Thursday, May 31, 2012

House Passes Consolidated FCC Reporting Act

In a rare bipartisan action, the House of Representatives passed on a voice vote yesterday HR 3310, the FCC Consolidated Reporting Act of 2012. The bill would require the FCC to consolidate and streamline what are now eight separate reports on different communications market segments. The consolidated report would be required to assess the state of competition in the marketplace across the various technology sectors, specifically including competition from the Internet.

The report from Broadcasting & Cable is here [subscription required].

HR 3310, like its companion FCC reform bill, HR 3309, which passed the House back in March, is a worthy measure. Too bad the Senate has been and still is in a do-nothing mode.

FCC Should End the Basic Tier Encryption Ban

I mentioned the FCC's outdated and problematic rate regulations for "basic tier" services on cable systems in an April blog post. The FCC's ban on encryption of basic tier cable services is another regulatory burden that the agency should eliminate. 
The ban on basic tier encryption was adopted for the long-gone analog era of cable services. Encryption is a common practice in the video programming market, with programmers typically requiring encryption by cable providers as a condition of carriage. By eliminating the basic tier encryption ban cable providers would be able to activate and deactivate consumer cable services remotely, thereby avoiding the need for service calls and reducing installation costs to consumers.
Fortunately, the FCC has recognized that the basic tier encryption ban can drive up costs to cable operators and consumers through waivers. Even better, the FCC has proposed to lift the basic tier encryption ban entirely in a Notice published in October 2011. A March letter from more than a dozen cable provider CEOs reiterates many of the Notice's reasons for its proposal to end the ban on basic tier encryption. The FCC should follow through on its proposal.

Wednesday, May 30, 2012

Hanging Up On Handset Device Regulation

On May 18, the FCC's Wireless Telecommunications Bureau granted the Rural Carrier Association's request to withdraw its petition seeking rules for restricting handset exclusivity arrangements between device manufacturers and wireless carriers.

In and of itself, this is a welcome development. Typically, these kinds of arrangements are economically beneficial, providing ways for addressing risks accompanying the launch of new devices and for matching up the financial incentives of manufacturers and carriers. 
As FSF President Randolph May explained in a 2009 blog post, "Wireless Regulation: First Do No Harm":
In this competitive market environment, the ability of wireless providers and device manufacturers to enter freely into voluntary agreements to provide for a period of handset exclusivity provides financial incentives necessary for the parties to undertake the investment necessary to develop, say, an innovative I-Phone. And then if a device, say the I-Phone, actually succeeds in the marketplace, such success provides incentives for other device manufacturers and providers to enter into risk-sharing agreements with a period of exclusivity to develop innovative competitive models, say the Palm Pre. And so on and on. With the spate of innovative, feature-rich new handset devices coming to market in rapid succession, and with over 630 handset devices available, the market is working well without government intervention, all to the long-run benefit of consumers.
RCA's request for withdrawal points to the FCC's March 2012 proposed rulemaking for Lower 700 MHz Band Interoperability. So future debates over wireless regulation appear to be shifting from handset device exclusivity to network interoperability. We may have more to say on interoperability standards and regulation in the weeks ahead. But in the meantime, FCC Commissioner Robert McDowell offers a place to start with his statement: "I hope that all interested parties will come to the negotiating table and work in good faith to develop their own solution."

