Friday, December 30, 2011

"A Call for a Radical New Communications Policy" and OIRA

The Administrative Law Review, published by the ABA's Section of Administrative Law and Regulatory Practice, has just published an issue commemorating the thirtieth anniversary of OIRA. The volume contains a number of excellent articles prepared by participants at a conference on OIRA sponsored by The George Washington University Regulatory Studies Center.

Many of the articles, written by OIRA Administrators and Deputy Administrators, provide useful insights concerning the way OIRA has operated over the years – showing patterns of both continuity and change. For an especially rich history of the formative years of OIRA, tracing its roots back much earlier than commonly assumed, I commend Jim Tozzi's article, entitled "OIRA's Formative Years: The Historical Record of Centralized Regulatory Review Preceding OIRA's Founding."

Of special interest to me are the articles, and there are a number of them, in which the former OIRA officials all make the same point: The so-called independent regulatory agencies should be subject to the same OIRA review process as the executive branch agencies. In other words, the independent agencies should be subject to more presidential control than they are presently.

In my new book, A Call for a Radical New Communications Policy: Proposals for Free Market Reform, the Federal Communications Commission's status as an independent agency plays a significant role. In one chapter I recommend that Congress consider transferring the policymaking functions of the FCC, usually carried out through rulemaking proceedings, to the executive branch, while retaining the current multimember commission format for deciding adjudicatory matters. Restructuring along these lines would give the President more control over policymaking functions, while continuing to insulate adjudicatory decisions from political control.

And in two other chapters I explain why, in the absence of a restructuring of the FCC along the lines I recommend, the agency should receive less Chevron deference upon judicial review than do executive agencies. I argue that the principal rationale of Chevron dictates this result. (By the way, so has Elena Kagan, when she was dean of Harvard Law School.)

I don't won't to spoil your fun by saying more here. But you can buy my new book, A Call for a Radical New Communications Policy: Proposals for Free Market Reform, from Amazon here, and from Barnes & Noble here. And then you can decide for yourself.

Thursday, December 29, 2011

New Book: A Call for a Radical New Communications Policy

I know my new book arrives too late for an on-time Christmas stocking-stuffer. But not too late to fulfill your New Year's resolution that this is the year you are going to think seriously about reforming communications law and policy.
My book, A Call for a Radical New Communications Policy: Proposals for Free Market Reform, consists of eight of my law review articles, with a Foreword placing all of them in the context of a free market-oriented communications policy reform framework that is consistent with fundamental constitutional principles.
You may order the book from Amazon here, and from Barnes & Noble here.

Here are a few excerpts from the Foreword which will give you a good sense of the book's scope and tenor:
"When Congress passed the Telecommunications Act of 1996, the most significant change to the Communications Act since its adoption in 1934, it was thought by many that enactment of the new statute meant there would be a meaningful deregulatory shift in communications policymaking in light of the developing marketplace competition. But, unfortunately, there has been no such paradigm shift - which means there is still much work to do to reform our nation's communications laws and policies."  
 "So, a full fifteen years after the 1996 Act's passage, what should be done now? The answer can be stated quite simply: Communications law and policy needs to be radically reformed in a free market direction that is consistent with fundamental constitutional principles. Communications policy at present cannot fairly be characterized as free market-oriented and conforming comfortably with the Constitution, especially separation of powers and First Amendment strictures. This book consists of a collection of eight articles and essays I have published in law journals over the past decade, beginning in 2001. In part they are descriptive. They explain what is wrong - from both a public policy and constitutional perspective - with the current regime. And in part they are normative in suggesting prescriptions for reform."
      "Of course, had major shifts occurred in communications law and policy over the last decade, there might be a legitimate concern that the articles are dated, or at least less useful than otherwise as a path to reform. But even as the communications marketplace and technology have continued evolving rapidly, leading to more competition and more consumer choice, the law and policy paradigm has remained largely unchanged from the twentieth century regulatory model. Therefore, the articles in this book remain as relevant as ever. Indeed, I would argue they are more relevant than ever, given the increasing mismatch, as time goes by, between competitive marketplace realities on the one hand and law and policy on the other."
"This brings me back full circle to this volume's principal purpose: To convince the reader that it is time - past time, really - for Congress to adopt a radical new communications law and policy paradigm grounded firmly in free market and constitutionalist principles. Replacing the current regime with one that is market-oriented and respectful of constitutional strictures would achieve Congress' presently unfulfilled intent, declared in the preamble to the Telecommunications Act of 1996, that our nation's communications laws be pro-competitive and deregulatory."
Each year one of my New Year's resolutions is to continue working hard to achieve much needed communications policy reform. If this is one of yours too, or if you are willing to join in the fight, or simply want to better understand what the fight is all about, I think you will find A Call for a Radical New Communications Policy: Proposals for Free Market Reform informative and useful.
Again, you may order the book from Amazon here, and from Barnes & Noble here.           

