Wednesday, February 24, 2010

Will the Supreme Court Decide "Must-Carry" Must Go?

Under the Cable Act of 1992, when certain TV broadcasters want their programming carried on cable networks serving the same geographical area, they can invoke federal communications law to force cable operators to carry their programming. These "must-carry" requirements are a relic of 90s-era claimed cable "bottlenecks." And they're a forced-speech mandate of dubious constitutionality. Must-carry makes no sense in the dynamic video marketplace of 2010, and it runs contrary to a clear and consistent application of First Amendment protections against forced speech mandates. Now the U.S. Supreme Court could finally lay must-carry to rest.

Late last month Cablevision filed a petition with the Supreme Court, seeking review of the U.S. Court of Appeals for the 2nd Circuit’s June, 2009 decision upholding the "must-carry" statute as well as the Federal Communications Commission's application of the statute to Cablevision. Cablevision v. FCC stems from an FCC ruling that Cablevision must carry the signal of a home-shopping station on Cablevision’s Long Island cable systems. In addition to its claims that the existing case law does not support the FCC’s ruling and that the FCC misapplied the statute, Cablevision has asked the Court to reconsider and overrule its prior Turner I and II decisions from the mid-1990s (barely) upholding the must-carry statute.

It is important that the Supreme Court agree to hear this case. As an initial matter, it would be extremely unfortunate for the Court to let stand the FCC's improper expansion of the must-carry regulatory regime. Whatever its merits or demerits, the must-carry statute was intended to protect free, local, over-the-air TV broadcasting. But WRNN, the broadcast TV station at issue in Cablevision v. FCC, is licensed to a community 195 miles away from the cable systems on which it demanded carriage. The station primarily offers home-shopping programming content, and has no over-the-air viewership. One can excuse the 2nd Circuit for not proclaiming that the Supreme Court's rulings in Turner I and II are no longer good law. But surely the 2nd Circuit got the law wrong by upholding the FCC's expansion of must-carry mandates beyond the statute's narrower confines.

More important still, the Supreme Court should agree to answer the big question posed by Cablevision v. FCC: "Whether the imposition of must-carry obligations is consistent with the Constitution now that the facts undergirding the Turner decisions have evaporated with the emergence of vibrant competition and other dramatic market and technological changes."

The current state of video competition renders the 1990s rationale for must-carry obsolete. Only a person who has spent the last decade or so living deep inside a cave with no video reception capabilities whatsoever could be excused for not understanding that the video marketplace has undergone drastic change since the 1990s. Significantly, direct broadcast satellite has proven a strong source of competition with cable. The U.S. Court of Appeals for the District of Columbia Circuit recently acknowledged this in its August, 2009 decision in Comcast v. FCC, striking down the FCC's cable subscribership caps. As I related in a prior blog post ("D.C. Circuit: Vindicating Video Competition"), that court expressly recognized the increasingly competitive and dynamic marketplace for video:

[T]he record is replete with evidence of ever increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992. Second, over the same period there has been a dramatic increase both in the number of cable networks and in the programming available to subscribers.

In fact, the D.C. Circuit observed that "satellite television companies, which were bit players in the early '90s, now serve one-third of all subscribers." DBS subscribership growth over the last decade marks a dramatic change in the competitive video marketplace.

Moreover, cable operators also face growing competition from telecommunications providers offering new video services. Two large telco providers have spent the last few years rolling out IPTV services to challenge cable incumbents. AT&T, for instance, surpassed 2 million subscribers to its U-verse TV service in 2009. Verizon's FiOS service competes directly against cable incumbents in several markets, including Cablevision.

Because must-carry rules were justified in the 1992 Act and in the Turner decisions largely by the presence of a cable "bottleneck" (and the threat it posed to free, local over-the-air broadcast TV), the dramatic changes witnessed in video market conditions is highly significant for First Amendment purposes. With the claimed bottleneck rational rendered obsolete, the Turner decisions' application of intermediate-level scrutiny to the must-carry statute is thoroughly unsupportable.

Four of the nine Justices on the Supreme Court when Turner I & II were decided disagreed with the intermediate scrutiny that was applied to the must-carry statute. They would have subjected must-carry to strict scrutiny, requiring a compelling governmental interest and a narrow tailoring to uphold such a forced-speech mandate. And the Turner I & II majorities and concurrences conceded that factual conditions might require a scrutiny level reevaluation at a future time. That future time is now here, and the Supreme Court can build off of its own warnings against favoring or disfavoring different forms of speech media technologies in Citizens United v. FEC by extending strict scrutiny to must-carry mandates. (I discuss Citizens United's implications for future free speech cases in my FSF Perspectives piece, "What Citizens United Mean for Free Speech in the Digital Age.")

Many of the above considerations were well-summarized by FSF President Randolph May in his recent law review article Charting a New Constitutional Jurisprudence for the Digital Age. As predicted in that law review article, the Supreme Court passed up its earlier opportunity in last year's FCC v. Fox Television Stations to acknowledge the recent developments in the dynamic video marketplace, instead issuing a ruling on other grounds. (See the blog post "Constitutional Reckoning Still to Come.")

But the stage is set again in Cablevision v. FCC for the Court to acknowledge those developments. Hopefully, the Court will agree to take the case and make clear that the First Amendment's free speech protections consistently and evenly extend to electronic media.

Tuesday, February 23, 2010

Chairman Genachowski Needs a Sister Souljah Moment

As I pointed out in piece published last week on called "Reject the Internet 'Public Option," groups like Public Knowledge and Free Press have mounted a vigorous campaign to have the FCC classify broadband Internet access services as "telecommunications" rather than "information" services. The import of such a decision would be that Internet access services provided by cable, wireline, wireless, and satellite firms would be regulated under Title II of the Communications Act as common carriage under the same public utility-type regime that applied to Ma Bell in the last century.