Friday, May 25, 2012

Memorial Day 2012

Regular readers know that, since the Free State Foundation's founding in 2006, I have written a Memorial Day message each year. While the sentiments expressed in each, understandably, have remained largely in the same vein, this particular message is more personal than the previous ones. 
My father, Aaron May, a World War II Army veteran, passed away last October. He served as a warrant officer with the 68th Armored Infantry Battalion of the 14th Armored Division of the Seventh Army as it fought its way up through France, and then across into Germany. Dad was with his unit when it liberated the concentration camp at Dachau. He never forgot the sight of the liberated campmates. 
Like many WWII vets, for decades after the war, my father never talked much about his Army life. But as the fiftieth anniversary commemorations approached in the late 80s and early 90s, Dad's reticence faded. He began to talk to me about his war experiences and to speak to school groups as well. He especially wanted to tell students, those old enough to hear, about what he saw at Dachau. 
As part of an oral history project operated by the University of North Carolina at Wilmington, Dad did a long video interview in 2001, recalling his wartime experience. He was just shy of 85 at the time. 
In 1995, Dad gave me his dog-eared Basic Field Manual Soldier's Handbook and his yellowed copy of his unit's history. There is much detail about particular battles in the latter. At the time, he said simply: "I thought you might want to keep these after I'm gone." 
My father was in charge of a transportation unit of 79 men that was responsible for trucking supplies and food from behind the lines up to the front. Often, he said, the trucks would come back from the front with the wounded – and the dead. On the side of each of the unit's trucks was painted: "Norma I," "Norma II," "Norma III," "Norma IV," and so forth. Yes, Norma was my mother. She and Dad got married – she was 19 at the time – a few months before he shipped out for Europe. 
But here is something important you should know about the trucks named "Norma." Dad showed me a faded photo and pointed to the soldier standing next to him, fellow warrant officer Norman Wemple. Almost inaudibly, Dad said: "He got blown up by a direct hit in March 1945 while driving Norma II. Norman was one of my best buddies." 
It was only after a long, long pause that Dad told me that he and Norman had switched places that day in the trucks' usual line order as they drove to the front. Otherwise, almost certainly it would have been my father, instead of Norman, who died that day in a truck with "Norma" painted on the side. 
So, Dad came home, having served his country, alive and without wounds. His story is personal to me, of course, and of no great moment to you. But I know, in a larger sense, in the sense that matters, it is not an exceptional story at all. I tell it partly for myself, I'm sure, on this first Memorial Day he is not here. But I tell it, mostly, I hope, to call to mind the sacrifices of all of America's veterans, from all our nation's wars. 
So very many soldiers, sailors, airmen, and Marines – so many it is awful to contemplate -- have given their limbs, and, of course, like Warrant Officer Norman Wemple, their lives. 
Thirty-five American soldiers gave their lives just last month in Afghanistan. 
It is possible you may not agree with the stated purpose or goals of each of the wars in which these veterans fought. This should not matter now – on Memorial Day. We honor the soldiers, sailors, airmen, and Marines because of their dedication and sacrifice to the American cause. 
I understand there may be different views. But I happen to believe that, in the main, our veterans fought to preserve the freedom we cherish here in America. 
At the Free State Foundation, our mission is to promote understanding of free market, limited government, and rule of law principles. I am grateful we live in a country that honors the memory of those who have fought – and died – to preserve our freedom to carry out that mission. 
So, I extend my very best wishes to you and your families for a memorable, in the sense of remembering, Memorial Day. 
PS – Previous Memorial Day messages are here: 2007; 2008; 2009; 2010; and 2011.

Sen. Mike Lee on Verizon/Cable Spectrum Deal

Utah Senator Mike Lee's May 24 letter to FCC Chairman Julius Genachowski and Attorney General Eric Holder regarding the proposed 700 MHz spectrum acquisition by Verizon from certain cable companies is well-worth reading.

I happen to agree with much of Senator Lee's persuasive analysis. But, whether you agree or not, there is no question that his letter is worth reading for cogent presentation of key antitrust and administrative law principles that should be carefully considered by the FCC and the DOJ.

Sen. Lee is the ranking member of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy, and Consumer Rights. It looks to me like Sen. Lee is going to emerge as a real thought leader on issues relating to regulation in the digital world.

Thursday, May 24, 2012

What Is So Difficult About Sharing A Database?

by Deborah Taylor Tate

Access to voice services is important. Lifeline is a federal program for ensuring that low-income consumers have the same access we all do. This is one of the few federal programs that is transparent and targeted directly to low-income users themselves. These features distinguish Lifeline from other, more opaque Universal Service Fund (USF) programs that annually transfer billions of dollars in indirect subsidies to voice carriers for the ostensible purpose of providing service in high-cost areas – often where there are multiple carriers who don't receive this subsidy.

The FCC is now in the process of reforming USF. Those long-overdue reforms include transitioning USF from voice services to broadband, using market mechanisms to limit and discipline subsidies, and cutting waste, fraud, and abuse. All of which, as a former FCC Commissioner, I applaud, but, more importantly, as a contributing taxpayer.

