Thursday, September 30, 2010

IPI’s Communications Summit


As usual, it looks like my friends at IPI have a good communications conference in the works. It is next week on Wednesday, October 6, in DC. There is a good line-up of speakers on the important communications topics of the day. Get the details here. As you’ll see, there is a free reception the night before to boot.

If you’re free, it should be worth your while to attend.

Wednesday, September 29, 2010

Model Transparency Act Should Point the Way for Maryland

The American Legislative Exchange Council (ALEC), a free market-oriented member organization of state legislators, recently adopted new model legislation that sets some baseline government transparency standards. Maryland should consider either adopting ALEC's Transparency and Government Accountability Act or measuring its current open public records practices against ALEC's model and making changes to state law to bring greater governmental transparency.

The focus of ALEC's Transparency and Government Accountability Act is on having state governments make more records available to citizens online in a free and accessible format. Although states have their own Public Records or Freedom of Information Acts (FOIA) – such as Maryland's Public Information Act – those statutes essentially place the burden on citizens to make requests for records and pay appropriate fees in order to obtain access to public information.

And records requests sometimes encounter government officials' stonewalling that includes state-claimed exemptions or privileges from disclosure that ultimately require repeated requests or even litigation to resolve. When states require public disclosure of information as their default practice they provide citizens with easier access records from the outset. This reduces the frequency of citizens having to request records, and also reduces the administrative costs of government in responding to individual requests.

The Sunshine Standard, a website providing tools for improving government transparency, has made the model legislation available at its website. In particular, the ALEC model requires states to maintain an official, searchable website using a consistent domain that makes available a variety of information, including: open public meetings laws, schedules, and agendas; budget information, including spending and revenue information and state payments, elected official and administrative official information; state ethics laws and ethics commission process and enforcement information; state auditing information; government contracting and procurement information; lobbying registration and state agency lobbying contractual information; and state FOIA information.

Maryland transparency laws already make a lot of this information available. For instance, the Maryland Attorney General's office has a page dedicated to the Open Meetings Act, providing access to the laws, information about the Open Meeting Law Compliance Board, and an Open Meetings Act Manual. Likewise, the Maryland Department of Budget and Management provides access to considerable state budget information as well as government contracting and procurement information. And Maryland's Office of Legislative Audits provides information online. For instance, the website of the Maryland's State Ethics Commission is not especially user- or information-friendly, with a confusing advisory opinions section. What's more, whereas the ALEC model calls for information to be posted online about the status of investigations and enforcement actions, Maryland law requires that such investigations and enforcements be strictly confidential until final orders are issued. So no status updates can be found on the State Ethics Commission's site. In any event, Maryland does not currently make the information it already provides available at or linked from a consistent website domain as called for in the ALEC Model.

What's more, providing search indexes could also allow citizens to better analyze disclosed data. Insights can often be drawn from cross-referencing existing records, in particular. For example, a searchable site could provide an easy way to gain information about how much money a government contractor donated to the campaign of an elected official. Consideration of the ALEC model should also prompt states such as Maryland to consider not only making additional information more easily obtainable but also to revising their agency practices to become more transparent and open.

Of course, any comprehensive approach to government transparency should also include local governments. Citizens have often encountered enormous obstacles to obtaining access to government information at the local level. (See, for instance, this Washington Post op-ed from earlier this year, "Maryland's Fake Open Government.") Since counties, cities, and other governmental subdivisions are routinely delegated taxing, condemning, zoning and other regulatory powers, those local governments should adhere to standards of transparency too. States seeking to revamp and expand government transparency in light of ALEC's model should at the very least also consider applying it to local governments where relevant and where possible.

Transparency and open government should be an easy issue for bi-partisan and cross-ideological agreement. ALEC's Transparency and Government Accountability Act provides an excellent framework for states to consider. Maryland citizens could stand to benefit from a re-examination of their state's transparency laws and practices in light of the new ALEC model legislation.

Tuesday, September 28, 2010

The Virtue of Proceeding Cautiously

Free Press lately has taken to attacking FCC Chairman Julius Genachowski for not yet adopting net neutrality mandates to regulate Internet service providers. The most recent attacks, increasingly personal, are ill-conceived. And, joined as they are by acts of street theatre, they do not contribute constructively or in a serious way to the regulatory debate.

