Wednesday, November 28, 2012

Growing Tax Bills Burdening Wireless Subscribers

Wireless consumers are under a pile of federal, state, and local taxes, fees, and surcharges. Regrettably, in recent years that costly pile has grown heavier. State and local governments bear responsibility for the burdens on wireless consumers resulting from their own misguided tax policies.

For its part, Maryland should halt – and reverse -- its state and local wireless tax hike trend. It should reduce the special burden it puts on wireless consumers through multiple taxes, fees, and surcharges. Ideally, Maryland tax policy should treat wireless services just like any other service, taxing them no higher than general sales tax rates and limiting any imposed fees to actual costs.

Trenchant analysis of wireless tax trends is provided in Scott Mackey's study "Wireless Taxes and Fees Continue Growth Trend." According to Mackey, "[t]he average burden on consumers increased from 16.26 percent in July 2010 to 17.18 percent in July 2012, a 5.5 percent increase in just two years." The single largest share of the growing tax burden on wireless consumers is attributable to increasing federal universal service fund (USF) surcharges. But this burden is also explained by the fact that "[s]tate and local wireless tax and fee burdens rose modestly from 2010 to 2012, from 11.21 percent to 11.36."

As Mackey explained, "[o]ne of the long-standing arguments for reform of wireless taxation is the disparity in the tax burdens on wireless services compared with the tax burdens on other goods and services subject to state sales and use taxes." Unfortunately, this disproportionate taxation of wireless continues. "Wireless customers now pay taxes, fees, and surcharges nearly two and a half times higher than the average 7.33 percent general sales tax rate imposed on other taxable goods and services."

Consider now Maryland's system of multiple taxes, fees, and surcharges, and the disproportionate burden they put on wireless services compared to other services. Maryland grants its local governments authority to impose high tax rates on wireless. The City of Baltimore and Montgomery County impose $4 charges per line per month. Monthly wireless bills for consumers in Maryland also include 911 fees, set both at the state and county levels. The state 911 fee is $.25 cents per month per line, while county 911 fees run to $.75 cents per month per line in Baltimore and Anne Arundel counties. And Maryland's new state universal service fund took effect on July 1, 2012. Maryland's USF surcharge grabs another $.18 cents per month.
Maryland consumers bear the eleventh highest wireless tax burden in the nation according to Mackey's analysis. While the state applies its regular 6 percent sales tax to wireless services, Maryland's wireless consumers face an average state and local tax rate of 12.77 percent thanks to the additional taxes, fees, and surcharges.

Unlike higher taxes, say, on cigarettes, which are imposed at least in part to discourage consumption, the government should not want to discourage consumption of wireless services. It's debatable whether taxing power should ever be used to directly alter consumer behavior. But discouraging consumption of the targeted service is what higher taxes do, of course.

Aside from higher prices that discourage consumer adoption of wireless, there are broader economic consequences stemming from this kind of heavy and disproportionate taxation. "Higher taxes on wireless service coupled with increased taxes on wireless investments," pointed out Mackey, "may lead to slower deployment of wireless network infrastructure, including 4G wireless broadband network technologies that an increasingly mobile workforce relies on for economic success."

Burdensome and distortionary tax policy poses particularly significant harm to marketplace investment in next-generation wireless networks. It results in forsaken business productivity gains resulting from technological upgrades, not to mention lost job creation opportunities. Observed Mackey: "If wireless service were subject to the same tax treatment as other taxable goods and services, increased carrier revenue could make as much as $3 billion more per year available to invest in network expansion and improvements."

The most economically sound, efficient long-term tax policy for states like Maryland to pursue includes a broad-based tax set at a low rate. A simplified approach makes for easy compliance by businesses that assess taxes owed to the relevant taxing authorities. It better ensures that all consumer services are taxed fairly, encouraging efficient economic activity in the market and ensuring that the tax system does not become a mechanism for distorting or changing consumer buying choices. In the context of wireless and other communications services, this approach means taxing such services at the same rate as any other kind of service and limiting any fees to costs that the relevant services actually impose on the public.