In my CBS piece I stated: "I don't think most consumers wish to retrogress to public utility-type regulation for broadband providers. They know, instinctively, that the same kind of regulation imposed on railroads in the 19th century and on Ma Bell last century is not suitable for 21st century high-speed Internet networks." I suggested the most strident net neutrality proponents are "seriously overreaching."

In his keynote address at the Free State Foundation's Annual Winter Telecom Policy Conference, FCC Commissioner Robert McDowell explained in a clear and detailed fashion why the notion of classifying Internet providers as common carriers under Title II has no merit. Why, in fact, common carrier classification would be counterproductive. In his address, which bears reading, and re-reading, Commissioner McDowell demonstrated the extent to which Title II regulation would require government micromanagement of the Internet service providers' businesses.

And now a group of wireline, cable, and wireless industry leaders have sent a 14-page letter to FCC Chairman Julius Genachowski vigorously opposing the proposal to regulate Internet providers under Title II. The industry leaders say to Chairman Genachowski that, "[i]t is difficult to imagine a proposal more at odds with the Commission’s historical commitment to keeping the Internet unregulated, to our national prospects for economic recovery, and to your own commitment to 'common sense' solutions and to 'private enterprise, the indispensable engine of economic growth.'"

I agree it is difficult to imagine a proposal more at odds with the FCC's historical commitment to keeping the Internet unregulated and with hopes for economic recovery and job creation. After all, the Internet access providers have invested over $200 billion of their own (read: non-government bailout) capital in just the last several years in continuing to build out high speed broadband networks. The FCC's broadband plan staff estimates it could cost up to another $350 billion to build out a high-speed network to every American. With the Internet providers apparently prepared to keep investing billions of dollars their own capital, given a reasonable regulatory environment, it's easy to understand the positive impact of their efforts on economic recovery and job creation.

What no one really knows at this point in his tenure is the extent to which Chairman Genachowski, when he says he is committed to private enterprise as the indispensable engine of economic growth, is prepared to act consistently with his words. Reversing the FCC's policy of not regulating Internet access providers as common carriers – after a long period of non-regulation during which broadband Internet availability and adoption have progressed nicely – would not be consistent with a commitment to such a private enterprise approach and would not be seen as such.

It is perfectly clear that the Title II'ers are not committed to a regime in which private sector firms respond to the demands of marketplace competition. Instead, they are committed to a regime in which Internet providers respond to the demands of government regulatory micromanagers. Indeed, as I pointed out several months ago here and as the industry letter reiterates, Robert McChesney, a founder and board member of the Free Press organization, which is the staunchest net neutrality proponent, said the following in an interview with "The Bullet," a publication of the Socialist Project: "What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don't have to have a password and that you don't pay a penny to use. It is your right to use the Internet."

As we say in the law: Res Ipsa Loquitur – "the thing speaks for itself."

Professor McChesney, Free Press, and Public Knowledge are certainly entitled to their views, however radical they may seem to me or others. In fairness, in some technical legal sense, a public utility's property may still be considered private property subject to the strictures of the Constitution's Takings Clause. But, the import of Professor McChesney's and his cohorts' vision for the Internet is clear: At a minimum, Internet networks would be highly regulated by the government, including the rates, terms and conditions of service. This is the essence of the authority conveyed to the FCC by Title II.

Chairman Genachowski's launch of the Commission's net neutrality proceeding – right in the midst of the development of the national broadband plan – was in my view ill-advised and unnecessary. There is no reason at this point, however, to conclude that he agrees with the Title II'ers notion that Internet providers should be subject to common carrier regulation, much less that he subscribes to Robert McChesney's radical idea that Internet networks should not be private property.

Mr. Genachowski is undoubtedly a smart and capable person. He came to his job armed with a lot of knowledge about the communications, information services, and high tech marketplace, and also about communications policymaking. As chairman, he thus far has worked hard and deserves credit for taking actions to foster a sense of collegiality among the commissioners. My sense – perhaps it will turn out to be a misplaced hope – is that he must recognize that his entire policymaking agenda will be put at risk unless he puts an early stop to this talk about Title II Internet regulation or, indeed, any form of heavy-handed regulation..

In my view, what Mr. Genachowski needs right now is something roughly akin to a Sister Souljah moment, a forceful repudiation of the more extreme ideas urged by those who are seen by some as his natural allies and the allies of the president who installed him at the FCC. He ought to avail himself of such a Sister Souljah-like moment to make clear he understands that, in today's dynamic digital environment, debate about the need, or not, for regulatory intervention regarding the Internet should be circumscribed within certain essentially moderate parameters which necessarily exclude Title II common carrier regulation.

Monday, February 22, 2010

The Dark Side of Maryland's Fiscal Picture

Len Lazarick has an excellent piece today on the site concerning what he calls the "darker underside" of Maryland's credit rating. The darker underside refers to the "continuing budget deficits in coming years and the mounting deficit in state pensions and retiree health benefits." According to Lazarick, Maryland's unfunded pension and health benefit liabilities for retired state employees now exceed $32 billion – and they have been growing fast. Absent action, these unfunded liabilities will continue to drive the state's structural deficit for many years to come.

In a Perspectives paper that Len wrote last April when he was a Visiting Senior Fellow at the Free State Foundation, he discussed the impact of the state employee pension and health benefits on the state's budget deficit. The paper, "Curing Maryland's Structural Deficits: A Call for Mandate Reform," is here. Read the paper to get a more complete picture of the pension and health benefits situation. Along with other mandates contributing to the state's structural budget deficit. In the meantime here are a few excerpts:

"Teacher and public employee unions argue that defined-benefit pensions attract teachers and state workers to their jobs and help retain some of them, but they have become increasingly rare in the private sector. Maryland pensions are available to anyone with 30 years' service, regardless of age."