For example, last week Free Press and other pro-net neutrality advocates protested in front of the FCC's headquarters by handing out waffles as they trumpeted their “Don't Waffle on Net Neutrality Campaign!" In a press release, Free Press admonished Chairman Genachowski to "stop waffling and get to work."

There is no need to say much about the street theatre other than to make the obvious point that, while Free Press has every right to protest outside the FCC's headquarters with waffles and signs, the FCC commissioners should not be influenced by such antics. Their decisions must be governed by the facts, by the law, and by sound regulatory principles and policy perspectives.

With this in mind, this statement in the Free Press release particularly struck me: "The public can’t afford to wait much longer for the FCC to stop waffling and move forward on enacting real Net Neutrality rules to ensure that the Internet remains open for everyone.” This claim immediately raises the question: Why the need for any administrative action, much less the need for quick action, especially as Congress is actively considering broadband legislation.

Free Press says the public "can't afford to wait much longer." Why? There is no evidence that the Internet services market suffers from a market failure or that consumers are experiencing any demonstrable harm as a result of the absence of Internet regulation. There is no evidence, in Free Press's words, that the Internet presently is not "open for everyone." And there is no reason to believe, consistent with the workings of the marketplace, that the Internet will not remain open.

Indeed, surveys indicate that consumers generally are satisfied with their Internet service. A poll released last week by Broadband for America, a group supported by major Internet service providers, indicates 75 percent of the survey respondents said that "the Internet is currently working well." And 55 percent responded that "the federal government should not regulate the Internet at all." The FCC's own survey released last June showed that 91 percent of broadband users are either "very" or "somewhat" satisfied with the speed of their Internet service at home.

Amidst this sea of reported consumer satisfaction, it makes no sense for Free Press to lambast Chairman Genachowski for failing to adopt a new regulatory regime for the Internet, especially one akin to the rigid common carrier regulation traditionally applied in a monopoly environment or in cases of market failure. If anything, Genachowski should be commended for now recognizing the virtue of proceeding cautiously – if indeed he truly has recognized such virtue – in light of the risks to continued infrastructure investment and innovation that his Internet regulation proposals entail.

Over the weekend, in rummaging about old papers, I came across this statement from the landmark 1978 "Study on Federal Regulation" prepared by the Senate Committee on Governmental Affairs: "Simply because a problem exists and, in theory is remedial, does not mean that regulation or other government intervention is desirable. Controls should only be undertaken where there is a clearly identified problem that cannot otherwise be solved, and where the anticipated achievements are significant and not vitiated by projected adverse consequences." While there are various formulations of the cost-benefit analysis that should be an integral part of an agency's decision regarding whether or not to adopt any new significant regulation, the statement above is surely a good one.

But please note the requisite predicate for proceeding with any agency regulation at all: that "a problem exists" or "there is a clearly identified problem." With respect to the proposals for government imposition of net neutrality mandates, absent a clearly identified problem, the case for regulation fails at the outset. And, thus, so does the unwarranted charge of waffling.

There is vice in rushing to regulate absent a clearly identified problem. And there is virtue in proceeding cautiously when considering intervention in a marketplace that is working well.

Thursday, September 23, 2010

Government Shouldn't Design Devices in Dynamic Markets

Last week the National Association of Broadcasters (NAB) continued its push to have government require that FM receiver chips be embedded in wireless devices. Apparently, NAB seeks a forced-access technology mandate by which Congress would require one media delivery platform – FM broadcasting receivers – be fused into the physical devices of a competing media delivery platform – wireless devices. And this despite the fact that MP3 players, including iPods, typically carry FM receivers and that wireless innovation has led to the availability of smartphone applications that allow access to FM broadcasting. In other words: "There's an app for that."

NAB released a poll suggesting that consumers would be willing to pay a small amount in order to have FM receiving capability in their wireless devices. NAB's poll comes in the wake of summer lobbying efforts surrounding the Performance Rights Act (H.R. 848 and S.379). Reports indicate that NAB seeks an amendment to the pending legislation that would include an FM chipset mandate being imposed on wireless manufacturers.