In 2012 the Maryland General Assembly established the Maryland Communications Tax Reform Commission. The Commission is tasked with assessing the "feasibility and fiscal implications for the State and local governments of a modernized, competitively neutral communications tax and fee system that eliminates disparate treatment of similar communications service providers" as well as the "efficacy of tax and other incentives to encourage investment in broadband networks and emerging technologies." The Commission will issue an interim report recommending tax reforms to the Governor and the State Assembly by the end of this year, with a final report due by June 30, 2013.

Maryland's tax policy toward wireless and other communications services is ripe for reform. The heavy and disproportionate tax burden shouldered by Maryland's wireless consumers needs to be lifted. Obstacles to wireless broadband adoption and expanding economic opportunities arising from next-generation networked technologies must be removed. A streamlined, broad-based, low-rate tax policy is in Maryland's long-term best interest.

Hopefully, the Maryland Communications Tax Reform Commission will seize the opportunity it has been given. Maryland's wireless consumers need tax relief from a haphazard tax system that needs reform.

Tuesday, November 20, 2012

Thanksgiving Day 2012

Five years ago in my Thanksgiving message, I explained that I eagerly awaited the Wednesday-before-Thanksgiving Wall Street Journal almost as eagerly as the Thanksgiving Day turkey and stuffing. Well, almost, but not quite. 
But I do look forward each Thanksgiving eve to the Journal’s reprinting on its editorial page of the very same two lead pieces that have appeared each year since 1961. The first, “The Desolate Wilderness,” is a chronicle, based on the account of William Bradford, of the Pilgrims taking leave of the port of Delftshaven in 1620, crossing the Atlantic, and settling in Plymouth Colony. 
Of the Pilgrims’ journey, William Bradford's account ends this way: 
“Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? and what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew. If they looked behind them, there was a mighty ocean they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world.”
The second, “And the Fair Land,”  written by long-time WSJ editor Vermont Royster, ends this way:
"But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere -- in the cities, towns, farms, roads, factories, homes, hospitals, schools that spread everywhere over that wilderness. We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth. And we might remind ourselves also, that if those men setting out from Delftshaven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land." 
When these two pieces are read together – and at our Thanksgiving meal we usually read aloud "The Desolate Wilderness" before cutting the turkey – and when we consider America's journey from the land with "a wild and savage hew" in 1620 to the "fair land" described by Vermont Royster in 1961, it is evident we have much for which to be thankful. 
It is worth reminding ourselves, and perhaps particularly so after a closely contested election, that, as Vermont Royster said, "for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators." 
If the idea of America is about anything, it is about the aspiration of those who inhabit our land to live in freedom under the rule of law, not under the rule of men. This is not to say that the reality of America has always lived up to the idea of America. It obviously hasn't. 
But that should not detract from the fact that the Pilgrims who landed at Plymouth Rock did not come to America primarily seeking riches; they came seeking individual freedom – freedom to worship, speak, and think as they pleased. And most of those who have followed the first Pilgrims to our shores have not come primarily seeking riches; most have come seeking the freedom that America offers, and the opportunity for personal fulfillment that individual liberty provides. 
For me, Thanksgiving is a holiday, of course, for giving thanks for America’s bounty. But it is also a holiday for celebrating, and giving thanks for, the freedom we enjoy, as a self-governing people, under our constitutional system of limited government, separated powers, and checks and balances. 
So, as we celebrate this Thanksgiving, it is worth remembering Ronald Reagan’s injunction: 
"Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free." 
At the Free State Foundation, we are thankful that we live in a land – unlike many lands around the world – where we are free to advocate the principles in which we believe: limited government, free markets, property rights, the rule of law, and especially, in the context of much of our work in the communications law and policy field, free speech guaranteed by the First Amendment. 
As you enjoy your Thanksgiving holiday, we want you to know we are grateful for your support for our work, and, most of all, for your friendship.