"A DLS study for the OPEB [Other Post-Employment Benefits] commission compared Maryland’s health insurance benefits with those of nine other states that also hold AAA bond ratings. 'Maryland offers among the most generous package of health benefits to its retirees compared to the benefits offered' by the other states, DLS found. 'Maryland offers the shortest vesting period, the lowest prescription drug copayments, the second most plan options, and the second highest premium subsidy. As a result, Maryland has the highest retiree health liability per covered retiree and spouse among these 10 states.' The commission also heard from a consultant comparing retirement benefits in large private sector companies. Only about a third now offer health benefits, compared to 90% of state governments, and half of the private sector employers cap their share of the cost of these benefits. Clearly, the liabilities of health insurance benefits for Maryland retirees is another unfunded entitlement that helps drive the state’s structural deficit in the general fund – especially if they were being advanced funded, as GASB [Governmental Accounting Standards Board] requires."

Both Democrats and Republicans share the blame for not addressing the situation while the unfunded retiree pension and health benefits liabilities continue to grow, even as the deficit grows. Both have found it easier to curry favor with the state employees than to discuss ways of curtailing future liabilities.

Conventional wisdom has long dictated that turning a blind eye was the politically safe course. Perhaps such "blind-eye" governing has worked for Maryland's politicians for a long time. But if Maryland's governor and legislators continue on what in the past was considered the politically safe, even if fiscally irresponsible, course, they may be surprised to find out that Maryland's voters – like those in Massachusetts -- are not immune from the concern about deficits and government overspending that is sweeping the country.

Maybe, to rework a thought form James Carville, Marylanders will come to understand: "It's about our children and grandchildren, stupid!

Thursday, February 18, 2010

Pass the "Read the Bills" Bills

In addition to other transparency and open government measures being promoted in Maryland's General Assembly (see my pieces here and here), there are "Read the Bills" bills. These are proposed measures that in one form or another require that bills be posted on the Internet – along with the "Fiscal Note" – a certain number of days before they are voted on in committee are on the floor of the legislative chamber.

The somewhat innocuous-sounding Fiscal Notes are the all-important statements that are intended to inform legislators of the budgetary impact of the law to which they are attached. While always of importance, of course, in today's environment of projected $1.5 billion budget deficits, they are more important must-reading than ever.

The "Read the Bills" bills are so-called because the required Internet posting and time interval before legislative action are designed to provide time for legislators to…….read the bills. For summary information on three of them, see this post on the Blue Ridge Forum site. Like the bills designed to open up other facets of Maryland's legislative process, passage of the "Read the Bills" measures would be a step in the right directions towards empowering citizens to hold their elected officials more accountable for their actions. Indeed, in her detailed December 2008 study entitled "Structural Solutions for Maryland's Structural Deficit: Pathways to Reform," the Free State Foundation's Cecilia Januszkiewicz recommended posting of fiscal notes on the Internet at least two days before the first hearing on a proposed bill. (This was one of Cecilia's nine recommendations. Anyone seriously interested in budgetary and fiscal reform in Maryland, should read this FSF study.)

It is worth pointing out that one of the proposed bills highlighted in the Blue Ridge Forum post, House Bill 437, has a rather large built-in exception – one big enough to drive the proverbial truck through. The Internet posting requirement does not apply to bills for which a vote for final passage will be taken within four days of the end of a legislative session. Oops! That's when a proverbial truckload of the important bills are usually passed – at the very end of the session.

There is no reason why that loophole should not be closed. If necessary, legislators can delay their exit for a few extra days before shutting down. Or better yet – get their business done earlier in an orderly fashion that avoids the last-minute rush which is prone to hurried back-room deals.

So, while there appears to be a movement afoot to adopt some meaningful open government reforms, there is still important work to be done.


Wednesday, February 17, 2010

Watching Scott Cleland Watch Google

Scott Cleland's latest blog, titled How much should Google be subsidized?, is a very good expos̩ demonstrating the extent to which Google has successfully manipulated the public policy process to its own competitive advantage. It is not surprising that a company that has amassed the power that Google has amassed would try to use its influence to benefit itself Рthat happens all the time in Washington and around the country. What is surprising, and disappointing, is the extent to which, thus far, Google has been able to pull the wool over the eyes of public policymakers and elected officials in promoting self-serving regulatory policies and outright subsidies.

Let's hope that changes soon. If it does, it will be due in no small part to Scott Cleland's good work reported on the Precursor Blog.


Monday, February 15, 2010

More on the Maryland Open Government Act

I am not much in the business of recommending petition signing, but I note that an online petition website has been set up to collect signatures in support of Del. Helen Mizeur's Maryland Open Government Act.

I previously called attention to Del. Mizeur's bill in the blog, "Steps Toward a More Open Maryland Government" and said "if steps are taken to increase the transparency of legislature's activities and ease citizen access to information, Maryland's taxpayers will be in a better position to know whom to blame – or praise."

The Open Government Act would require the following:

1. Allowing the public free and total access to services provided on the General Assembly's website, including elimination of the $800 access fee charged for "up-to-the-minute" legislative tracking.

2. Webcasting General Assembly committee hearings and Board of Public Works meetings over the Internet.

3. Posting General Assembly committee hearing agendas at least one day in advance.

4. Allowing online sign-up for those wishing to testify before a General Assembly committee.

5. Publishing the votes of standing committees on the General Assembly's website.

6. Posting the Board of Public Works's proposed budget actions at least two weeks in advance.

7. Allowing for a public comment period in advance of Board of Public Works budget actions.

You may or may not want to sign the online petition. But, if you are interested in making government in Maryland more transparent and accountable, you should welcome passage of the Open Government Act and similar measures to increase transparency.

