Thursday, June 27, 2013

Congress Looks to Put Freeze on New Discriminatory Wireless Taxes and Fees

On June 11, U.S. Representatives Zoe Lofgren and Ted Franks reintroduced the "Wireless Tax Fairness Act." As of this posting, H.R. 2309 has collected 162 co-sponsors. The bill would put a five-year moratorium in place on new discriminatory state and local wireless taxes and fees.
For more on the merits of the Wireless Tax Fairness Act and the concerns it seeks to address, see my blog post "Calling for a Moratorium on New Discriminatory Wireless Taxes."
In the last Congress this legislation passed the House on a voice vote. H.R. 2309 deserves a serious look, this time by both chambers.

Competition Will Produce Better Outcome for IP-Network

Greg Vogt – Guest Blogger

The FCC is now considering the evolution of the telecommunications network from the existing “public switched telephone network” to an Internet Protocol-based network.  AT&T's recent petition filed at the Commission requesting IP-transition trials, along with other proposals, is prompting increased attention to the inevitable transition to an all-IP network.

Former Chairman Genachowski tasked an advisory committee, the Technology Advisory Council, to look into the transition and make recommendations for possible FCC actions.  In a 2011 Memorandum, the head of the TAC, Tom Wheeler, recommended, among other things, (1) establishment of common metrics to promote broadband network quality and (2) identification of potentially stranded investment in equipment consumers use to obtain services using the PSTN.  The TAC recommendation seemed to be encouraging public discussion, not necessarily government regulation.

Now, of course, Mr. Wheeler is the Obama administration’s nominee to Chair the FCC. He is well-respected, and he has extensive involvement with the telecommunications industry.  In the written testimony for his June 18 confirmation hearing, Mr. Wheeler stated: “Competitive markets produce better outcomes than regulated or uncompetitive markets.” This perspective is highly commendable because it recognizes that private enterprise competing in the marketplace can make better decisions than government, which doesn’t suffer adverse consequences from potentially ill-conceived decisions.

In describing the transition to an IP network in response to a question, however, Mr. Wheeler said that the transition should not happen without the Commission developing a “stratagem” to develop a “planned structure” to “mitigate” the transition’s impact.  He opined that individual companies changing things on their own could lead to “dislocations and harm to consumers.”

It is unfair, of course, to take individual statements out of context, and general congressional testimony is untethered from a factual context necessary to most decisions. But, considered in one vein, Mr. Wheeler's comments possibly could be taken as favoring too much government management of the transformation of the network, like the government did when over-the-air TV was converted to digital, an example Mr. Wheeler identified in his oral testimony.  However, the TV digital transition was clearly a different animal because TV stations used government-owned radio spectrum. The spectrum rules needed modifying for the digital age and to protect against interference.

The PSTN, on the other hand, was built largely with private plans and investment.  In 2010, the FCC reported that the telecommunications industry had made approximately $777.7 billion in private capital expenditures for the years 1998-2008. Over this same 10-year period, the report concludes that only approximately $34.6 billion, or 4.4 percent, was funded through federal universal service support, which was paid for by consumers. Even much lower investment was made possible through public grants and loans:  the Rural Utilities Service reports that some $13 billion has been invested through its telecommunications program, mostly of that amount through loans.

Even though the wireless part of this network involves government-regulated radio spectrum, there has been virtually no wireless operations regulation or network management.  The government did almost nothing to create a “planned structure” and the vast majority of consumer “dislocations,” if any, were not caused by network operators.  Other than very limited consumer regulations, what part of the wireless network development required “impact mitigation”?

This private-investment-based network of networks is most certainly evolving from an analog, circuit-switched model, to a digital, IP-based model.  This is happening without government mandates and is occurring for legitimate business reasons.  Consumers want these improvements and are willing to pay for them. 

Mr. Wheeler’s prepared testimony appears to recognize this fact. But the hypothetical notion that the FCC might help to create a “plan” for the transition to the IP network to prevent disruptions caused by individual company decisions at the same time says way too much about government’s potential benefits, and way too little about the benefits of competition and private investment.  The notion of government management of private decisionmaking, or a “planned structure,” quite often leads to disastrous results because the “management” is guided by amorphous notions such as the “public interest,” not economics and sustainable business plans.  Focusing instead on limited consumer safeguards, such as ensuring continued access to emergency services, would be sufficient without interfering with the evolution of the network.