Wireless devices designed with FM receiving capabilities may, in fact, have strong appeal with consumers. But that should be something for the market to decide. Designing commercial media technologies should not be the business of Congress or bureaucrats. This is especially so in dynamic markets where rapid innovation is a constant and government technical mandates can be quickly rendered obsolete by new market developments. Not to mention the fact that the politically driven design decisions made by government can easily thwart the market-driven design decisions made by private enterprise. Wireless manufacturers design devices with all kinds of functionality trade-offs in mind. Balancing complex technological and financial constraints requires freedom to experiment and innovate. Unfortunately, the idea of a wireless FM chipset mandate fits a too-familiar pattern of government technical mandates that artificially prop up a technology market segment to the exclusion of genuine, dynamic market supply and demand.

Consider another example of intrusive government technical mandates currently being imposed on the video marketplace. The FCC's ongoing efforts to expand regulation of video navigation devices fit this mold of government-imposed mandates for technological devices premised on a static view of the market rather than a dynamic view. As I point out in an April blog post "National Broadband Plan: A Setback On Set-Top Box Regulation," the FCC first set out its government reengineering and managed competition ambitions for video navigation devices in the National Broadband Plan. And over the course of the spring and summer, the FCC has begun its implementation.

First, the FCC issued a notice for public comment on a proposed new set of CableCARD regulations concerning cable set-top boxes. CableCARDs are small physical devices created as a result of prior rounds of FCC regulation-induced negotiations with the cable industry. Provided to consumers by cable operators, CableCARDs contain security functions that can be inserted into the video navigation devices of independent set-top box manufacturers so that those devices can be used to access cable programming. (Cable operators are also subject to an FCC-imposed "integration ban" that prohibits them from combining video navigation and security functions in their set-top boxes. They are instead required to make use of CableCARDs to provide security functions for the set-top boxes they lease to their customers.) Based on its notice, the FCC will eventually issue new interim rules that will govern CableCARDS until a promised new regulatory regime is put in place.

Second, the FCC issued a Notice of Inquiry seeking comment on specific requirements for an expanded video navigation device regulatory regime that will apply to all multichannel video programming distributors (MVPDs). The FCC intends to require that all MVDPs install a "gateway device or equivalent functionality" in all homes using video navigation devices by the end of 2012. By year's end the FCC will follow up with a Notice of Proposed Rulemaking that will distill the new technical mandates for video navigation devices with which all MVPDs must eventually comply.

The FCC has premised these new regulations largely on the argument that a competitive set-top box market has not emerged as was originally contemplated by the Telecommunications Act of 1996. But a serious problem with the FCC's policy is that it insists on giving consumers something that they may not want. Consumers often find it convenient, for instance, to lease cable set-top boxes from their cable operator as part of their overall cable package. This saves consumers a trip to the store to purchase a set-top box from an independent manufacturer. It also saves consumers the effort of buying a new set-top box should they decide to upgrade to a better product that includes high-definition picture or digital video recorder service.

In addition, set-top boxes may become much less prevalent or even largely irrelevant in the years ahead. Some cable operators, such as Cablevision, are looking to offer video programming services without set-top boxes by transferring functions to cable head ends. Overly aggressive regulation could potentially thwart those kinds of technological advancements.

Another problem with the FCC's policy is that it looks for competition in the wrong place. Late 2010's video marketplace is nothing like 1996's video marketplace. In addition to cable service, consumers now enjoy competition from two national direct broadcast satellite (DBS) providers. Telcom MVPD entrants also offer competitive service packages in many places. And some consumers are using video gaming devices or direct broadband connections through their PCs – or even through their wireless devices – to obtain video services and programming. The fact that the FCC now intends to expand regulation to DBS and telco MVPDs implies that it now sees a variety of device substitutes available to consumers.

However, the FCC seems to be making a liability out of an asset with its plans to apply video navigation device regulation to all MVPDs. As a general matter, the FCC mistakenly treats MVPD competition as grounds for new regulation for all video navigation devices rather than as the competitive basis for deregulation of cable set-top boxes. And, in particular, the FCC wrongly insists on expanded regulation to sustain a government-managed niche market for video navigation devices for cable, DBS and telco video services when the viability of that niche market has arguably been undermined by dynamic market changes.