The FCC is already taking several important steps to make Lifeline more efficient by curbing waste, fraud, and abuse. For instance, in its February Lifeline Report & Order, the FCC limited Lifeline subsidies to one per-household. By the end of 2013, the FCC plans to establish a nationwide accountability database. This will enable carriers participating in the Lifeline program to check for and prevent multiple carriers from being reimbursed for serving the same low-income consumers. Also, a nationwide eligibility database under consideration by the FCC would enable carriers to ensure that low-end consumer applicants satisfy Lifeline’s low-income criteria. These Lifelines reforms are welcome.

Unfortunately, the FCC is about to implement other administrative requirements that could potentially cut thousands of eligible low-income consumers off from Lifeline.

Starting in June the FCC will require carriers enrolling low-income consumers in Lifeline to access available state or federal social services eligibility databases to verify eligibility. Otherwise, carriers must themselves review consumers’ documentation to verify eligibility.

This new administrative requirement for so-called “full certification” is problematic. Many states do not have accessible databases or workable arrangements in place with carriers to conduct such verification. At the very least, a reasonable postponement – perhaps a year's time – of the state database access requirement is necessary to allow states and carriers to work out the implementation details.

Moreover, tying Lifeline eligibility to state database access now overly-complicates the verification process; precisely the opposite result the reform intended. The FCC is looking to establish a federal eligibility database, which would effectively make its requirement of accessing state databases a temporary measure until the federal database is set up. As an administrative matter, the simpler approach is to implement any future “full certification” or verification process after a federal database is in operation.

There is evidence that in states currently requiring “full certification,” many low-income consumers who are intended beneficiaries of the Lifeline program never complete the process.

Carriers like TracFone have had to deny enrollment – or worse – stop the service to thousands of Lifeline applicants even though consumers disclose their full name, address, date of birth, and the last four digits of their social security number. The FCC should permit this kind of simpler verification process to continue as it works to ensure eligibility. In addition, there are conversations with other federal agencies who already have established databases for other federal low income services, such as the Department of Agriculture-ASID (food stamps), DOE (school lunch programs) and HHS (healthcare). It seems that this might be a terrific and efficient intra-governmental solution: sharing all these various eligibility databases – already in existence.

Recently, the USF reforms being implemented by the FCC have undergone attack from certain members of Congress and others who want to preserve the outdated, analog-era, rate-of-return regulation and subsidy system that has benefited voice carriers. A strong Lifeline program should be helpful to reform-minded members of Congress and the FCC in resisting entreaties to walk away from these needed reforms. With USF high-cost fund subsidies to carriers exceeding $4 billion in the year 2010 alone, and consumers now paying a USF surcharge or “tax” of 17.4% on the long-distance portion of their bills to pay for those subsidies, USF reform remains imperative.

In launching its long-term USF reforms last year, the FCC sought to avoid “flash cuts” in indirect subsidies to carriers. Hopefully, a reformed Lifeline regime will one day become the exclusive mechanism for ensuring universal service and replace opaque, indirect subsidies to carriers. To this end, reforms that avoid quick “flash cuts” in services to low-income consumers who might get lost in paperwork and processing are more important.

But rather than risk access to thousands of low-income consumers by tying Lifeline eligibility to a haphazard and perhaps temporary state database process, the FCC should permit simpler self-certification processes, implement its other Lifeline efficiency reforms, and focus on building a national eligibility database.

At the very least, the FCC should postpone its deadline to more time for states, other federal agencies, and carriers to work out efficient arrangements for sharing information and certifying eligible low-income consumers, rather than building yet another bureaucracy under the name of "reform."