Monday, November 12, 2012

Elections Matter, But So Do Powerful Ideas

Elections certainly matter. But the sheer force of powerful ideas matters too. That's why the Free State Foundation masthead proclaims, "Because Ideas Matter."
Reform of communications law and policy in a free market, First Amendment-friendly, rule-of-law direction is a powerful idea that ultimately will win out. This is because the present legacy regulatory model, grounded in outdated notions of static monopolistic markets, is so poorly suited to the competitive realities and technological dynamism of the digital age.
It may be that, in light of the elections' outcome, the pace of communications policy reform will not be as quick as it otherwise might have been. Nevertheless, from my vantage point, focusing not on politics but policy, I remain optimistic that the power of free market ideas will prevail, and sooner rather than later.
Well, one answer is given by Bruce Owen, a member of the Free State Foundation's Board of Academic Advisors, in the concluding chapter of FSF's new book, Communications Law and Policy in the Digital Age: The Next Five Years. Based on his decades of experience and scholarly research, Professor Owen explains how the political economy of the regulatory state creates an anti-reform communications policymaking bias. But after delivering a blunt account describing this anti-reform bias, Professor Owen concludes: "This cannot continue indefinitely in an economy that faces global competition, and therefore it will not."
I too am confident "it will not."
Then FCC Commissioner Michael Powell (subsequently FCC Chairman and now President of the National Cable & Telecommunications Association) gave a remarkably prescient address in December 2000 at a Progress and Freedom Foundation conference concerning what he called "The Great Digital Broadband Migration."  In his address, Mr. Powell conceptualized the challenges facing policymakers in light of the "the great technological migration" from narrowband to broadband, from analog to digital, that already had begun as a primary policy reform challenge: The need to focus on innovation incentives; to implement deregulation of competitive markets; to rationalize the regulatory structure to account for the "bit is a bit" phenomenon; and to improve regulatory procedures to make agency decision-making more efficient.    
Although surely there has been some progress since 2000 toward meeting the policy challenges anticipated by Mr. Powell, unfortunately, there certainly has been backsliding as well due to the strength of anti-reform bias described by Bruce Owen. (Think net neutrality regulation, increased wireless regulations, and more intrusive video regulations as prime examples.) AT&T's "Petition to Launch a Proceeding Concerning the TDM-to-IP Transition," filed last week with the FCC, is a useful vehicle for focusing attention on the fact that the "great digital migration" is by no means complete – and for focusing attention on the fact that unnecessary regulation necessarily will slow down the transition to all-IP networks.
While the objective of transitioning to all-IP networks may be broadly shared, there is, of course, an ongoing battle of ideas concerning the way forward. I submit that Congress, ultimately, but, the Federal Communications Commission itself, in the meantime, must reorient communications policy so the agency's regulatory activity is tied to standards requiring demonstrable market failure and consumer harm before government intervention. Presently, the FCC still too readily relies on the more amorphous standards of "the public interest" or "reasonableness" or "discrimination" to default to anticipatory government intervention. These latter standards, the principal hallmarks of regulatory regimes initially developed in the 19th century designed to regulate monopolies, are no longer appropriate in today's marketplace environment.
Why are they no longer appropriate?
Because, whether intentionally or not, in a technologically dynamic digital environment, application of the monopoly-era legacy standards stifle experimentation with new business models that may benefit consumers and, ultimately, enhance overall consumer welfare. The anti-reform bias favors the status quo over change, and uniformity over differentiation. And it too quickly presumes – without waiting for evidence of market failure and consumer harm – that new business models are inconsistent with "the public interest" or that they are not "reasonable" or that they "discriminate."
The ultimate effect of the anti-reform bias, although never admitted by the pro-regulatory forces, is to favor government dictates regarding the parameters of service offerings rather than consumer choice.
Those who favor the status quo, or even more regulation, are quick to presume that any differences in service offerings, whether related to price, service quality, or other terms, are "unreasonable" or "discriminatory," and what's more, evidence of lack of competition. The pro-regulatory forces analyze markets in a way that narrows the scope of market definitions, whether by excluding services that, while, not identical, are substitutable in the sense of meeting differential consumer preferences. And they downplay potential competition and new entry. The Commission, for example, in evaluating competition, still resists the notion that wireless is substitutable for wireline service. Even as well over 30% of U.S. households have terminated their wireline service, the agency clings to the status quo view. It is difficult to conclude that such thinking is guided by anything other than a strong desire by the agency to maintain its regulatory grip.
This pro-regulatory "one size fits all approach" that narrows market definitions so as to presume lack of competition necessarily is incompatible with ongoing experimentation in business models and the development of innovative new offerings. This type of thinking, which presumes agency "experts" know which "one size" – which combinations, say, of speeds, price points, features, functions, or bundles – best serves consumers reflects a regulatory hubris ill-suited to the digital age.
As Christopher Yoo concludes in his chapter in FSF's new book: "On a broader level, policymakers would benefit from taking seriously the possibility that the days of a 'one size fits all' approach to Internet regulation may well be over and that looking backwards for the lessons of the past may not always be the past way to promote future success."
I would put it this way. If such "one size fits all" thinking persists, the FCC will maintain its regulatory grip for longer than it should in areas in which regulation is no longer appropriate. Perhaps the regulators – and the pro-regulatory forces – may, in some sense, consider themselves to be short-term winners.
But this would be wrong. For consumers surely will be the long-term losers.
* * *
FSF's new book, Communications Law and Policy in the Digital Age: The Next Five Years, is filled with many good reform-minded ideas regarding implementation of a free market-oriented communications policy. You may order the book from Carolina Academic Press here. If you order from CAP before December 31, 2012, and use the special discount code MAYFSF12, you will save 20%!