A generally deregulatory, hands-off approach without unnecessary government interference would produce a far superior network, and, as Mr. Wheeler put it so well, “better outcomes.” These better outcomes will occur faster and with less money than they will with overly intrusive government mandates.  Producing certainty so that business can feel comfortable investing in the evolving network can occur if the government recognizes it generally should adopt a hands-off approach to the IP transition.

"Don't Equivocate - Clear and Reallocate"

When President Obama issued his June 14 Memorandum to the heads of the federal government agencies, I said at the time that another presidential memorandum was "fine" as far as it went. But I also said that it will take "some real ongoing presidential leadership that thus far has been missing" to get the federal agencies to take further concrete steps to get more of the spectrum they hold into the hands of private sector wireless providers.

Don't forget that almost 60% of the spectrum that could be used by private providers for wireless broadband service presently is held by the federal government.
There is no doubt, of course, that the nation's wireless providers are facing what former FCC Chairman Julius Genachowski, early in his tenure, called a "spectrum crunch." Indeed, in his June 14 Presidential Memorandum, President Obama acknowledges that back in June 2010, he "directed the Secretary of Commerce, working through the National Telecommunications and Information Administration (NTIA), to collaborate with the Federal Communications Commission (FCC) to make 500 MHz of Federal and nonfederal spectrum available for wireless broadband use within 10 years."
Another acknowledgement of the 2010 pledge concerning the additional 500 MHz is welcome. But the sad reality is that the Obama Administration has not made as much progress as it should have in fulfilling the pledge.
In the new June 14 Memorandum, the President declares, "we must make available even more spectrum and create new avenues for wireless innovation." Unfortunately, it then goes on to suggest that the remedy for addressing the spectrum crunch lies mostly with increased spectrum sharing between the federal agencies holding the spectrum and the commercial providers that desperately need some of it. The Administration's increasingly single-minded focus on spectrum sharing is a wrong-headed approach.
The right approach can be capsulized this way: "Don't Equivocate. Clear and Reallocate!"
In fact, it might be useful for the Administration to print banners with this injunction to place around the federal agencies under every framed photo of the president, at least in the federal agencies holding spectrum.
The imperative to "clear and reallocate" spectrum is most urgent with respect to the 1755 - 1780 MHz band so that it can be paired with the 2155 - 2180 MHz ("AWS-3) band. This spectrum is ideal for wireless broadband traffic and if the two bands are auctioned together, it has been estimated the auction might raise as much as $15 billion for the U.S. Treasury.
While there may be a role for spectrum sharing in alleviating the spectrum crunch, sharing presents certain problems that make it less than ideal as a sensible policy prescription, at least on the wholesale basis the Administration seems to envision. In his FSF Perspectives entitled, "Sharing Licensed Spectrum with Government Lessens Prospects for Wireless Broadband," my colleague Seth Cooper explained in some detail why clearing and reallocation should be preferred. As he concluded:
"Putting repurposed spectrum to its highest commercial use calls for heavy investment by carriers in next-generation wireless broadband networks. The certainty and incentives required for such multi-billion dollar investments are best supplied by spectrum licenses for exclusive use. Arrangements for the private sector and government agencies to share spectrum might be a useful transition tool. But proposals for such sharing now appear prevalent enough that, if adopted, they would undermine the goal of the current undertaking to repurpose spectrum."
With all this in mind, today's hearing on spectrum and wireless matters before the House Energy and Commerce Committee is of considerable importance. Aside from further legislating with regard to spectrum policy, Congress has an important oversight role, of course. In fulfilling that role, the Committee members should use the hearing to focus attention on the need for the Obama Administration to act with a sense of urgency in getting underutilized federal spectrum into the hands of the private sector.
As CTIA's Executive Vice President Chris Guttman-McCabe puts it in his pre-filed Commerce Committee hearing testimony:
"Clearing Federal users from some of the bands they currently occupy will help the commercial sector gain access to the spectrum necessary to stay ahead of consumer demand. And perhaps just as importantly, a relocation process that leads to an auction can provide a critical infusion of funds to facilitate Federal users’ movement to state-of-the-art technology. This will reduce ongoing maintenance and procurement costs for Federal agencies and free up resources that are increasingly strained by the budget caps imposed under the Budget Control Act."
Hopefully, an unequivocal message will emerge from today's House hearing: "Don't Equivocate. Clear and Reallocate!"
PS – For anyone who doesn't already understand why there is an impending spectrum crunch, consider the following indicators, all taken from the FCC's Sixteenth Wireless Competition Report:
·          Consumer choice among wireless service providers prevails. As of October 2012, 99.3% of the population is served by 2 or more mobile voice providers, 97.2% by 3 or more, 92.8% by 4 or more, and 80.4% by 5 or more. Additionally, 97.8% of the population is served by 2 or more mobile broadband providers, 91.6% by 3 or more, 82% by 4 or more, and 68.9% by 5 or more.
·          Wireless subscriptions continue to climb. "[A]t the end of 2011 there were 298.3 million subscribers to mobile telephone, or voice, service, up nearly 4.6 percent from 285.1 million" from a year before. Also, "there were 142.1 million subscribers to mobile Internet access services at speeds exceeding 200 kbps in at least one direction…more than double the 56.3 million reported for year-end 2009."
·          Smartphone consumers now a growing majority. "[A]mong those who acquired a new cell phone in the second quarter of 2012, 67 percent opted for a smartphone, up from 30 percent in the fourth quarter of 2009. As of the second quarter of 2012, 55 percent of U.S. mobile subscribers now own smartphones."
·          Consumer prices have seen decreases. Voice revenue per minute "has declined over the past 18 years, from more than $0.40 to the current $0.05," according to one estimate. Moreover, "the effective price per megabyte of data declined from $0.47 per megabyte in the third quarter of 2008 to about $0.05 per megabyte in the fourth quarter of 2010, which is roughly an 89 percent decrease."
·          Private investment is sizeable and has increased.2010 capital investment by wireless providers totaled between $23 and $25 billion, marking double-digit increases in investment from the year before.
·          Wireless apps continue to surge. U.S. consumers had access to over 1 million wireless apps by mid-2012. In addition, the "[t]otal number of applications downloaded from Apple’s App Store grew from 100,000 in 2008 to 25 billion in March 2012. By October 2012, Google Play for the Android operating system offered over 675,000 applications and had more than 25 billion total downloads.