Undoubtedly, those dynamic changes that have taken place in the video market since 1996 require a new and different policy approach to cable set-top boxes. But that policy approach should be deregulation as a means to further video innovation and competition between cable, DBS, telco MVPDs, and any other potential emerging competitors. Importantly, Section 629 of the 1996 Act, fairly uniquely, gives the Commission the power to sunset set-top box regulation when the MVPD and set-top box markets are fully competitive and when elimination of regulations would promote the public interest. Federal law puts it within the FCC's power to bring about device deregulation. The Commission should exercise this power that Congress has conferred.

Dynamic market developments and existing law support deregulation for cable set-top boxes and cable providers rather than the imposition of government-mandated and designed navigation devices. In the same vein, Congress should not adopt FM chipset mandates for wireless devices.

The lesson here is that Congress and the Commission should say no to mandating designs for advanced communications and information services devices in dynamic markets.

Sunday, September 19, 2010

FCC Should Take Broadband Pricing Flexibility Seriously

The FCC's Further Inquiry in its Open Internet proceeding seemingly continues its nearly year-long trek towards imposing net neutrality regulation on Internet service providers. And yet its Further Inquiry perhaps suggests a new receptivity by the agency to more flexible broadband pricing arrangements. Its latest Public Notice seeks public comments responding to questions that include wireless broadband pricing. The Notice appears to indicate some realization by the FCC about the potential benefits of flexible broadband pricing models. But at the same time, the Notice raises its own questions about whether the FCC fully grasps the implications of that realization.

In its brief references to broadband pricing, the Notice observes that "[m]obile broadband service providers such as AT&T Mobility and Leap Wireless (Cricket) have recently introduced pricing plans that charge different prices based on the amount of data a customer uses." The Notice adds that "[t]he emergence of these new business models may reduce mobile broadband providers' incentives to employ more restrictive network management practices that could run afoul of open Internet principles." And the Notice goes on to ask for public comments in response to the question: "To what extent do these [usage-based data pricing] business models mitigate concerns about congestion of scarce network capacity by third-party devices?"

The Commission should be complimented for this nod toward pricing flexibility and usage-based pricing, in particular. Usage-based or metered-billing models can serve as efficient methods for network operators to address bandwidth capacity limits and to make optimal use of existing infrastructure. Better yet, such pricing allows consumers to pay only for the amount they use – meaning that low-volume Internet users who primarily use the Internet to check e-mail or follow friends on Facebook would pay less than high-volume users who routinely send and receive data-rich files such as music or high-definition video. Consumers respond to pricing signals. That is a fundamental economic truth. Usage-based pricing is something that consumers are accustomed to when it comes to a variety of other goods and services. But one is hard pressed to know whether the Commission appreciates that fundamental economic tenet.

Many of these same points about usage-based pricing were aptly made by FSF Distinguished Adjunct Senior Fellow and former FCC Commissioner Deborah Taylor Tate in her FSF Perspectives essay "Paying For Use Is Fair":

Consumers should be able to take control of their own consumption of broadband just as they have for other electronic commodities, and in some cases, they could reduce their monthly broadband service. At least consumers should have the option to utilize a metered approach if they want. This type of transparency in billing, along with providing education and outreach to consumers, should be the goal of policymakers and providers alike.

Broadband providers -- just like wireless providers -- should be allowed to use a consumption model without government interference as long as consumers know and understand what they are paying for.
But consider what should be a basic implication of the Commission's acknowledgment of the benefits of usage-based pricing models in the wireless context. Namely: those same benefits from usage-based pricing for addressing network scarcity, consumer preferences, and "reduc[ing] mobile broadband providers' incentives to employ more restrictive network management practices" should apply to broadband networks generally. But has the FCC faced up to the fact that once it recognizes the benefits of usage-based pricing for wireless broadband, it follows that similar benefits should obtain in the case of wireline broadband? A reading of the Notice suggests not.