You may also order the book from Amazon here or from Barnes & Noble here.

Wednesday, November 07, 2012

Increasing Velocity of the All-IP Network Transition

Free State Foundation scholars have repeatedly emphasized the essential role of investment in transitioning to next-generation broadband networks. That ongoing transition will require strong investments by competing service providers, across a variety of platforms, both up and down the value-chain of the broadband services marketplace.
The transition to next-generation broadband networks just got a shot in the arm. AT&T announced its Velocity IP (VIP) investment plan. Under the plan, AT&T indicates it will "invest $14 billion over the next three years to significantly expand and enhance its wireless and wireline IP broadband networks."
This undertaking includes a robust expansion of next-generation wireless services:
AT&T plans to expand its 4G LTE network to cover 300 million people in the United States by year-end 2014, up from its current plans to deploy 4G LTE to about 250 million people by year-end 2013. In AT&T's 22-state wireline service area, the company expects its 4G LTE network will cover 99 percent of all customer locations.
A heavy investment-backed expansion of its wireline IP services is also slated. "AT&T plans to expand and enhance its wireline IP network to 57 million customer locations (consumer and small business) or 75 percent of all customer locations in its wireline service area by year-end 2015." This includes expansion of its U-verse video service by more than one-third, to pass some 33 million customer locations. Also, "AT&T plans to proactively expand its fiber network to reach an additional one million business customer locations."
AT&T's VIP investment plan promises a greater abundance of innovative services for wireless and wireline platforms, including consumers of video services and enterprise broadband customers. Job creation is another benefit flowing from this kind of investment.
Hopefully, AT&T's investment in all-IP networks will be an indicator of growing investment in the marketplace, with competing providers increasing their investment in next-generation broadband service offerings.
The broadband networks of the future depend on investment in the present. Such investment depends on pro-investment public policies. That means relying on the forces of free market competition while keeping regulation to a minimum, offering competing providers regulatory certainty that encourages them make pro-investment decisions.

Monday, November 05, 2012

President Obama's Missing Federal Regulatory Agenda

Every six months OMB is supposed to publish an updated edition of the Unified Agenda of Federal Regulatory and Deregulatory Actions. The Agenda that should have been published last Spring never appeared, and now it's almost time for the Fall Agenda and its supplemental Regulatory Plan to be published.
The Regulatory Agenda is supposed to be an important tool to monitor the Administration's regulatory activity, and it is used by industry, consumer groups, scholars, and interested members of the public to keep up with the status of pending and planned regulations.
It may be that in light of the Obama Administration's regulatory onslaught, President Obama preferred not to call attention to the heightened regulatory activity of the federal government. But that's not a reason -- or at least it's never been thought so before -- for non-compliance with the requirement to issue the Regulatory Agenda on a semi-annual basis.
For more on this, and the Obama Administration's record-setting regulatory activity, see this very good piece, President Obama's Hidden Tax, in Forbes by Wayne Crews.  