Wednesday, December 21, 2011

The Tennis Channel Ruling: No Mere Foot Fault

This was no mere foot fault. A Federal Communications Commission Administrative Law Judge (ALJ) issued a decision yesterday that was far enough out of bounds that perhaps it will be a game-changer that persuades policymakers that outdated legacy communications laws and policies no longer make sense.

The ALJ ruled in favor of the Tennis Channel in its "program carriage" complaint against Comcast. In essence, the ALJ ruled that Comcast discriminated against the Tennis Channel, which is not affiliated with Comcast, by not acceding to the Tennis Channel's request that it be moved, in the midst of its contract term, to the same program tier as two of Comcast's affiliated sports channels. The ALJ finds the Tennis Channel is sufficiently similar to the Golf Channel and Versus channels that they must all be located in the same program neighborhood for Comcast to avoid running afoul of the anti-discrimination prohibitions in the agency's carriage regulations.

In today's dynamic broadband world, including the broadband video world, the FCC inflicts much marketplace damage in the name of preventing or rectifying "discrimination." Just witness last year's promulgation of net neutrality mandates. Net neutrality mandates are based on public utility-style regulation that has, at its core, a prohibition on discrimination. This discrimination regulation may have been appropriate in the monopolistic Ma Bell-era but it is not proper in today's competitive multi-platform broadband environment.

In the Tennis Channel case, the ALJ purports to be enforcing the Commission's program carriage regulations promulgated under Section 616 of the Communications Act which gives the FCC authority to prevent multichannel video programming distributors (MVPDs) like Comcast from restraining the ability of unaffiliated video program vendors from competing "fairly by discriminating."
"Fairly by discriminating." Aha. There's a lot of room for the exercise of unbridled administrative discretion encompassed in those three words.

In my "Build Back That Broadband Wall" commentary, published just last week in the Washington Times, I highlighted four examples to show how the FCC is extending, or proposing to extend, legacy analog-era regulations developed in last century's monopolistic narrowband environment into today's competitive broadband world. One example, somewhat prescient in light of the ALJ's decision, was the FCC's program carriage regulations.

Here is what I said in my commentary:

"The commission proposes to expand existing program carriage rules intended to prevent cable operators and other video programming distributors from discriminating against unaffiliated programming vendors. The existing rules, adopted in the early 1990s when cable operators still possessed market power and when vertical integration was more pronounced, no longer serve any useful purpose. Today, only two of the 25 most-viewed cable networks are wholly owned by cable operators. With two nationwide satellite television operators and a broadband telecommunications provider competing vigorously in most locales - not to mention a growing number of popular Internet video sites - cable operators lack the incentive and ability to discriminate against unaffiliated programmers. So there is a good argument the existing program carriage requirements should be eliminated, especially in light of free speech concerns raised by the government mandating carriage of particular programs. At the very least, however, the regulations should not be expanded as the commission now proposes. Contrary to the First Amendment, the expanded regulations would have the government injecting itself even further into decisions about what programming video providers must carry and where in their channel lineups such programming must appear."

To understand what is wrong with the ALJ's decision, in a very fundamental sense, please carefully consider what I wrote above – before the issuance of the ruling in favor of the Tennis Channel.