Wednesday, May 23, 2012

Internet Freedom, At Home and Abroad

As regular readers of this space know, since its founding in 2006, the Free State Foundation has played a leading role advocating for an Internet environment here in the United States free from government control and regulation. Thus, we have opposed imposition of "net neutrality" mandates by the FCC and other forms of government regulation that have the effect of restricting the freedom of Internet service providers to respond to the needs of consumers and the demands of a constantly evolving Internet ecosystem.
While most of our focus has been on U.S. domestic policies, the Internet, of course, is an interconnected "network of networks" that spans the globe. The Mona Lisa in the Louvre is just a click away. And you can easily have a video conversation via Skype with your third cousin halfway around the world, or with political dissidents fighting for freedom, and perhaps their lives, in a faraway repressive regime. No one today needs any more examples of the international nature of the Internet. You can quickly come up with hundreds on your own.
But there are challenges looming from abroad that could impact the functioning of the Internet as we know it today, including the communication of the free flow of ideas that generally prevails across the Net. Most immediately, proposals may be put forward by several countries at the World Conference on International Communications (WCIT) 2012, to be held this December in Dubai. These proposals, if adopted, would fundamentally alter the existing privatized, multi-stakeholder governance model that characterizes the Internet and under which the Net has flourished.
The WCIT conference will be convened by the International Telecommunications Union (ITU), which itself is an organization operated under the auspices of the United Nations. This December's WCIT conference will be considering changes to international telecommunications regulations that were adopted by the ITU in 1988 - well before the development of the Internet as we know it today.
The 1988 ITU regulations represented a liberalization in some respects of prior international regulations. But they nevertheless generally treated telecommunications services, consistent with the then-prevailing generally monopolistic telecom environment, as subject to government regulation or outright government control. Fortunately, as the Internet grew in the 1990s, it did so outside of this framework of international inter-government control. Instead, the modern Internet has been "governed" by a "bottoms up" multi-stakeholder approach under which interested parties from various industry sectors, public interest groups, engineering societies, and the like collaborate in various private forums and associations to adopt the technical standards and other policies that keep the Internet functioning well.
The Clinton Administration deserves credit for playing a central role in implementing this multi-stakeholder privatization model that became the existing Internet governance model. Its "Framework for Global Electronic Commerce," issued in 1997, declared: 
"Though government played a role in financing the initial development of the Internet, its expansion has been driven primarily by the private sector. For electronic commerce to flourish, the private sector must continue to lead. Innovation, expanded services, broader participation, and lower prices will arise in a market-driven arena, not in an environment that operates as a regulated industry. Accordingly, governments should encourage industry self-regulation wherever appropriate and support the efforts of private sector organizations to develop mechanisms to facilitate the successful operation of the Internet."
This self-regulatory, multi-stakeholder model has worked - marvelously.
Internet statistics are dizzying, of course, and one could go on and on. Just this much here: There are now 2.2 billion Internet users across the globe, an increase of over 500% over the past decade. At the end of March 2012, there were 900 million Facebook users, over 80% of whom are outside of the U.S. and Canada.
But now there are some countries around the world, especially less developed ones, which are likely to try to use the upcoming WCIT conference to adopt new regulations that would give the ITU and their governments control over elements of the Internet. This control might include regulation of rates, supervision of the assignment of Internet domain names, and even adoption of policies concerning the types of speech that would be deemed "acceptable" on the Net.
FCC Commissioner Robert McDowell has performed a service in sounding early warnings about the threats that may arise at the WCIT conference. Here is his op-ed, "The U.N. Threat to Internet Freedom," published on February 21 in the Wall Street Journal. His piece, which discusses the issues in more detail, should be widely read.
And you'll be able to hear Commissioner McDowell discuss the challenges to Internet freedom posed by the WCIT conference at the Free State Foundation's lunch seminar next Wednesday, May 30, at the National Press Club. As you can see from the sidebar at the right, we have an outstanding lineup of speakers, including the State Department's international communications expert, Richard Beaird.
Sure, the Internet is not a panacea for solving all the world's problems. And I understand that, depending on circumstances, the Net may even make it easier for those who wish to cause trouble or commit crimes to do so. But there is no doubt that, overall, the continued development of the Internet, and the continued increase in the number of people who are "online," connected with people around the corner and around the world, contributes positively to the promotion of human freedom and prosperity.
That's why it is important the Internet not be given over to inter-governmental supervision or control through action at the International Telecommunications Union, or through the actions of any other international body.
If you wish to join us at FSF's May 30 seminar addressing these issues, you must RSVP to Kathee Baker at

Monday, May 21, 2012

Use More, Pay More

by Deborah Taylor Tate

Several years ago, I wrote about the need for people to pay for "what they eat" in terms of Internet bytes just like we do when we eat out at a restaurant. Eat more, pay more.

None of us wants to pay the same that someone in a much larger home pays for using more electricity or gas or water. And we can think of hundreds of examples of "use more, pay more."

That's why I don't have a problem with Comcast's announcement that it plans to conduct trials on new usage-sensitive plans for its broadband Internet services, while abandoning the current 250 GB monthly usage cap. In fact, I applaud the move.