Announcing New Book! Communications Law and Policy in the Digital Age

Regardless of the outcome of tomorrow's presidential and congressional elections, there is a widespread consensus that, given the marketplace realities spurred by the digital revolution, our nation's communications laws and policies are in need of serious reform. With respect to the matter of communications policy reform, the question is not so much if, but when
So, I am particularly pleased to announce the publication by Carolina Academic Press of the Free State Foundation's latest book, Communications Law and Policy in the Digital Age: The Next Five Years. (Ordering information is below!) 
With the growing consensus for meaningful communications reform, the book's release is especially timely. While the book contains much in the way of describing the current state of affairs, certainly a necessary predicate to understanding why law and policy should be changed, its primary focus is forward-looking. In other words, the emphasis is on how communications policy should be changed in the next five years, and beyond. 
I hope you will get the book and read it from cover to cover. As a bit of an enticement, here is a brief preview of the book's chapters. You'll note that they are authored by some of the nation's leading experts on communications law and policy. 
In the Introduction, I set the stage by explaining why the marketplace and technological changes that have occurred since the last major revision of the Communications Act in 1996 have rendered existing law and policy woefully outdated, if not obsolete. In the more than fifteen years since passage of the Telecommunications Act of 1996, which was grafted onto the original Communications Act of 1934, we have witnessed a switch from analog to digital services and equipment, from narrowband to broadband network facilities, and, most importantly, from a mostly monopolistic to a generally competitive marketplace environment. These are fundamental changes that call for a very different communications law than the present one. 
In my view, the new communications law should get rid of the current "stovepipe" regime in which regulatory activity is tied to different service classifications grounded in now outmoded techno-functional constructs, as well as the ubiquitous public interest standard that grants the agency wide-ranging discretion as it goes about regulating. The replacement regime should have at its core a competition-based, consumer welfare standard grounded in antitrust-like jurisprudential principles. 
Representative Marsha Blackburn's contribution, Why We Need a Free Market Approach for the Communications and High-Tech Sectors, explains "why we must apply some conservative, deregulatory principles to the communications, information services, and high-tech market sectors." These principles, on which Rep. Blackburn elaborates, are: (1) the government's default position must be "do no harm"; (2) government needs to respect private markets; and (3) regulations need to be streamlined to better reflect the competitive and dynamic characteristics that define communications and technology markets. 
In a chapter entitled Placing Communications Law and Policy Under a Constitution of Liberty, FSF Research Fellow Seth Cooper and I take Friedrich Hayek's path-breaking work, The Constitution of Liberty, and distill from it a set of basic principles that, in our view, are relevant to establishing consumer welfare-enhancing policies in today’s competitive, technologically dynamic communications marketplace. Applying these Hayekian principles to contemporary communications law and policy, we set forth a communications reform agenda for the coming years – an agenda that promotes free markets and the rule of law by respecting contracts and private property, maintaining the primacy of markets for determining prices and the quantities of goods produced, encouraging freedom to innovate free from unnecessary regulatory restrictions, and constraining otherwise unbridled administrative discretion. 
Next is Christopher Yoo's chapter entitled Internet Policy Going Forward: Does One Size Still Fit All? At the outset Professor Yoo makes clear he is going to challenge the premise, which in significant part undergirds the FCC's Open Internet Order, that "the Internet's past success stemmed from the fact that there has always been a single Internet that was open to everyone." Not so, explains Professor Yoo, calling upon his acknowledged combination of technical, economic, and regulatory expertise. He suggests the various trade-offs that should be considered, say in loss of innovation and higher costs borne by users, if the Open Internet Order's "single Internet" claim is enforced rigidly by policymakers. 
James Speta's essay, Reconciling Breadth and Depth in Digital Age Communications Policy, is a natural follow-on to Professor Yoo's piece. Professor Speta cogently explains why marketplace shifts attributable to new services and technologies coming to market point to the need for an entirely new Communications Act. As he puts it, the existing law "barely acknowledges the Internet and provides very little direction on the regulation of mobile services – the two areas in which communications services are moving most importantly." Professor Speta recommends that Congress adopt a new Digital Age Communications Act (DACA) along the lines of a model statute that he and I, along with many others, helped draft back in 2005. 