Richard Epstein on the Comcast-NBCU Merger

Last Friday, the Free State Foundation published a Perspectives from FSF Scholars on the proposed Comcast-NBCU merger by Richard Epstein, one of the nation's foremost law and economics scholars. In his Perspectives paper, Professor Epstein, Free State Foundation Distinguished Adjunct Senior Scholar, refutes the testimony on the merger of the Consumer Federation of America's Dr. Mark Cooper. Indeed, Professor Epstein states that Dr. Cooper has achieved a rare feat in that the "evidence that he presents against this proposed merger suffices to explain emphatically why it ought to be approved."

You should read Professor brief paper in its entirety. But here are a few excerpts:

  • "Dr. Cooper's analysis does not engage in this elementary form of analysis. The words "efficiency" and "benefit" do not appear anywhere in the analysis, so that the implicit baseline for his dubious judgment is that any cost of the merger is in and of itself to require its rejection by the applicable public authorities."

  • "Dr. Cooper has the rare skill to turn an economic virtue into a social vice. He writes that the two companies have in their respective roles of distributor and content provider, 'a competitive rivalry. For example, in providing complementary services, broadcasters and cable operators argue about the price, channel location and carriage of content.' Argue? What his odd choice of words shows us is that he has no explanation as to why the reduction in transaction costs should count as a social loss, when in fact it allows the provision of more services at lower prices. The gains from vertical integration are treated as though they create a social loss, which is even more mysterious because he does not bother to establish that either firm has any level of monopoly power to begin with."

  • "He then fortifies this analysis with one kind of alarmist prediction that makes sense only to those who are convinced that both companies with commit hari-kari after their linking up their fortunes. Thus he thinks that Comcast will carry only NBC content, which NBC will in turn only supply to Comcast. But why would either company wish to make its network weaker than it need be, by entering into actions of exclusion that hurt itself as much as any outsider? If the purchase of outside content allows Comcast to satisfy its customers' tastes, it will go for it. If selling content to other service providers allows NBC to gain more revenues, all the better. Both points are especially true for Comcast which does not have nationwide penetration in the cable market."

  • "[T]he last thing that any analyst should do is botch the antitrust analysis in any field that is as important as speech. Instead, the question is to ask why this combination might affect the market in speech. Here two points are relevant. The first is that the political speech market has never been healthier, because the coming of age of the web introduces more political content and lower cost of access than ever before. Entertainers may experience serious grief with the web because they are trying to sell content that is easily pirated. But political commentators are intent upon giving away content for free in the in the hope that every reader will forward a particular story to his or her entire list. Puhleeze forward!!"
  • "The situation is in reality exactly the opposite of what Dr. Cooper topsy-turvy analysis predicts. Efficiency is even more important when first amendment issues are at stake than when they are not. He is not able to perform a minor intellectual miracle of having an upside down antitrust analysis saved by topsy-turvy First Amendment analysis. His errors don't cancel each other out. They cumulate."

Anyone interested in following the Comcast-NBCU merger, especially those susceptible to falling for the wildly exaggerated claims of the so-called public interest groups, should read Professor Epstein's paper. At the same time, it would be useful to have in mind Professor Epstein's impressive bio.

Wednesday, February 10, 2010

Save The Internet From Title II Regressives

Amidst continuing doubts about whether the Federal Communications Commission's Title I ancillary jurisdiction gives it power to impose net neutrality regulation of broadband access services, in recent FCC proceedings Public Knowledge, the Consumer Federation of America and others have urged the Commission to move broadband "information services" from Title I classification to Title II. But such calls for net neutrality or other common carrier regulation of broadband services through Title II lack any grounding in existing, cognizable marketplace harm or failure. And imposing monopoly-style regulation on broadband fails to take seriously both the existing state of competition and the potential for new competition offered by wireless broadband in the dynamic modern communications services market.

In his keynote address at the Free State Foundation's Winter Conference, Commissioner Robert McDowell listed a series of serious questions raised by recent calls for the Federal Communications Commission to remove high-speed broadband "information services" from Title I jurisdiction and instead subject broadband to Title II common carrier regulation. A reclassification to Title II would subject broadband to a blizzard of new regulation.

As Commissioner McDowell reminded the audience, "common carriage regulation's original purpose was to regulate the rates, terms and conditions of the coal-fired railroads of the 1880s," and was later appropriated to regulate "monopoly, analog, circuit-switched voice service of the 1930s." Traditional Title II treatment includes: rates, terms and condition regulation, tariffs, dominant vs. non-dominant carrier classification determinations for added regulatory burdens, agency Section 256 oversight of interoperability and interconnection between telecommunications carriers and other providers of telecommunications services, as well as various recordkeeping, reporting, and accounting obligations. (The Commissioner's address was also highlighted in a recent FSF blog post: "FCC Commissioner Robert McDowell: 'First Do No Harm'").

A letter to the FCC by MetroPCS sums up the stakes in subjecting broadband to common carrier regulation. It reiterates the regulatory reverse-course constituted by calls to put broadband services under Title II. Previous orders by the FCC have classified both DSL wireline broadband and wireless broadband as "information services" receiving largely unregulated treatment Title I, not common carrier obligations under Title II. Both of those orders followed the FCC's clarification that cable modem services are "information services," since cable services have never been subject to Title II regulation. Importantly, the U.S. Supreme Court upheld the FCC's cable modem order in NCTA v. Brand X (2005).