 Indeed, I was disappointed a few years ago when Time Warner Cable abandoned plans to implement a proposed "tiered" pricing experiment in the face of opposition from a few "consumer advocacy groups."  Those advocates weren't concerned about light-using grandmothers who check email once or twice a day, or who occasionally share a few baby photographs.  These grandmas certainly should not be paying the same Internet fees as heavy-using bandwidth-hogs.

The consumer groups were concerned about a political hot potato called "net neutrality" which gives them an opportunity to slam Internet providers for almost any business practice or term of service they don't like.

Interestingly, despite the negative connotation associated with the word “discrimination,” price discrimination is a very efficient way of allocating scarce resources and satisfying consumer demand. 

Comcast - like every other provider in the ecosystem - is right to be trying to utilize its facilities in a more economically efficiently manner to the overall benefit of all of its customers. 

The concept of the “tiered” Internet is not something to be feared. On the contrary, it could be a means of enhancing services to broadband customers and providing revenue for Internet providers to be invested in accommodating increasing demand for bandwidth-intensive and delay-sensitive applications.

And usage-based pricing could be a means of increasing fairness by ensuring that content providers and consumers who are responsible for the most Internet congestion pay their fair share for the higher costs they cause. Choking off this potential revenue stream through net neutrality mandates or other regulatory restrictions will only ensure that instead of an Internet with regular lanes and “fast lanes,” all consumers will be stuck in the slow lane.

Wednesday, May 16, 2012

My WSJ Opinion Live Interview

Yesterday I was interviewed on the Wall Street Journal's Opinion Journal Live program by the WSJ's Jason Riley. We covered net neutrality, Netflix, and spectrum policy. You can watch the interview here.


Sunday, May 13, 2012

Propelling the Internet Backwards in Time

New York Times columnist Eduardo Porter's piece, "Keeping the Internet Neutral," just as easily could have been – should have been -- titled "Propelling the Internet Backwards in Time."
At bottom, Mr. Porter's piece is an argument for public utility-type regulation of private broadband Internet providers. Such regulation would be imposed in the name of protecting network neutrality to ensure all content is required "to travel through the Internet on equal terms."
This may sound appealing, at least superficially. But, in fact, the regime that Mr. Porter prefers likely would suppress investment and innovation in the Internet ecosystem.
Why does Mr. Porter insist all Internet traffic should be treated equally? Primarily, it seems, to protect the preferred business model of Netflix, which Mr. Porter describes as an "online video powerhouse." As Scott Cleland recently pointed out, Netflix's annual revenues are $3.36 billion, with gross profits of $1.16 billion.
I understand why Netflix is conducting what Mr. Porter describes as a "budding lobbying effort" trying to ensure that Internet service providers, like Verizon, Comcast, AT&T, and Time Warner Cable, must continue to carry Netflix's video streaming traffic -- which amounts to approximately 33% of all peak hour Internet traffic -- on the most favorable terms possible. For now, Netflix is protected by the FCC's recently adopted net neutrality regulations from having to pay any charges for delivering its videos over the Internet service providers' last-mile facilities. Instead, Netflix simply rides free "on top of" the broadband networks that Internet providers have constructed over the past decade by investing over $350 billion of private capital.
Constructed with no government funding, government guarantees, or government bail-outs.
It’s clear why Netflix is lobbying to continue paying as little as possible for using the Internet providers' facilities. But I fail to understand why the Times’ Mr. Porter doesn't appreciate why Netflix's effort should not succeed, or to put the matter more broadly, why net neutrality regulation is not sound public policy.
In essence, Mr. Porter wants is to regulate today's Internet providers in the same way that Ma Bell was regulated as a monopoly before its pre-1984 breakup. Subject to public utility-like regulation, Ma Bell was not allowed to discriminate among users of its network facilities, and its rates were regulated.
Of course, the marketplace environment in which Internet providers operate today is much different. Granted, the market is not as competitive as the proverbial wheat market – never will be in light of the high fixed costs of building and maintaining multi-billion networks. But it is workably competitive. Cable and satellite operators, and wireless and wireline companies, compete to provide broadband services, including video services that are the focus of Mr. Porter's piece. These services may not be perfect substitutes for one another. They have different capabilities, features, and costs characteristics, which, by the way, are by no means static. They are constantly evolving in response to technological developments, changing consumer demands, and experimentation with different business models.
In the name of ensuring neutrality, Mr. Porter's vision likely will lead to stasis, or worse, even backwardness. This is because, by design, neutrality mandates inhibit market dynamism, which depends upon the freedom to experiment with new business models that differentiate among consumers with distinct demands and needs. And it is this market dynamism that leads to more innovation in products and services and more investment in new facilities.
In his January 2011 Wall Street Journal op-ed, "Towards a 21st Century Regulatory System," President Obama at least acknowledged that, when regulations get out of balance, they place "unreasonable burdens on business – burdens that have stifled innovation and which have had a chilling effect on growth and jobs." In contrast, Mr. Porter doesn't even nod in the direction of accepting that net neutrality regulation imposes costs that should be considered.
Instead, he retreats into a backwards-looking time warp.
For example, Mr. Porter says, "[i]n the era of the dial-up Internet, [government regulation] ensured that phone companies allowed rival Internet service providers to reach their customers." I'm surprised he didn't go on to repeat the old canard that during the dial-up era there were 6000 Internet service providers! Of course, if ever there were 6000 – or 4000 or 2000 -- dial-up ISPs, everyone knows these resellers offered "plain vanilla" services. These so-called "Internet in a Box" providers existed only at the sufferance of government-enforced “open access” mandates requiring facilities-based providers to share their networks at regulated rates.
Here's the most fundamental point Mr. Porter fails to appreciate: It was not until the FCC abandoned the "open access" sharing mandates after the turn of the century that major Internet service providers began to invest billions dollars to build out today's high-capacity, high-speed broadband networks. Once the facilities-sharing mandates were repealed, almost all of the 6000 resellers disappeared, while actual investment spurted.
Does Mr. Porter really think Americans want to return to last century's dial-up era for the sake of artificially propping up so-called "rivals"?  I don't think so.
Immediately following his wistful invocation of the dial-up era, Mr. Porter says, "Congress might remember that government regulation was crucial for the development of the Internet we know today." It is true that it was the government – not Al Gore – that "invented" the Internet and got it up and running. But by the 90s, there was widespread agreement the Internet should be privatized, and the Clinton Administration played a central role in implementing this privatization policy. The Clinton Administration's "Framework for Global Electronic Commerce," issued in 1997, stated:

Though government played a role in financing the initial development of the Internet, its expansion has been driven primarily by the private sector. For electronic commerce to flourish, the private sector must continue to lead. Innovation, expanded services, broader participation, and lower prices will arise in a market-driven arena, not in an environment that operates as a regulated industry. Accordingly, governments should encourage industry self-regulation wherever appropriate and support the efforts of private sector organizations to develop mechanisms to facilitate the successful operation of the Internet.

When advocates implored the FCC in the late '90s to impose on cable companies the same "open access" mandates Mr. Porter now advocates, Clinton Administration FCC Chairman William Kennard stated he refused "to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America."
As long as there are opportunities for companies like Netflix to lobby in the name of "open access" or "neutrality" or "unbundled networks" or "equal access" – superficially appealing slogans all -- they will do so. They will fight to preserve special regulatory protections that allow them to ride on top of the networks of others under favored financial terms.
But they should not prevail arguing for such a backwards-looking approach. The net neutrality regime adopted by the FCC in 2010 is harmful enough without introducing further regulatory micro-management.
Mr. Porter may wish to propel the Internet backwards to the dial-up era, but we must hope the nation's policymakers don’t agree. If they do, to steal a line from former FCC Chairman William Kennard: "That is not good for America."

Sunday, May 06, 2012

Just Downright Flighty: The Viola and the Crazy Gate Agent

I will stipulate at the outset that Susan Crawford, a former high-ranking Obama Administration telecom official, may be a nice person. And well-intentioned as well.
But her recent piece for Wired, "Be Very Afraid: The Cable-ization of Online Life Is Upon Us," is downright flighty.
And if it were to be taken seriously by policymakers, it would be downright frightful.
At its core Susan's piece is about a 9:00 P.M. flight from D.C. to Boston, "a particularly crazy gate agent," and Susan's viola.
To make a short story just a bit shorter, the gate agent that Susan identifies as "crazy" wouldn't let Susan store her viola in the closet used by first class passengers, or even in the overhead bin. Susan was traveling coach.
As an aside, Susan reports that the crazy gate agent even forced another passenger to remove a bag from the overhead bin that the agent thought shouldn't be there.
Anyway, rather than checking her fragile viola, Susan slept overnight at a friend's house. At the airport the next morning: "Same airline, same gate, different gate agent: No problem." Back to Boston in a jiffy, and all was well.
Now, you might be forgiven if, thinking ahead, you assume the point of Susan's piece is going to be a proposal for the government to crack down on crazy gate agents, or at least the airlines that employ them. I was anticipating a "crazy gate agent" rulemaking proposal!
But, alas, no.
What Susan took from the Viola Episode was this: She had confronted a "gatekeeper," a "single delivery network," that can make rules on the fly because the gatekeeper knows you have nowhere else to go. And, from this, she leaps to the assertion that Comcast is such a "gatekeeper," and that the company should be regulated as "an essential consumer utility." In other words, Comcast (and other broadband cable operators as well) should be subject to public utility-like regulation like the old Ma Bell telephone system prior to the 1990s.
As I said, this is not only flighty, but also frightful.
Susan does not suggest the airline market is not competitive, or that other travel alternatives to Boston were not available. They are, of course. Remember, the "gatekeeper" Susan confronted was a "crazy gate agent."
More to the point, Susan does not present any real market analysis purporting to show that cable operators possess market power akin to the old Ma Bell monopoly, or to other entities that are regulated as public utilities. They don't, of course. Susan rests her plea for government regulation of Comcast and other cable operators largely on analogizing them to her favorite crazy gate agent.