Instead, there remains a disconnect between the Notice and the "nondiscrimination" regulation proposed earlier in the Open Internet proceeding. According to the Commission's proposed "nondiscrimination" regulation, "a broadband Internet access service provider may not charge a content, application, or service provider for enhanced or prioritized access to the subscribers of the broadband Internet access provider." Under the proposed "nondiscrimination" regulation, an ISP attempting to employ usage-based pricing would be burdened with having to prove to the Commission that its pricing model is "reasonable network management" according to the Commission's own judgment. Such a regulatory regime is hardly welcoming to broadband pricing flexibility that is responsive to consumer demand. (For more on the proposed regulation, see comments FSF submitted to the FCC in January as part of this proceeding.)

The likelihood of a plethora of complaints filed under the Commission's proposed "nondiscrimination" regulation challenging usage-based pricing would be a foregone conclusion. The hostility of would-be complainants to such pricing was on full display, for instance, when TimeWarner Cable unveiled a (subsequently quickly scuttled) plan to introduce metered pricing for its broadband services. Free Press howled about the plan and ex-Congressman Eric Massa even introduced a bill to saddle broadband ISPs with a Federal Trade Commission rate case regime to strictly control broadband pricing. (For more see FSF President Randolph May's FSF Perspectives essay "The 'Free Lunch' Free Press" and blog post "The Federal Internet Rate Regulation Commission"). It is unlikely that usage-based pricing models would emerge under a regulatory regime that would submit such pricing to overblown attacks as a part of public proceedings.

If the Commission were truly to recognize the fundamental role of pricing plans in free market commerce as a means to bridge scarcities of goods and services with consumer demand, it would opt for service provider pricing flexibility as the ideal approach over a detailed regulatory apparatus. But, as it now stands, the FCC's recent Notice hints at broadband pricing flexibility while its proposed regulation still points toward onerous pricing restrictions.

Hopefully, the Commission's apparent recognition of the benefits of usage-based pricing in one particular context will lead it to recognize these benefits in all contexts instead of opting for arbitrary, selective price regulation.

Friday, September 17, 2010

Constitution Day at the FCC

Today we celebrate Constitution Day. On September 17, 1787, thirty-nine delegates to the Constitutional Convention, after meeting in Philadelphia through a long hot summer, signed the new Constitution. Just 223 short years ago.

It is well to have the Constitution in mind every day, of course. But on Constitution Day it is especially appropriate. Here at the Free State Foundation, we have always considered education concerning a proper understanding of the Constitution an important part of our work on communications policy issues. Even more than with respect to most other federal agencies, the Federal Communications Commission's regulatory activities implicate constitutional concerns, such as proper regard for property rights, adherence to due process, and, especially, the protection of free speech.

Indeed, historically, there has been an inherent tension between FCC regulation of communications and the First Amendment rights of regulated entities. So, on this Constitution Day, I would like to call to your attention my latest article on the subject, "Time for the FCC to Respect the First Amendment," which appears in the new edition of the Heritage Foundation's The Insider magazine.

The article's title is a deliberate giveaway of my perspective that, all too often, the FCC's actions impinge directly on First Amendment rights, or at least chill their exercise. Here are a few excerpts from the article, which I hope many of you will read in full:

"With the transition from the analog to the digital age, and the proliferation of new media outlets, you might expect that the FCC would eliminate many of its outdated forms of regulation, including those that threaten free speech rights. You would be wrong. Indeed, in several respects, the FCC is acting, or proposing to act, in ways that would enhance its regulatory oversight of speech. The agency wants, for instance, to impose network neutrality restrictions on Internet providers – sort of like a digital must-carry mandate. Meanwhile, the agency's 'Future of Media' project appears ready to provide justification for more government control of private media and more government funding for public media. And don't forget the agency's maintenance of outmoded speech regulations such as cable must-carry rules."

"While President Obama's FCC Chairman Julius Genachowski and other net neutrality advocates claim the regulations would promote free speech values, in fact they turn the free speech guarantee of the First Amendment on its head. Government-enforced neutrality mandates likely will violate the Internet providers' First Amendment rights. Like newspapers, magazines, movie and CD producers, or the man speaking on a soapbox, Internet service providers possess First Amendment rights."

"In today's environment, we do not need, and should not want, government-supported or government-controlled media acting as a 'filter' or a 'megaphone,' or deciding what programming is in the 'public interest.' Such 'filtering' or 'megaphoning' necessarily involves the government in making decisions based on content. How else to decide what information should be filtered or amplified to meet some 'public interest' objective? This government involvement in content selection runs against the grain of our First Amendment values."

