband service is available in 99% of the nation’s zip codes in which 99% of the nation’s population lives.

To the extent there is a concern about what the FCC called in its AWS news release “the ubiquitous availability of affordable broadband services,” the proper way to address that concern is by carefully and narrowing targeting any subsidies to low-income consumers or to truly unserved areas. The people in Aspen don’t need more subsidized communications service. The FCC should not adopt a regulation requiring the AWS auction winner to provide a ubiquitous free service because this mandate surely will result in less efficient use of the spectrum than would responsiveness to the marketplace and foregone revenues to the U.S. Treasury. For more on this, see my recent testimony at Chairman Markey’s hearing on universal service.

On the other hand, the FCC should ensure that it is processing the Clearwire-Sprint Nextel application to form a new company to build out a new high-speed WIMAX wireless broadband network in as timely fashion as it can. With the Sprint-Clearwire combination, and the backing of major strategic partners such as Comcast, Google, and Intel, the proposed WIMAX network offers the prospect of introducing another nationwide competitor in the broadband marketplace. Yet another broadband provider would make the existing competition more robust.

If policymakers will avoid imposing new regulations when markets are already workably competitive, while acting to promote additional facilities-based competition when this can be done without imposing new regulations, it is likely that the U.S. will retain its leadership in the high-tech area, including the mobile Internet.

Wednesday, July 02, 2008

Independence Day 2008

For me, birthdays are a time for looking back as well as forward. After the traditional joyous “Happy Birthday to You” chorus usually comes the insistent “How Old Are You Now?” line. “How Old Are You Now?” “How Old Are You Now?”

Confronting that question has a way of focusing the mind in the nature of a taking stock exercise. What has been accomplished thus far and what remains to be done? What promise has been realized? What promise thus far unrealized?

With the approach of this July 4th, perhaps especially because it is a quadrennial election year, I have been thinking of America’s birthday in terms not unlike the way I think of my own. “America, how old are you now?”

Two hundred thirty two years old if you reckon from July 4, 1776. Or even if you prefer 1788, when New Hampshire became the ninth state to ratify the Constitution, still old, by most accounts. Old, indeed. But I have had fixed in my mind of late counting another way. And by this reckoning America seems very young.

Think of America in this way. When I was born in 1946, there were still Americans living who were born during the Civil War. It’s true. I recall as a young man reading their obituaries in the newspaper. And when those Americans were born during the Civil War, there were still many Americans living who were born during the Revolutionary War, some of whom who were born in 1776, in America’s birth year. Viewed this way, America is only three lifetimes old. Or, more truly, three lifetimes young.

I’ve been turning over this thought in my mind for a week or so now – America as 232 years old, or America as three lifetimes young. I can see America through both lenses. But ever the glass-half-full optimist, I think I prefer three lifetimes young.

To be sure, at the Founding, for all its promise and ideals, America was a construct in which the gap between aspiration and reality was monumental. A nation that proclaims in its ringing Declaration of Independence that “all men are created equal” and sanctions human bondage in its Constitution of 1787 is built on a contradiction that must be eliminated. The elimination took the shedding of the blood of brothers and much more so that the Union could continue the journey towards fulfilling the promise of the Founding ideals.

The flaw in America’s original construct should never be ignored or forgotten. But neither should the promise of the Founding ideals ever be forgotten, or the achievement of the Founders be diminished. For the ideals were as monumentally important, for America and the world, as the gap between aspiration and reality.

So, on this Independence Day, I opt to think of America as only three lives young, rather than 232 years old. Either way, I think of America as a Republic always looking forward – towards a future full of promise in a never-ending quest to secure the rights of “Life, Liberty, and the pursuit of Happiness.” As the Declaration announces, it is to secure these inalienable rights that “Governments are instituted among Men.”

The Constitution’s preamble says we bound ourselves together in order to form a “more perfect” union, not an already perfected one. The Free State Foundation’s website proudly proclaims the Foundation’s purpose to promote, through research and education, free markets, limited government, and rule of law principles. To my mind, these fundamental principles are central to preserving the rights of life, liberty, and the pursuit of happiness that is the core object of our constitutional commitment. And they are central to the success of America’s constant striving to become a more perfect union.

So, on this Independence Day 2008, it is appropriate to recognize how much of America’s promise already has been fulfilled, how much already has been accomplished. But there is much more work to be done in a still young nation that ever will be in the process of becoming a “more perfect” union.

Happy Birthday America!