But there is this bit more in the way of assertion: Susan is displeased that Comcast does not exempt Netflix's over-the-top video streaming service from counting towards certain usage caps that may trigger higher rates if exceeded. She says that Netflix's CEO Reed Hastings doesn't want to be "shaken down by Comcast." And she is also displeased that the Al Jazeera network is carried by very few cable operators.
In Susan's view, Netflix's and Al Jazeera's supposed travails are attributable to the fact that "Comcast and the other major cable distributors get to decide who wins and who loses, and under what terms."
Of course, this is a superficial portrayal of the realities of the current broadband marketplace. Comcast and the other broadband cable companies compete at several different levels and in different forms with broadband services, including in the video market segment that concerns Susan. Competitors include "telephone companies" like Verizon and AT&T, satellite operators like DIRECTV and Dish Network, and a number of different wireless operators. I understand the services offered by these various competitors are not all exactly comparable. Some have more bandwidth than others; some may be more secure and reliable than others; some are more or less costly than others; and so forth. And, by the way, due to rapid technological advances, the composite of features and prices is constantly changing, not frozen in time. For example, viewing videos on smartphones is simply exploding as robust 4G wireless services become more ubiquitous.
I'll grant that, even though Comcast and other cable operators offer their subscribers hundreds of unaffiliated independent channels of incredibly diverse programming, Susan may nevertheless claim she is unable to get exactly the feature or program she prefers, say, the Al Jazeera channel or a movie streamed from Netflix, at exactly the price she would prefer to pay. In fact, I'll bet, like Netflix's Reed Hastings, she would prefer to pay less rather than more for whatever she gets!
But this misses the point, entirely. We know that consumers, increasingly, have choices among broadband providers, even if the choices offered over differing technological platforms are not perfect substitutes for one another in all respects. And, we know, based on the rapid build-out and ongoing upgrade of broadband facilities and the substantial take-up rate for subscriptions, that consumers largely are satisfied with the marketplace choices and the way the broadband environment is developing.
And here's what else we know.
It would be crazy to make communications policy based on Susan Crawford's unfortunate experience with her viola and a "crazy gate agent."
The public utility-type regulation that Susan long has advocated for broadband service providers – and which she advocates anew in her Wired piece – would require the government to regulate the providers' rates and to restrict differential treatment of users. In other words, under this regime, the government would fix the rate and terms and conditions of Comcast's carriage of Netflix's video streaming service, and it would decide whether Comcast must drop another channel and add Al Jazeera.
The regime Susan advocates surely risks stifling the investment and innovation that thus far has characterized the broadband marketplace. Last year, U.S. broadband providers invested approximately $65 billion dollars in private capital building out new broadband facilities. From 1996 – 2010, the amount of private capital invested totaled approximately $1.1 trillion. Absent flexibility to respond to consumers' evolving demands for different levels of usage and different features and terms of service, service providers will be reluctant to continue putting capital towards new investment and innovation.
You could fly hundreds, if not thousands, of violas "first class" back-and-forth between D.C. and Boston every day for the next hundred years for much less than the amount of private capital already invested by cable and satellite operators, telephone companies, and wireless firms in broadband networks.
These broadband providers should be allowed to continue to invest and innovate free from public utility regulation.
If we do that, you can deal with crazy gate agents however you please. I won't say a word. Promise.