In all their actions, and in conformance with their constitutional oath of office, the FCC commissioners should square their decisions with the First Amendment's intent to protect the speech of private citizens from government interference. In today's digital environment, with the proliferation of media sources, this means the FCC needs to shed its ingrained analog-era mentality that has led to an understanding of its role as enforcing "fairness" or "balance," or achievement of ill-defined and questionable "public interest" objectives.

In a law review article, "Charting a New Constitutional Jurisprudence for the Digital Age," published in 2009, and cited shortly thereafter by Justice Clarence Thomas at page 5 in his concurring opinion in the Supreme Court's Fox Television case, I concluded:

"Perhaps it was predictable, maybe even likely, that the First Amendment’s protections would be limited substantially during the twentieth century’s Analog Age that tended towards a monopolistic or oligopolistic communications marketplace. But now, in the face of proliferating competitive alternatives attributable to profound marketplace and technological changes, it ought to be considered predictable and yes, even likely, for the

Court to establish a new First Amendment jurisprudence befitting the media abundance of the twenty-first century’s Digital Age."

I leave you with thoughts of the First Amendment on Constitution Day – and wish you a reflective one!

Wednesday, September 15, 2010

Maryland's Slow-Moving Sustainability Commission

With the State of Maryland now facing some $18 billion in unfunded liabilities for state pension benefits plus another $15 billion in unfunded retiree health benefits, the commission created to examine state employee and retiree pensions and benefits is finally set to meet. Almost.

According to an article in yesterday's MarylandReporter, staffers will meet today to set out a meeting schedule for the Public Employees' and Retirees' Benefits Sustainability Commission. A first meeting is slated for later this month—or next month. As MarylandReporter also details, Sustainability Commission members actually hope to complete their interim report by their year's end deadline.

The new Sustainability Commission was created as part of the 2010 budget conference committee compromise. But as pointed out in an April blog post by Cecilia Januszkiewicz ("A Fig Leaf For Maryland's Fiscal Folly"), this isn't the first time the Maryland legislature has dodged the decisions that ultimately need to be made by turning the issue over to an outside commission for further study. The Maryland Legislature's evasion of responsibility on the issue goes back at least as far as its decision in the 2005 session to create a Task Force to study the state's pension liability problems. Anyway, the 2010 compromise ultimately rejected the Maryland Senate's proposal to make some changes to pension and benefit funding. The Maryland Senate's proposal, in turn, came in the wake of a report from the predecessor Sustainability Commission about ways to ensure the long-term viability of the state's pension system. So here they go again.

That said, MarylandReporter's coverage highlighted public employee unions' opposition to any possible increases in employee contributions or cuts in benefits. Curiously, one public employee union representative asserted the need for a long-term perspective instead of a snap-shot view and downplayed the seriousness of Maryland's multi-billion dollar pension deficit. But this sounds like little more than a "the-problem-will-fix-itself" approach that no responsible Maryland official or taxpayer should take seriously. And it was reliance on a snap-shot view from an earlier time that included a more robust economy and a full state treasury that played a big role in the overspending and overly-optimistic rate-of-return projections that led to the budget and pension liability woes that the state now faces.

The Sustainability Commission's presumable interim report would be followed up by another report…in 2012. Should the final report be prepared and delivered on time, then the Maryland Legislature would finally be faced once again with making changes to the state pension system for fiscal year 2013. Don't expect Maryland's pension liability problem to fix itself before then.

Tuesday, September 14, 2010

Googleoply IV – And Counting


Scott Cleland has another in his series of papers exploring how, in his view, Google is monopolizing the consumer Internet media. As usual, it is full of facts and figures.

Scott knows about as much about what Google is up to as anyone who is not not on the inside – and, I’m sure more than many who are.

His “Googleopoly IV” may be found on his blog here. If you are interested in following Google’s exploits, it is must reading.