Wednesday, June 26, 2013

Old School Regulations Could Sidetrack Multi-Stakeholder Privacy Initiative

On the agenda for the FCC's June 27 open public meeting is a proposed Declaratory Ruling that wireless carriers that collect, or direct the collection of, customer proprietary network information (CPNI) on mobile devices must adhere to statutory and regulatory CPNI requirements in protecting that information.
It's too soon to comment on Declaratory Ruling, since it hasn't been voted on or released. But I did address the general matter of imposing CPNI regulations on wireless services in my Perspectives from FSF Scholars paper from July 2012, "The FCC's Mobile Data Inquiry: No New Privacy Regulation Needed." In that paper, I wrote:
The FCC's mobile data privacy inquiry may yield some interesting information. But new FCC regulations would be the wrong approach to address whatever mobile privacy concerns might exist in today's data and information-rich wireless market. The White House's comprehensive digital privacy initiative provides the better pathway for addressing data privacy policy across all broadband platforms.
It remains to be seen how the FCC's Declaratory Ruling might impact the ongoing, NTIA-facilitated multi-stakeholder efforts to develop a digital privacy framework that will ultimately lead to codes of conduct subject to FTC enforcement. That process should be given a chance to succeed, particularly since common enforcement offers a better and more consistent approach to consumer protection. As I concluded in my paper, "new FCC regulatory mandates on mobile data information use and collection must be avoided, particularly when the Administration's digital privacy initiative calls for the FCC's limited jurisdiction to finally be transferred to the FTC."

Tuesday, June 25, 2013

Continue Lifeline Reform!

For Deborah Taylor Tate

As a former FCC Commissioner – and a strong supporter of a healthy Lifeline program – I was pleased to see the comments that FSF President Randolph May's recently filed in support of TracFone's request that the FCC revise its rules regarding the in-person distribution of handsets.

There are providers (Nexus and others) who utilize mobile vans and other "in-person" distribution processes that are not only successful in reaching qualified recipients but also provide trained staff to insure that recipients meet stringent income qualifications and do not "double dip." These "good guys" should be applauded for helping police the program. However, there are unscrupulous "fly by night" operators whose practices need to be addressed in this further revision of the Lifeline rules and regulations.