In his chapter, Restoring a Minimal Regulatory Environment for a Healthy Wireless Future, Seth Cooper focuses on the FCC's regulation of mobile services, and especially the agency's more recent actions adopting a more activist regulatory posture relying on its public interest authority. Mr. Cooper's chapter contains an up-to-date detailed description of the wireless broadband marketplace that demonstrates its competitiveness and dynamism. He explains how recent FCC actions have eroded the minimal regulatory environment that existed before the Commission recently began adopting a more interventionist posture. Finally, he explains what the FCC needs to do by way of getting back on the right regulatory track. 
Next, in Proposed FCC Incentive Auctions: The Importance of Re-Optimizing Spectrum Use, Michelle Connolly focuses on the upcoming incentive auctions to allow up to 120 MHz of high-quality spectrum currently used by television broadcasters to be reallocated to a more economically beneficial use. As Professor Connolly states, "[i]n light of the economic and social benefits that accrue from broadband availability and adoption, the public policy goal is to free up additional spectrum that could be used to provide mobile broadband services." Employing her expertise as an economist, along with the first-hand experience gained from serving two stints as the FCC's Chief Economist, Professor Connolly sets forth the theory of spectrum incentive auctions. And, perhaps more importantly, she explains how, in practice, incentive auctions should be designed to ensure their success in repurposing the maximum amount of spectrum reclaimed from broadcasters, while protecting taxpayers' interest as well. 
In his chapter, Reforming the Universal Service Fund for the Digital Age, Daniel Lyons acknowledges that in November 2011, the FCC took meaningful steps to begin reforming the USF regime, including reorienting the fund's focus from ordinary telephone service to broadband access. But he proposes a much bolder reform program than the FCC's more modest reforms. Professor Lyons would target the distribution of subsidies to low-income persons so the program's cornerstone would "be a voucher program similar to a telecommunications version of the food stamp program, or a phone-provided broadband phone card." And he would jettison the current contribution methodology under which the USF subsidies are now funded by a surcharge (17% at the time the book went to press) assessed on all interstate calls. In its place, Professor Lyons suggests the "simplest and most elegant solution to the contribution problem is simply to fund universal service through a line of the federal budget like most other entitlement programs." 
Ellen Goodman's thoughtful chapter, Public Media Policy Reform and Digital Age Realities, explains why the same market failure rationale that supported the public broadcasting system created in the 1960s no longer fits comfortably in today's digital world and why the country needs a redesigned public media regime that pursues innovation. Professor Goodman would retain the decentralized structure of the legacy public broadcasting system but build in more flexibility so that public media support can take into account, and be responsive to, changing digital marketplace realities. In the end, she concludes, "it seems inconceivable that ambitious telecommunications policy reform should ignore the carbuncle of the Public Broadcasting Act in its sweep through the calcified remnants of 20th century regulation." 
The book's final chapter is Bruce Owen's Communications Policy Reform, Interest Groups, and Legislative Capture. In considerable detail, and based on long observation of communications policy sausage-making, Professor Owen bluntly explains how interest group politics, coupled with the FCC's subservient relationship to its congressional overseers, subverts reform efforts. Despite his portrayal of the difficulties of achieving reform in the face of the political economy realities, Professor Owen does not foreclose the possibility of success. He acknowledges that "it may be that the disconnect between the existing communications policies and the current marketplace realities will become so great, coupled with imperatives driven by the need for U.S. companies to compete in the global economy, that conditions will become ripe for implementation of meaningful reform." Indeed, in the end, Professor Owen concludes, even a bit optimistically, that, with "continuing education" as a spur, the "good news" is that the anti-reform policy bias cannot continue indefinitely in an economy that faces global competition, "and therefore it will not." 
To play upon Professor Owen's words, the good news is that there is truly a lot of "continuing education" jam-packed into the Free State Foundation's newest book. I am confident that when our nation's communications laws and policies are comprehensively reformed – as they ultimately must be – many of the free market and rule of law ideas presented in Communications Law and Policy in the Digital Age: The Next Five Years will be at the core of the reform. 
Getting from here to there – from policies still grounded in an analog-era mindset to free market and rule of law-oriented policies reflecting the competitive realties of the digital age – will not be easy or accomplished without a struggle. But I am sure that Communications Law and Policy in the Digital Age: The Next Five Years will advance the cause of sound communications policy. 
You may order the book from Amazon here, from Barnes & Noble here, or from Carolina Academic Press here. If you order from CAP before December 31, 2012, and use the special discount code MAYFSF12 you will save 20%!