Metro PCS's letter then gets to the heart of what pro-regulatory forces are most ardently after —network neutrality regulation— and how Title II reclassification constitutes their presumptuous way to get there:

The proposed reclassification – which undoubtedly is proposed in order to enable the Commission to impose net neutrality regulations on providers of broadband Internet services following warning signs that the Commission may not have ancillary authority to do so under Title I – puts the cart before the horse. The clear impetus for the push to reclassify is solely to implement net neutrality requirements, not because common carrier regulation is otherwise necessary or appropriate. This “ends justifies the means” approach is inappropriate and does not serve the public interest. The Commission should not be working backward from a desire to impose net neutrality regulations. Rather, it should examine the marketplace as it currently exists, and determine from concrete evidence whether the market has changed in such a way that common carrier regulation is appropriate.

Other serious problems with net neutrality regulation and common carrier treatment of broadband services aside, actual evidence of a change in marketplace conditions should be proffered before any regulatory reclassification should ever take place. As the MetroPCS letter goes on to say, with a quote Commissioner McDowell from his keynote at the FSF Winter Conference: "[T]he Commission should not break from its repeated declarations that broadband Internet services should not be considered common carrier services without 'a reasonable and detailed justification for the change based on record evidence.'" But as the letter goes on to assert: "There is no record evidence to demonstrate that reclassification is justified to ensure competition in broadband Internet services or in order to sustain net neutrality regulations, particularly without a demonstrated need for such regulations."

FSF's comments to the FCC in the Preserving the Open Internet proceeding in January made this same point about the utter lack of evidence in the record for any broadband marketplace failure justifying net neutrality regulation. The FCC's Notice of Proposed Rulemaking in the proceeding only musters two isolated instances of real or alleged "discriminatory" treatment of data traffic by ISPs: the Madison River Communications VoIP-blockage incident that resulted in a 2005 consent decree, and the Comcast/BitTorrent P2P "throttling" incident that was resolved between the parties prior to the FCC's controversial July 2008 order. Both incidents were resolved without the need for new regulation. And as FSF's comments maintained, those two instances provide no basis for aggressive new net neutrality regulation of broadband Internet providers—whether through Title I or through Title II.

Of course, any such analysis of the existing broadband marketplace should take into account both actual competition and potential competition. The importance of potential competition in dynamic markets has been emphasized in a number of FSF scholarly writings, including FSF Academic Advisory Board scholars Dennis L. Weisman and Glen O. Robinson's essay "Lessons for Modern Regulators from Hippocrates, Schumpeter and Kahn" in New Directions in Communications Policy. As FSF Perspectives pieces by Prof. Weisman ("On Market Power and the Power of Markets: A Schumpeterian View of Dynamic Industries") and FSF President Randolph May ("Assessing the FCC's Competition-Assessing Competence") have both pointed out, the FCC has not consistently considered potential competition in regulatory decision-making.

However, the U.S. Court of Appeals for the District of Columbia's decision from last summer in Verizon v. FCC reiterated the importance of the FCC assessing potential competition in the regulatory forbearance context. Just at the FCC should consider potential competition in the dynamic broadband market when deciding whether or not to continue old legacy regulation, all the more should the FCC consider potential competition in the market before it ever imposes onerous new regulation.

The U.S. Department of Justice's ex parte filing to the FCC in the National Broadband Plan proceeding makes substantially the same point about the need to take seriously the dynamic marketplace and not limiting competitive analysis to a static snapshot:

In any industry subject to significant technological change, it is important that the evaluation of competition be forward-looking rather than based on static definitions of products and services. Insight can best be gained by looking to product life cycles, the replacement of older technologies by newer ones, and the barriers facing suppliers that offer those newer technologies. In the case of broadband services, it is clear that the market is shifting generally in the direction of faster speeds and additional mobility.

One need not make too much of DOJ's filing. But it does offer a few positive takeaways. In addition to correctly pointing out how competition in dynamic markets requires a forward-looking perspective, the filing is devoid of any evidence of broadband marketplace failure or market power on the part of ISPs. The DOJ filing also acknowledges wireless as an important potential source of new broadband competition.

Given the lack of existing harms or broadband marketplace failure, as well as the potential for new and increasing competition offered by wireless, the FCC should continue to adhere to the non-regulatory policy approach under Title I that has allowed the broadband Internet to grow. The Commission should opt for the forward-looking approach to market competition and reject the backward-looking call for monopoly-style regulation.

Monday, February 08, 2010

Of Transformational Moments and Media Regulation

There is an interesting piece on the Broadcasting & Cable website in which John Eggerton, B&C's longtime, highly knowledgeable media reporter, interviews Steven Waldman, senior advisor to FCC Chairman Julius Genachowski. The interview gives me pause – and it may give you pause as well.

In the setup for the interview, which you should read in its entirety, B&C states: "Waldman is charged with coming up with a report to the commission on the state and fate of the media in the midst of radical change." In the interview, Waldman is careful to say that, with the project he leads, the FCC is not looking to save any particular company or industry because "that is not really our job." But what exactly is the job that the FCC is looking to do under Waldman's charge? Mr. Waldman says: "We are looking at it in terms of preserving certain functions, in which I do include accountability journalism."

Here's the rub. It is not really the FCC's job – or generally within its delegated jurisdiction – to preserve "accountability journalism," or even to define it. Indeed, despite Waldman's appropriate nods to First Amendment sensitivities, free speech concerns are necessarily implicated when the government categorizes different kinds of media content and worries about preserving some content and not other.