High-Level Rules Should Mean No Low-Level FCC Micromanaging

Earlier this month, the FCC issued the latest Public Notice in its nearly year-long march toward regulating the Internet through network neutrality mandates. The Commission's Further Inquiry claims that public discussions have narrowed the scope of disagreement over regulating broadband network management practices. And the request for additional public comment purports to clarify remaining issues under debate. But contents of the Notice itself leave one wondering if the Commission really intends to act within the scope of these supposed new areas of agreement.

In a couple of respects the FCC can be commended for issuing its latest Inquiry. First, by requesting further comments, the FCC's action suggests it is not acting in as much of a rush to impose new Internet regulation as may have been thought. As FSF President Randolph May recently stated upon issuance of the Notice, there is no immediate urgency for the Commission to act on Chairman Genachowski's "Third Way" proposal. Rather, "[s]eeking further comment on the issues relating to specialized services and wireless platforms can only serve to further clarify the issues and, potentially, bridge differences."

Second, the FCC's Public Notice suggests an apparently new recognition by the Commission that case-by-case enforcement of more general, so-called "anti-discrimination" policies offers a more plausible approach to network management regulation than adoption of a set of specific, technical rules to be imposed on broadband Internet access services. In the words of the Notice, "discussion generated by the Commission's Open Internet proceeding appears to have narrowed disagreement" on the idea that "in light of rapid technological and market change, enforcing high-level rules of the road through case-by-case adjudication, informed by engineering expertise, is a better policy approach than promulgating detailed, prescriptive rules that may have consequences that are difficult to foresee."

But there also seems to be less than meets the eye with these Public Notice "positives." In particular, there is a disconnect between the Notice's positive nod to case-by-case adjudication and the "Third Way" proposal's core component: subjecting broadband Internet services to fairly prescriptive common carrier regulation. As FSF Academic Advisory Board member Glen O. Robinson pointed out earlier this week, the FCC "has said it clearly intends to retain as operative all those provisions that are necessary to support control of rates and services (Sections 201, 202, 208) for these are central to its ostensible purpose of preventing 'unreasonable discrimination' in the provision of broadband service." Additionally, "the Commission's NOI suggests that it may not be content with just those provisions necessary to prevent discrimination." (See the FSF Perspectives piece "The Middle Way to Internet Regulation.")

The disconnect is in the details. For aside from the Notice's say-so about case-by-case adjudication as preferable to prescriptive rules, Professor Robinson also pointed out that "nothing in its new public notice suggests any retreat from earlier proposed ('low-level') fixed rules." "What is most noteworthy about some of these rules," Professor Robinson continued, "is that they have nothing whatsoever to do with any applying 'engineering expertise' on an ad hoc or a fixed-rule basis." Professor Robinson's essay specifically referenced the FCC's earlier proposed rules for banning broadband ISPs from charging different prices for enhanced or prioritized (i.e., different) services, except for those fall under the category of "specialized services."

What's more, nothing in the Notice's "general policy approaches" to "specialized services" suggests that any one or more of those approaches marks any kind of retreat from an onerous, rule-based treatment of broadband Internet services that includes and goes beyond network management practices. And the Notice's line of questioning concerning details of the wireless business ecosystem — including third-party wireless device connectivity, usage-based data pricing models, wireless application compatibility and restrictions, and wireless app distribution models — also leaves one wondering if the FCC is really serious about employing case-by-case adjudication after all.

Of course, Congress is truly the authority charged with adopting "high-level rules." And so, Congressional legislation is the legitimate vehicle for granting the FCC authority to establish a proper case-by-case adjudication regime using high-level rules. As FSF pointed out earlier this year in comments submitted in response to the FCC's Notice of Inquiry concerning potential broadband reclassification, "[i]f the Commission determines that, in its view, there needs to be some agency authority over broadband ISPs, it should work with Congress to pass a new, narrowly-circumscribed legislative framework." In particular, FSF said:

The core of a legislative framework should be a provision granting the Commission authority, upon a complaint filed and after an on-the-record adjudication, to act to prohibit broadband ISPs from engaging in practices determined to constitute an abuse of substantial, non-transitory market power and that cause demonstrable harm to consumers. Such a circumscribed market-oriented rule would provide the Commission with a principled basis for adjudicating fact-based complaints alleging that ISPs are acting anticompetitively and, at the same time, causing consumer harm.
FSF's Randolph May even suggested legislative language to achieve those objectives. (See also the FSF blog post "Broadband Internet Regulatory Authority: Some Suggested Legislative Language.")