Wednesday, May 02, 2012

Maintaining a Lifeline Safety Net

For well over a decade, I have been critical of the FCC's Universal Service Fund high-cost subsidy program for the indiscriminate way in which the program's subsidies have been distributed to telephone carriers. For too long, the USF high-cost subsidy program has been administered in an economically inefficient manner which not only is wasteful of societal resources, but which also has had the effect of deterring the introduction of new lower-cost – unsubsidized -- communications technologies and services.
And, as the high-cost subsidies grew year after year, they were the major contributor to the rapid increase in the size of the USF tax, which now stands at over 17% for all interstate and international calls. This 17% tax obviously discourages use of telecom services.
While the measures did not go far enough in curtailing the excesses and inefficiencies of the high-cost subsidy program, the FCC did finally adopt reforms in an order released last November. For at least taking some important steps in the right direction down the reform path, I commended the Commission's action.
For as long as I have urged meaningful reform of the high-cost subsidy program, I have supported the FCC's Lifeline program that subsidizes the cost of telephone service for qualified low-income persons. In today's world, there are social and economic imperatives favoring the notion that those who cannot afford a minimum level of telephone service should receive subsidized support.
And there is another separate, compelling reason I have supported Lifeline service. It always has been my view that the existence of a well-functioning, competently-administered Lifeline service, with its subsidies targeted to the poor, is a persuasive argument against continuation of the more indiscriminate, less economically efficient, more competition-distorting high-cost fund subsidies. In other words, the Lifeline subsidies go to support access to telephone service for poor people, whether they are living in New York City or Aspen, while the high-cost fund, in effect, subsidizes telephone service for an awful lot of rich folks who choose to live in Aspen and Jackson Hole.
That said, it is important, of course, that the Lifeline program be administered in a manner that is not wasteful and which does not invite fraud or abuse. The FCC's Lifeline Reform Order, released February 6, 2012, is intended to address such concerns. I generally support the Commission's efforts to modernize the program so that it can fulfill its worthwhile objective in an economically efficient manner.
In my view, however, it would be a mistake for the Commission to adopt such an overly rigid stance regarding administration of the Lifeline program that its objective – supporting access to telecom services for poor people – is unnecessarily, if not deliberately, undercut. Thus, the Commission should not condition Lifeline eligibility on implementation of state databases that are variable in their reliability and in their information resources. Such conditioning on state eligibility databases, or requiring documentation that is often referred to as "full certification," may well result in denial of support to otherwise qualified low-income persons. Instead, the Commission should proceed with plans to establish a reliable national database that, when ultimately operable, can be accessed efficiently by carriers. This national database would permit all certified carriers to determine eligibility based on a low-income person's participation in recognized programs, such as the Medicaid or food stamp programs.
Other limitations suggested by the Commission also may have the effect of unnecessarily limiting access to Lifeline support in a way inconsistent with the program's objectives. For example, there appears to be no sound reason for excluding text messages from the definition of usage eligible for support. Or to require that Lifeline recipients must activate their own phones before receiving benefits as opposed to having the carriers activate the phones at the time of purchase. Limitations such as these don't seem to comport with the program's objective to support access for low-income persons.
I have spent well over a decade arguing in favor of adoption of desperately needed free market-oriented regulatory reforms that comport with the realities of our fast-changing, technologically-dynamic communications and Internet markets. We still have a long way to go to achieve such fundamental reforms, including meaningful reform of Universal Service programs.
At bottom, a well-functioning Lifeline program – a "safety net" in today's parlance – is not only consistent with pursuing further market-oriented regulatory reforms. It is, in my view, a prerequisite for advocating such reforms effectively, and in a principled manner.