I prefer to assume the good intentions of Chairman Genachowski and Mr. Waldman, and others, when they bemoan what they perceive as the troubled state of the news media and when they pledge to focus government's efforts on what Mr. Waldman calls "the information needs of the community." But the truth of the matter, if we are to be candid, is that many of those in the "fix the media" camp just don't like particular programs, or networks, or what they might call the slants of particular media outlets. They often rail against the "24-hour cable news networks," and especially against one particular cable news network they say is not as "fair and balanced" as it advertises.

Perhaps what many of the "accountability journalism" proponents really long for are the days when television news was dominated by three major network news operations with a generally liberal tilt. When Walter Cronkite closed each evening's broadcast with the soothing, "And that's the way it is." Except when it wasn't. And recall the occasions when Cronkite's successor, Dan Rather, told us the way it was, but it wasn't. We only found out because of the bloggers, certain 24-hour cable news networks, and other non-mainstream media. Accountability journalism in action, perhaps – without government help.

Now here are some of Mr. Waldman's specific responses that particularly give me pause.

He says: "But the one premise is that the chairman and I believe we are at a transformational moment. The first thing we have to do is make sure the FCC meets that moment in a smart way." When government officials speak of "transformational moments" as justification for embarking on new missions, caution is in order. The Obama Administration, especially, has been keen to invoke transformational moments, for example, as justification for radical changes in health care and energy policy. The result, in my view, has been overreaching. I worry that invocation of the "transformational moment" could lead to overreaching as well with respect to media policy.

Mr. Waldman says: "Everything the FCC does affects the structure and organization of the media, and those often have very profound effects. Traditionally there has been a line between structural rules and ownership and micromanaging content, and I think that is a reasonable line in the sand." In one (theoretical) sense, this statement about a reasonable line in the sand is reasonable enough. But in another more practical sense it is not.

First, for many years (decades really), with Commissioner Copps and similar-minded commissioners leading the charge, the FCC has stood in the way of reforms that might have prevented or slowed the demise of journalistic endeavors whose demise they now purport to decry. I refer, of course, to their reflexive opposition to any relaxation of media ownership regulations, say, for example, that would have allowed combinations of local newspapers and broadcast outlets. Such combinations might have provided the necessary financial and other resources for supporting more of the "accountability journalism" that now is of such professed concern to these media regulators. I am confident that if you ask Commissioner Copps, he will tell you he has never been so concerned about "media concentration" as he is today. Not even when three television networks dominated the 30 minute nightly news shows, before the availability of new over-the-air networks, a multitude of cable networks, satellite radio outlets, the Internet, and so forth.

Second, while Mr. Waldman expressly eschews micro-managing content, I worry about the FCC macro-managing content. The line between micro and macro-managing content is not that clear. The natural inclination of government officials is the all-too-human tendency to want to enhance control of the media control in the interest of self-promotion or self-protection. This is why we have a First Amendment, by the way.

In this regard, in the context of the net neutrality debate, it has been shocking, if not surprising, to hear high government officials with responsibilities in the area of communications regulation, such as Andrew McLaughlin, a former top Google policy executive, speak as if they do not understand the difference between government censorship and private party choice as to what to information to convey or not.

Towards the end of the interview, Mr. Eggerton asks: "Can we establish that this initiative will not be a stealth takeover of the media by the government?"

Mr. Waldman responds: "Yes, we can absolutely, definitively say that we have no plans to take over the media, and we have no plans to reinstitute the fairness doctrine while I am at it."

I do not doubt that Mr. Waldman or Mr. Genachowski have no plans for the FCC "to take over the media." Or even to reinstitute the fairness doctrine, as least in the same form we knew it back when. Nevertheless, despite my presumption of their good intentions, I do doubt the wisdom of the FCC's endeavor to preserve and promote certain media functions, including "accountability journalism" and what is now fashionably called the "public media."

It is true that in order for our democracy to function well, we need a vigorous press with sufficient resources to investigate and shine a light on wrongdoing, especially government wrongdoing. So, yes, "accountability journalism" is desirable. But above all we need an independent press.

I am certain that our Founders – who gave us not only a real transformational moment but our First Amendment – would find it somewhat odd if we gave the government more power to regulate or interfere with the media, or to support "public media" with special preferences or subsidies, in order to promote government accountability. The Founders would understand the ultimate threat to democracy inherent in such a project.

I am sure they would prefer that those in positions of power in government, such as FCC commissioners, eliminate or reduce media regulations that constrain the actions and decisions of private media outlets, rather than using presumed transformational moments to enhance government involvement in, or control over, the media.

Thursday, February 04, 2010

Take Net Neutrality Out Of Merger Review

At the U.S. House of Representatives hearing on the proposed Comcast-NBCU joint venture, more than one member of Congress brought up the idea of having a network neutrality requirement imposed on the parties as a condition for merger approval. Let's hope that kind of ad hoc regulation never comes to pass. Regardless of the merits of net neutrality regulation, responsible administration calls for equal treatment by across-the-board application of rules. Genuine anti-competitive harms should be the focus of any and all merger reviews, not extraneous policy initiatives.

Currently, the U.S. Department of Justice is vetting the Comcast-NBCU merger for any anti-competitive concerns. And the Federal Communications Commission will be undertaking a public interest examination of the merger as part of the its process for approving the transfer of broadcast, broadcast auxiliary, satellite earth station, and business radio licenses. Presumably, some members of Congress have in mind net neutrality condition to be put in place pursuant to the FCC's approval of those license transfers.