It is appropriate to commend the Commission's nod towards reliance on an adjudicatory regime. In the end, however, regardless of whether one thinks the FCC's recent Notice will actually bring real resolution to additional issues still fraught with disagreement, no amount of headway over "specialized services" and treatment of wireless broadband can paper over the serious questions about the Commission's authority to adopt "Third Way" regulations.

Thursday, September 02, 2010

Chairman Genachowski Says No To Spectrum Giveaway

FCC Chairman Julius Genachowski deserves kudos for stopping in its tracks a disaster-in-the-making spectrum giveaway. He pulled the plug on a draft order that would have established rules for auctioning spectrum in the 2GHz band, also known as the AWS-3 (Advanced Wireless Services) band.

The problem with the draft order is that it would have sanctioned an auction tailored specifically to the unique business model of one company, M2Z Networks, which proposed to provide a "free" nationwide broadband service over part of the spectrum to be auctioned under the rules M2Z proposed.

Calling M2Z's plan to offer free broadband service a "business model" is being charitable. More realistically, M2Z's designer auction plan, which it has pursued for years here in Washington, should be called a "spectrum speculation" model. Indeed, the plan's chief backer is John Doerr, vaunted venture capitalist with the firm of Kleiner Perkins Caufield & Byers. We would all be better off if Mr. Doerr would devote his considerable talents to finding and funding promising Silicon Valley start-ups with innovative ideas and new technologies – companies that are not pleading for special government hand-outs.

M2Z's designer auction plan with its special conditions would have devalued the spectrum and reduced the auction proceeds. The reduced proceeds to the U.S. Treasury would be paid by American taxpayers. The FCC should not be in the business of tailoring auction rules to particular business models. Instead, it should always opt for clean, unconditioned auctions so that the spectrum will be awarded to the bidders who value it highest. They are in the best position to determine what services consumers value most in the marketplace, and at what price.

It is a valid public policy objective to make broadband service as ubiquitously available as feasible, and the government has a limited role to play in achieving this objective in proper ways. There is no need to rehearse here again all the progress that has been made in this regard in the past decade. Broadband service is now available to over 95% of American households. According to the latest Pew Internet & American Life Project report, over 65% of U.S. households subscribe. And the Pew reports consistently show that, for a significant number of non-subscribers, the cost of broadband service is not the reason they do not subscribe.

To the extent that the government wishes to further spur broadband availability and adoption, there are measures that it can take that do not involve the pitfalls and pratfalls of the M2Z plan. For example, I have supported circumscribed measures to target government financial support for new broadband infrastructure to geographic areas without any service at all. And, I – along with my colleague Deborah Taylor Tate, FSF Distinguished Adjunct Senior Fellow – have long supported directing LifeLine-Linkup support for broadband to low-income persons who demonstrate the need for financial support.

In other words, there are appropriate means for the government to employ to achieve the public policy objective that M2Z claimed to embrace with its plan. But adopting designer spectrum giveaway auctions, as M2Z urged, is certainly not one of them. The reason I referred above to M2Z's plan as a "spectrum speculation" model is this: A model based on "free" service, with all the service specifications – speed, quality, build-out, and upgrade requirements, and the like – designed and refined by the FCC likely would fail, if it ever got off the ground at all. Even if conditioning auctions were otherwise advisable, the broadband Internet market is too dynamic and innovative, and consumer demand changes too fast, for the government to set in stone specifications for service. Indeed, I suspect that "failure" of its free government-specified service is a key element of its business plan. Had M2Z gotten its way, and then faced financial difficulties as a result of its faulty business model, the company surely would have come forward with its ready-made alternative plan for using the spectrum, asking to be relieved of the conditions it originally embraced. You can bet that M2Z would have resisted mightily any attempts by the FCC to then reclaim "its" spectrum. Hence, the "spectrum speculation" model.

So, again, Chairman Genachowski deserves praise for putting the kibosh on M2Z's spectrum giveaway proposal. Hopefully, having now gone through this exercise, his commitment to unconditioned auctions will be strengthened going forward.