And, now also consider this:

·      In this instance, the Tennis Channel's placement in Comcast's program lineup was in accordance with a contract between the parties in which the Tennis Channel had agreed to its lineup placement. The amount of compensation negotiated under the contract was, of course, related to the agreed-upon tier placement.
·      Several other MVPDs simply made a decision not to carry the Tennis Channel at all, thus obviating any need to bargain about placement of the channel.
·      If Comcast is required to move the Tennis Channel from its present location, it almost certainly will be required, due to channel capacity limitations, to displace another program channel that Comcast has determined, based on its business judgment, either is more popular with its customers, or one that at least deserves an opportunity to try to build audience support.
·      In rendering his decision on "discrimination," the ALJ was required to make determinations concerning the similarity of the programming among program channels. It is true, I suppose, that tennis and golf are both "sports." But to make the type of determination rendered in this instance, the government regulator is required to examine the intricacies of program genres, program ratings, target audiences, and the like. This type of examination into programming decisions raises obvious free speech concerns.
So, in sum, the ALJ's decision in the Tennis Channel case was a ball hit out of bounds. The Free State Foundation's mission, proclaimed on our website, is to promote understanding of "free market, limited government, and rule of law principles." By ignoring the competition that exists in today's video marketplace, by, in effect, abrogating the negotiated contract in mid-term, and by deciding to substitute his judgment concerning the carriage and placement of programs based on an examination of the contents of the programming, the ALJ has managed to offend free market, limited government, and rule of law principles in one fell swoop.

In the not too much longer-term, taking account of today's competitive video marketplace in which cable operators, satellite operators, and telephone companies – and, increasingly, popular Internet video sites -- all compete for viewers, Congress should repeal the provision in the Communications Act authorizing the FCC to promulgate and enforce program carriage regulations.

A proper understanding of the First Amendment demands no less.
In the near-term, the FCC commissioners should reverse the ALJ's decision.

Thursday, December 15, 2011

Robert A. Anthony, RIP

Last December, the Free State Foundation lost an esteemed member of its Board of Academic Advisors, when Alfred E. Kahn passed way. Fred was a distinguished public servant and one of the nation's leading scholars on regulation, especially regulatory economics.

Now, FSF has lost another distinguished member of its Board of Academic Advisors. In November, Robert A. Anthony passed away after a lengthy, valiant battle against cancer. At the time of his passing, Bob was GMU Foundation Professor Emeritus at the George Mason University School of Law.

He received his undergraduate degree from Yale, a degree in jurisprudence from Oxford on a Rhodes Scholarship, and his law degree from Stanford. Then he set about on a remarkable career as a professor, law practitioner, and public servant.

Without doubt, Professor Anthony was one of the most preeminent – and oft-cited – administrative law scholars of his generation. Taking a leave from his teaching, he served during its formative years as one of the early Chairs of the Administrative Conference of the United States.

For a more complete appreciation of Professor Anthony's life and accomplishments, please see this memorial resolution adopted by the ABA Section of Administrative Law and Regulatory Practice shortly after his death.

Here I want to call special attention to just one part of the resolution, the part recognizing that Professor Anthony was "one of the foremost authorities on agency rulemaking and the use and misuse by agencies of policy statements and guidance documents." Bob was, indeed, the nation's leading authority on the use by administrative agencies of interpretive rules, policy statements, and guidance documents. His central concern was that agencies not abuse their authority by attempting to legally bind the public without adhering to proper process.

In one of his most oft-cited law review articles – cited in both Supreme Court and D.C. Circuit opinions – Professor Anthony explained:

"An agency may not make binding law except in accordance with the authorities and procedures established by Congress. To make binding law through actions in the nature of rulemaking, the agency must use legislative rules, which ordinarily must be made in accordance with the notice-and-comment procedures specified by section 553 of the APA." Interpretive Rules, Policy Statements, Guidances, Manuals, and the Like – Should Federal Agencies Use Them to Bind the Public, 41 Duke L. J. 1311 (1992).

So, a significant part of Professor Anthony's scholarship was devoted to explaining why, if America is to remain a nation subject to the rule of law and not to the whims of men, it is necessary – before purporting to bind our citizens – for unelected agency officials to be required to adhere to process required by law. With the seemingly intractable growth of the administrative state, this is a matter of no small importance.