Net neutrality regulation of advanced broadband technologies in dynamic markets poses no small or insignificant number of problems. (Some of the Free State Foundation's own work detailing those concerns can be found here, here, and here.) But aside from the detailed difficulties and potential consequences posed by net neutrality regulation, the scope of the issue requires a more direct and comprehensive examination. In fact, the FCC is already taking a broader look at net neutrality regulation in its current Preserving the Open Internet proceeding. (Last month, FSF filed comments with the FCC opposing the adoption of net neutrality regulation.) However undesirable such regulation may be, imposition of some kind of net neutrality regulation is only appropriate for across-the-board rules that apply equally to broadband marketplace competitors, not for an ad hoc application to merging parties in a particular transaction. Subjecting merging parties to uniquely onerous regulatory burdens puts them at a disadvantage vis-a-vis their competitors and potentially scares away mergers that enhance consumer welfare or which are competitively benign.

The FCC displayed an awareness of general rulemaking vs. specific conditioning concerns late last year when it rejected calls for adopting a handset exclusivity ban as a condition for approving the AT&T-Centennial merger. As I discussed in a blog post last fall ("FCC Keeps its Hands Off of Handset Exclusivity, For Now…"), the license transfer approval in the AT&T-Centennial merger constituted a laudable example of the FCC refraining from imposing significant conditions that would only be appropriate, if at all, in a general rulemaking. The FCC expressly recognized that the handset exclusivity raised broad, industry-wide concerns rather than merger-specific harms.

A time-limited net neutrality condition did make it into the FCC's order approving license transfers in the AT&T-BellSouth merger. However, the AT&T-BellSouth merger remains an anomaly in this respect and it should not be followed. No merger passing through the FCC since then has included any net neutrality condition. The net neutrality condition contained in the AT&T-BellSouth merger also appears to be a dubious instance of FCC "regulation by condition." In such instances, the FCC lets its informal 180-day shot clock on license transfer approval lapse and thereby puts merging parties into a precarious position. As merging parties grow increasingly desperate due to FCC delay, they end up engaging the FCC in further rounds of private talks. Those talks lead to parties' "concessions" concerning matters that may have little or nothing to do with supposed anti-competitive harms raised by the merger.

In Comcast-NBCU, the merging parties have proposed a number of initial concessions in their application and public interest statement. But a net neutrality condition would be unnecessary and irrelevant to the license transfer that the FCC will be considering. DOJ examination and future public comment at the FCC may shed light on the possible existence or scope of any video and online content distribution issues raised by the merger. Issues pertaining to retransmission consent, program access, program carriage, localism, diversity, PEG, and the like will certainly be up for public discussion as the merger application is considered. To be sure, however, the merger certainly involves no threat to last-mile broadband marketplace competition, as NBCU is not in the high-speed broadband service provider business.

So will the FCC's approach to the Comcast-NBCU merger be more like its disciplined approach in AT&T-Centennial than its undisciplined approach in AT&T-BellSouth? It's too soon to say for certain, but not too soon to hope the agency will not allow the process to run amok.

Tuesday, February 02, 2010

Steps Toward A More Open Maryland Government

The sudden receptivity of the Maryland General Assembly to measures to increase transparency regarding the legislature's work is certainly welcome. A decision has already been made to put committee votes online for the first time. Because much of the real work of legislating is done in committee, this is an important step in providing citizens access to information that will help them hold their representatives accountable.

And as indicated in the Maryland Reporter, a bill has been introduced that would take other steps to make the Assembly's work more transparent and open. The Maryland Open Government Act, House Bill 344, would require all legislative hearings to be broadcast on the General Assembly's website. And it would allow witnesses at legislative hearings to sign up to testify on bills online, rather than in person two hours before a hearing as they now must do.

Moreover, committees also would have to publish the order in which bills will be heard one day in advance. As things stand now, there is no telling in what order bills will be brought up. The system of constantly shuffling bills, roulette-like, might work well for lawyers or others paid by the hour to sit in legislative hearings, but not for ordinary citizens taking time out from busy schedules to travel to Annapolis to put in their two cents worth.

I'm sure there will be plenty to criticize when the General Assembly gets down to legislating, especially if, per its "spending like there's no tomorrow" tradition, it fails to exercise any spending restraint -- even in face of the looming $1.5 billion plus deficit. But at least if steps are taken to increase the transparency of legislature's activities and ease citizen access to information, Maryland's taxpayers will be in a better position to know whom to blame – or praise.


Monday, February 01, 2010

FCC Commissioner Robert McDowell: "First Do No Harm"

At last Friday's Free State Foundation's Annual Winter Telecom Policy Conference, FCC Commissioner Robert McDowell gave a stirring keynote address that made the case for what, for some time, I have been calling regulatory modesty. Focusing on the FCC's upcoming national broadband plan and the agency's proposed net neutrality regulations, the title of Commissioner McDowell's address – "The Best Broadband Plan for America: First Do No Harm" – captures the essence of the approach that should guide the Commission.

With the date for adoption of the broadband plan drawing close, and proposed net neutrality regulations already on the table, there is a serious risk that this new Commission will go far off-course. Unless the agency demonstrates that it understands the high costs imposed by public utility-style regulation of broadband Internet services and that it appreciates the benefits consumers have realized from the existing generally deregulatory broadband environment, it will do so. It needs to exhibit a very healthy dose of regulatory modesty.

I will continue to have much more to say about these broadband matters in the coming weeks and months. It is unlikely, though, that you will find a more persuasive case for the exercise of the Hippocratic injunction – "First, Do No Harm" – than that set forth in Commissioner McDowell's keynote address. The entire address bears a close reading. But for those unable to do so at this time, here are some of the key excerpts:


"And keeping in the hands of consumers that power to choose among products and services in a fast-changing and competitive free market should be the FCC's prime directive when it comes to crafting our National Broadband Plan and examining proposed rules governing Internet management. The Commission's No. 1 goal should be to do no harm.
But first we must ask: How have we met with such success in the first place? With calls for more regulation, some are bending the light of history through a revisionist lens. Keep in mind that innovation and investment in broadband did not come about due to a government mandate. In fact, for over three decades now, it has been the bipartisan policy of the U.S. Government to keep information services lightly regulated. The innovation that consumers are enjoying today came about under a minimalist regulatory framework."