In my capacity as a Distinguished Adjunct Senior Fellow at the Free State Foundation, I have supported reform measures intended to reduce fraud and waste in the Lifeline program, while at the same time recognizing its importance as "A Vital Lifeline." That's why I support both private and public efforts to reduce fraudulent or abusive practices.

Commendably, the FCC already has adopted some politically charged and often unpopular but much-needed reforms to the Lifeline program. Most of these are being implemented apace, and, according to an FCC press release, have already produced over $300 million dollars in savings.

One of the biggest challenges to implementing further reforms has been the lack of a "national database," and just this week the FCC held a database webinar regarding this issue. It is too bad that the FCC didn't follow the suggestion made by me and others to work with other departments of government (HHS, Agriculture, WIC, RUS, etc.) to insure a subsidy recipient is qualified by virtue of some existing program for low-income eligible persons, (for example, free and reduced lunch, AFDC, etc.) and then to check each Lifeline recipient against a national database populated by every Lifeline provider.

Or, the suggestion of requiring a "bond" similar to the construction bonds all road builders pay, in order to be a Lifeline provider and reduce the possibility of these "fly by night" or "tent cities" issuing "Obama-phones."

The FCC should give these and other suggestions, including the one offered by TracFone in its rulemaking petition, serious consideration so that Lifeline can continue to be just that – "A Vital Lifeline" to those Americans most in need.

How in the world in this day and age would any of us apply for a job, respond to a job offer, get a phone call from school about a sick child, or even know to pick up a prescription at the drug store without our mobile device. So if we throw out the baby with the bathwater, we increase the likelihood a digital divide continues and diminish the possibility that our citizens most in need will "graduate" from the Lifeline program to become gainfully employed, tax-paying citizens.

FSF Conference Panel Spotlights Spectrum Policy and Auctions

The Free State Foundation has just released the transcript of the panel session, "The Right Regulatory Approaches for Successful Spectrum Policy and Auctions." This was the third and final panel featured at FSF's Fifth Annual Conference.
In introducing the panel, moderator Richard Wiley, a former FCC Chairman, had this to say:
Senator Rubio put it well that spectrum is a finite asset, but it's also true that there are infinite demands upon that asset.  Today, we can and doubtless will debate as to whether or not we are facing a spectrum shortage or even a crisis.  But clearly there are more and more wireless and mobile devices and services being introduced into the marketplace every day, and therefore more and more demands for spectrum. Now, how these demands could be met, what users, either in government or in the private sector, will be impacted, and how they'll be impacted is something that we want to talk about today.  And it's at the top of the communications policy agenda.
There is an abundance of insight, as well as debate, on display in the panel transcript.

A common theme reiterated by panelists was the importance of keeping participation in the upcoming two-sided incentive auction open to all participants. This theme is also the focus of my June 21 Perspectives from FSF Scholars paper, "FCC Must Maintain Open Eligibility for Incentive Spectrum Auction." That paper builds directly on remarks made by the panelists. FSF President Randolph May likewise addressed this policy imperative in his blog post, "The FCC's Incentive Auction: KISS It." 

The FCC must resist calls to exclude highly capitalized carriers from participating in the auction. Such exclusionary restrictions risk undermining the entire incentive auction. And alternative means for addressing any potential spectrum concentration concerns are available to the FCC post-auction.

Monday, June 24, 2013

Music Royalty Rate Regulation Making a Mess of Things

There's a blizzard of news articles, op-eds, and commentaries webcasting service Pandora's acquisition of a radio broadcast station. The focus is on the impact of the purchase on Pandora's prospective payment of royalty fees to songwriters and composers.
This otherwise unusual purchase is explained by the compulsory licensed, rate-regulated context for music service. Pandora is hoping to gain a more favorable regulated royalty rate for itself by becoming a broadcaster.
Rate regulation regimes can be especially prone to manipulation, arbitrariness, or arbitrage. The problematic underpinnings of the current copyright law's forced-sharing and price-control approach as well as the need for long-term market-based reforms are things that I have touched on in an FSF Perspectives paper, "Putting Music Copyright Policy on a Free Market Footing," and in a blog post, "Unshackle Copyrighted Video and Music Content from Compulsory Licensing." It can be easy to get lost in the complexities of the current system of compulsory licensing and ratemaking system for music. But in sorting out the thicket, public policy should ultimately be aimed toward the restoration of a truly free market under the rule of law.