On the Free State Foundation's homepage, we proclaim that our mission is "to promote, through research and educational activities, understanding of free market, limited government, and rule of law principles." My understanding of the rule of law principles that FSF aspires to promote owes much to Bob's teaching.

For me, Bob was a mentor, a scholarly colleague, and a helpful member of FSF's academic advisory board. And, above all, a good and caring friend.

So, Robert A. Anthony, RIP. 

Wednesday, December 07, 2011

Stopping Regulatory Encroachment on Broadband

It's nearing year-end. Near enough in fact that I find myself already beginning to think hard about 2012, and next year's communications policy agenda.

As I look forward, it is becoming more apparent than ever that the Federal Communications Commission's pro-regulatory proclivities threaten to burden digital broadband services with public utility-style regulation that may have been appropriate in the analog age but which is not so today. Fighting to prevent broadband services from becoming engulfed in the still-prevalent legacy regulatory morass, and rolling back broadband regulation where it already has occurred, looks to dominate the communications policy agenda during 2012.

When the FCC concluded, beginning in 2002 under then-FCC Chairman Michael Powell's leadership, that broadband services are "information services" not subject to common carrier regulation, and when the agency successfully defended this determination in the Supreme Court's Brand X decision in 2005, I was somewhat hopeful that a fence had been erected that would allow newly-competitive broadband services to continue to flourish on an unregulated basis.

Alas, for the most part, the demarcation between analog telecom services and broadband information services has proved to be more a porous Maginot-like line than an effective regulatory barrier. While I may have been hopeful after Brand X, it would be wrong to say I have been totally surprised at developments over the last few years. This is because the FCC, more so even than many other administrative agencies, possesses a strong institutional bias favoring activist regulatory solutions rather than free market solutions – a bureaucratic imperative, if you will. And the current FCC majority has proven itself receptive to seeking new regulations based on highly anecdotal evidence of potential consumer harm.

The regulation of broadband services about which I am concerned comes in many forms, some more onerous than others, and some couched in rhetoric that seeks to minimize, or even conceal, the extent of the regulatory intrusiveness and burdens. Here I want to identify just a few diverse regulations or proposed regulations that show the FCC's proclivity to extend analog-era regulatory regimes into today's broadband marketplace. In each instance, such extension is unnecessary and, indeed, generally harmful to overall consumer welfare.

·   Net Neutrality Mandates. Although couched as sweet-sounding "open Internet" regulations, in essence net neutrality mandates resemble traditional common carrier regulation that prevailed in the telecom marketplace throughout the 20th Century. With its prohibition against discrimination and unreasonable rates, the common carrier regime may have been suited to the monopolistic Ma Bell circuit-switched era, but it is ill-suited to an IP world in which operators of cable, telephone, wireless and satellite digital broadband platforms compete to provide variously-configured services or bundles of services and constantly evolving applications. In this digital multi-platform marketplace, discrimination prohibitions and rate regulation put operators in a straight-jacket that inevitably inhibits the development of innovative new service offerings and new network infrastructure investment. After all, "discrimination" is the means by which providers normally seek to differentiate their services from their competitors' services in response to what they perceive to be changes in consumer demand. Most troubling of all, the Commission adopted the net neutrality mandates without a showing of demonstrable market failure or consumer harm. 

·   Network Outage Reporting Regulations. For a different type of regulation -- indeed, perhaps a seemingly benign one – in which the FCC may extend analog-era mandates into the broadband world, take, for example, the agency's network outage reporting requirements. The FCC proposes largely to extend the old circuit-switched requirements to Voice Over Internet Protocol (VoIP) and broadband Internet services providers. As my colleague, Seth Cooper, explains in detail in his just-released FSF Perspectives: "At bottom, the FCC's proposed rulemaking is a monopoly-era legacy regulatory measure. It would carry over rules initially created to address problems pertinent to analog circuit-switched telephone calls to today's diverse and competitive digital communications services marketplace. Technological innovation, including the unique characteristics of digital broadband networks, limit the occurrence and scope of outages experienced by end users in a way that renders such a carry-over ill-advised." He explains that "when it comes to 911 and e911 services, however, the FCC has not made any showing that the VoIP and broadband Internet access and backbone markets are failing to deliver reliable 911 or e911 services, or that those markets are failing to incentivize reliable provision of these services."