Friday, November 02, 2012

Great Photos of the FSF October 18 Seminar Available

To view photos of the Free State Foundation’s October 18, 2012, "Ideas for Communications Law and Policy Reform in 2013" seminar at the National Press Club, go to the FSF Events page. The program opened with a conversation concerning FCC reform between FCC Commissioner Robert McDowell and FSF President Randolph May.

A panel discussion followed by some of the nation's leading communications law and policy experts: Robert Atkinson, President, Information Technology & Innovation Foundation; James Gattuso, Senior Research Fellow in Regulatory Policy, The Heritage Foundation; David Honig, President, Minority Media & Telecommunications Council; and Adam Thierer, Senior Research Fellow, Mercatus Center.

Videos of the seminar are also available on the Events page.

Thursday, November 01, 2012

If Communications Policy Were A Campaign Issue - II

Back on June 13 of this year, I posted the blog, also reproduced below, titled "If Communications Policy Were A Campaign Issue." As I suspected, my prediction in the first line that communications policy reform would not likely be a hot campaign issue surely proved correct.
This is not surprising, given what I called the "macro" issues facing the nation.
Nevertheless, as I explained in June, reforming communications law and policy is an important topic – important enough to the health of the nation's economy and our social well-being that resolution of the issues should not be left solely to the inside-the-beltway "experts" and interest groups. An informed public ought to be engaged as well.
When I re-read the June blog yesterday, I found that what I said then concerning reform proposals still reflects my views. Indeed, I have become even more convinced of the need for real reform that gets rid of outdated and unnecessarily costly regulations that still reflect an embedded analog-era monopoly mindset that is no longer appropriate. In fact, such a mindset, with its pro-regulatory default, is positively harmful in that it impedes the transition to all-IP high-bandwidth digital networks that should be completed as soon as possible.
So, on the theory – or perhaps the hope – that a few days before the election, readers may be ready to think about communications policy reform as if it were a campaign issue, if only to gain a respite from the incessant campaign ads, here's some reform stuff to chew on.