"While the FCC continued on the logical path of classifying broadband services as less regulated information services under Title I in 2002, 2005, 2006 and 2007, investment, innovation, competition and consumer choice were growing.
Let's allow the facts to speak for themselves. According to a Pew Internet & American Life Project study, in 2003 only about 15 percent of American adults had access to broadband at home.
Today that number is closer to two-thirds. Some form of wireline-based broadband is available to roughly 95 percent of Americans.
Cable broadband alone is available to 92 percent of the country. Once deployment of DOCSIS 3.0 is complete, those consumers could enjoy speeds of up to 100 mbps. That means 92 percent of the country could have access to far faster broadband services merely through an upgrade. This incredibly positive fact is overlooked too frequently in the debate over America's broadband future.

"In addition to acknowledging the fatter and faster pipes being delivered to consumers through coax and fiber, we should not forget the tremendous explosion of wireless broadband. In fact, wireless is the fastest growing sector of the broadband market. Wireless broadband was rarely mentioned in 2003, but by December of 2005, there were already 3.3 million wireless broadband subscribers. And, last November, that number had grown to 99.7 million wireless broadband subscribers. It should go without saying that as more and more spectrum bands are built out – for example, BRS/EBS, AWS-1 and 700 MHz – this trend will continue. But today, over 50 percent of American consumers have a choice of five wireless carriers, with 94 percent having a choice of four carriers."

"Investment, innovation, deployment and adoption have all been growing rapidly in the stability of the current regulatory environment. These are positive trends that should be nurtured and strengthened. As the FCC goes forward it should, at the very least, be careful to do no harm."

"[S]hadowing the Broadband Plan is the FCC's Open Internet proceeding. It proposes to dramatically change the existing regulatory environment for broadband – the same environment that has allowed for the development of the robust and dynamic market I have just described. Before embarking on any regulatory journey, it is pragmatic for the government to ask, 'What exactly is broken that only the government can fix?'"

"Both NTIA and the Department of Justice (DOJ) filed comments in our proceeding. Not surprisingly, neither provided evidence of a failed Internet marketplace. In fact, DOJ's comments were downright optimistic about the competitive and dynamic future of the broadband market."

"First, modern day "information services" have never been regulated as common carriage. Second, starting with cable modem services in 2002, the Commission examined the early 21st Century broadband market and determined that it was far different from the early 20th Century "plain old telephone service" market that inspired the 1934 Act. As the result of these significant differences, the Commission determined that broadband should be classified as less regulated information services under Title I.
Don't forget that the aim of the 1996 Act was to deregulate this space as competition grew, and the broadband classification orders were drafted with such Congressional intent in mind."

"But let's ask a bigger question: Exactly what kind of companies might get tangled up into this regulatory Rubik's Cube? Any Internet company that offers a voice
application? What about an app developer that makes an app closely "ancillary" to a voice application? With this newfound authority, why stop at voice apps? Isn't voice just another type of data app?
As the distinction between network operators and application providers continues to blur at an eye-popping rate, how will the government be able to keep up?"

"And these Commission actions would not create extreme litigation risk and regulatory uncertainty? Would this new regime create the environment needed to attract up to $350 billion in private risk capital to build out America's broadband infrastructure, as the Commission analysts drafting the National Broadband Plan have estimated?"

"Some who advocate for new rules are also arguing against pricing freedom. They should be careful what they wish for. Direct or indirect economic regulation of Internet access could very well increase prices for all consumers. Under a new nondiscrimination construct, if every consumer is to be treated the same regardless of usage, then all prices must rise to compensate for the costs imposed by heavy users. This is especially true for shared networks such as wireless and cable where consumers share bandwidth with their neighbors, whether they know it or not. In short, under one scenario, the majority of broadband consumers would pay a higher rate to compensate for a minority of users who consume more bandwidth."

"One can't speak at a Free State Foundation event without mentioning the Constitution. I'll start with the First Amendment, because it's first. The Supreme Court just reaffirmed last week in its Citizens United decision that corporations have a protected right to speak under the First Amendment.
Additionally, the Commission bears the burden of justifying any speech regulation it imposes on corporate entities, just as it does with individual citizens. Some commenters contend that new rules could impermissibly burden speech in several different ways, including by imposing capacity restraints on network providers' own services in order to accommodate the speech of others. Others contend that the act of routing data is conduct and not speech.
Nonetheless, if new rules are enacted, the courts are sure to be presented with a First Amendment challenge during the inevitable appeals. The level of constitutional scrutiny applicable to a net neutrality "nondiscrimination" mandate is a key question to be resolved…. In short, under any standard, court precedent requires the Commission to conduct a serious analysis proving that the harm is real before the agency adopts rules that restrict speech. Thus far, the record in this proceeding does not meet that burden of proof."

"I truly hope that the Commission will seriously consider a different course – a course that does not carry with it the unforeseen liabilities that new regulations are sure to bring. It is my hope that we all could agree on a middle ground idea, such as this one. In lieu of new rules, which will be tied up in court for years anyway, the FCC could forge a new partnership with the appropriate non-governmental collaborative Internet governance bodies that have worked flawlessly on these issues for years. Working together, we could collectively shine a bright light on allegations of anticompetitive conduct and work directly with the established Internet governance community to resolve controversies. This approach, coupled with strict enforcement of our antitrust laws, could very well provide the benefits sought by proponents of new rules without incurring the unexpected costs of a new regulatory regime. After all, this way of doing business has worked quite well thus far."