·   Program Carriage Regulation. For yet another type of unwarranted extension of regulation, consider the Commission's pending proposal to further expand the program carriage rules developed in the analog-era to prevent cable operators and other multichannel video programming distributors ("MVPDs") from discriminating against unaffiliated programming vendors. The existing rules, which implement Section 616 of the Communications Act, no longer make sense today. Section 616 was added in 1992 when cable operators generally still possessed market power in the multichannel video program distributor marketplace and when vertical integration was more pronounced. For example, in 1992, only 68 national programming networks existed, and 57% of those were vertically integrated with cable operators. Today, there are over 500 national programming networks, and only about 15% are vertically integrated with a cable operator. According to a recent Comcast filing, of the 25 most viewed cable networks, only two are wholly owned by cable operators. With two nationwide satellite television providers and broadband "telco" providers competing vigorously in most MVPD markets, not to mention popular Internet video sites, cable operators (and the other MVPDs) lack the incentive and the ability to discriminate against unaffiliated program providers. In the current competitive environment, with consumers having a choice of multiple providers, and with more and more video programming available on the Internet, MVPDs cannot afford to favor their own programming over that provided by unaffiliated providers. So, in reality, there is a persuasive argument the existing program carriage requirements should be eliminated, especially in light of First Amendment concerns raised by the government mandating carriage of particular programming. But rather than curtailing them, the FCC is currently proposing to expand the scope of the program carriage mandates in ways that would make the rules even more intrusive and costly, and even more problematic under the First Amendment than they already are. The Commission would be called on to make determinations regarding program genres, target audiences, program ratings, and the like, which necessarily involve judgments concerning program content.

·   Set-Top Box Regulation. In 1996, when cable operators still retained market power, Congress included a provision in the Communications Act, requiring the FCC to adopt regulations governing the availability of set-top navigation devices from unaffiliated vendors. Anyone familiar with the history of set-top box regulation after 1996 knows it is a particularly sorry saga in which very little has been accomplished at great expense. In this instance, Congress, somewhat presciently, actually directed the agency to sunset the set-top regulations when the MVPD market and the market for set-top boxes became competitive. Both are, and they have been for some time now. Yet, rather than getting out of the business of regulating video navigation devices, the FCC is proposing to double-down on this form of regulation in the IP world. It is proposing to mandate for all broadband multichannel video providers certain standardized navigation functionalities (such as access, provision, decoding, and reception features). In other words, despite the fact that MVPDs must compete against each other to satisfy and retain customers, including in the provision of navigation features, the FCC is proposing to design a set-top box that embodies the search and display capabilities it thinks are necessary to promote independent provision of these features. As with the program carriage requirements, the proposal implicates free speech interests, which we have explained here. But the FCC apparently ignores the First Amendment concerns raised by a mandate that would dictate particular content by prescribing uniform search and display functionalities.

Each of these examples, as diverse as they are, has this in common. They are instances where the FCC has either extended, or is proposing to extend, a form of legacy regulation from the analog into the broadband world. And in each instance the agency is not compelled to do so by statute, but rather it is choosing to do so as a matter of administrative discretion. And, wholly aside from the costs and burdens imposed by the new regulations, it is doing so in the face of serious legal questions concerning its statutory authority (net neutrality) and even its constitutional authority (program carriage and AllVid).

While there is no gain in giving up hope, or in failing to advocate vigorously for the adoption of market-oriented policies by the agency, it is unlikely that the FCC will meaningfully reform itself. Unfortunately, it is instead more likely that the Commission will continue on the road of attempting to impose on broadband Internet services regulations developed for narrowband analog-era services.

I have some ideas that I'll be discussing in the weeks and months to come concerning ways to stop this regulatory encroachment on broadband. In the meantime, if you have ideas too, I'd welcome hearing about them.