If Communications Policy Were A Campaign Issue

It is not likely that communications policy reform will be a hot campaign issue during this election cycle. After all, spurring job creation and investment, growing the economy, increasing productivity, and reducing the nation's debt and deficit are likely to be the "macro" topics that dominate the campaigns – and well they should be. 
You probably won't find the candidates, whether President Obama or Mitt Romney, or candidates for Senate and House seats, arguing about how to address the spectrum crunch, or implement reform of the universal service fund, or eliminate outdated video rules, or resolve the decade-old "special access" proceeding. 
I get this. I am not suggesting that these often seemingly esoteric communications policy issues should become standard run-of-the-mill campaign fodder. 
But I do want to suggest that, with the communications, information, and entertainment market sectors comprising fully one-sixth of the nation's economy, communications policy matters. More pointedly, the right communications policies can spur job creation and investment, help grow the economy, and increase productivity. The wrong policies can have the opposite effect. 
What I want to do here is just offer some reformist positions – you might even say "talking points" – that would be worthy of consideration and debate if candidates were trying to integrate communications policy reform into a broader discussion concerning an overall program for spurring economic growth and new investment. Even if they are not campaign issues, these proposals should be on the table for consideration as policymakers contemplate communications policy reform. 
In my view, each of these proposals, if adopted, would be a net positive for the economy, certainly on a long-term basis, even if not necessarily on a "next quarter" basis.
1.    Congress should adopt a new Digital Age Communications Act which eliminates the current regulatory "stovepipes" grounded in no longer relevant techno-functional characteristics, and the new statute should replace the public interest standard with an antitrust-like competition standard that places consumer welfare, not competitor welfare, at the forefront.
Rationale: We need a new communications law that does not regulate services differentially based on the technologies employed and which requires a convincing showing of market failure and consumer harm before regulating. The Digital Age Communications Act introduced in the Senate in December 2005 by Sen. Jim DeMint remains a good model for a market-oriented statutory framework that would reduce unnecessary regulation.
2.    Eliminate the current dual review of communications mergers and acquisitions by the Department of Justice/Federal Trade Commission on the one hand, and the FCC on the other, so that the antitrust authorities assess the competitive impacts of the transactions, and the FCC assesses whether, if the transaction is approved, the parties will be in compliance with all existing laws and regulations.
Rationale: Now, in an era of large budget deficits, there is substantial overlap in the work done by the antitrust authorities and the FCC, with the duplication leading to unnecessary expenditure of substantial government and private sector resources and delays in the review process. And FCC transaction reviews under the vague public interest standard invite arbitrary and unpredictable agency decisionmaking, along with the now standard bargaining over so-called "voluntary" concessions that epitomizes "regulation by condition." I first wrote about this in 2000 in a piece titled, "Any Volunteers?" The current process discourages companies from engaging in transactions that may increase efficiency and productivity.
3.    Develop a national policy framework that makes it more difficult for localities and states to slow down the build-out of wireless infrastructure necessary to accommodate surging consumer demand.
Rationale: There are various measures that must be taken to address the spectrum crunch, such as allowing the secondary spectrum market to function more freely. But one helpful measure would be the development of some form of national policy that has the effect of accelerating local and state processes for siting towers and issuing permits for new infrastructure build-outs. Capital investment would flow more quickly than at present.
4.    Accelerate meaningful reform of the universal service subsidy regime and transition, over time, to a more limited program primarily directed to providing subsidy support to eligible low-income persons, not to high-cost communications providers.
Rationale: Until the FCC's high-cost universal service subsidy fund is further reformed, and as the FCC gets bogged down in interminable proceedings developing new "high cost" models and considering waivers from its newly adopted rules, wasteful disbursements of subsidies supporting inefficient telephone providers will continue. This discourages investment in new, more efficient telecom network infrastructure. Absent further reform and resolve, the USF subsidy program is a "telecom Solyndra" waiting to happen. Consider this example: In a recent meeting between the Secretary of Agriculture and the Administrator of the Rural Utilities Service and the FCC Chairman, the Secretary suggested the standard for relief from a reduction of subsidies to rural telephone companies "should be tied to a default on an obligation to government, not to loss of voice service." In other words, regardless of whether continued subsidies are necessary to fulfill their intended purpose of making available communications services, subsidies should continue to flow to keep government loans from going bad. This ill-conceived Solyndra-like policy would be bad for consumers who must pay for the subsidies through USF surcharges on their telephone bills, and who, by the way, are taxpayers too.
5.    Eliminate outdated legacy video regulations, such as must-carry, leased access, program access, program carriage mandates, and media ownership restrictions.
Rationale: These various regulations were put in place in the analog-era during a time when the video marketplace still retained some monopoly characteristics. In today's digital broadband video marketplace, competition among various video providers using cable, satellite, fiber, telephone, wireless, and Internet platforms is fierce, so the regulations are no longer necessary. And with the government dictating categories of programming that must be carried and under what terms, and the amount of communications capacity that must be set-aside by providers for use by others, the regulations not only discourage investment, they offend free speech principles to boot. 
6.    Sunset all FCC rules every seven years, subject to retention if the agency makes a showing of a compelling justification for keeping the regulation.
Rationale: Historically, the FCC, often by its own admission, has been notably slow in eliminating regulations from its books that no longer serve any purpose. Now, even the Obama Administration, through its Executive Order, is urging agencies to engage in retrospective reviews to get rid of, or relax, outdated regulatory requirements. The periodic regulatory review provisions in the Telecom Act of 1996 did not accomplish the stated purpose of eliminating outdated regulations. With marketplace changes continuing at a rapid pace, driven by the development of new technologies, a large number of FCC regulations, however well-intentioned, become obsolete over time. Therefore, all agency regulations should "sunset" seven years after adoption, unless the FCC, after providing an opportunity for public notice and comment, finds there is a compelling justification for retaining the rule.
I know there are other good proposals that could be offered as well, and I certainly know that readers will not agree with all of these. 
So, as always, your reactions are welcome.